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Op-Ed: Placing Bets on Suppliers & Sustainability

For brands and retailers, today’s order is everything. The same rings true for suppliers and factories. Today’s order is imperative. It has to get done and shipped on time. The factory will find a way to squeeze it out, and laborers typically pay the price.

Oliver Niedermaier, founder, chairman and CEO of Tau Investments, spoke on June 2nd at the GT Nexus Bridges conference about the supply chain of the future. He drew a direct parallel between global sourcing today and financial markets’ short term emphasis on quarterly performance.

The markets demand results quarter to quarter, he explained, and decisions are made to generate quarterly results. This plays out directly in how business is conducted — specifically within sourcing, where it brings a short term mentality. Maximize margins without impacting quality. Reduce costs where possible — in labor, materials, and 3rd parties — and maximize results.

Getting Closer to Suppliers

Niedermaier said he sees things shifting quite dramatically in the future. The supply chain of the future will look long-term at the health of suppliers, at relationships with trading partners and at working conditions in the sourcing pipeline. Tau was created to invest and strengthen the apparel supply chain and the future, according to Niedermaier, will involve supply chains operating as networks where suppliers will have access to resources they need — like capital.

Olaf Schmidt of the International Finance Corporation (IFC), part of the World Bank, also discussed the issue of suppliers in emerging regions being squeezed. Many struggle to obtain access to capital at reasonable rates and the weakest link in the chain often feels the biggest burden — purchasing raw materials to begin the order.

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Long-term View: Mitigating Risk & Improving Performance

While there’s been much talk recently of finding ways to deliver financing to SMEs in emerging markets, many of the banks have stepped away. That vacuum is being filled by non-banks and non-traditional providers who see opportunity and can mitigate the associated risks. The differentiating factor is the presence of cloud platforms that connect all trading partners and deliver a network. This makes the world a smaller place. For brands and retailers, some of the biggest risks and concerns around sourcing relating to capital, quality of goods, working conditions and sustainability, can be addressed in this environment.

Operating global sourcing as a network enables a different approach. It means creating a long-term outlook and strategy. It means partnering with suppliers and factories, finding ways to remove burdens and positioning them to succeed.

Nobody wins when a supplier gets squeezed on payment terms and is forced out of business. But when a supplier has the resources it needs — like access to capital at reasonable rates, access to data and tools to process orders and enable direct shipments, and visibility to know when it will be paid — friction is removed from the process and things flow more smoothly. The relationship improves. Both parties are aligned and collaboration can begin to occur. This is the future that Niedermaier was referring to.

Following the Money

What was notable about these two very different speakers and firms was what they had in common:

  • Both focus on global trade and financial returns.
  • Both Schmidt and Niedermaier, while speaking on different stages on separate topics, chose to address sustainability head on. Both see value there.

Tau’s mission is centered on improving conditions in the supply chain, and the company is putting its money into it. Sustainability is core to its strategy and the company views responsible and ethical sourcing as a big enabler to healthy, successful, winning apparel supply chains in the future.

IFC comes at it from a different approach. Its mission is to provide suppliers in emerging regions with access to capital. It works with brands and retailers to offer financing based on the credit strength of the buyer — which can be a significant reduction in capital costs. Suppliers are paid in just days.

But the IFC uses this attractive program to promote responsible business practices. Companies that demonstrate a commitment to sustainability are rewarded with better rates. Another way to interpret this: supply chains undertaking sustainability measures are less risky. Or, there is clear financial value in responsible sourcing practices.

The word sustainability gets thrown around loosely nowadays and it is clearly overused. When we start to see companies putting their money where their mouths are, there is something to be said for it.

Of course, you have companies like Patagonia who are longtime leaders in responsible and ethical production — but that’s purely who they are. They have a company mission centered around “doing no harm” that permeates throughout everything they do. Their Responsible Supply Chain initiative is one of the most robust around. But when the finance guys in suits — who make a living assessing risk and investing capital to maximize return — start recognizing the value and importance of sustainability, then the game is bound to change rapidly.

 

Bryan Nella is Director of Corporate Communications at GT Nexus, the world’s largest cloud-based supply chain network. He has more than 15 years of experience distilling complex solutions into simplified concepts within the enterprise software and extra-enterprise software space.