The sourcing and manufacturing landscape may be forever changed by the fallout from the pandemic, according to industry executives.
Operational and logistical headwinds, material shortfalls, macroeconomic uncertainty and geopolitical unrest have forced an evolution in the strategies and processes keeping businesses afloat, according to Macy’s senior vice president of sourcing, product development and production Bryan Riviere.
At Sourcing Journal’s Fall Summit on Tuesday, Riviere said companies should look to the innovative methods they used to survive the pandemic as a roadmap for future success, taking positive learnings into the next chapter of challenges. “We have a small team and we had to be efficient, we had to be effective, we had to be agile, we had to make quick decisions with the limited resources that we had,” he said. Those tests have illuminated new solutions and fostered resiliency.
Macy’s prioritized virtual prototyping from Clo 3D and digital collaboration tools to keep its team and suppliers collaborating without interruption when physical meetings were impossible. “We had vendors adopt virtual showroom capabilities so we could actually visualize products as they would look if we were developing them in our showrooms in New York City,” Riviere said. Macy’s empowered vendors to conduct quality assurance testing and pre-production sample approvals on behalf of the company, allowing for less friction and more forward movement.
Macy’s soon realized that “the accomplishments and the decisions and all the things we were able to execute were arguably as efficient and as effective as pre-Covid,” Riviere said, despite the fact that it was sourcing and developing product with a much leaner staff. Now Riviere says he trying not to gain the “fat back” that Macy’s shed during the pandemic, having learned the downsides to too many cooks in the kitchen. “Now we’re operationalizing some of the efficiencies that we deployed during Covid, so they’re part of our normal way of doing business and making profits,” he added.
Sparc Group chief sourcing officer and executive vice president Barbara Fevelo-Hoad agreed that there’s no going back to 2019’s way of working. The company’s operating costs continue to fluctuate even as pandemic-era issues like port congestion wane. Fevelo-Hoad said brands should look for cost-saving opportunities to brace for an economic downturn. During the pandemic, prices on goods and services rose so quickly that “there were so many changes in the marketplace that we had to constantly cost, re-cost and reengineer in order to meet the pricing that we needed,” she said.
Sparc will continue that strategy, Fevelo-Hoad said. “Going into 2023, you really need to isolate all the different elements because they’re not going up the same, and certain costs as we know [are] flattening,” she added. For example, the cotton and freight prices are falling, but brands need to strategize about the right time to buy raw material and account for the differences in shipping rates from different sourcing locales. Because mid-tier Sparc Group brands including Aeropostale, Lucky Brand and Nautica face greater market volatility than luxury brands, the company is strategizing a more balanced approach to inventory levels and product buys moving into 2023, she said.
And while she believes that the industry is unlikely to see pre-pandemic rates on transportation or production anytime soon, Fevelo-Hoad said looking back to 2019 helps benchmark costs. “It was when factories were running at full capacity, it was when vessels were sailing on a regular basis, it was when containers were available,” she said. “So it really calibrates for you what is possible.”
Despite the challenges posed by unpredictable costing, Qima senior partnership director Michael Bland said the quality control group’s data shows that brands sourced 8 percent more apparel and 6 percent more footwear over the past year. However, China’s zero-Covid policies and resulting production restrictions might skew this data. While China’s sourcing volume is up by between 11 percent and 12 percent from 2021, Bland said that the country’s share of the sourcing pie has actually shrunk since the Covid crisis began, pointing to ongoing supply chain diversification.
“If you look at the split in geographies two years ago, as we were in the beginning of the pandemic, China was about 61 percent of sourcing for the apparel industry, and now it’s 51 percent,” he said. Meanwhile, Vietnam’s share of apparel sourcing has grown 63 percent year over year in Q3, after labor challenges during the first half of 2022. “Bangladesh has been up about 15 percent, India is up 42 percent year over year,” he added. With the interest in nearshoring growing, Mexico and Guatemala’s apparel sourcing has grown about 30 percent.
Western companies have accelerated their commitments to ESG and CSR in recent years. Efforts to better the lives of workers throughout their supply chains come at a greater cost to brands, especially when forming new sourcing relationships. But the current sourcing reset could be an opportunity for brands to do well while doing good, Bland said.
“We’ve done studies internally and there is an extremely strong correlation between factories that produce quality goods and factories that have the highest ESG scores,” he said, adding, “a well-trained, happy workforce is going to make better quality products.”
“When you think about the cost rising, you’re absolutely right,” Bland said, “but that cost can be an investment that drives your top line sales and makes you more profitable.”