Hot off the press: McKinsey on digitization in apparel sourcing

For quite a number of years, the fashion sector has been in search of ever-more cost efficient locations for production. This is now coming to an end. It appears that China has peaked as a top sourcing country for clothing. For the first time since 2014, export volume from China and Hong Kong has sunk by 8 percentage points. And other large clothing exporters such as Bangladesh, Vietnam, and India are showing lower growth for the first time. Every second chief purchasing officer (CPO) of apparel companies expects that already by 2025, low wages will no longer be the main reason for selecting a sourcing location, but rather the digitization capabilities it offers. 

These are key findings outlined in our study "The apparel sourcing caravan's next stop: Digitization" recently published and presented at the 4th annual global McKinsey Apparel Sourcing Roundtable in Hong Kong, September 12, 2017.

We surveyed for this international study 63 sourcing executives from leading clothing companies around the world who jointly manage approximately USD 135 billion in sourcing value. McKinsey previously conducted the survey with top sourcing executives in 2011, 2013, and 2015.

Digitization lowers costs and shortens lead times in fashion retail

Fashion retail is seeing sinking profit margins, increasing overstocks, and massively changing consumer behavior. Clothing companies need to become quick and flexible when it comes to satisfying the consumers' demands. Digitization offers great potential to shorten lead times and give consumers the products they want to have. This is the case whether it involves selecting on of production locations using advanced analytics, technological collaboration with suppliers, or producing virtual prototypes. A majority of the CPOs asked expect that digitization will help lower their costs by approximately 5 percent and cut sourcing times by two to four weeks. Digitization is seen to have the largest impact on end-to-end process management: 83 percent anticipate that it will lead to quicker decision making, fewer errors, and increased customer orientation.

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