Sourcing executives certainly haven’t been hard-pressed to uncover the industry’s problems, but hitting on solutions has proven to be a much more challenging task amid changes unlike retail cycles past.
But according to three of the industry’s leading consultancies, solutions may be rooted in a simplicity that has evaded many brands and retailers trying any and everything to get shoppers in their stores and product moving quickly through their supply chains, using digitization as the impetus. What companies need now more than ever, is a return to a more simplified, streamlined way of doing—and thinking about—business.
What’s perhaps proved a hindrance, however, is that digitization has brought with it—along with greater efficiency and transparency—a bewilderment about where to begin with it all. And that’s made companies slow to start in a race they’re already losing to consumers.
“The complexity that the industry faces is pretty daunting and it tends to paralyze many people in terms of what they need to do. So rather than looking at everything that is out there for you to embrace, adopt and go after, companies need to prioritize,” AlixPartners managing director Murali Gokki said at the Sourcing Journal Summit in Hong Kong last month. “They need to prioritize and lead change and take risks from the top down, and the more you’re able to do that and tie everything back to economic value generation and the realization of it, you will be able to gain grounds toward profitability and productivity.”
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That top down approach to adopting both the culture and the technology that will fuel the future supply chain will require the attention of a chief technology officer, who must be equally interested in choosing tools that will improve things on the product development side of the supply equation, as well as the more consumer facing side.
“The problem is that the classical CTO is focusing much more at the front end than at the back end,” McKinsey & Company senior partner Dr. Achim Berg, said. “There’s only very few typically larger players out there where the chief supply chain officer is really invested into understanding the different pieces of technologies that are out there. And let’s be fair, it’s also pretty crowded, so you need to have the time and the team to really get going.”
That team, according to Berg, has to comprise brands and retailers, sourcing offices or agents and the suppliers who will also need to adopt the same technology strategy in order for it to be effective.
“The way those strategies look will vary very significantly depending on the scale and depending on the positioning,” Berg said. “Brands where the value add is really coming from products rather than the collection will need different capabilities around design and development than the private label entity at a retailer, whereas the small players might leverage the sourcing agents and their technologies.”
Put simply, the best practices for the supply chain of the future, are centered on optimization, with digitization being one path to get there, and automation another, Berg said.
“In the end, it’s about productivity in the factories and it’s moving away from the transactional relationships to factories, to partnership-based models where you, together with your factory, optimize the output and all the transactions,” Berg explained. That improved connection and collaboration is what will help companies mitigate inescapable rising costs. “Labor costs will increase and many other cost components will increase and the industry will have to come to terms with the fact that after two decades of price deflation, we are now in a period of price inflation and consumers won’t necessarily appreciate that.”
Costs are precisely what’s gotten the apparel industry caught up in a cycle of chasing cheaper—a cycle that’s no longer serving companies as it had in the past.
“The biggest shift that the industry can do now is to transition from their laser focus on product cost toward the cost of ownership and generating product value,” Gokki said. “If you continue to fight against the $1 and thinking of it as a zero-sum game, you’re not making any progress at all.”
Instead of costs, the focus should be on transparency, Gokki said, which will largely be driven by connection and collaboration across the supply chain. That is, if companies can acknowledge that sharing is caring when it comes to business, too.
“There is still a lot of retailers or a lot of brands who are not able to exchange sales data,” PwC Strategy& Principal Dr. Axel Nitschke said. “You have to understand that the future benefit from sharing is significantly larger than the potential benefit of hiding something.”
Adding to that, Gokki said, “Transparency is a two-way street and unless companies share information more freely between each other and work as one value chain, it’s going to be challenging to meet the needs of the consumer that are there today.”
Change, as they say, will trickle down from the top, and it will take a CEO or leadership team that’s on board and open to the ideas of digitization, automation and transformation, and who is willing to lead by example in carrying the company forward. Without that, even with the best team in place, Berg said, there won’t be any change worth noting.
Navigating the changing supply chain may yet be a matter of fielding a slew of new concepts, but companies focused on the simple fact of what’s going to create the most value for their business, should not suffer from the distraction, or be held back by it.
“I think it’s less about understanding everything in detail and it’s much more about moving and starting to act and to implement and execute what is already out there,” Berg said. “So let’s get going.”