For decades, outsourcing manufacturing has been the default setting for apparel brands. It’s cheaper, it’s faster...it's a no-brainer. But then a global pandemic happened—and all of a sudden, onshore became the new offshore.
Stymied by factory shutdowns, a reduced workforce, and production delays, manufacturers around the world have been operating under challenging conditions since COVID-19 arrived on the scene. When PricewaterhouseCoopers (PwC) surveyed CFOs in the manufacturing sector in 2020, 53% said they expected the COVID-19 pandemic to impact their operations. More than 70% cited a financial impact as their primary concern, while 41% were concerned about a reduction in productivity and 23% cited supply chain disruptions.
PwC’s recommendation for these beleaguered CFOs was to gain “a keener, real-time situational awareness of your supply chains, especially those affecting critical materials and components.” But that “awareness” is hard to achieve when your production is scattered across continents.
'Made in the USA' can represent many narratives, including a commitment to American jobs, high production quality, and a more transparent supply chain.
Manufacturers were actually starting to reconsider the offshore approach before the pandemic, as its economic advantages aren’t as compelling as they used to be. Couple that with potential global supply chain issues like currency fluctuation and a reduction in production quality, and it’s no wonder global consulting firm McKinsey & Company reports that 79% of apparel brands could switch to nearshoring by 2025.
For some companies, this change isn’t just about bottom lines—it’s also about brand identity. “Made in the USA” can represent many narratives, including a commitment to American jobs, high production quality, and a more transparent supply chain. The trend is so popular that the Federal Trade Commission had to issue a reminder about the rules surrounding this coveted label.
The topic also got attention at an even higher level of government. After making a return to American manufacturing a cornerstone of his campaign, President Biden is increasing domestic production with his infrastructure and jobs plans, and has announced that he plans to impose a tax penalty on certain profits from offshore manufacturing (and tax credits for companies that create jobs in the US). He also dispatched his administration to audit supply chains in a number of industries. As a result, he proposed a plan to boost domestic pharmaceutical production after supply chain woes revealed extreme vulnerability in the system.
79% of apparel brands could switch to nearshoring by 2025.
Although the supply chain spotlight started with pharma, it’s also part of the conversation in other large, offshore-reliant industries—like fashion. A number of apparel businesses have already made the decision to onshore, not just for potential financial incentives, but also because of sustainability concerns. In its State of Fashion report, McKinsey and Company notes when it comes to sustainability, “fashion players need to swap platitudes and promotional noise for meaningful action and regulatory compliance.” Bringing manufacturing closer to home is a good start.
Joel Limenes, VP of Supply Chain at CreateMe, gave another reason why we’re seeing increased onshore manufacturing in the apparel space—and it’s a big one. “Reshoring and nearshoring allows for reduced end-to-end lead times for both commercialization and production,” he notes. In other words, by enabling brands to be closer to market, reshoring ensures they’re better able to adjust to changes in consumer demand and distribute their merchandise more efficiently. In a fast-paced, consumer-obsessed industry like fashion, that’s invaluable.
Rigging the Supply Chain for Speed
It’s always been important for brands—especially those catering to a younger, trend-chasing customer—to take new designs from production to testing and retail stores fast. After the pandemic brought every supply chain risk to fruition, brands were left unable to do so. As Limenes points out, onshore production provides ample opportunity to move fast, with lots of cushion for risk. The closer the manufacturing facility is to the end customer’s market, the less friction there will be in the production and shipping process, and the easier it is for brands to manage the supply chain.
“A nimble, agile supply chain is integral to reducing lead times and manufacturing timelines,” says Limenes. “And onshore production offers other benefits to the supply chain, from reduced transit times for both raw materials and finished products, to reduced minimum order quantities, markdowns, inventories, and liabilities through just-in-time manufacturing.”
When brands and manufacturers collaborate more closely, they can minimize supply chain inefficiencies. And when companies can reduce the number of potential delays, miscommunications, and stock returns, everyone wins. But it’s not enough just to bring production closer. The Wall Street Journal reported on three emerging trends that will “not only carry manufacturing out of the current doldrums but to new prosperity.” Ranking #3 is “technological advancements that level the playing field between the US and countries with lower labor costs.”
This is where automation comes in, making onshore manufacturing both feasible and sensible. “With progress in data analytics, the low cost of cloud computing and artificial intelligence, the factory is evolving into a new age,” The Wall Street Journal writes. And it’s not just cost savings that seal the automation deal. Safer factory floors, rigorous quality control, better environmental records, and higher employee satisfaction (and lower turnover) are more big pluses for automating certain production processes.
Consumers Want Fashion, and They Want It Now
Fast fashion has compressed production cycles. Consumers now have access to apparel faster than ever, and their expectations have adjusted accordingly. Supply chain agility and manufacturing speed are crucial to attracting these customers and maintaining their brand loyalty.
“A key enabler of quick manufacturing turnaround is having a quicker product commercialization process and the right supply chain partnerships and relationships to accomplish this,” Limenes says. “The logistical advantages of nearshore and onshore manufacturing facilitate this as well.” Because US facilities allow for quicker turnaround times, US-based companies can quickly replenish inventory and make multiple deliveries of a fast-selling product within a single season. Brands benefit from increased sales, while consumers get uninterrupted access to the clothing they want. Those brands that manufacture onshore can quickly replenish out-of-stock colors and sizes, while offshore competitors often fall victim to production and shipping delays.
“Consumers benefit by being able to receive their products faster and by being on trend,” Limenes says. “Apparel brands that can deliver quickly have a perceived value addition, maximizing key moments and micro-moments in the consumer’s cultural and personal calendars.”
The Pandemic Changed Consumer Sentiment—Forever
According to a study conducted by Boston Consulting Group, COVID-19 impacted the way consumers think about fashion. “The behaviors, preferences, and shifts in mindset that people have adopted during the pandemic will lead to permanent changes, including bifurcated spending, accelerated adoption of e-commerce, and increased demand for purpose-driven brands and sustainable fashion,” the company explains.
Moving forward, the change in consumer sentiment will be palpable. Consumers will be more choosy, will expect more from brands (including sustainability and social consciousness)—and will be shopping more both online and on social media. By reshoring, apparel brands put themselves in a good position to deliver what consumers need and want from fashion post-pandemic.
The Wall Street Journal notes that “there is more reason for hope in manufacturing than at any time since the 1990s.” We can expect to see the reshoring trend continue to grow as companies prioritize production speed and market agility. Between the workforce quality and highly skilled labor available in the US, the potential cost savings to manufacturers, and the ongoing development of the onshore manufacturing infrastructure, investing in onshore manufacturing is a virtually failsafe strategy for refashioning the future.