Tahiya Nuzhat Peata
Textile & Fashion industry is facing huge disruption in business as Covid-19 pandemic hit hard the entire world economics. Bangladesh garment manufacturers and workers are suffering greatly and in terror for the upcoming days as buyers are cancelling orders, delaying payment by not confirming deadline, some big brands gone bankrupt, trouble in international transportation, interrupted stream of revenue etc. As the spread of new variants of the virus is increasing, it is assumed that the economic recovery will be delayed further. The significant uncertainty about how the epidemiological and economic situation will evolve, analyzing the duration and the gravity of the pandemic seems undoubtedly tough to identify.
So, in this perilous time, what awaits for Bangladesh textile industry in the upcoming days? How the manufacturers should tackle the challenges and embrace the opportunities by attaining short term and long-term strategic planning? Why risk management in supply chain should be assessed to handle demand-supply balance as it is now a burning issue to be concerned about for the textile manufacturers? This article tried to shed light upon all these questions’ possible answer to give an outlook on the current scenario.
World Fashion Industry & Bangladesh During Pandemic
According to recent data by UNCTAD (United Nations Conference on Trade and Development), the pandemic led to 3% drop in the global trade value in the first quarter of 2020. The global apparel industry, who depend on South Asian countries for their sourcing mostly and also importantly on China for the raw materials and machineries, which is considered as “World’s Factory” for most of the manufacturing hub of the global industries, faced great disaster during Covid-19 pandemic. Bangladesh alone is dependent on China for 50% of its apparel raw material.
The global fashion brands continue to cancel their orders as their stocks pile up. Recent data from McKinsey reports that the value of unsold clothing in the stores and warehouses worldwide ranges from 168-192 billion USD, which is more than double that has been seen before Covid-19 crisis. Based on the changes in market capitalizations over time, the industry’s economic profit fall by 93 percent in 2020 after rising 4 percent in 2019 worldwide. Textile exports from the South Asian nation declined of just under 17%. European Union, which is the destination for 60% of Bangladesh’s garment exports, recorded a significant drop of exports under 19%, the US they fell by 16% and to Canada fell by as much as 25%. Export figures of July 2020 by BGMEA says, Bangladesh earned $3.24 billion from apparel shipment though the amount is 1.98% lower than a year earlier. They also said, COVID-19 created an uncertain supply chain and put $2 billion on hold and more than $1.5 billion worth of garments order have been canceled.
Even though in 2021, the situation has started to see some light, orders have started to come, but it is uncertain again as amount of orders and the price is low and financial growth is not significantly good at all and going on in slower pace. Still some countries are in lockdown, business has stopped, so it is tough to assume how much time it is required to come back to previous state and revive the normalcy in business.
Finding Silver Linings: Action & Planning
In Asian region, very badly affected country in this pandemic could be Bangladesh, as 85% of it’s exports include textile and fashion goods. At the beginning of the corona pandemic, Bangladesh government announced some stimulus packages for the export-oriented industries to mitigate the impact of covid-19 in the economy and workers’ financial crisis. But manufacturers still need to assess the current situation and make necessary steps for tackling the problems.
Bangladesh was already suffering from different challenges, the internal challenges mostly related to the labor and employees’ wages and job security, lack of digitization from production to end product, longer lead time, improper maintenance, financial loss etc. External challenges are related to the supply-demand imbalance, order cancellation or delaying, disruption in sourcing raw materials, price negotiation, improper demand forecasting, lack of risk assessment etc. The Covid-19 scenario made the situation worse than before. Companies should set short term & long-term planning to analyze current state and prepare for the upcoming days to secure their supply chain and business.
Short term actions for solving current problems:
- Workforce & job security: During this pandemic, almost one-third of the total garment workforce has lost jobs. Employment protection in Bangladesh is required in the short term, the stimulus given by government and different international organization to the RMG industry does cover this. Suppliers should discuss with their buyers/brands about possible cooperation regarding support and safety for retaining the staffs and workers and rationing support facilities. For gaining back these jobs and creating new ones, skill development and job evaluation process is also highly needed.
- Transparency in supplier – buyer relationship: Suppliers should communicate with the buyers and emphasize to share revenue losses occurred for cancellation/deferment/withdrawal of orders, also on future procurement practices which must focus on order stability for proper planning, timely payment of orders, and full respect for workers’ rights, thus creating transparent and trust based relationship.
- Smart decision making: To manage ongoing uncertainty, companies need to enable flexibility and faster decision making and balance speed against discipline in the pursuit of betterment.
- Re-evaluating supply chain: Companies should re-evaluate their whole supply chain, identify buffer inventory, logistics capacity, infrastructure and procurement-based issues to get the demand signals for determining required supply further.
- Supply chain risk-Management: Identifying threat and impacts of any disaster or pandemic, making supply chain mapping, correct survival and contingency planning for the upcoming days, based on the company’s loss and profit margin is important to assess for securing future business and to tackle any uncertainty.
Long term planning for the future and grabbing opportunities:
- Digitization and automation: Fashion Brands are already focusing on decentralizing their business in other Asian regions rather than China, which also helped us in getting more orders even before the pandemic, but now we should not take this for granted. It is high time that companies should take initiatives to emphasize on digitization and automation as other manufacturing countries are already making development in this area.
- Diversification of product: Data at BGMEA show that about 73 per cent of the country’s total US$34.13 billion RMG export earnings in the last fiscal year came from five items: T-shirts, Shirts, Trousers, Sweaters and Jackets. It has now identified 51 new products with high export potential and value chain which can be used to break further into non-traditional markets. The present focus for the next five years is on 31 of these products which have an estimated market size of US$132 billion. Historically, these have generated US$7.16 billion in export revenue in FY 18-19. This shows where the opportunity lies for the industry to adapt quickly and grow. So, capacity building and investment for product diversification, research & development is needed to be focused on.
- Adaptation of data-driven forecasting & predictive analytics: Utilizing data instead of following intuition while making business decision is highly required. Clarity and correct mindset regarding adaptation of advanced data-driven demand forecasting, predictive analytics, smart management, IE and waste reduction policy through lean, six sigma etc. will ensure quickest return on investment (ROI) through increased productivity, cost minimization, efficiency and streamlined supply chain management.
Supply Chain Risk Management: Developing Resilience
As complexities and uncertainty are increasing in Covid-19 pandemic time, establishing a strategic supply-chain risk management approach is now a major side to focus on. Most of the companies rely on the temporary reactive measure, but they need to invest more time and resources to improve the risk assessment procedure. Increasing supply chain resiliency, is the current leading theme of globally operating companies. In Bangladesh, manufacturers should focus on developing supply chain risk management strategy regarding pandemic scenario. A PPRR framework can be an effective procedure to follow, which also helps in developing business continuity plan:
- Prevention: Identifying the risk and possible threats incorporating with current and upcoming problems, communicating with every level of a company to point out types of risks during pandemic and taking actions to eliminate those.
- Preparedness: Analyzing data, company insights, finding out impact of supply chain disruptions in inventory, supplier relations, selling and order, sales revenue etc. Then measuring the impact and making contingency plan to focus on the activities according to its level and magnitude.
- Response: Developing response strategies, executing contingency plan to mitigate the challenges and to create unbiased process to decide where to invest and how to control.
- Recovery: Review and monitoring the response strategies for supply-chain risks and identifying resources, actions to shortening disruptions, trigger points to apply the plan should be done to get quickest recovery. Implementing risk-management capabilities as a regular ingredient of business decisions in operations is the first step towards creating a resilient company.
In the logistics point of view, textile industry is a time sensitive sector. It can be assumed that 2021 will continue to be tough for many as the COVID-19 pandemic tracks an uncertain trajectory. The task for textile manufacturers and decision makers therefore, is to find silver linings, keeping in mind that times of change are inherently rich with opportunity. Textile companies that double down on strategy, align with key world business, fashion trends and insights and reflect on evolving with the pace of current technological upgradation and work on correct framework are likely to emerge from the crisis and risk stronger, leaner, and ready to see light and thrive in the next normal.
- BGMEA Export performance
Business of Fashion: McKinsey State of Fashion report 2021