If your company has assembled an innovation team to discuss ways to modernize the supply chain, it still may not be enough to stave off irrelevance as it creeps closer to staid companies with a quickening pace.
The reason for that, according to a panel of consultants who spoke at the Sourcing Journal Summit in Hong Kong last month, is because the industry has been more focused on discussing than doing. And all that talk hasn’t served to help many know which foot to set forward first.
Retail’s disruption has been apparent for some years as consumers shop differently and seek more interesting offerings from the places where they spend their money, but what the sector didn’t seem prepared for was the disruption that’s now plaguing the back office.
“We’re now discussing about digitalization, automization [sic], personalization, and we’ve seen all of that happening on the front end,” said McKinsey & Company senior partner Dr. Achim Berg. “We’ve seen e-commerce disrupting the whole retail industry and we’re kind of surprised now that the back end is affected, and I think that’s where the industry got it wrong. Not having the foresight that that wave would hit the back end.”
It’s a misstep that’s marked major turnover, with companies filing bankruptcy left and right and quarter after quarter blaming the demands of a transition period designed to dig them out of the ditch.
Though there have been improvements as companies come to terms with the realities and apparel technology catches up to accommodate the modern supply chain, companies either aren’t embracing the technology or they’re using it as a Band-Aid in an attempt to patch a problem that’s bigger than that. And it’s a problem start-ups—which are increasingly encroaching on market share—aren’t facing, as many are approaching supply chains more simply than many traditional players can even wrap their heads around.
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“We apply technology pretty much into traditional patterns of working and that makes it terribly difficult for traditional players to compete with those new players,” PwC Strategy& Principal Dr. Axel Nitschke, said. “There’s a lot of incremental improvement within existing goals, but the real fix to that is asking yourselves, ‘how can the same technology help us to do things simpler again, to focus more on the product, to focus more on the customer?’ And that’s somewhere I think the industry is in a little bit of a transition.”
Approaching the supply chain’s problems from a slightly different perspective, AlixPartners managing director Murali Gokki thinks the chase for cheaper product has been the biggest culprit.
“If you’re asking how the industry went wrong, it’s not necessarily the industry, it is the shift in manufacturing from the developed countries to the underdeveloped countries, which started way back in the 80s and 90s,” Gokki said.
As demand ramped up for cheaper and cheaper products, the industry found ways to deliver by moving to cheaper and cheaper areas of production, but that model is just about exhausted.
“That has caused the industry to not really step up in terms of strengthening their performance, strengthening the efficiencies in the factory or strengthening the way that they work across brands and retailers and supply chains,” Gokki explained, adding however, “There’s no more cheaper countries to migrate to or areas to manufacture.”
The current call for transparency has been one force driving companies away from this outmoded M.O., but the main hurdle to overcome is the mindset that still exists among brands and buyers.
“If you go into a company today, despite the appreciating recognition of transparency in the supply chain, the day to day struggle of the managers are around cost, quality failures, on-time delivery, compliance—not social compliance violations, not necessarily contributing to compliance,” Gokki said. “I think it’s a macro condition that has driven us to where we are right now.”
In the midst of all of the supply chain challenges, the desperate need to make changes fast and the flurry to adopt new technologies they can’t fully yet grasp to speed the whole process up, another problem entered the fray: companies are falling out of touch with themselves and what they offer.
“They tend to overdo it a little bit and they focus on the new stuff and lose sight of the core strengths,” Nitschke said.
Many companies have also overestimated speed and what delivering it can do for the business, while underestimating the people side and what changing responsibilities and capabilities can do for the business, Nitschke explained.
Whichever problem pains an organization the most, it’s been clear among consultants that companies are well aware of their ills and errs and far less aware of how to turn talk into action.
“It’s less a problem of understanding or a realization of what the problem is. It’s much more a problem of execution and getting those things done,” Berg said. “There’s plenty of conceptual work out there on how to become faster, how to become more responsive, how to become more customer-centric…I think really the question is: how do you do that?”
To begin answering that question, Berg explained, companies need to aim their attention at implementation, considering, “How do you implement change in a good way and to receive benefits that are not too far away. That’s the big challenge.”