Supply Chain Risk Management in the Apparel Industry

Peter Cheng, Yelin Fu, Kin Keung Lai

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781315314150
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Apparel is one of the oldest and largest export industries in the world. It is also one of the most global industries because most nations produce for the international textile and apparel market. The changing global landscape drives cost volatility, regulatory risk and change in consumer preference. In today's retail landscape, media and advocacy groups have focussed attention on social and environmental issues, as well as new regulatory requirements and stricter legislations. Understanding and managing any risk within the supply chain, particularly ethical and responsible sourcing, has become increasingly critical.

This book first gives a systematic introduction to the evolution of SCRM through literature review and discusses the importance of SCRM in the apparel industry. Second, it describes the life cycle of the apparel supply chain and defines the different roles of the value chain in the apparel industry. Thirdly, it identifies the risk factors in the Apparel Life Cycle and analyses the risk sources and consequences and finally, extends the importance of selection of the suppliers and develops a supplier selection model and SCRM strategies solution by data analysis and case studies.

1
Introduction

1.1 The apparel industry in Hong Kong

As a major manufacturing and import–export sector in Hong Kong, the apparel industry is composed of 657 manufacturing companies hiring 4,763 workers and 14,630 import–export establishments providing 79,950 positions as of March 2017. Hong Kong’s geographic boundary has never constrained the development of the forward-looking apparel industry. The majority of clothing manufacturers have established offshore production facilities in an attempt to cut down on operation costs. Relocation of production facilities offshore has, however, given rise to a largely steady decline in the number of apparel manufacturers in Hong Kong. Hong Kong is not only a leading production center but also a hub for apparel sourcing globally. Companies doing garment trade in Hong Kong are experienced in fabrics procurement, sales and marketing, quality control, logistic arrangements, clothing designs and international and national rules and regulations. The professionalism that they command and the combined services offered are not easily matched elsewhere. They altogether form one of the largest groups involved in import–export trade in Hong Kong.

Starting on 1 January 2009, textile and clothing products originating in China no longer require any import license or surveillance document before entering the EU. Meanwhile, textile and clothing shipments to the US made on or after 1 January 2009 are no longer subject to any quotas. Under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), the mainland has given all products of Hong Kong origin, including clothing items, tariff-free treatment starting on 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin will enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met. The promulgated rules of origin for clothing items to benefit from CEPA’s tariff preference are basically similar to the existing rules governing Hong Kong’s exports of these products. Generally speaking, the principal manufacturing process of cut-andsewn garment is sewing of parts into garments. If linking and/or stitching is/are required, such process/processes must also be done in Hong Kong. For a piece-knitted garment, if it is manufactured from yarn, the principal process is knitting yarn into a knit-to-shape panel. If the piece-knitted garment is manufactured from knit-to-shape-panels, the principal process is linking of knit-to-shape panels into a garment. If stitching is required, it must also be done in Hong Kong. Hong Kong clothing companies are reputable for Original Design Manufacturer (ODM) and Original Equipment Manufacturer (OEM) production. They are able to deliver apparel articles with high quality standards in short lead time, as foreign importers and retailers request clothing suppliers to tighten up supply chain management to ensure the ordered merchandise reaching the store floor at the right time. Increasingly, Hong Kong clothing companies, the established ones in particular, have shown enthusiasm for brand promotion.

In recent years, traditional apparel markets, such as the US, the EU and Japan, have rendered clothing exporters from developing countries, including ASEAN and Bangladesh, more preferential market access, which has in turn impaired the competitiveness of Hong Kong and mainland manufacturers. Along with rising labour costs and stricter environmental regulations on the Chinese mainland, an increasing number of Hong Kong and mainland clothing manufacturers have relocated their production of lower-end and mass products to Southeast Asian countries like Bangladesh, Vietnam, Cambodia and Indonesia. Their manufacturing operations on the mainland are now focussed on more sophisticated and higher value-added items or urgent orders.

Hong Kong’s total exports of clothing shrink by 10 percent year-on-year in the first five months of 2017 after a 15 percent decrease in 2016. From January to May 2017, Hong Kong’s domestic exports of clothing slid by 46 percent, while re-exports fell by 10 percent.

Among the major export destinations, Hong Kong’s clothing exports to the US decreased by 9 percent in the first five months of 2017, while those to the EU were down by 12 percent. Clothing exports to major EU markets including the UK, Germany, France and Italy fell by 13–33 percent. However, clothing exports to the Netherlands rose by 7 percent. Taken together, sales to the US and the EU accounted for more than 60 percent of Hong Kong’s total clothing exports. Meanwhile, sales to Japan dropped by 8 percent, whereas the Chinese mainland market showed a 6 percent decrease in January–May 2017.

As for products, Hong Kong’s exports of woven wear fell by 9 percent year-on-year in the first five months of 2017. Exports of knitted wear decreased by 10 percent, whereas clothing accessories and other apparel articles declined by 9 percent and 10 percent, respectively.

Hong Kong’s clothing manufacturers have comprehensive knowledge about sourcing and products. They are able to understand and cater to the preferences of the dispersed customer bases. Exporters also have good knowledge of international and national rules and regulations governing clothing exports, such as rules of origin, tariff rates and documentation requirements. Cut, make and trim (CMT) arrangements are common, although many Hong Kong manufacturers have moved to higher value-added activities such as design and brand development, quality control, logistics and material sourcing.

A few well-established local manufacturers have entered into the retailing business, either locally or in overseas markets. Many of them have retail networks with their own labels in major cities around the world including Beijing, London, New York, San Francisco, Shanghai, Singapore, Sydney, Taipei and Tokyo. Some well-known manufacturing retailers include Baleno, Bossini, Crocodile, Episode, Esprit, G-2000, Giordano, I.T, JEANSWEST and Moiselle.

As a global sourcing hub in Asia, Hong Kong attracts a number of international trading houses and major retailers. Buyers sourcing from Hong Kong include American and European department stores (e.g. Macy’s, JCPenney, Federated, Karstadt Quelle, C&A), discount stores (e.g. Sears, Target and Carrefour), specialty chains (e.g. The Gap and The Limited), mail order houses (e.g. Otto and Great Universal Stores) and e-tailers (Zalora and YOOX). Many international premium designer labels – such as Calvin Klein, Donna Karen, Ralph Lauren, Tommy Hilfiger and Yves Saint Laurent – source clothes in Hong Kong through their buying offices or other intermediaries.

Hong Kong’s fashion designers have been gaining worldwide reputation for their professional expertise, sensitivity to current trends and ability to blend commercialism with innovation. In February 2017, four Hong Kong designers, Cynthia Mak, Xiao, Harrison Wong and Polly Ho, were invited to showcase their Fall/Winter 2017 collections at the Show of Fashion Hong Kong during New York Fashion Week. Furthermore, medium to high-priced fashion clothing bearing Hong Kong designer labels is being sold/has been sold in renowned department stores and e-tailing platforms such as Bloomingdale’s, Ferd.com, Net-A-Porter and Macy’s.

In the 2016–17 Budget announced on 24 February 2016, the then-Financial Secretary John Tsang unveiled that HK$500 million has been earmarked to further the development of the fashion industry through (1) strengthening the promotion of local fashion designers and emerging fashion brands in Hong Kong and overseas; (2) establishing an incubation programme for fashion designers, drawing on the experience of other fashion capitals like London, New York and Seoul; and (2) setting up a resource center to provide technical training and support for young designers.

Trade fairs and exhibitions remain common places for buyers and suppliers of clothing to congregate. To establish connections and explore market opportunities, Hong Kong manufacturers and traders have involved themselves actively in international shows led by the Hong Kong Trade Development Council (HKTDC), including the ones in Beijing, Budapest, Chengdu, Dalian, Dubai, Dusseldorf, Hong Kong, Moscow, Mumbai, Paris, Tokyo, Warsaw, Istanbul and Jakarta. ‘Hong Kong Fashion Week’ is organized twice a year and attracts international suppliers and buyers to participate in the exhibition. Organized by HKTDC, ‘World Boutique, Hong Kong’ was the first independent event in Hong Kong dedicated to promoting designers’ collection and brands from around the world. To better align the event with the international fashion trade calendar, the fair, from 2016 onwards, was rescheduled from January to September and re-named CENTRESTAGE, serving as a dedicated marketing platform for international and regional brands, ready-to-wear and designer labels to showcase their collections.

Online shopping is increasingly popular in Hong Kong’s major clothing markets, including the Chinese mainland where there are 467 million online shoppers in 2016. Across the board, clothing is among the most purchased items online. Last year, online clothing sales were estimated to have accounted for 41 percent of the total online shopping turnover on China’s largest online shopping day that fell on 11 November (also called the Single’s Day). Also, a recent PwC survey indicates that Chinese consumers are the most inclined to online clothing shopping, with more than 72 percent of the Chinese respondents saying that they prefer buying clothes through the internet.

The growing variety of online shopping sites such as Taobao (www.taobao.com) in China and ASOS Marketplace in the UK (www.marketplace.asos.com), in conjunction with the bloom of group shopping and mobile retailing, is expected to boost online shopping and sales further. The continuous improvement of third-party payment such as Alipay by Alibaba Group and WeChat Pay by Tencent also helps popularize online shopping. It is estimated that global retail e-commerce sales will more than double from the current level and exceed US$4 trillion by 2020. This trend has also encouraged the development of some online shopping technologies such as virtual fitting, video shopping and mobile snapshot for clothing.

Private or house labels, in essence, have become an increasingly effective marketing tool among garment retailers, especially when many consumers in developed markets still remain conservative in view of the nascent economic recovery. In order to differentiate as well as upgrade the image of their products, major retailers have started to put a stronger emphasis on their own labels. Renowned retailers such as H&M, Marks & Spencer, Orsay, Palmers, Pimkie, Springfield and Kookai have owned their private labels. As consumers desire to have private labels on everyday garments like jeans, accessories and T-shirts, the doors are also open to the supply of these clothing items to private label owners.

Consumers are becoming more practical, thoughtful and socially conscious. The drive to embed sustainability within the clothing industry will likely bring forth new materials and innovative ways of production, while the concept of a circular economy will become more widely applied throughout the supply chain by committing to such ideas as end-of-life collection and closed-loop fashion products to enable the reuse and recycling of textile fibers and fabrics. Against this backdrop, clothing manufacturers have increasingly become certified to traceability standards such as OE Blended, OE 100 standard and the Global Organic Textile Standard (GOTS). Meanwhile, the number of GOTS certified facilities demonstrated a substantial increase from 3,814 in 2015 to 4,642 facilities across 63 countries last year. Reputable clothing stores like Nike, Adidas, H&M, C&A, Walmart and Anvil Knitwear have responded by expanding their assortment of sustainable clothing.

The rapid expansion of mainland’s economy has drawn the attention of both Hong Kong and foreign clothing companies. While some well-established foreign players including C&A, Uniqlo and H&M are seeking to expand in the lower-tier cities, those which are not yet present on the mainland are working hard to mark their inroads. For instance, Victoria’s Secret is about to open a flagship store in Causeway Bay, leveraging Hong Kong as a springboard to go across the border. Going hand-in-hand with the market expansion, Chinese consumers are becoming more fashionable and brand-conscious.

Consumers in mature markets continue to resume spending on fashion products but still opt for items that offer comfort, function and value-for-money – and nothing too radical. Longevity remains an important element, while items with recognizable brands and decent quality are still highly sought-after.

One of the major driving forces of the clothing market appears to be the children in the coming years, particularly in the developed markets. The global market for children’s wear is forecast to reach US$186 billion by 2020. In light of the economic recovery, parents are becoming more willing and able to pamper their children with more exquisite apparel.

Men are increasingly concerned about the clothes which come to their wardrobes. According to Euromonitor, the men’s clothing market is forecast to exceed US$490 million by 2020, up from US$ 411 million in 2016. Moreover, men have been spending more on their outfits each year for more than a decade now, thanks partly to the growing popularity of online menswear shopping that showed an annual sales growth of more than 17 percent between 2010 and 2015.

An ageing population has become a common phenomenon in many developed countries in Europe, Japan and in the US. The United Nations projects that populations aged 60 or over in more developed regions accounts for 22–33 percent of their respective population. Elderly people constitute a major market segment called the ‘silver market’. Supported by savings, social security benefits and pensions, many elderly people have rather strong spending power. A survey conducted by the Japanese government also shows that people who are 60 years old and above possess almost three times the financial assets of those in the 40–50 age group.

The plus-size market has been an area of growth for many years, and the trend is expected to continue, particularly in the US and UK. For instance, it is estimated that the average American woman is about 25 pounds heavier than she was in 1960, whereas the population of obese Americans is forecast to reach 42 percent by 2030. To tap the trend, some renowned brands such as Liz Claiborne, Ralph Lauren, Tommy Hilfiger and H&M have already responded by offering merchandise in larger sizes.

Clothes made of stain-resistant and wrinkle-free fabrics are well received in the market. It is estimated that over a quarter of apparel ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of tables
• Preface
• 1 Introduction
• 2 Concept, application and theory of apparel supply chain risk management
• 3 A subjective method for vendor selection
• 4 Alternative objective methods for vendor selection
• 5 Vendor selection under uncertain preference among evaluation criteria
• 6 Robust supplier selection in the presence of uncertain demand
• 7 Production capacity planning via robust optimization
• 8 A case study in the Hong Kong apparel industry: Hanbo Enterprise Holdings Limited
• References
• Index