Are you too busy with other more pressing issues than a supply chain transformation?
Covid-19 has seen many brands drop into survival mode, asking themselves, how will our business survive this crisis? It has seen many brandishing the role of fire-fighter to get more sales, developing a lounge wear range, deciding what to do with retail stores and reviewing routes to market, restructuring the organisation, deciding how many people are needed and whether or not to rehire those that were laid off. Not to mention questions such as, how will we work post pandemic? Will it be in the office, at home or in some kind of a hybrid model? And how will that impact how we work with suppliers? Will we still visit them?
Are you too busy with all that to be thinking about transforming your supply chain into a competitive advantage? Do you find yourself saying: it is just too complicated to get into; like opening a can of worms once you get into the details? It seems to be working OK now, more or less, so why bother? We don’t really want to be change suppliers now, on top of everything else…
Arguably the need for a supply chain transformation is not something new, not just brought about by the pandemic. The idea for supply chain transformation in Fashion has been around for decades, because of inherent long lead-times and lack of agility linked to offshoring.
Whatever the reasons for a supply chain transformation being at the bottom of list of priorities, there are strong arguments for focusing on a supply chain transformation to build resilience, profit and sustainability.
Take Inditex for example with its agile business model, able to respond and rebound from this pandemic much faster than many of its competitors (see article Bloomberg, 16 March 2021)1. Zara clothing saw its inventory drop by an impressive 9% during the pandemic and was able to respond to a 77% surge in online sales thanks to its centralised system. This is also made possible by its proximity sourcing strategy whereby 60% of products can be replenished within a few weeks, compared to only 20-25% for most European Retailers. Decades ago, Inditex transformed its supply chain and today drives replenishment through demand driven data analytics, making it much richer and agile than many of its peers.
Such a model didn’t arise by chance. It was a deliberate supply chain design, based on the specific value levers in the supply chain that drive the right results on the P&L and Balance sheet (see video explaining which supply chain value levers here). The outputs of their supply chain transformation were not purely driven by top line growth; but also took into account inventory, agility and cost structures too. For example, as mentioned in an Economist article dated 16 January 20212, a balance of high volumes sales in retail stores to absorb fixed costs and lower and variable costs in e-commerce, together with flexible rents and a high level of cash to invest in technology are some of the advantages, allowing Inditex to restructure to fewer retail stores and more sales online faster than its competitors.
This resilience is the result of deliberate agile supply chain design, driven by specific financial levers and an obsession about real time sales data (See BOF article describing the “data centre”3). This resilience has also led to a high level of profit.
2. For Profit
Building resilience makes profit sustainable over time. However, the size of a business is also important. Large corporations are much harder to change than smaller ones, because of their size and complexity. And many would argue that the big corporations are the one’s that have most to gain for supply chain redesign. Indeed, the numbers are certainly bigger! However, large corporations all start out small and when you are a small challenger brand with growth placed firmly as the number one priority, it can be easy to overlook supply chain design.
Supply chains are rarely designed at the launch of a businesses. They tend to develop on a need-as-you-go basis, since at the start, any brand’s main focus is sales growth and getting the business off the ground. This HBR article about the 5 stages of Small business is insightful as it shows business priorities evolve as a brand’s establishes itself4. In stages IV and V there is a risk that inefficient and unnecessarily complicated supply chains can stifle innovation and tie up cash, especially if the supply chain doesn’t have a deliberate focus to eliminate waste, enable innovation and foster mutually beneficial supplier relationships with the right partners who can help the brand achieve its growth trajectory. Desired agility, profit and cashflow will be key outputs of supply chain design for a small business in Stage V to fuel growth and increased market share.
Starting from scratch and redesigning a supply chain to meet the future growth trajectory can be very liberating, because you can combine the benefits of your experience thus far in the journey (innovation and agility), with strategies to overcome bottlenecks (waste, inefficiencies, physical & technological constraints) for tomorrow, including new opportunities to support growth and economies of scale. And all this, without damaging the planet, because in 2021 & beyond all brands need to be transparent and new products need increasingly to be designed with circularity in mind.
3. For Sustainability
If circularity and transparency are already incorporated in the early stages of a small business, then the business product is augmented compared to those offered by established brands that are having to implement transparency as an after-thought.
The example of Inditex above, will no doubt not be sustainable enough for many, as the fast fashion model it represents, fuels over consumption, over production and more waste to landfill, because of the way Inditex very skilfully drives constant newness into their stores. However, there are other brands that rank better on the sustainability ladder, who are careful to ensure their supply chains are their competitive advantage.
The leaders in sustainability lie in B Corporations5 small or large such as Patagonia, Eileen Fisher, Finisterre, Veja, and others cited in the recent BOF sustainability index report such as Nike and Kering6.
These brands do things differently. They do things that make good business sense:
- They eliminate waste;
- They publicly go against buying excess on Black Friday;
- They have direct relationships with raw material suppliers and work towards UN sustainable development goals7;
- They explore new business models – upcycling, repairs, reselling pre-loved clothing…;
These are supply chains designed with sustainability in mind, that include ethics and environmental impact in decision-making for profit.
Another point to consider here, is the fact that legislation is on its way; E.g. Scotland’s leading role in the journey to a sustainable, low-carbon future8, or the EU Green Deal was launched in December 2019 which aims to cut Greenhouse Gas (GHG) emission to 55% by 2030 by overhauling fiscal, trading and regulatory regimes9 and also the UK Modern Slavery Act 2015, for which last month the government announced financial penalties for those that fail to comply10. More and more legislation for sustainability will no doubt come, so wouldn’t it be prudent to be one step ahead?
The pandemic presents an opportunity to take stock and build back better. Taking a step back from all the fires that need putting out and building a sound supply chain strategy could actually help answer some of those more pressing issues.
Could it be time to start again with from blank sheet of paper? To go back right to the beginning and ask, what purpose does our brand serve? What problems are we trying to solve for consumers? What are the core values of our brand? In keeping with those values and that purpose, how can we solve that problem for our consumer? What are the must haves on price, profit, availability, lead-times, resources, skills? What would our ideal supply chain look like? And what about the planet, climate, ethics of fashion, how can they be woven into the picture? And dare I say it, if we were to stop growing the number units sold, could we still survive and pay ourselves and our suppliers?
You may take the view that most brands won’t have time to rethink Supply chain strategy and transformation. You can choose not to as well. However, if your competitors do and you don’t, then they will be ahead of the game. But, if you do and they don’t, then you will be ahead. If you both do, then you continue to compete on a level playing field. So really as a business leader of a fashion brand, you really should be taking time out to transform your supply chain, to future proof it for the next 20 years or so.
I am not saying drop everything and stop firefighting, but I am asking why are brands not spending a significant chunk of time rethinking supply chain design for the future? In any organisation, there are parts of the team who need to focus on the longer-term strategy, others on shorter term tactics and those that manage the day-to-day operations. Transforming a supply chain sustainably for generations to come – for profit, people, planet – is part and parcel of a longer-term strategy.
Once you take time out to rethink and produce that blueprint for the next generation supply chain that you want to build, then you also need to go about finding out how to make it a reality. Which partners do you need? How do you select them? What technology and innovations are available? What is the time frame for implementation? How much investment will be required, and what returns will it bring in monetary, social and environmental terms? How can such returns be used to enhance brand value, in the eyes of the consumers and investors?
The window of opportunity
Great ideas are born out of a crisis, when we are under pressure to survive. Leading an organisation through change when times are good is much harder to sell internally, than in bad times, when it is plain for everyone to see that the stakes are high.
Internally, everyone is probably fed up, worn out with firefighting. So, get yourself a fresh perspective, a fresh pair of eyes with a good business sense. Inject a boost of energy, a clear structure and a pathway to build that blueprint. Someone to organise, coordinate and inspire ideation, find solutions partners and create those strategies for the future.
Has this got you thinking? Book a complementary 30-minute call with Annika https://altrubi.com/contact/