The past 18 months have represented a period of extreme volatility across the retail landscape—and shoppers aren’t the only ones dealing with fiscal anxieties and budget constraints.
Costs are in a state of flux for sourcing players, from labor to logistics. “I think cost has always been a challenge, irrespective of what time we are living in,” whether pre-pandemic or in a post-Covid world, Devender Gupta, co-founder of Asmara International Limited said at Sourcing Journal’s Fall Summit last week.
The international manufacturing group with operations in Hong Kong, Turkey, India, Pakistan, Bangladesh, Vietnam, China, Indonesia, Spain, Myanmar and Sri Lanka has never seen a time when its customers weren’t looking to save money despite increases in operational overhead, he said. “You’re always looking to find ways to cut corners in spite of wages going up, the cost of living going up—you know, that’s a reality,” Gupta said.
“I think the good thing which we see in the industry is that there is a lot of thinking in terms of how you can use the technology in the best way possible, how you can have better systems, leaner way of working, and be more flexible in your mindset,” he added.
That evolution is critical when “every six months we see another headwind, but it’s not the same headwind continuously,” said Li & Fung‘s Jason Kra.
“So how do you think about end-to-end service? Because something is not going to be optimized,” whether it’s spot rates on shipping from a certain country or trouble obtaining raw materials, Kra said. “But if you can think about the average service and how you make it work globally, that’s kind of where you kind of make your win.”
Kra said geopolitical instability including the trade war with China exposed not only the supply chain’s weak links but also the need for a more globalized outlook.
The U.S.-China trade war that broke out in 2017 was the first “signal” that 20 to 30 years of “incredible stability” in sourcing was going to crumble and prompted companies to begin diversifying their supply chains.
“That shift was really critical, but if you think about Covid as a test, did we do the right job?” Kra said. He went on to say companies should take a much more sophisticated view of sourcing than they have in the past and diversify not just by picking new countries but new regions and even new areas within existing sourcing destinations. It’s not enough to set up new sourcing operations within Asia, for example, if a global event makes trade with that region challenging or impossible.
“That balance is what we’re trying to figure out and get to but I think most people in this room would say looking back on it, we were probably not diversified enough,” Kra said.
“Jolts now are going to be global in nature—they won’t be so regionalized, so we have to be redundant and have a supply chain that can back up every category to another region,” he added. Manufacturing one category in one region alone is “a recipe for disaster” if disruption strikes.
The same goes for sourcing raw materials, according to Gupta. “One very big trend which has emerged after the logistical nightmare which everybody went through is… creating a better raw material base,” he said. China remains a critical source for cotton and components that are hard to find in other regions, but more countries are beginning to invest in becoming self-sufficient. Even Chinese suppliers are investing in creating upstream supply chains outside of the country.
Changes in legislation are likely to accelerate diversification, said Juliette Barre, director of enterprise sales at Sourcemap, a full-service provider of supply chain transparency and traceability solutions. The Uyghur Forced Labor Prevention Act, “and forced labor bans in general,” are pushing brands to get to know their supply chains much better. “Upstream, chain of custody traceability went from a ‘nice-to-have’ for the few leading companies in the sustainability space… to mandatory to do business,” she said.
Over in the E.U., legislative proposals around deforestation, forced labor and greenwashing are already driving brands toward technology such as supply chain mapping software. “You can’t say you’re organic if you can’t prove it anymore,” Barre said by way of example, and it “comes back to using traceability and chain of custody to prove all of this.”
“It’s still a new exercise for a lot of companies to get to know who is in their upstream supply chain,” she added—especially beyond finished goods manufacturers. The pandemic fostered a sense of partnership between brands and their Tier 1 suppliers, but upstream partners “from the ginner to the spinner, the farms, the traders, and the coops” remain mysterious “black boxes” for many.
That’s something Barre said needs to change. “If you’re not willing to get to know your supplier… you won’t be able to go very far to address the compliance issues,” she said.