While most production fabric isn’t washed prior to production, some shrinkage still happens prior to it getting to the customer’s hands. Depending on how the fabric is finished and how the garment is cut and sewn, shrinkage can happen during production.
Some types of garments like jeans are washed at the garment stage to get the wash and worn-in look. Garment dyeing or printing can also shrink the fabric. Whenever the fabric gets wet and then dries or when heat is applied, it can potentially shrink. If you are working with printed, dyed, or washed garments, I recommend doing shrinkage testing on both the raw goods and the printed or washed stage.
Another production step where fabric can shrink is during ironing or pressing. The fabric or cut pieces might be fused prior to sewing or the entire garment is pressed after sewing. This takes care of some of that shrinkage and makes the fit the customer tries on even closer to the final post-wash fit.
What is important is that you test your fabrics and know what shrinkage to expect at what stages and plan for it rather than only find out when a customer is unhappy. With the shrinkage testing information, you can make an informed decision about whether that fabric will work for your design, your brand, and your customers.