In the midst of chaos, there is also opportunity (Sun-Tzu)
This is part of the blog series from retraced called „Perspectives on Transparency: Why is it important in Fashion?“ that delves into the importance and impact of supply chain transparency for the apparel industry. This is part III: The C-Level Perspective
Transparency is currently the hot topic in fashion. Unsurprisingly, it has been voted as one of the most thought after topics by today’s fashion executives according to a recent 2019 McKinsey study. Two perspectives - the marketing perspective and the SCM perspective - for its strategic importance for fashion brands have been addressed in the previous parts of the series. However, every CEO will be aware that transparency affects more business units within a company than just marketing and SCM. Naturally, it is a very difficult topic that may lead to a lot of headaches. In fact, one could claim that transparency tackles nearly every part of a company making it difficult to grasp and even more difficult to implement.
Let's take the CEO's perspective to understand why this is the case, how can transparency be managed and based on this how transparency may be turned from a topic of uncertainty to an enabler for change around the whole company.
Introducing transparent and honest fashion to the world will help foster an innovative image for the brand and allow them to stand out from their competition. This does not only allow for a sales advantage through differentiation, but also helps attract talent for the team. Nine out of ten millennials state that they would consider taking a pay cut to work at a company whose mission and values align with their own (LinkedIn, 2018 - Workplace Culture report). This shows that companies who pursue a purpose and credibly back it up, find it much easier to find ambitious talent that is committed to driving positive change. This comes at a time when companies are increasingly competing to attract the best talent available. Fully transparent fashion brands, therefore, have a clear advantage in employer branding over their conventional counterparts.
In other words, transparency helps cultivate a corporate story and culture and allows a company to build a people-centered brand that key stakeholders, in this case employees and potential future employees, will be attracted to.
The political sphere is looking more and more into the fashion industry. The pressing supply chain issues, such as high pollution and inhumane working conditions, have been noticed. As a result, the strong political focus on improving supply chain standards towards more sustainability and raising the accountability of brands for their supply chains instantly puts supply chain transparency into the spotlight. Several European countries, such as France, the Netherlands, UK and others, have already passed legislation that obliges companies to prove that human rights and environmental regulations are respected throughout their whole supply chain. Meanwhile the German federal government as well as the European Commission are working on similar obligations. As governments continue to hold companies accountable for how their production methods look like, supply chain tracing will be the key for fashion brands to prove that they play by the rules and take their responsibilities seriously.
Similar thoughts can be raised towards the discussions around the introduction of carbon taxes and tariffs. In order to get such taxes and tariffs working, it will be crucial to obtain reliable data on carbon emissions and use it to take action for the sake of the planet, and for financial calculations. Getting this kind of data is only possible for those that know their supply chain and how it works. Therefore, investing in transparency, from the CEO perspective, does not only mean becoming an honest brand, but also focusing on proactively mitigating legal penalties in the future.
Not an obvious benefit, but a similarly strong argument for transparency for fashion brands is the financing aspect. Most banks are beginning to shift towards so called “sustainable finance”. HSBC, for example, is offering lower interest rates on loans for companies and projects that can prove that they focus on sustainability and climate change mitigation. An obvious motivator to get started with tracing one’s supply chains.
Despite the obvious benefits, transparency remains difficult to achieve. Transparency in a company is nothing that can be acquired overnight. It requires constant communication within a company and a comprehensive rethink of current work practices. As digitalization continues to become a relevant topic the fashion industry, many brands will need to start from scratch when it comes to implementing transparency mechanisms. But, as for most changes, the journey will be the reward. By discussing and implementing transparency, companies will find out much more about the business partners behind their products and will be able to create much more flexible supply chains.
Besides that, the good thing about implementing transparency in fashion supply chains is that the fashion industry is not the first industry that realize its benefits. The car industry, for example, has understood for a long time that developing strong, digital and transparent supply chains allows them to implement cost-saving ‘just-in-time’ practices and to increase flexibility.
Unforeseen challenges can be the hardest to plan for. Supply chain disruptions in fashion due to global events, such as the COVID-19 (coronavirus) pandemic, can have drastic implications for a brand’s business. As mentioned in a recent Sourcing Journal piece, the current crisis has already revealed “inadequacies in the current operating model” of the apparel industry, and manufacturers and suppliers are likely to feel even more negative effects as demand decreases and orders get canceled. This is the right time for business leaders in fashion to take a step back and prepared for what is to come in the wake of the crisis. CEOs will need to determine the extent of the problems they face and gather the information on parties affected and resources available. This will help them craft a crisis-response strategy to help shepherd the business through the rough seas and be prepared for the likely shifts in consumer preferences to come, as well as the need for more supply chain information. A strategy that incorporates transparency will enable decision-makers to respond and re-tool effectively.
The power of transparency in fashion is its ability to highlight opportunities (both present and future) through the information available in the value chain. It's up to key decision-makers to push the agenda and align the various business units. This may seem more daunting than it actually is. There is already a lot of knowledge available about transparency and some great digital tools available to help to speed up the efficient collection of supply chain data. In other words, there is no reason to re-invent the wheel. CEOs and other top-level executives in fashion don’t need to hesitate to use existing expertise to better shape their corporate strategy, prepare for the uncertainties of the present, and build a first-mover blueprint for the transparency needs of the future.
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