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The Logistical Impact of Cancelled Orders Within the Fashion Industry

The impact the Covid-19 pandemic has had on logistics within a supply chain might be considered obvious: late deliveries, shortages, cancelled orders, etc. However, lockdowns across the globe have brought to light a lot more than agility issues within a supply chain. The pandemic has highlighted a social aspect to logistical challenges within the fashion industry, and how preexisting practices should be reevaluated to prevent this.

Background

Due to the emergence of “stay at home” culture, usual consumers are not purchasing clothing as often, as it is not considered a necessity during these trying times. Layoffs are occurring across every industry, and many are not able to afford new clothes like once before. This occurrence has left retailers and fashion brands with no other choice but to cancel orders to avoid tremendous losses due to this lack of demand, according to Fibre2Fashion’s article “What Covid-19 has done to the fashion supply chain?”.

To expand on the issue, brands and retailers no longer need the large volumes of materials from their suppliers that they usually require to fulfill demand. To remain competitive, they are cancelling orders that were already placed, thus stopping payments as well. Within the fashion industry, suppliers of materials are often paid after delivery of ordered materials, and this can even occur up to weeks after deliveries are made. Because these payments are made after the goods are finished with production, the suppliers have nowhere to send their inventory and cannot make money off of their finished products, according to Fashion Revolution’s article “The impact of Covid-19 on the people who make our clothes”. Their usual customer contracts have been terminated and they are now forced to hold onto this inventory. This provides tremendous complications for garment suppliers for obvious reasons: loss of sales, cancelled contracts, and excess inventory. However, there is a major problem these cancelled orders cause that might not be as obvious.

Social Concerns

This phenomenon does much more than impact the brands themself; it has exposed a detrimental practice within the fashion industry: the impact of cancelled shipments on factory workers down the supply chain while attempting to manage inventory during diminishing demand periods.

A Bloomberg report mentioned in Fashion Revolution’s article states that due to Covid, over 1000 garment factories in Bangladesh experienced order cancellations that accumulated to almost 1.5 billion dollars. This led to many factory shutdowns, and as a result, workers were left unpaid or laid off. IndustriALL is also mentioned in the article with its findings that large fashion brands and retailers offer their own workers benefits during the Covid crisis; however, the factory workers down the supply chain, such as those in Bangladesh, experience no such benefits. These countries often experience little healthcare, intense poverty, and little unemployment benefits, leading to famine and disease, according to Supply Chain Dive’s article, “Canceled orders, delayed payments: How supplier collaboration could reverse apparel’s nose dive”. Many types of labor organizations have exposed this issue to major retailers and fashion brands to convince them to avoid order cancellations to mitigate this crisis. Target, Nike and H&M are companies that have committed to fulfilling order agreements.

Preexisting Logistical Concerns

The lowered demand and cancelled orders as a result of the pandemic have brought on many other logistical concerns. In Supply Chain Dive’s article “Pandemic pushed fashion brands to prioritize supplier relations in quest for agility”, 31 fashion industry executives were surveyed to analyze pandemic related supply chain disruptions and how fashion companies plan to respond. The article emphasizes the top risks of 2021as shipping delays, disruptions, and rising transportation and logistics costs. The mission for suppliers to become more agile to deal with these logistics problems and to enhance relationships with brands is highlighted. One example of this is suppliers who have factories in many countries, or “super vendors” as the article calls it. This creates a more flexible supply chain, as fashion companies can experience much shorter lead times when investing in relationships with these types of suppliers.

The article “Canceled orders, delayed payments: How supplier collaboration could reverse apparel’s nose dive” references a study by McKinsey that explains the preexisting issues present in the fashion industry’s supply chains. High order quantities are often a benefit to lower costs but cause longer lead times and leave room for little agility in uncertain situations, such as a pandemic. Therefore, the debate of low cost versus flexibility is highly considered as more attention is brought to this issue of order cancellations. To combat this issue of uncertainty, McKinsey offers various recommendations: nearshoring and re-mapping as well as allowing demand to determine the order planning. This involves brands using data analytics to monitor changes in demand each season, then working with suppliers to determine orders based on that information. Doing so is believed to reduce lead times and order quantities and increase order replenishments to become more flexible when demand is uncertain.

Conclusion

Overall, this issue of cancelled orders has brought to light many issues within the fashion industry’s supply chains: reevaluating inventory management, demand tracking, and supplier relationships, as well as aiding in the social aspect of layoffs. As brands evaluate their decisions in cancellations and controlling inventory during periods of uncertain demand, it is necessary to consider not only the impact it might have on the company itself, but the well-being of the downstream suppliers and their employees. Supplier factories are the bottom-line impacted by these cancellations as factories have been shutting down due to excess inventory, little payments, and lack of employees. This phenomenon highlights the importance of strengthened relationships between brands and their suppliers. Better communication involving demand and inventory management as well as support to fulfill contracts is a necessary step in aiding this issue.

Authored by: Julianna Kiefer

References:

Cosgrove, Emma. “Canceled Orders, Delayed Payments: How Supplier Collaboration Could Reverse Apparel’s Nose Dive.” Supply Chain Dive, 21 May 2020,

https://www.supplychaindive.com/news/coronavirus-apparel-fashion-sourcing-suppliers/578403/. http://www.fibre2fashion.com. “What COVID-19 Has Done to the Fashion Supply Chain?” Fibre2Fashion, https://www.fibre2fashion.com/industry-article/8771/what-covid-19-has-done-to-the-fashion-supplychain.

“The Impact of Covid-19 on the People Who Make Our Clothes.” Fashion Revolution, 4 Oct. 2021, https://www.fashionrevolution.org/covid19/.

Lopez, Edwin. “Pandemic Pushed Fashion Brands to Prioritize Supplier Relations in Quest for Agility.” Supply Chain Dive, 23 July 2021, https://www.supplychaindive.com/news/fashion-brands-strengthensupplier-relations-agility/603784/.

Mallon, Jackie. “Browzwear to Open FASH-Tech Training Centers in Pandemic-Hurt Bangladesh & China  .” FashionUnited, FashionUnited, 1 Oct. 2021, https://fashionunited.uk/news/fashion/browzwear-to-open-fash-tech-training-centers-in-pandemic-hurtbangladesh-china/2021092958040.

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