Supply chain and cashflow: two keys missing from the CFDA's fashion system report

Last week, the CFDA and Boston Consulting Group released the results of a study about the future of the fashion system, entitled Examining the future of New York Fashion Week. There's currently a lot of anxiety in the fashion world and many corners of the industry are doing some soul searching. The goal, according to the report, "was to question the status quo for our market, stimulate a dialogue in the American fashion industry and move towards long-term solutions together." BCG interviewed over 50 industry stakeholders and came back with a handful of recommendations, from changing when retailers see new collections to how the press writes about them.

An outdated supply chain

But two tenants of the fashion system were barely mentioned: supply chain and cash flow, which are deeply intertwined. The report even admitted this much, saying, "This model does not imply any compression or compromise in the manufacturing lead time or additional inventory risks." The FAQ at the end of the report goes further:

Will designers need to manufacture in advance and take inventory risks if they decide to have in-season events? No. While there may be benefits to brands from manufacturing lead-time reductions, the currently envisioned model does not necessitate changes to manufacturing lead-times. Orders would still be placed 4-6 months before store deliveries during more intimate buying appointments / presentations. This will not compress current manufacturing time and thus neither impact quality, nor force designers to take inventory risks.

Many CFDA-represented brands operate with an outdated supply chain. Going from idea to finished product in stores can take anywhere from 6-12 months, which means that significant sums of cash are tied up for just as long. No wonder they are struggling to figure out a path forward.

On one hand, it makes sense that the report didn't touch on these issues, since the CFDA is primarily concerned with Fashion Week and the frontend aspects of the industry. That said, the back end—specifically supply chain and cash flow—drives the front end of the industry. Looking at both sides separately limits the scope of inquiry, which is why the recommendations in the report are just the tip of the iceberg. The current state of the fashion system is a direct result of the industry's inability to look at these issues in tandem.

Fast fashion's innovation

The report also mentions fast fashion as a catalyst for copying and ephemerality. The logic is as follows: a brand shows something on a runway that won't be out for six months; then a fast fashion retailer produces it in a few weeks and beats the original brand to market (and on price). This opinion is easy to come by when only looking at the the copying—the front end of fast fashion. But fast fashion's back end is the most fascinating part, where brands like Zara and H&M can draw a garment on paper and have it in stores three weeks later. Three weeks! This is the real revolution of fast fashion. These rapid lead times, which create immense amounts of free cash flow, allow fast fashion brands to thrive.

More specifically, fast fashion has solved the biggest hurdle of the supply chain: fabric procurement. As I've written before, fabric is the foundation of the supply chain. Without it, you have nothing. Fast fashion brands figured out that they needed to procure fabric before they designed the garment. This is a radical idea. Order something before you know what you're making? No way. But when fabric lead times are often a dozen or more weeks, something has to give.

This contrarian approach called for first stocking basic and maleable fabrics, and then customizing them once the designs are complete. Fast fashion brands started buying loads of fabric and then decided what to do with it. This alone cut their lead times by up to three months, and they accomplished this efficiency by changing their own procurement process, which they control. Yes, this requires laying out cash upfront for fabric, but the theory is that this still leads to shorter net lead times, which is the goal.

Once you have the fabric, the rest of the process moves rather quickly. Cutting, sewing and finishing can happen in a matter of days if the factory has the scale. But fabric mills are still moving at glacial speeds, which is why the fast fashion industry took the matter into their own hands and decided to adjust.

Instead of complaining about fast fashion, brands should try to emulate their supply chain. This is not easy, but shortening lead times and strengthening one's supply chain is probably the best investment a brand can make.

Inventory risk

The report cites inventory risk as another externality of an evolving fashion cycle. From the same FAQ as above:

Will designers need to manufacture in advance and take inventory risks if they decide to have in-season events? ...This will not compress current manufacturing time and thus neither impact quality, nor force designers to take inventory risks.

This misses a crucial point: if you fix supply chain and lead times, you're also minimizing your inventory risk. If you can make a product in one or two months instead of six or eight, you no longer need to hold as much inventory and tie up as much cash. Now, you can put better data and forecasting to use by minimizing your upfront risk. Improving the supply chain has the ability to create a virtuous cycle that positively impacts every part of the business.

This report is an okay start, but it does not go far enough to affect real change. That will only happen by diving beneath the surface to examine the entire system and the players within it. Fast fashion questioned and adapted what many considered fundamental truths of the fashion system, and is thriving. Now it's up for the rest of the industry to catch up.