Sustainable sourcing at scale still a far-off dream
Sustainable sourcing is fast becoming a top priority for fashion companies – yet a new survey of sourcing executives reveals major hurdles to reaching their goals include a lack of international standards or clear definitions on sustainability, and problems with the cost and availability of materials.
The latest biennial survey of chief purchasing officers (CPOs) by global management consultant McKinsey & Company focuses on sustainable sourcing at scale.
And it finds that while social and environmental sustainability are top of mind for apparel companies, most will need to shift current practices dramatically if they are to deliver true progress. In particular, while close collaboration across the value chain is essential for achieving an industry-wide, sustainable transformation, it remains "a far-off dream."
The vision for the clear majority of survey respondents is that the industry will transition to a much more sustainable model by 2025. They foresee wider use of sustainable materials, an improved ecological footprint, increased transparency, and strengthened supplier relationships and purchasing practices.
But as the report 'Fashion's new must-have: sustainable sourcing at scale' points out, there are some fundamental challenges that lie ahead.
"The industry lacks a common language on sustainable sourcing, let alone a shared set of standards," the report authors say. "But our findings leave no doubt that sustainable sourcing at scale is a must for apparel companies over the next five years – and that consumer demand for sustainable fashion is growing rapidly.
"At the same time, margin pressure is making it even more important for companies to improve the efficiency of end-to-end product development and sourcing processes. As our survey shows, executives see no conflict between this imperative and the drive for sustainability."
The research is based on surveys of 64 CPOs representing a combined sourcing value of more than US$100bn. In addition, surveys were conducted among consumers in four large European cities and with experts, which were supplemented with analyses of online apparel retailers conducted by the research services firm Edited.
Among the findings:
More than half of chief purchasing officers (CPOs) in the fashion industry around the world see sustainability as one of the most important business strategies.
The sustainable clothing offering is growing by five times each year.
But still, the share of the overall market is low: less than 1% of products launched in the first half of 2019 were tagged "sustainable."
International standards regarding sustainability are lacking as well as clear definitions.
The survey shows that 55% of the CPOs asked said they plan to produce at least half of their products from sustainable materials. This is the top priority on their sustainability agenda, followed by transparency/traceability and supplier relationships.
95% of the players producing for the mass market (>US$1bn sourcing value) confirmed that they see problems in availability of sustainable materials.
Almost three-quarters of sourcing executives said they planned to consolidate their supplier base by at least 5% – with this rising to at least 10% among the largest companies – in order to improve sustainability, efficiency, digitisation and speed.
Along with availability of sustainable materials, CPOs see the biggest challenge being the cost of materials. Some 89% of them believe this will be a stumbling block in the changeover to sustainable materials.
However, these additional costs do not always need to be passed on to customers. Studies show that a T-shirt made of organic cotton in the United Kingdom on average costs the consumer even 10% less than the conventional alternative. And jeans made from recycled materials, for example, show an average price add-on of just 1%.
Sustainable sourcing transformation
As if the challenge of making progress on sustainability wasn't enough, companies also need to do it while navigating a volatile, fast-changing environment.
The impact of 'Trade 2.0' – increasing trade tensions exemplified by the US-China trade war, is amplifying country shifts in apparel sourcing. And this, combined with ongoing demand volatility, is pushing companies towards a more flexible, demand-driven sourcing model.
"In the years ahead, apparel companies must shape a robust sustainability agenda that addresses both social and environmental imperatives. And they must deliver it at speed and scale, harnessing innovations in technology, standards, processes, materials and communication."
The survey sheds light on companies' preparedness, plans, and progress in four key areas of that sustainable-sourcing transformation:
#1 – Embracing sustainable materials The share of products containing sustainable material remains low today, but CPOs envisage a major scale-up in the next few years. The majority of those surveyed aspire to source at least half of their products with sustainable materials by 2025. That won't be easy: CPOs cite several obstacles to implementation, including availability, cost, and quality of materials.
#2 – Driving transparency and traceability Apparel companies are under increasing pressure to create transparency on their supply chains and to share that information with consumers – but few companies have yet achieved that transparency. Only half the companies surveyed have transparency beyond tier 1 suppliers. However, eight out of ten sourcing executives have plans to publish their companies' level of transparency on at least tier 2 level by 2025 in the form of supplier lists. Six in ten plan to go further and share information about their suppliers at the point of purchase. Again, the change required will be dramatic. For example, only one in ten companies today shares details on the properties, origin, and value chain of their sustainable fibres.
The technologies that will enable greater transparency are radio-frequency identification (RFID), blockchain, and DNA tagging. RFID has the highest levels of usage today (by 13% of respondents) and the highest expected adoption rate (58%). Blockchain, which is currently hardly implemented (by only 2% of respondents), is also seen as a viable option (50%). Meanwhile, only 30% see DNA tagging of natural materials likely to be used in five years.
#3 – Turning supplier relationships into strategic partnerships In supplier relationships, social and environmental sustainability is taking on much greater importance: two-thirds of CPOs surveyed said it would likely become a top factor in their supplier ratings. This is encouraging garment manufacturers to invest proactively in environmental sustainability, worker well-being and fair wages. However CPOs also recognise that more is needed: collaboration across the value chain is key to achieving an industry-wide transformation in sustainability.
To date, however, the reality has not matched the aspiration, and many apparel retailers and brands are still shying away from making longer-term commitments or sharing strategic plans with suppliers. Around 80% of supplier relationships remain transactional, with a season-by-season timeframe. Suppliers therefore take risks and invest in innovation and sustainability on the basis of a tenuous agreement about the future of the relationship.
One trend that could tip the balance in the overall sourcing equation is an acceleration of supplier consolidation over the next few years. As this happens, environmental and social sustainability performance will become a clear point of differentiation for suppliers.
#4 – Reinventing purchasing practices The survey underlines the fact that sustainable and responsible sourcing has significant implications for purchasing practices, from planning to negotiation to order placement. Two-thirds of CPOs expect sustainable sourcing to add 1-5% to their costs. That is not trivial, as many sourcing executives find themselves under increasing pressure to deliver "more for less," but most also see this as an investment in building competitive advantage.
That said, there are important opportunities to improve the efficiency of internal product development processes, and new technologies such as virtual sampling could unlock a step-change in sustainability as well as in speed, agility and cost.