Apparel Costing Expertise Means Power in Global Tariffs War
This article originally appeared in FashionUnited on July 18th 2019.
Manufacturing has gotten political. Any fashion company relying on stable and consistent trade will be feeling exposed in the era of global tariff wars. The tariffs proposed by the current Trump administration will tax over 300 billion dollars worth of Chinese imports – a move, according to the New York Times, that is ‘catastrophic and cataclysmic.’
The boardrooms of American, and indeed international apparel businesses, who are producing, sourcing, exporting or have any bilateral relationship with China, are bracing themselves for volatile times as optimised supply chain management reaches fever pitch. New strategies must be put in place to ensure reliable trade, as brands are faced with a stark reality: either to accept a blow to profit margins, move manufacturing elsewhere or stop producing. But strategy requires knowledge and expertise. Because any halt to production, a sudden increase in costs or future uncertainty could spell disaster for the bottom line.
Take a Deep Dive Into Apparel Costing
So what is Plan B? Is it indeed closing shop and redistributing the supply chain overnight? Is it nearshoring and returning to local producers despite exorbitant labour costs? These are turbulent times with little room for manoeuvre where forecasting and prediction won’t solve complex issues. For any sourcing and buying offices, managers, merchandisers, product developers and tech designers facing these dilemmas may do well to take a deep dive into apparel costing.
Product development, like manufacturing, needs to become more agile and technically versatile. So too the value chain is constantly evolving and companies must allow for new and innovative processes and upgrades to unfold. We asked Catherine Cole, CEO of apparel knowledge hub MOTIF, how businesses can adapt to a fast changing and volatile industry, and how important the need is for new and adaptive skills for the greater workforce.
“A company’s competitive advantage is always going to be its supply chain – how the links in the chain work together, respond to customer needs, collaborate, flex and pass information along to the next link in the chain, states Cole. “At the heart of all of this are people and skills sets. As the industry continues to adapt and evolve at an increasing pace, continual learning has to be part of the job. Those companies that invest in their people with professional development will be the ones that stay relevant and competitive.”
“Professional development has never been more important,” says Tom Weidenhoff, Executive Director, Europe, at Alvanon. “We are in the age of ‘exponential organisations’, companies that are entering new industries and new markets, not saddled with decades-old ways of thinking, but with entirely fresh, dynamic and evolving ways of looking at challenges, solving problems and continuing forward to disrupt themselves, their competitors and their customers.
Against a backdrop of ongoing political uncertainty, changing markets and consumer demand, it is vital for brands to re-evaluate their supply chains to safeguard their future and ensure stability.
“It is wise to keep yourself updated with experts on International policy and trade,” says Weidenhoff. “They have inside information and views on rules and policy which “are being cooked”. Consultant and law firms with trade policy specialists in the region / continent are worth spending budgets on to do a risk analysis for at least the mid-term and long-term.”
“Retailers have been diversifying their supply chains for 6-7 years now,” notes Gribbin. “The steady labour rate increases in China have had people looking for alternatives long before the tariff issue has come front and centre.” Gribbin warns uprouting supply chains will be just as expensive or more than staying, given the rush for exiting and the limited capacity in a short timeframe for other sourcing destinations. “Any tariff burden will likely be shared with the manufacturer, brand, retailer and consumer each picking up a portion, rather than one party feeling the entire pain of this new burden. At the end of the day, the most successful brands and retailers will have already diversified their supply chains so that any impact of these political decisions will not have serious long-term effect on either their customers or their bottom lines.”
Non-tariff measures should be as much of a concern to apparel businesses, especially in the age of compliance. Issues such as changing regulations for health and safety requirements, and the ever-stringent environmental standards that apply to products and supply chains must be carefully aligned with corporate responsibility and production processes. In the U.S., especially where laws differ per state, it makes for navigating murky waters.
“Individual states, as per their rights under our Constitution, can enact and enforce different standards in a variety of areas (gun control, abortion rights, smoking in public, etc.), says Gribbin. “We are at a point, however, where entire global industries, like apparel, footwear and accessories, can be penalised unfairly for living up to Federal standards but not meeting a particular state’s recently enacted legislation. In the Costing Course we cannot answer every question relative to every state (the microfiber emissions into our waterways from washing synthetic material garments in our homes is a good case in point) but we can raise the pertinent issues that everyone involved in the design, product development and sourcing teams should be aware of.”
Not Everything Is Quantifiable
“In our Apparel Costing Course, we review various elements and factors that affect costing, some measurable and some that are more difficult to quantify or hidden. Some costs are not easily accounted for, such as a price that may be passed onto the customer for example, that could yet have a long-term impact down the road. Companies should be aware of and pay attention to these subtleties in order to thoroughly assess their consequences on their businesses.”- May Fong, Senior Consultant, Alvanon.
Find out more about how the Apparel Costing course could help your business master the industry’s measurable and immeasurable contingencies.