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Cents & Sense: Juggling Supply Chain Challenges and Costs

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Ask a room full of sourcing professionals about their top concerns, and you’ll get a myriad of answers. But ultimately, their replies will all tie back to the bottom line.

That was the case during Alvanon’s Apparel Costing Insights in an Uncertain World workshop, which was hosted by Sourcing Journal and moderated by SJ’s founder and publisher, Edward Hertzman.

From trade to regulations and retail prices to sustainability, the common denominator was how to offer their partners and end consumers quality, compliant products without adding in more expenses.

Inventory control, or lack thereof, features into the quarterly financial reports of most retailers these days. And when inventory is out of whack, it only serves to compound the markdown madness driving merchants crazy. To try to stay out of the fray, buyers are attempting to purchase smaller and smaller quantities at a time—a tactic that keeps them from getting buried under a pile of overstock, to be sure, but one that can also leave them with naked racks if they’re not careful.

David Miller, senior vice president of owned brand operations at Hudson’s Bay Company, said these shallow purchases require a different type of partnership with suppliers. “We’re asking them to hold goods—even dyed goods in some cases. In some places, we’re looking at possible replenishment models so if a buyer wants to get goods in on a weekly or biweekly basis and not have it on their books, how can we find a vendor to support us in this way?” he said, acknowledging the pressure it puts on vendors when it comes to MOQs and raw materials management.

As with everything with sourcing, working in this way presents HBC with a tradeoff.

“We’re looking at weighing cost of inventory against a potentially hire LDP cost with some vendors,” Miller said. “And we’re choosing to pay for the LDP so we don’t have it on our books.”

One way or another, juggling numbers was on everyone’s mind. From a supplier standpoint, Steve DiBlasi, vice president of global sourcing at Lanier Apparel, knows all too well what it means when a retail partner is feeling pressed about margins: they’ll coming knocking on a vendor’s door. That’s why price compression weighs heavily on DiBlasi’s mind.

“If stores are only driving volume through discounting, then that’s a problem for us because they’ll ask for more margin support or ask for lower prices,” he said.

Worse, DiBlasi added, is that once satisfied with markdown money or discounted wholesale prices, retailers are disincentivized to solve other problems. “The concept of margin support has slowed down retail’s reaction to a changing marketplace,” he said. “I have a concern that our retail partners aren’t reacting quickly to the shopping patterns of the millennial buyer. The millennial buyer is more interested in experiences than things and wants to go to a store for an experience.”

A global view

As companies continue to expand with tentacles in all corners of the world, compliance, regulations and tariffs are all constant concerns. It’s a tangle of unilateral and multilateral agreements, many of which are in flux at any given time, Miller said. “We’re looking at FTAs everywhere around the world because we have places that would love to source together but in some places can’t source together.”

And if trade lines are confusing, regulations add another level of difficulty.

With every new region a company moves into, compliance becomes more complicated. “In Europe where the chemical requirements are very strict, how do we get these brands that were primarily only in north America up to snuff?” Miller asked. “We’re looking at testing protocols and specific testing packages with our suppliers so we can do a risk assessment and try to narrow exactly what we’re testing for and so we can develop into a price point so they’ll be compliant for these multiple geographies.”

DiBlasi said his concern with compliance is managing the costs associated with them.

“If you’re going to have negotiations, you have to have buyers and compliance officers in the room because they both agree that what they’re talking about in compliance is very important but one doesn’t want to pay for it,” he said. “And that cost of compliance ultimately gets wrapped into the cost of the product, ultimately wrapped into the FOB from the factory.”

Further, most brands today aren’t just trying to get by with the bare minimum when it comes to compliance. Rather, they’re developing their own standards regarding products and practices that are eco-friendly. The question though is how do you do that without driving up costs along the supply chain?

Ada Suneson, vice president of technical services for the dress shirt division of PVH, said her company is constantly looking at the added value of innovative fibers and technologies that enable it to be more responsible. “How do we deliver sustainability from a cost neutral standpoint?” she asked. “How do we learn about the impacts of the creation of fabric from the sustainability side and what can we do differently that would allow that to move forward to make a better environment for all us?”

Though they were reluctant to dive into a political discussion, the group acknowledged that all of these standard business concerns could become even more challenging depending on what Washington decides to do in the coming weeks. There’s so much at play currently, including regulations, taxes and trade but until new deals are signed or laws passed, they each agreed they have to move forward with business as usual.

“It’s difficult to plan in uncertain times. We’re certainly re-costing some items in the event,” said DeBlasi. “But we can’t react to the latest tweet.”

Read the next part of the panel discussion in our article “Fast, Cheap & Out of Control? Balancing Supply Chain Speed and Costs.”

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