The Value of Vertically Integrated Manufacturing in a Post-Pandemic Landscape.
As a result of obstacles faced in 2020, highlighted by the pandemic, brands are now looking to invest more deeply in a smaller number of suppliers, but at the same time asking these partners to bring more to the table.
This emerging trend is evident in the recent State of Fashion Report 2021 that references what brands will be looking for from their strategic suppliers in the year ahead. The list is striking in length and breadth of objectives, including such things as: productivity, optimized inventory management, investment in technology, reduced eco impact, flexibility, collaboration on components, agility, smaller batch production and co-design, and more responsibility for different parts in the production process.
“Wow! Suppliers can’t do it all,” concluded Kim van der Weerd, host of Manufactured Podcast. “But another sobering reality reported is that despite a number of factories shutting down permanently, due to the pandemic, just 17 percent of fashion companies say that they will commit to co-investing in their suppliers to secure future capacity,” van der Weerd shared.
A discussion on the most strategic way forward for suppliers, from a business perspective and also from the perspective of accelerating sustainability, was the topic of of a recent webinar produced in collaboration between The Transformers Foundation and Manufactured Podcast titled, “Vertical Integration and the Sustainable Fashion Agenda,” moderated by van der Weerd.
Executives from three large, vertically integrated manufacturing enterprises shared stories of the advantages and challenges of their businesses within the current supply chain landscape. Panelists included: Ali Abdullah, founder, Diamond Denim, based in Pakistan; Halet Gumussur, general manager at Kipas Holdings in Turkey; and Anant Ahuja, head of organizational development, Shahi Exports, based in India.
Forging a New Path
Diamond Denim by Sapphire Group is one of the largest vertically integrated textile set ups in Pakistan, employing 16,000 people having about 30 production units ranging from spinning, denim weaving, finishing, home textiles, power plants and some others. Founded in the 1990s, the company has evolved to take on more parts of the denim production process. “In 2013, we came to some key realizations about market dynamics,” said Ali Abdullah, who explained that customers wanted to order less, keep materials as low as possible and have decision making closer to market. Customers also wanted to pass along more and more of the selection process to garment makers. To adapt, the firm went forward to garment making and backwards into yarn manufacturing, resulting in increased efficiency and greater influence on the fabric process.
“Doing things at a larger scale is more economical, and more sustainable. Production runs more efficiently and at the end of the day it’s the customer that profits.”
– Ali Abdullah, Diamond Denim
According to Abdullah, vertical integration was a business decision about managing costs, lowering inventory levels, and having total control over the development process. It has also afforded the company traceability of product, an important part of the company’s sustainability practice.
Diamond Denim does all production in a single location, which provides the ability to spread all the production overheads out over multiple parts of the production process. Abdullah counts other advances such as improved team member communication, controlling energy costs and investing in water recycling. “Doing things at a larger scale is more economical, and more sustainable. Production runs more efficiently and at the end of the day it’s the customer that profits,” said Abdullah.
“Fashion trends change quickly and we need to implement production to keep pace. Vertical integration helps us to be flexible and cost efficient,” said Halet Grumssur, general manager at Kipas, a leading specialist in technical yarns and fabrics with spinning, weaving, dyeing and finishing capabilities. But the biggest advantage is a lower carbon footprint. “We grow our own raw materials, we are close to resources minimizing long distance transportation, and we are now managing our reusable, pre-consumer waste,” Grumssur explained.
“Fashion trends change quickly and we need to implement production to keep pace. Vertical integration helps us to be flexible and cost efficient.”
– Halet Grumssur, Kipas
There are challenges, however. Grumussur admits lots of mistakes can happen during production, “and there is no one else to blame but yourself, and solve every problem internally.” He also mentions the time-consuming nature of audits. Mainly customers see only one entity, but that’s not necessarily the case as Kipas Holdings works in six different industries and has 25 factories and 10,000 employees. “A mistake in one place can impact an entire audit,” stated Grumussur, who advocates for a standardized audit. “Right now it’s about doing the same thing in different shapes.”
Thinking Outside the Box
WIth the price of discretionary goods declining, suppliers are finding different ways of adding value that don’t have anything to do with the physical side of production goods. Shahi Exports, for example, has taken on several “soft” services in recent years to remain competitive and grow.
Ahuja not only serves as head of organizational development at Shahi but also as co-founder of the company’s Good Business Lab. “In the public imagination, the brand brings the design aspect to table, and the manufacturer brings execution, but having an in-house team of 100 designers that understands trends, can pitch concepts, and the ability to support brands in their design ideas, is very helpful,” said Ajuja.
“Consolidation benefits environmental and social responsibility in terms of getting Shahi involved in fabric innovation and advancing our cradle-to-cradle sustainable developments, as well putting focus on positive practices for worker conditions.”
– Anant Ahuja, Shahi Exports
What began in 1974 as a small, home-based business founded by Ahuja’s grandmother has evolved to become India’s largest apparel manufacturer, operating 65 factories and three processing mills with over 100,000 employees, the majority being women.
Vertical integration is a plus in business and sustainability. “Consolidation benefits environmental and social responsibility in terms of getting Shahi involved in fabric innovation and advancing our cradle-to-cradle sustainable developments, as well putting focus on positive practices for worker conditions,” stated Ahuja.
The company is currently exploring new partnerships with customers and other suppliers, too. Ahuja explained, “the main idea is having inventory completely controlled. On-demand manufacturing works that way, but we need to figure that out, and how to bring in elements like branding and marketing, so all the things that have become separated over the years, come together in a new model, blurring the line between supplier and brand even more.”