Background

Our client is a fashion industry e-commerce company serving markets across the Americas, Canada, and Africa. They seek a cost-effective, sustainable supply chain solution that covers everything from raw materials sourcing to product manufacturing. The global network of suppliers and manufacturers across multiple countries introduces complexities related to cost, lead time, and varying sustainability practices.

Omega Strategy

Omega conducted a comprehensive analysis of the client’s global suppliers and manufacturers, evaluating key factors such as costs, lead times, and sustainability practices across different countries to identify the most efficient and responsible supply chain solutions.

Suppliers and Manufacturers

Kenya’s textile industry operates primarily under the Cut, Make, and Trim (CMT) model, relying heavily on imported fabrics due to limited local cotton production. While the local textile and garment sector remains relatively underdeveloped and fragmented, Kenya has become a key destination in Africa for foreign investment in textiles, driven by low production costs and favorable investment policies. International brands such as CK, Arrow, Izod, Cherokee, and H&M have established production and processing facilities in Kenya. However, the industry still lacks a mature, integrated supply chain, with many small and micro-enterprises focusing on low-value-added products using basic equipment. Registered companies in Kenya’s Export Processing Zone (EPZ) include 22 large foreign firms, 170 medium-sized enterprises, and thousands of smaller entities spanning cotton ginning, spinning, weaving, knitting, and accessory manufacturing.

China stands as the world’s second-largest cotton producer and largest consumer and importer, with a 2020-2021 cotton output of approximately 5.95 million tons, though it still faces a demand gap. China’s textile industry accounts for about 50% of global fiber processing and 70% of chemical fiber production, exporting roughly one-third of its output. The country’s textile sector is internationally competitive in variety, quality, efficiency, and technology. The first half of 2021 saw a growth in textile exports, partly due to a shift of orders from Southeast Asia to China caused by the COVID-19 pandemic disruptions. However, rising raw material and labor costs have pressured profit margins.

India is among the world’s largest producers of cotton, jute, and silk, with 95% of the world’s hand-woven fabrics originating from India. India’s cotton exports surged by 40% in 2020-2021, influenced by the rupee depreciation and rising global prices. The industrial textiles market in India is valued at approximately $16 billion, about 6% of the global market. The textile and clothing industry is the country’s second-largest employer, directly employing 45 million people and supporting another 100 million in allied sectors.

Cost Allocation

Production costs form the foundation of the product’s pricing, with labor and material inputs directly influencing the quality of the final goods. A key consideration when selecting a manufacturer is whether the factory’s equipment and workers’ skills meet the quality standards the brand aims to achieve. Throughout collaboration with factories, brands often face challenges related to product quality, delivery schedules, and rework times, making it crucial to identify the right manufacturing partner. Effective communication strategies are essential to avoid conflicts and ensure smooth operations. Additionally, production volume significantly impacts factory costs and final pricing. Based on these factors, Omega recommended suitable suppliers and manufacturers.

Fabric choice heavily influences the final texture and feel of a product; however, scarcity and high costs of certain materials often force brands to balance cost and quality. To control fabric costs, there are two primary approaches: one is to align material selection and processing technologies with the brand’s pricing strategy and overall value, making targeted optimizations to manage costs; the other is to first define a product pricing and category framework, then design competitive products that fit within that structure.

Impact

The insights from Omega’s analysis enabled the client to identify and select the most suitable suppliers and manufacturers, enhancing their supply chain’s sustainability and cost-efficiency. The detailed cost analysis provided valuable guidance for managing expenses across different areas, supporting more strategic decision-making and driving overall business growth.

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