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Mongolian brand Gobi Cashmere sources its raw materials from the provinces surrounding its factory in the capital Ulaanbaatar. The distinct environments — ranging from dry deserts in the south, to the lofty Altai mountains in the west and the expansive lakes in the north — influence the colour and quality of the cashmere. Its line of undyed organic cashmere, which makes up a third of sales, differs in colour accordingly, requiring less water, chemicals and energy to produce.
Gobi Cashmere is one of a growing number of brands looking to localisation and vertical integration as a USP and to improve traceability of the fashion supply chain, while new legislation looms. It’s a blueprint others in the industry would do well to follow, experts say. “Most fashion supply chains are these big, opaque, complex structures where it’s hard to even see who’s in your supply chain, let alone where the risks might be,” says Donna Marshall, professor of supply chain management at University College Dublin. “We’re advising companies to shorten and de-complexify their supply chains.”
But it comes with a warning: relying on one or a small number of locations for sourcing and manufacturing is risky. The key to success with this model is knowing how much to diversify.
Sourcing so close to home allows Gobi Cashmere to vertically integrate its production, meaning it has complete control over every stage in its manufacturing process. It is one of five vertically integrated cashmere factories globally, and the only one based in Mongolia, according to the company. “Vertical integration empowers us to maintain control over quality and sustainability, providing better value to our customers,” says managing director Amarsaikhan Baatarsaikhan. “The absence of middlemen enables us to offer superior products at a more reasonable price.”
Elsewhere, the ban on cotton sourced from China’s Xinjiang, which was implemented over concerns about forced labour, has added a sense of urgency around cotton traceability. AGI Denim is based in Karachi in the Sindh province of Pakistan, and sources its cotton primarily from there as well as the Punjab province. It sources around 50 per cent of its raw materials from Pakistan and is among the first suppliers in the country to procure organic cotton and regenerative cotton, on top of developing systems for recycled yarns. The rest of the cotton is sourced from the US, Brazil, the Ivory Coast, Tanzania, Australia and Turkey. All of its facilities are within a 10km radius, with the cotton farm just 120km away.
Alongside traceability, another significant benefit of local sourcing is much shorter lead times. “If I purchase the [local] cotton today, I can have it in my warehouse tomorrow,” says AGI Denim’s executive director Ahmed Javed, who — together with his brother Hasan — runs the company founded by his grandparents in 1949. The reduction in transport costs as well as carbon footprint are both huge benefits, he adds.
Diversifying and de-risking
For AGI Denim, the split between local and imported raw materials depends on a number of risk variables. “Last year with the floods [in Pakistan], we definitely skewed towards imported cotton — I think it went up to almost 65 or 70 per cent. This year has been more local because eight harvests have been good and the exchange rate [in Pakistan] is good,” says Javed.
Harvest periods in the US, Brazil and Australia differ, with variation in quality across regions meaning cotton often has to be blended to improve the overall fibre quality. “Local [Pakistani] cotton has to be procured in the space of three to four months, during harvest season between June and September or October. But you can’t buy 12 months of inventory in the space of four months, that would involve huge finances, insurance risk, warehousing space, so we buy around 50 to 60 per cent of the cotton and store that for the rest of the year,” says Javed.
Brands must weigh up the advantages of localised sourcing against the risks of relying too heavily on a small number of sourcing markets, especially given the rise in climate change-driven extreme weather events. “If something happens [like the floods in Pakistan], how do you diversify and build capacity somewhere else in the world?” says Marshall. “Companies should plan for scenarios and have a team focused on issues that may come up to avoid those risks,” she says.
In addition, being beholden to one country relies on sturdy local policies, for instance around energy use and decarbonisation. Pakistan, for example, is particularly reliant on coal and there’s been a lack of investment from the government on renewable practices, says Marshall.
AGI Denim, which is the first B-Corp certified company in Pakistan, has had to adopt a proactive approach to surpass the local reliance on oil and gas. “We are keenly aware of evolving foreign legislation, with a key focus on EU legislation. Our proactive approach aims to stay ahead of such developments,” says Javed. AGI Denim aims to reduce its carbon intensity by more than half by 2030, has enlisted consultants to calculate its Scope 1, 2 and 3 emissions, and has set Science Based Targets for achieving net zero emissions. In 2021, the company installed 2 megawatts (MW) of solar capacity and plans to add an additional 2 MW in 2024, which will mean that 20 per cent of the energy it uses is renewable.
Gobi Cashmere works closely with Mongolian herders to ensure its sourcing is ethical and responsible. “Full control over manufacturing allows us to deliver high-quality final products while upholding sustainability standards,” says Baatarsaikhan. “Cashmere is a treasure that is inherited from the nomadic culture of our ancestors. Nomadism prioritises the relationship between people and the environment, which makes the concept of incorporating sustainable development not all that new for us.”
The pros and cons of vertical integration
Luxury brands have been snapping up their suppliers over the past couple of years, recognising the benefits of preserving skills, greater transparency and protecting their supply of raw materials. “Right now everyone’s talking about where their garment is from and how their clothes are made. With a vertically integrated supply chain, you can ensure that all the cotton we’re buying is from a certain destination and you’re not going to end up with the final product where you don’t know where it’s sourced,” says AGI Denim’s Javed.
The only parts AGI denim doesn’t control are the farms and the ginning, when stems, soil and other debris from the cotton plant are removed. After the ginning process, once the cotton reaches AGI Denim’s facilities, it goes through an inspection, a spinning stage to create the yarn, then the yarn is dyed and woven to create the denim fabric, before the fabric is received by the garment factory to be cut, washed and sewn into the final product.
It is much more efficient, says Javed. “In a day and age of speed, we can literally be from farm to shelf in 70 to 90 days. It’s cheaper for a brand to source everything vertically and keep everything in-house, too. There are supply chain models where companies like us produce the fabric then ship it to Bangladesh or Vietnam to produce the garment, but that’s costly and adds four to five weeks onto the time. With everything being done in-house, if there’s a problem with the fabric [when undergoing the garment production], I can literally just call up my brother and sort it out internally,” he says.
However, the amount of capital investment and human resource required to build a vertically integrated supply chain can be prohibitive. There are other challenges; for example, when it comes to recruiting. “You’re dealing with a limited pool of talent compared to companies with supply chains in different destinations who have access to different pools of labour with different skill sets,” says Javed.
Gobi Cashmere’s Baatarsaikhan adds: “Challenges [with vertical integration] arise in ensuring consistent sales to sustain our factory and support over 1,300 factory employees throughout the year. We need to plan and have enough work to keep our employees employed all year round.”
Still, proponents say vertical integration gets to the heart of some of fashion’s biggest supply chain inefficiencies. “One of the biggest weaknesses with a lot of big brands is that their supply chains are so complex that there’s risk everywhere in their supply chains, without that knowledge and relationship management,” says Marshall. “Vertical integration is one way of trying to take some risk out of your supply chain, because the more control a brand has over the variables in their supply chain, the easier it is to make sure they’re doing the right practices.”
Vertical integration can also enable a stronger relationship with suppliers. “Particularly in fashion it’s a very exploitative industry,” says Marshall, referencing the wage protests in Bangladesh. “The more exploitative the industry is, the more it sews seeds of labour unrest throughout the supply chain and takes away resilience and builds risk.”
Marshall worked with a company recently that switched the name of its procurement department to the relationship management department. “It’s a change in attitude to respect and listen to suppliers rather than crucify them over price, and these small changes can have huge impacts in terms of financial performance and operational performance,” she says. “It’s these relationship management processes that build trust and show commitment so that you can lead with your reputation and values — things that don’t actually cost anything but have the biggest impact on profitability.”
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