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Can Buyers and Suppliers Move Past Transactional to Shared-Risk Relationships?

“In my experience in this industry, when you hear the word ‘partnership,’ that means ‘Give me another 10 percent off,'” according to John Thorbeck.

While Thorbeck’s quip at Sourcing Journal’s Sustainability Summit last week earned chuckles, the subtext was no laughing matter. In order for buyers and their suppliers to move forward with true collaboration and partnership, the fashion industry has to stop looking at sustainability as a cost item and more as an opportunity. Relationships must evolve beyond price, volume and seasonal transactions, to one of shared risk—and ultimately, shared opportunities.

Thorbeck, chairman of Chainge Capital LLC and an expert on speed-to-market applications at retail and short life-cycle product companies, dove deep into this theme moderating the panel “The Buyer/Supplier Evolution.” He was joined by Rens Tap, senior economist, Modint and International ApparelModain Foundation (IAF); Matthias Knappe, senior office and programme manager, fibres, textiles and clothing, The International Trade Centre (ITC/UN); and David Savman, head of supply chain, H&M Group, all of whom Zoomed onto the stage from different countries, underscoring the industry’s global nature.

The session tackled three major themes, all which require a paradigm shift in thinking: one, that the upstream supply chain can be a financial opportunity; two, that innovation must be looked at as “shared risk” versus cost alone; and three, that mutual productivity and profit along the value chain cannot be achieved without everyone’s commitment.

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Panelists agreed that there is too much emphasis on the downstream retail portion of the buyer/supplier relationship, and companies should focus more on streamlining processes and tightening inventory flow further up the chain. Overproduction remains one of the biggest problems—causing companies to hemorrhage money and waste—and it needs to be addressed at all points along the way.

“A lot of the fashion markets are mature markets, and if we keep bumping high volumes of the same products into these mature markets, in the end we’re stuck with huge sell offs,” Tap said. “Instead of fighting over cents in the buying process, maybe we should talk about the dollars and euros that we’re losing in the end. If you can avoid that, then capital comes free.’’

In other words, profitability is more than just a cost sheet. True success needs to be measured in value and how it affects all links in the chain.

“The existing system of margin optimization—where each stage is not able to reduce overall costs because everybody pushes the risks and costs to the weakest link—that system will explode,” Knappe agreed.

As such a large industry player, H&M has the opportunity to set an example of running a more efficient buyer/supplier relationship using data. To get there, the global retailer conducts numerous tests in different markets with different suppliers to learn how to iterate and best move the order model from being solely transactional, Savman said. He admits, however, that the fashion industry at large isn’t optimizing the flow of data upstream to enable this more efficient system.

“Data is an enabler,” he said. “The buyer/supplier relationship is mature enough to take advantage of all the data out there; going from the customer and making sure that a retailer or a supplier better knows what to expect in the future.” But unfortunately, he said, that data doesn’t always find its way upstream. “In the warehouse, we don’t use enough of the data that we have from the beginning and attach it to the product in a digital way to make sure the flow is easy to the customer. This is a huge opportunity to make sure that we have shared risks and to minimize the cost all the way through.”

Sharing risks not only creates short- and long-term opportunities for both sides of the relationship, but when the next disruption or disaster inevitably arrives, a more interlocked supply chain has a better chance of not breaking.

Collaboration is key

One big theme of the panel was collaboration, and not just between retailers, brands and suppliers, but between competitors.

The International Trade Center (ITC), a multilateral organization within WTO and the UN, has a special focus on SMEs to make sure they benefit from international trade. While created in 1964, a recent focus is on collaboration and pre-competitiveness for shared gain. A new initiative called the Global Accessibility Program works in several countries to increase overall competitiveness of the textile clothing sector, especially working with SME’s to make them better and more efficient suppliers.

The global supplier community also came together for a common goal with the Sustainable Terms of Trade Initiative (STTI). Set within the highly competitive global fashion industry, this manufacturer-driven initiative brought 11 manufacturing countries together in the post-Covid era to discuss their pre-competitive advantages and accelerate the buyer/supplier transition for mutual gain. The STTI developed key recommendations for sustainable buying to help all those involved.

“This is commercial and sustainable interdependency and they are now doing a phase of research on how you can better incorporate this into integrated supply chains,” Tap said.

Thorbeck then asked the obvious: If we’re all so united in solving for mutual profit and better sustainability, what’s the obstacle? Is it cultural? Financial? Technological? Inventory focused?

Tap chalked it up to not enough downstream data flowing back upstream. “We think about traceability in terms of due diligence upstream, but what about traceability downstream?” he said. “What about the data of inventories or sales, which are made downstream? The point-of-sales data should go back up into the supply chain for a back-and-forth stream of data. Think of collaboration between what I call the multi-brand shops and the independent brands. Once you learn to import the sales data from the other side, you can really collaborate in all kinds of shop formulas.”

Knappe says until everyone stops focusing solely on the brands and retailers as an entry point to sustainability practices, and not the upstream manufacturers, shared risk can’t proceed apace. “When there’s a problem, even Gen Z and ESG investors come first to the brands [and] retailers, which then must go back to the manufacturers and incur that risk,” he said.

And talk is just that—talk. H&M’s Savman said the industry needs to stop talking theory and create proof of concept that supply chain shared risk works. “Only then,” he said, “can the concept be scaled and accelerated from there.”