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Q&A: Carrefour Sourcing Exec on Building Resilient, Responsible Supply Chains

Retail giant Carrefour is leveraging its size to scale up its sustainability efforts that affect people and the planet.

Carrefour first brought its “hypermarket” concept to France about six decades ago, combining categories including food, home goods, clothing and services under the same roof. Since then, the chain has expanded internationally and currently operates more than 12,000 stores.

This massive footprint and audience enables Carrefour’s sustainable investments to have a significant impact. Carrefour has reduced its plastic packaging by 4,095 tons since 2017, with a goal of eliminating 10,000 tons by 2025.

The retailer’s focus on doing good includes its relationships with partners in its supply chain. For instance, a Carrefour-led project in India supported 4,500 small organic cotton farmers, helping them to achieve better yields and receive fair wages, as well as providing them with tools to improve traceability.

“Our society’s current production and consumption methods are reaching their limits,” said Jean-Marie Fouque, global sourcing textile director at Carrefour Global Sourcing Asia Limited. “As a leading agent of change, Carrefour is helping to usher in a new distribution model that makes quality food, produced in an environmentally friendly manner, accessible to the greatest number of people, all while supporting the necessary transformation of agriculture and farming.”

Sourcing Journal caught up with Fouque to talk about the need for sourcing diversification, calculating the true cost of inputs and why companies should adopt a startup mindset.

SJ: For a variety of reasons, the industry has been moving as much production out of China as possible. From a raw materials and textiles standpoint, is diversification ideal for the supply chain?

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JMF: Diversification is at the core of our sourcing strategy. As building resilience is central to our strategy, not moving the production footprint is simply not an option. Our industry is by nature labor intensive and extremely cost sensitive, requiring agile sourcing between countries.

We are living through a challenging time and a volatile world is the normal. While this business equation remains in place, it is imperative for our industry to strengthen our risk mitigation and improve end-to-end transparency. Our industry must have the ability to plan to derisk, monitor multiple layers of supplier networks, accelerate response times and even change the economics of production. This is where we all must work harder and utilize emerging technology where possible.

From a raw material and textile standpoint, we have seen a proliferation of mills outside of China, especially Bangladesh, India and Turkey. In response to increasing capacity, it is clear that mills are investing in themselves and ramping up their production capacity significantly. Many of our factories are vertically integrated. The core sourcing countries outside of China are becoming or will be self-sufficient when it comes to fabric. Bangladesh is already there for knitwear and has made a remarkable push for denim and even technical fabric over the last decade.

During this period, there is an oversupply of fabric. We are currently seeing capacities outstripping demand leading to large stockpiles of yarn and other fabrics, weakening price.

In Southeast Asian countries where competitive advantage is made only on labor and overhead costs, there is the ability to cluster our production as one regional hub with China. This formula works very well because it gives us the flexibility to reshore production if conditions to access Cambodia or Myanmar become out of reach. China itself has a lot more to offer in terms of capacity utilization, shorter production lead times, resilience of the supply chain and a tried and tested infrastructure. The integration of the region as one corridor for fabric is certainly something to value. The belt and road initiative will further help to diversify our procurement. The social welfare of the workers is an important aspect of this formula.

SJ: In your view, is it possible to ramp up fiber and textile production in other key areas around the world? What would it take?

JMF: The pandemic has exposed vulnerabilities of manufacturers and factory workers, highlighting that they are fragile ecosystems. The financial conditions under which they are trading is a threat. A new wave of consolidation is likely to happen.

In order to ramp up production, the lack of working capital and access to loans needs to be addressed. Furthermore, government subsidies in combination with better public and private governance must be introduced. Few countries have been able to achieve the level of integration and inclusiveness necessary. We believe certain countries like India have the potential to buck this trend, especially in view of the fact they are mass producing their own cotton.

Retailers will have to take longer commitments when ordering. We believe a sustainable agenda is the way forward.

SJ: A lot of factors like geopolitical issues, costs and proximity go into the decision of where to source goods. Does the industry typically prioritize the right factors? How could this improve?

JMF: A large part of the industry has worked under the assumption that labor costs must be kept as low as possible in order for garments to be produced at competitive prices. The increasing of minimum wage and the number of low-cost countries is dwindling. In our opinion, the withdrawal of preferential trading tariff is a matter of time and therefore a new agenda must be formulated in advance to take the pressure off inflated labor costs.

The cost of maintaining inventory and excessive markdowns must be heavily scrutinized. The ability to forecast demand across multiples sales channels and geographies and plan production reduction in real time.

There is also an agenda for stripping out complexity by optimizing our cost of doing business. Streamline processes to make them more agile, fluid and thereby reach market faster than the traditional calendar. Strip out unnecessary organizational process including governance among buying and sourcing organizations.

It is an entrepreneurial startup mentality—think small to be big—which must prevail.

SJ: Does the industry have enough insight into the true costs of inputs? What benefits would cost transparency provide?

JMF: There is a fundamental issue of transparency in costs. We would like to see manufacturers and retailers cooperating more so as to fully understand the true cost of doing business throughout the entire value chain.

Manufacturing excellence must become a shared agenda between all parties: how to improve efficiency and maximize productivity in our manufacturing base by implanting lean management. The more we know how suppliers run production, the more we understand our suppliers, the more we can empower them, especially in quality control.

The benefit is to build a mutual trust for longer term benefit. This is a radical change where there is a lot to build around value creation driven by less and more efficient suppliers, being less transactional and more strategic with certain suppliers by allocating our orders in line with the reward-based system.

That model must prove economical value to offset the pressure over gross margin within our product range.