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McKinsey report: garment production returns to Europe

A study recently released by McKinsey & Companys, “Is apparel manufacturing backing home?”, shows that apparel production is rapidly returning to Europe.

The McKinsey research partner is the Institut für Textiltechnik of RWTH Aachen University and the Digital Capability Center Aachen.

In the past decade, cheap labor has prompted China and Southeast Asia to become major production bases for the apparel industry. But this situation is now changing, coupled with transportation and import and export costs, Turkey’s denim production costs are 3% lower than China’s, and the cost of production in Mexico is 12% lower than China’s. McKinsey expert Karl-Hendrik Magnus said: “For some low-cost garments, production near Europe or North America is more important.”

However, Karl-Hendrik Magnus pointed out that the reason for the return of clothing production to Europe is also due to the time of logistics and transportation. Shorter transit times allow fashion companies to adjust to trends faster. Usually, clothing produced in Southeast Asia takes 30 days to reach the Western market, while Turkey takes only 3 to 6 days to Germany.

Achim Berg, a partner at McKinsey*, said that in an era dominated by social media such as Instagram, faster response is a “necessary condition for fashion companies to remain competitive. Consumers have been waiting for a new year’s clothing for a year and a half. It’s already a past tense. Today’s fashion companies must have a flexible organizational structure so that they don’t miss out on fresh information on Instagram, and there’s no shortage of goods.”

According to a research report released by McKinsey in March this year, the important difference between the “winner” and the “loser” in the fashion industry is that the former pays attention to the combination of consumer opinions and suggestions in the early stage of product design. It takes only a few weeks from the design to the sale of the product, which greatly improves the efficiency. It is reported that the industry “winner” product delivery cycle is within 6-8 weeks; and most companies on the market have a delivery cycle of more than 40 weeks. (See: McKinsey Report: What is the difference between winners and losers in the fashion industry?)

“Automation technology” is another important factor driving the return of production to Europe. At present, some garment manufacturing has adopted automation technology, such as laser cutting. In the next decade, automation can save 40 to 70% of production time and further reduce production costs. This means that the time to produce a basic pair of jeans will be reduced from the current 36 minutes to 11 minutes.

A research report released by McKinsey in September 2017 pointed out that apparel manufacturers are about to usher in a comprehensive digital transformation. But Colin Browne, head of supply chain at Under Armour, an American sports brand, gave a different view: the apparel manufacturing industry did not (at least not currently) move toward full automation and local procurement. In the next ten years or more, “the model will be produced in low-cost countries with AI and automation technology.”

Another advantage of automated production is that precise mapping and cutting can reduce waste of raw materials and increase the sustainability of the production process. Most experts in the apparel industry believe that by 2025, sustainability will become an important decision factor for consumers to buy clothing.

Saskia Hedrich, co-author of the “Is apparel manufacturing backing home?” report, said: “The automated production process uses less water, energy and chemicals. The proximity to procurement also reduces the distance traveled and is more environmentally friendly. In addition, the nearest purchase makes more On-demand production is possible, reducing the risk of inventory backlogs.

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