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Covid, Inflation Could Have Long-Term Impacts on Sourcing Strategy

Logistics hurdles and economic pressures will continue to influence sourcing strategies and timelines this year, experts said at Sourcing Journal’s Global Outlook Conference.

Inflation has driven up the cost of materials and inputs, according to Munir Mashooqullah, founder and chairman of vertically integrated manufacturing collective M5 Groupe. “Right now, we are looking at between 15 and 20 percent increases in FOB in the last six months,” he said, noting that it is becoming increasingly challenging to maintain pricing that approaches the internal markups developed by retailers and wholesalers.

“I really thought by the middle of this year, things would subside,” Mashooqullah said. “Now, I’m assuming that right up to spring 2023, we’re going to see these patterns of inflation continue.”

As long as these pressures persist, strong partnerships and commitments between buyers and suppliers and are needed to keeping production and budgets on track. “Whoever you have on the ground—your own offices, your intermediaries, your spot checkers, your quality control companies, or, if you’re using a third party, you need to have very good controls,” he said.

Material and labor shortages are forcing brands to develop strategies to accommodate longer lead times, according to Carrie Chiu, director of supply chain consulting firm Weave Services Limited. “They could be ordering products slightly earlier, or procuring raw materials” months earlier than they would have pre-pandemic, she said. Earlier ordering impacts enterprises’ working capital, which they often work through by partnering with Tier 1 suppliers well-positioned to purchase fabric on their behalf.

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Chiu has found that companies are increasingly developing both short- and long-term nearshoring or supply chain diversification strategies, bringing production closer to their end markets and mitigating risk. “For example, U.S. brands may be looking for sourcing in Northern Africa,” she said, to reduce lead and transit time. Meanwhile, European companies have turned to places like Romania and Turkey.

“There is a constant evolution that I’ve seen,” she said. “Companies keep on reworking their timelines to accommodate global supply chain challenges, and also to be more agile.”

Saurabh Das, senior vice president of apparel distributor Asmara International Limited, noted that his company has seen “shifts in buying patterns and processes.”

“Some of our clients are moving to a hybrid model,” and producing some basic, core products on a consistently scheduled basis, while “you have another timeline which is layered on top of that,” focusing on quickly manufacturing trend-forward fashion, he said.

“The world is shifting, and we are going to have some brands that are going to ask for two parallel processes and two sets of timelines, which means different order drops,” Das said. Implementing a double-pronged strategy may mean developing two separate supply chains that prioritize cost versus speed.

The creation of new timelines and production strategies is still being limited by capacity constraints across the globe, however. The pandemic continues to cause rolling factory shutdowns, Chiu said, meaning factories in Asia are frequently understaffed. “It’s not that they are maxed out, it’s because Covid is still impacting some of the less developed countries right now,” she added. The sector has yet to find a “new normal” that will enable it to “coexist with Covid” while keeping factories up and running.

Waves of infection and a zero-tolerance policy for port workers who test positive have the potential to slow down a China-based supply chain, but raw material availability and “proximity to the whole network” of sourcing partners keep brands tethered to the region. Chiu estimated that most brands she works with are between 20 percent and 40 percent dependent on China for sourcing, “but definitely I’ve seen much more diversification in the rest of Asia, or nearshoring,” she said.

Some of that movement has benefitted India, Pakistan and Bangladesh, Mashooqullah said, where the populations have largely learned to live with the virus and infection rates hover around 2 percent. “Right now there is almost zero disruption because of Covid in any of these countries,” he added.

While diverting some portion of sourcing to these countries might help generate usable production capacity, “On the sourcing side, what is really required… is alternate raw material sources, especially for countries that rely on imported fabrics,” Das added. “A lot of countries rely on one single source of fabric—primarily China.”

Long term, brands and retailers need to “build up capacity and capabilities in other locations to de-risk,” he said. “There’s going to be potentially redistribution of business which is going to lead to opportunity for strong, stable players.”