The rise of globalization in the 1980s and 1990s did wonders in delivering then-unprecedented cost efficiencies by connecting supply chains worldwide. But with the world still confronting a pandemic, ongoing U.S.-China trade tensions, skyrocketing inflation and the war in Ukraine, is today’s interwoven global supply chain still the most viable option?
Greg Petro, CEO of data-driven product decision making platform First Insight, has long held the belief that the supply chain’s future—like today’s current consumer—may be better off if it doesn’t have all of its eggs in China’s or Asia’s basket. And that means deemphasizing centralized sourcing market in one, while prioritizing production in locales closer to end consumer markets.
“In 2006, I wrote a piece that talked about the idea that we need to fragment manufacturing, and go back to the most efficient supply chains, where manufacturing is as close to the demand node as possible,” Petro told attendees Sourcing Journal’s annual Fall Summit on Tuesday. “Ultimately, the gross margin efficiencies that have been gained by going into China are going to evaporate, if they haven’t already.”
Petro acknowledged that this conundrum cannot be decoupled overnight, particularly since the current environment took decades to create in the first place.
But for the future, Petro suggested brands engage in micro-manufacturing, or placing nodes of manufacturing worldwide in an attempt to decentralize product availability.
In the chat with Jessica Binns, managing editor and technology editor at Sourcing Journal, Petro also described retail CEOs he’s spoken with recently as battling a “fatigue factor” amid the current macroeconomic and supply chain-related constraints.
“Without a doubt, everybody in this industry is at a breaking point,” Petro said. “I don’t know if it’s the state of constant change, but the reality is, executives can’t maintain the frequency level of the crises that companies are dealing with.”
Citing First Insight’s recent report on consumer confidence in today’s economic environment, Petro highlighted that consumers are largely keeping their fashion budgets intact. Top cutbacks included dining out (48 percent of consumers), entertainment (34 percent) and vacations and travel (32 percent). Twenty-four percent spent less money on trendy fashion, according to the July study of 1,000 consumers.
“Ultimately at the end of the day, it appears that consumers still are seeing accessories and apparel as opportunities, where they are still willing to pay more,” Petro said. “The inflationary factors haven’t quite derailed the demand yet.”
Petro also previewed what to expect in his company’s upcoming report on the current disconnect dividing brand decision makers and the end consumer.
Of the retail CEOs surveyed by First Insight, roughly 60 percent believe that “Voice of the Customer” data is one of the most important factors in decision making. The company’s Next-Gen Experience Management platform is designed to offer retailers and brands “Voice of the Customer” feedback based on customer surveys and reviews, which could help improve product design, merchandising and pricing.
Stressing the importance of relevant merchandising in clearing up many of ongoing supply chain woes, Petro said, “Let’s not forget. Retail is about product.”
“If you’ve got the product right, and you have correctly identified the construct of that product and its value proposition to consumers, then there’s a lot that we can fix in relation to the supply chain,” Petro said. “However, those people in most companies right now are dealing with a very dynamic environment that, I think quite frankly, is never going to change…But the challenge that the industry is facing right now it is, most companies are operating at a very high level, and don’t necessarily have a granular understanding at the consumer level as it relates to each product category.”