As we all know, the fashion industry has been under public scrutiny over the past few years to improve its environmental and social impact. This pressure has led fashion retailers to shift significant costs and responsibilities to their upstream supply chain in order to safeguard their reputation.
Today, we will deep dive into a case study where the Baga Yaga team assisted a fashion trading company in its sustainability transition using a Q&A session. This company is a Chinese SME that has been established for more than ten years and produces and exports clothing for mainstream clothing retailers such as Guess, Target, and Primark. Its production is closely coordinated with multiple strategic partner factories. These factories include several Tier 1 garment production factories and nearby Tier 2 fabric processing factories, responsible for processes such as dyeing and knitting.
🎙: What challenges are Chinese fashion trading companies facing today?
🧙🏻♀️: Vietnam, India, Bangladesh and Cambodia’s garment manufacturing are becoming more prominent with lower rent and labour cost, which enables the large international chain stores to take advantage and push their supply chain partners for extremely competitive prices without long-term production commitments. Each medium-to-large fashion chain has anything between a few hundred to thousands of factories in their supply chain without any long-term commitment. Each order and each season is a race.
🎙: What challenges do SMEs in the fashion trading industry typically face?
🧙🏻♀️: In the past years, fashion brands and retailers are putting more pressure on their supply chain to comply with increasing social and environmental audits such as WRAP, BSCI, FEM, FSLM, to name a few. Each client might have a different audit requirement, and this is mounting financial and operational pressure on to small and medium sized factories – we call this audit fatigue. As an SME fashion trading company that works with multiple small to medium sized factories, the trend of increased compliance requirements becomes unsustainable in the long run as it does not bring any additional business value to either party.
💡When we think about sustainable fashion, most consumers only think about the sustainability of the raw material. In fact, fashion’s supply chain has a far more significant environmental impact than we imagine.
According to a report published by the Apparel Impact Institute, 70% of the GHG emissions come from the production of textiles, only 22% are attributed to the raw material cultivation and extraction.
🎙: What strategy did Baba Yaga come up with to improve this client’s situation?
🧙🏻♀️: To overcome these challenges, the fashion trading company has to ensure that factory operations meet social and environmental standards to the highest level for major retailers like H&M, Zara, and Gap without audit fatigue. We started working with the factories the client was working with, to map all of their existing audit requirements and create a comparison between them. We identified several opportunities to reduce the number of audits given the overlap in audit content and framework. Secondly, we reviewed the scores and ratings for the factories and helped them build a strategy on how to create achievable objectives to improve their audit scores over time to stand out from the competition.
🎙: What other issues did Baba Yaga identify during the improvement process and how were they resolved?
🧙🏻♀️: While working to enhance the factory’s comprehension of audit requirements, we discovered a critical issue: the factory’s self-assessment data were inconsistent and unreliable. We significantly enhanced the factory’s data quality, ensuring more reliable reporting for both internal decision-making and client needs.
🎙: What outcomes have been seen so far?
🧙🏻♀️: In the past, this fashion trading company was heavily dependant on several key clients from the US. This dependency created a massive risk to the company at times when political and economy stability is challenged. In the past two years, our client has been able to obtain at least 3 new medium sized clients in Europe due to their improved sustainability performance. Through building a wider and more diversified client base by including medium sized brands from other areas, we mitigated the commercial risk of relying on few key large clients.
In addition, the relationship they have with their clients that make up more than 55% of their production has improved significantly. Today, they are part of the strategic partner’s group of producers for one of their key clients. This meant that the factories have started to benefit from larger production budgets per season, commitments to orders in advance, as well as invitations to take part in sponsored programs where their clients support the factories in implementing technical solutions that can help them achieve further energy efficiency and savings.
