Bringing Back American Manufacturing — Hope and Challenges — Part 1
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In recent discussions with colleagues, clients, and friends — we have all discussed the incredible potential of reshoring domestic manufacturing. The hope and promise of this undertaking is more jobs, shorter lead times, lower environmental impact, and enhanced resilience to systemic failures.
The current pandemic has laid bare what our collective corporate policies have eroded over the past forty years. Outsourced manufacturing has provided record returns for businesses by shaving pennies off each lot of raw materials. Just-in-time and lean manufacturing practices are fantastic tools for improving productivity and reducing inventory costs for businesses. The trade-off that is tacitly accepted is one of increased systemic fragility. No recent market has made this fragility more evident than personal protective equipment (PPE). Critical raw and intermediate materials manufacturing has been moved to Asia with few backups locally. If brands and retailers don’t learn from the PPE shortages caused by remote manufacturing during the COVID crisis, we can continue to see fragility in other supply chains.
Here, we will examine one well known market that has almost entirely completed its export of manufacturing capability: apparel. As an extremely mature market, the textile and apparel industry has been chasing cheap labor for a very long time. Many of the large fabric mills were industrialized in New England but moved to the South Eastern United States in the early 1900s. A century later, we saw a similar flight to Asia.
During the 1990s, supply chains to Asia had become sufficiently established that it made more economic sense to outsource the heavily labor-intensive operations, such as garment assembly. This, combined with significant economic investment from the Chinese government, created an enormous pull to move production overseas (Figure 1). With a demand for intermediate products growing, many of the other inputs to garment production shifted as well. Associated products — fabric manufacturing, followed by fiber production flowed into the booming China economy at greater rate to accommodate the new demand.
Cheap goods and big expectations of growth have stretched supply chains and pushed the economic risks to the smaller entities supplying them. Large corporations have utilized their advantaged position to force vendors to accept their non-negotiable terms. Meanwhile, lead time requirements shrink and payment terms get longer. In order for the upstream supply chain to function on these terms, it requires significant working capital that can vanish in an instant.
Executing a vision of renewing domestic manufacturing requires dedication, persistence, and commitment from not only our government but also our business leaders throughout the supply chain. Just beginning to peel the veneer from the term “reshoring” unveils massive implications from both business execution and governmental policy decisions required for successful transition.
In the following articles, we will explore what a redomesticated manufacturing ecosystem may look like through the lens of the US apparel industry — specifically following a polyester garment backwards through the supply chain to its raw materials. We will examine the changes to business models, product development, logistics, sustainability, and the greater outlook toward a circular apparel economy.
Stepping into a department store is typically the only interaction with the apparel supply chain that most people have. It is the endpoint and the outlet for one or more years’ worth of work to end up on the clearance rack. While historically the US corporations have been leaders, in recent years we have seen notable brands stumble, fall, and disappear completely. International fast fashion retailers such as Uniqlo, H&M, Zara, and others have been aggressively pushing into the domestic US market and competing with great success.
Fast Fashion is the most rapid and streamlined version of an apparel supply chain. What was historically a twice per year product launch, under a Fast Fashion business model, a retailer or brand can now potentially have 52 seasons per year — one for each week. Simultaneously, it is the Fast Fashion business model that has pushed even further for cheap labor. More traditional brands have noticed the success and adapted by having more frequent seasonal changeovers. On top of this, direct to consumer brands, including those that were traditionally retail only brands, reduces the friction of distribution logistics by removing steps to getting products into the customer’s hands.
While it is true that fast fashion business models have been extremely successful, it has shifted a considerable amount of risk upstream to vendors. This typically takes the form of reduced lead time, lower minimum order quantities (MOQ), and longer payment terms. Sometimes these requirements are imposed simultaneously to the detriment of vendors.
Regional manufacturing can aid with some of these supply chain issues to create a more robust means of filling orders and distributing products. This is by no means a one size fits all solution. Each category within apparel needs to assess its own vendor requirements and share the load when everyone is under stress. These additional stresses are multiplied the further upstream the product goes, and if one piece fails, the whole system fails.
