Unchaining the global supply chain

EBCA Presentation

23 April 2013

By/ Martin H. Thelle

Unchaining the global supply chain

Overview

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Unchaining the global value chain

How global

branded clothing is

contributing to the EU economy

Branded clothing value chain

The economic footprint in Europe today

Getting value from the value chain

Policies to maximise economic footprint in Europe

Unchaining the global supply chain

Branded clothing – two main business models

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Retail driven brand (vertically integrated)

Design driven brand (wholesale/collection)

• ‘Fast fashion’ directly to end consumers

• Own retail stores as a core activity

• Very short design cycles

• Very agile supply chain

• “Produce what is selling”

• Design and brand identity driven

• Wholesale is a core activity

• Seasonal design/collection cycles

• Supply chain set-up mainly designed to serve pre-orders on seasonal collections

• “Selling what has been produced”

Examples Annual net revenue, billion €

Typical share in Europe (revenue)

% of total revenue, 2011

Typical share in Europe (number of stores)

% of total retail stores, 2011

Examples Annual net revenue, billion €

Typical share in Europe (revenue)

% of total revenue, 2011

Typical share in Europe (number of stores)

% of total retail stores, 2011

Inditex (€14 bn)

H&M (€12 bn)

Cortefiel (€1 bn)

70%-85% ~ 80%

NIKE inc. (€20 bn)

VF Corp. (€7 bn)

Ralph Lauren (€5 bn)

Levi Strauss (€4 bn)

20%-25% Not available

Unchaining the global supply chain

Branded clothing value chain

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•Brand, product & marketing strategy

•Collection design

•Fabric R&D

•Fitting

Brand & product

development Sourcing Manufacturing Logistics

Sales & marketing

Retail channels

•Demand planning and merchandising

•Planning of production and sourcing

•Sourcing of fabrics and final clothing

•Manufacturing of fabrics and final clothing

•Inbound and outbound transportation

•Distribution center

•Return center

•Market/sales support (regional and local)

•Wholesale / 3rd party distribution

•Customer service

•Marketing execution

•Branded stores (O&O channels and franchise channel)

•3rd party channels (e.g. multibrand stores)

Pre-

manufacturing

Manufacturing

Post-

manufacturing

Value

added

Unchaining the global supply chain

Sourcing patterns in the value chain

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Inside or outside the branded clothing firm?

Brand & product

development Sourcing Manufacturing Logistics

Sales & marketing

Retail channels

In- and outsourcing of key activities for global branded clothing

Retail driven model

“Produce what you sell”

= Fully insourced = Fully outsourced

Wholesale driven model

“Sell what you produce”

Unchaining the global supply chain

Sourcing patterns in the value chain

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Geographical location

Brand & product

development Sourcing Manufacturing Logistics

Sales & marketing

Retail channels

= Fully EU = Fully outside

Geographical location of activities

Unchaining the global supply chain

Quantifying the economic footprint

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Our approach

Economic footprint

Traditional input-output model

New WIOD database

In-depth interviews

Bottom-up value chain

analysis

Unchaining the global supply chain

Key economic findings

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Economic footprint

● 4 million jobs in total in the EU throughout the value

chain

● 2.4 percent contribution to GDP

● 50-80 percent of value added stays in Europe

Impacts beyond GDP

● Lower prices to consumers (27 pct. drop)

● Less spending on clothing and footwear (6.5% -> 5.2%)

● Partly trade liberalisation, partly global value chains

● Benefits of trade liberalisation are passed on to

consumers (on avg. around 60%)

● 27 pct. lower price for clothing is equivalent to

a 1.6 percent increase in real wage

Branded clothing

Unchaining the global supply chain

Value added from a pair of women’s shoes

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Example

Unchaining the global supply chain

Key location factors

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Manufacturing capacity

Fabric availability & prices

Cost of labour

Competences & Quality

Reliability & robustness

Trade policies

Infrastructure & Logistics

CSR compliance

Speed & flexibility

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Key factors driving choice of location for sourcing and manufacturing

Unchaining the global supply chain

How trade policies are affecting value chains

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• Value chain already complex

• Trade barriers add costs and complexity

• Higher costs to consumers

• Less value added in Europe

Choice of where to source from and to locate manufacturing

Decisions of capacity investments

Uncertainty from pending legislation

Overhead costs as e.g. EU and US trade agreements differ

Some products will not be offered

Product design around technical barriers to trade

Some products become very expensive

Trade barriers and policies affect…

Unchaining the global supply chain

Maximising the benefits for Europe

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Trade policy

• Reduced tariffs • TDI reform • Reduction in

technical barriers to trade • Certification • Labeling • Testing

requirements • Harmonization of

bilateral FTAs • More flexible RoO • No reintroduction of

quantitative quotas

•More efficient manufacturing and supply chain

•More price competitive product offering to end consumers

•Increase the companies’ competitiveness both in EU and in other regions where price competition is tough

•Expand the labour intensive and high value added activities in Europe e.g. distribution centers, sales organizations and sales channels (stores)

•Strengthen investments in innovation e.g. in product design and innovation and in sales channels innovation

•Strengthen company profitability and enable increasing investment and growth both in EU and globally

Improving EU trade policies by…

…will have positive impacts from branded clothing in EU through…