Sourcing in a Geo-Political Market: How Sourcing Should Be Driving Transformation and Mitigating Supply Chain Risk
Endless articles and news coverage about the supply chain have surfaced over the last six months, so what's left to be said about the topic? Actually, a lot. The real issue with the supply chain begins at the source and, sourcing, at most companies, rarely has a seat at the proverbial table. Much like the reporter's advice to “follow the money,” retailers shouldn't be searching harbors for their containers, they should be “following the materials.” Digitizing your overall supply chain and pivoting from reactive sourcing management to proactive sourcing management is the key to creating a more resilient brand.
After two years of a pandemic, factory closings, inventory delays and economic hardships, the world suddenly became smaller. Every business, every person, every country was responding to the impact of a weakened workforce and a shift in consumer demand and product availability. And while some companies transformed their operations and organizational structures by investing in new technologies, revisiting their production calendars and focusing on end-to-end supply chain visibility and traceability, others were focused on building their e-commerce platforms and fulfillment processes. One approach built a business path forward to yield more long-term benefits while the other merely responded to the short-term needs of the consumer. So, who is better positioned for the geo-political challenges we now face? Enter the conflict in the Ukraine, elevated tensions with China, and global energy supply availability and costs.
The answer isn't that simple. We first have to understand what the geopolitical risks are and then determine the top initiatives on which companies need to focus in order to become more agile and resilient to market disruptions and changes.
What Are the Current Geo-Political Risks?
- Political climate
- Macro economic instability
- Big data and cybersecurity risks
- Re-emerging markets and current market volatility
Working in a global market creates both options and complexity. Knowing where the options are and anticipating emerging complexities is at the core of becoming a proactive sourcing organization. Global pandemic aside, we're now entering a new market where Europe is facing impending repercussions from Russia’s invasion of the Ukraine. The political climate is cloudy as the conflict is expanding into NATO countries and into China (a major global manufacturer). This, coupled with rising energy and product costs, inflationary markets and signs of a recession ahead make the macro-economic world even more unstable. Add on the now ever-present threat of cyber breaches across all business sectors and you have a perfect storm of “now what?”
Amidst these threats of receding market partners we're seeing other countries emerging as viable alternatives. Countries once shadowed from the commerce and manufacturing stage are re-emerging and casting some light on new ways of operating. Areas like Africa, India and Indonesia, which fell from grace years ago, are reopening as technology, new consumers and infrastructure are catching up to the developed world.
How Should Retailers Move Forward?
Fixing the supply chain is more than just plugging holes. It requires a new way of thinking and operating. While there's no one solution to every business problem, focusing on the following areas will start you on the right path:
- Increase your awareness to risks.
- Create new ways to work.
- Digitize your supply chain AND align your organization accordingly.
- Design a strategic sourcing approach — pivot from reactive to proactive management.
After Q4 2021, retailers scrambled to cancel prior season orders, air in new available inventory, re-merchandise their stores and websites to feature in-stock items, and try to figure out where in the ocean their containers were. Fast-forward to Q1/Q2 2022, retailers are now trying to figure out how to flow in new seasonal product, what to do with prior season arrivals, and how to plan for any pandemic variants and warfare impact. This is in-the-moment management at best. Instead, retailers need to embrace a totally transparent supply chain and empower employees to elevate problems throughout the pipeline — starting at the source. Increasing visibility to risks early on will allow for companies to get ahead of major disruption rather than respond to it.
In turn, retailers need to revisit how they work and create new ways to work that include backup material sourcing, diversified manufacturing portfolios, and a mentality that protects key items with duplicated/alternative networks. The days of consolidating factory partners for better quality control, consistent production criteria and best pricing is behind us. Retailers need to build an array of partnerships in different markets and be mindful of speed-to-market geographic options. This proactive management approach isn't a one-time solution; it's a new method to be built into the process in an ongoing fashion. One tip is to closely align with material partners in the cotton, wool and micro-fiber industries. They're continuously evolving and inventing fabrics, dye options, product uses and production capabilities and are a key resource to look into for the next three years to five years.
Digitizing the overall supply chain is a must. If it's not currently on your strategic road map, pull over and add it. Digitization provides a holistic approach to integrating the entire product process. This will enable sourcing to identify emerging fabrics, new factories and alternate development ideas even before design and merchandising start to dictate the next season. If there's an issue with cotton availability, for example, companies shouldn't be designing into this product line and then be surprised by this after retailers/wholesalers put in an open-to-buy order. With sourcing as a partner up-front, risks can be minimized and course corrected. Sourcing + merchandising=more resilience.
Digitization also allows for technology-driven sample development which reduces sample production and lead times in between product corrections. It also provides traceability and transparency from start to finish so you can anticipate any bottlenecks and be in a position to estimate delivery issues before you need to react to delayed shipments. In addition, digitizing the process can leverage artificial intelligence, create more accuracy and speed in decision making, and allow for scenario planning — all of which lean into proactive management over reactive management.
The Benefits of Being Best in Class
In addition to regaining some level of sanity and normality after the last few years, adopting a best-in-class sourcing process and supply chain management approach has significant economic benefits to the business. An aggregated measure by Cotton Inc of the financial impact across major fashion brands from 2019-2021 which led in their supply chain transformation showed that they were able to increase:
- revenue by 52 percent;
- forecasting accuracy improvement by 31 percent;
- supply chain adherence and scheduling by 31 percent;
- product launch improvement by 28 percent; and
- reduction in inventory by 27 percent.
Do You Have a 'What if?' Scenario for Your Business?
No retailer or company can operate on two levels all of the time. While it would be wonderful to have two completely parallel organizations — one to perform business functions for the status quo and another to build contingency programs — it's not sustainable to do so. Instead, businesses need to look to a new hybrid model that integrates technology, proactive disciplines and new organizational alignment to fully support a transparent end-to-end supply chain that puts sourcing at the center.
Nancy Marino is a principal at Columbus Consulting with a proven track record of successfully leading retailers and brands for implementation of processes from design to delivery and development of their go-to-market strategies.
Nancy Marino is a Principal at Columbus Consulting with a proven track record of successfully leading retailers and brands for implementation of processes from design to delivery and development of their Go-To-Market strategies. She is respected for her leadership skills and project management oversight for executing system initiatives and international acumen having managed global sourcing and buying offices in over 50 counties. Nancy is a decision leader and change management expert.