The Business of Fashion’s invitation was irresistible: would you like to write a column on supply chains? I did not hesitate, but I wondered, is this like being invited to the Met Gala? Will I be seated at a table in the far end of the room, and maybe arrive through the service entrance? Isn’t that the status of supply chains in today’s fashion industry conversation?

The editors at BoF have something else in mind, and so do I. Supply chains get the attention of senior management when congested ports put holiday sales at risk, as we see today. But business leaders often fail to see their supply chains as a source of brand and market value.

This column is titled First Mile, a deliberate counterpoint to Last Mile. Brands spend countless hours figuring out the optimal way to get an online order delivered to a customer’s home, the so-called last mile. They spend considerably less time on reducing the risks at those same products’ origin — the first mile. The first mile is upstream, where design, materials, labour, production and transportation originate. These areas are poorly understood as opportunity and under-estimated as upside by brands and investors.

This is not a column about five-year plans for incremental, operational improvement. If I were a CEO whisperer, my word to whisper would be “manufacturing.” The response might be confusion, or maybe the hiring of a new advisor. CEOs, and the merchants and marketers that work for them, excel at downstream expertise, the consumer engines that drive sales, revenue and valuation. It is a given that supply chains are managed for cost, quality and service, not value creation. Indeed, most retail executives are buyers of ex-factory goods, negotiators of price and margin, and think of production as commodity knowledge. “We create value and bond with customers” is a common conceit. That embedded cost mentality ignores levers for value and risk that materially affect business performance across all tiers of the supply chain.

Fashion must get a better handle on the power of supply chains. Why? There are several reasons.

First, economics. In a decade of Stanford research, professor Warren H. Hausman and I have estimated increases in market capitalisation of 30 to 40 percent for retailers from supply flexibility; that is, the ability to respond rapidly to market demand closer to season, and at far less risk. This approach recognises the high costs of markdowns, lost sales and working capital over lowest costs alone. This magnitude of benefit is meaningful in an industry that is low profit, low growth and low tech, and where 90 percent of sector profitability is held by a small number of successful retailers, according to McKinsey.

Second, sustainability. This generational concern has forced the problem of excess inventory into the open: it’s hugely wasteful but, worst of all, it’s a sinkhole of capital that must be recovered to re-invest in areas related to sustainability. These areas, in BoF’s own Sustainability Index, are largely upstream: emissions, water and chemicals, transparency, worker’s rights, materials and waste. But they are driving consumer behaviour and must be incorporated into brand identity. A green label and organic components are not enough.

Third, ESG metrics. These non-financial measures — environmental, social and governance — are increasingly important to the financial community. Cowen and Co. has declared a tipping point on their significance, noting that 50 percent of investment funds now require these metrics. Finance is a force for change, alongside Gen-Z consumers. Retailers are accountable and must compete for capital across industries, just as fashion goods must compete with iPhones.

Fourth, competition. How do you compete with manufacturers who sell directly to international markets? Shein, with its tightly coupled media to manufacturing capabilities, eliminates high inventories and so needs not rely on high margins. Manufacturing, not branding, is what sets them apart and they are no longer dependent on traditional Western retailers for access to affluent markets. Brands don’t need to remake themselves in Shein’s image to remain competitive; rather, whether they are Prada or Primark, they must engage in process innovation to reduce end-to-end risk.

Fifth, creativity and beauty. Yes, that’s the standard. In his book, Resurrecting Retail, fellow BoF columnist Doug Stephens outlines store, consumer and merchandise experiences that drive success. I often think of Stephens as yin to my yang; that is, downstream (consumer) versus upstream (manufacturer). But brand authenticity must embrace both in the story told at point of sale. The challenge of fashion is to create and share value across partners and to impact workers and their supplier communities. It is a mighty task in which consumers want to participate. Social impact is additive to brand value, premiums and identity. Every brand must do its part and have a clear proposition in answer to a generational question: how do I build a better world?

Does the landscape of First Mile represent a thesis for value and a theory of change? Yes, and it is this: process innovation, data availability and analytic tools that have primarily been used by fashion brands to find customers and convince them to buy more products will migrate upstream. The First Mile is a vast opportunity for advanced technology. These forces of investment will unlock essential capital in a culture that is gridlocked in adversarial buyer and supplier relationships. It is shared risk over cost alone. It is relational vs. transactional. It is a new equilibrium for the world’s most globalised, most complex and most inefficient supply chain.

John Thorbeck is the chairman of supply chain analytics firm Chainge Capital LLC.

Related Articles:

How Fashion Can Tackle Its Supply Chain Crisis

Fashion’s Last Mile Opportunity — Download the Case Study

Risk, Resilience and Rebalancing in the Apparel Supply Chain