Received a small loan and paid in cash 13 months later… Looking back, it was a loss.
Comprehensive competitiveness in financial, information, logistics, and price is essential.
July 2024, issuance of work instructions (Technical Package) → QC sample provided within 1 month → Internal evaluation meeting – September order (Approval) → Fabric development & BT & auxiliary material setting (40-60 days required) → Second QC with PP sample (Pre-production sample) in mid-November (usually 3-4 revisions and then approval) → Production launched in December-January → Top of production, shipment sample QC and then shipment → Delivery in February-March → 90-day B2B electronic bill payment at the end of the month following delivery (if delivered in March, payment at the end of May) → Cash conversion at the end of August 2025
This is the production schedule of a product recently carried out by a clothing manufacturer.
“Last month, when we delivered, we informed them that we could no longer process orders. Even a single order is regrettable in these difficult economic times, but it’s impossible to make a profit with this method of transaction.”
This was the complaint of CEO A of a casual clothing manufacturer I recently met. CEO A stated that the company, a listed company with annual sales of 1.5 trillion won and a leading domestic fashion company, had traded with the company despite the difficult COVID-19 situation, expecting mutual growth. However, he was left with no choice but to give up when trading conditions deteriorated further.
Representative A stated, “While the basic production volume of 3,000 to 5,000 pieces per design was attractive, the standard three to four rounds of QC, even for a low-priced product, were challenging. Even worse, excessive QC delayed orders, and then they added unacceptable market claims to the delivery deadline. After a year of abuse, I was left with a loss. Delivery deadline claims typically apply a percentage of the payment starting from the sixth day. A week’s delay would result in a fine of around 1.5 million won for 1,000 pieces (40 to 50 million won). Considering the fact that we dealt with low-priced products and the excessive QC delays in ordering, I believe this is a double whammy.”
This photo is for illustrative purposes only and has nothing to do with the article.
Another fabric manufacturer, CEO B, stated, “C, a fashion company we recently supplied fabric to, requested additional supplies, claiming a 10% shortage. The company claimed 20% of other orders were defective and demanded that we either lower prices or replenish the stock. We’ve maintained a defect rate of around 1% for 20 years, and we supply about 5% more than the standard quantity, so a shortage is unacceptable. We told them we’d go and check in person. But they refused and told us to unilaterally accept it.”
# We must foster industrial competitiveness by nurturing sourcing experts.
With the recent domestic economic downturn, the practice of “forced bullying”—passing losses onto business partners—is crossing the line. The aforementioned cases all involve listed domestic fashion companies, and even after reviewing the supporting evidence, they are unbelievable.
In addition to the fashion company, this manufacturing company also works with numerous platform-based PBs, including Musinsa and Coupang. Musinsa reportedly offers relatively favorable terms, with payments due in cash at the end of the following month after the 15th closing date, and Coupang requiring 60 days of receipt. However, they say profitability is challenging because they nominate prices for raw materials and require finished product vendors to pay upfront after placing orders. Furthermore, they also determine the profit margins.
Production site, photos for better understanding and unrelated to the article.
Representative B stated, “It takes at least six months to process an order. Factoring in sample development costs, various quality inspections, logistics, and travel expenses, a minimum 20% profit margin is essential. However, buyers are reluctant to accept this. Furthermore, face-to-face interactions between designers and production managers often present difficulties, making it difficult to train or even hire employees. For the fashion industry to thrive, expertise in the sourcing process is crucial, but these positions are often considered marginal.” He also expressed concerns about a decline in industry competitiveness.
The fashion industry is characterized by a lengthy and complex supply chain, encompassing design, sample development, fabric sourcing, and finished product manufacturing and delivery. With product development sometimes beginning as much as a year in advance, optimal inventory management is crucial to corporate competitiveness. Ultimately, experts agree that for companies and the industry to thrive, supply chain innovations such as business model development (S2B2B platforms), process innovation leveraging big data and AI, and manufacturing DX through DTP systems are essential.
# Collaboration with globally competitive export manufacturing companies is essential.
Multiple experts stated, “K-beauty’s growth in the global market was driven by manufacturing infrastructure like Kolmar and Cosmax. For K-fashion to reach the next level, system and process innovation in the sourcing sector must come first. In particular, collaboration with globally competitive export manufacturers is essential. This requires innovation in fundamental transaction practices, including communication methods, work processes, terminology, and payment methods.”
Another expert stated, “Sourcing relies on finance and information throughout the entire process, from sample development to raw material procurement and logistics. Global companies assess sourcing competitiveness by comprehensively assessing financial (access to low-interest capital), information (information on vendors), logistics, and price. However, domestic companies prioritize price above all else, making it difficult to do business with highly competitive companies. Consequently, this hinders their ability to manage crises.” He called for a fundamental shift in sourcing mindset.
Editor Jeong In-gi [email protected]