Upstream Focus is Sourcing Journal’s series of conversations with suppliers, associations and sourcing professionals to get their insights on the state of sourcing, innovations in manufacturing and how to improve operations. In this Q&A, PDS Multinational CEO Sanjay Jain discusses how his company’s financial strategy has helped to navigate pandemic disruption and why his customers are prioritizing agility.
Name: Sanjay Jain
Title: CEO
Company: PDS Multinational Fashions Ltd.
What’s the number one question you get from your clients now that was never really a consideration before?
What is happening post-Covid are things opening up, there is a lot of pent-up demand. The customer has been really looking forward to shop. As a result, whatever is on the shelf, whatever is in the warehouse is going away very quickly. And this behavior is expected to continue. Therefore, the customer is expecting that are we agile, are we prompt, what is the turnaround time to meet this surging demand.
At the same time the customer is looking upon us as credible suppliers who represent responsible sourcing. When I say responsible, the entire value chain—directly from raw material to the finished good at the shelf—is ESG compliant, it has minimal impact on the environment.
Thirdly, Covid has financially impacted some customers, and also financially impacted adversely some of the companies who have been supplying to the customers. When it comes to the financial creditworthiness of the supplier in terms of their continuation, the bankability, the customer is far more cautious.
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Which processes have you put in place due to Covid that you’d like to see continue even after the health crisis is behind us?
None of us had any foresight that there is going to be such a pandemic in the world, but PDS has been running its operations in a manner wherein risk, reputation and cash are very important. When I say risk, I should not be overbanking on a given customer. I should be dealing with credible, financially sound customers, but at the same time, I should not have a single customer more than say 70 percent of my overall top line of the company.
We’ve always been trying to conduct ourselves in an asset-light model. We’ve been very sensitive about minimizing the working capital in our system. Rather than getting into our own manufacturing, we’ve conducted ourselves as a platform to onboard vendor factories. And reputation-wise, when we onboard the factories, we look after their creditworthiness and respect for ESG compliance. This has an impact on our absorption of Covid impact. Since we were very careful in terms of selection of our customer, we were largely insulated from the customers getting adversely impacted.
Net-net, we managed to minimize the impact of Covid. Many retailers have been hit far more, but on an average, there has been a 20-25 percent impact on the top line. We were able to keep it close to a 7 percent decline in the Covid year. But because of our cost controls, because of our stringent management of working capital, we were able to bring our costs down by 15 percent. We were able to bring down financial charges by 50 percent. As a result, I had 80 percent-plus growth in my profits. What was expected to be a tough year turned out to be a rock performance for us.
You touched on having clients that are more stable, but beyond the financial component, how are you finding yourself evaluating potential brands and retail clients differently now compared to before the pandemic?
We assess how the retail and apparel consumption sector is going to evolve over a period of time. Are there newer categories? For example, Covid has to a large extent replaced formal wear with more casual wear. Are the customers agile and proactively able to visualize that?
Then, e-commerce has been emerging fast as our distribution medium. When Covid led to closure of the physical stores, our customers who have been proactively working on e-commerce were able to cater to customer demand.
And thirdly, the retail customers have been wanting to take a lot of footfall. They have customers on loyalty programs, so they’re actually able to, through the data, see the consumption pattern, predict the consumption behavior going forward as well, along with the age strata. As a result, they can actually with the data try and analyze what kind of category, what kind of branding for a particular product would suit the customer profile who’s visiting the factory. As a result, many smart retailers have been really working on B2B or digital brands.
On one hand, these parameters allow me to make an assessment that I’m really working with a good customer. At the same time, it also allows me to be ready as well, in terms of the expected customers’ strategy direction.
What should be brands’ and retailers’ top lesson from Covid? How can they address this in their operations?
Don’t overstock, be nimble in terms of stock points, and always embrace the newer, emerging distribution channels. The third is agility and nimbleness, because Covid changed the trends overnight.
Covid also saw the emergence of a very new opportunity in PPE—from a mere necessity to many of them also trying to make it fashion in terms of the kind of masks. PDS did $100 million dollars [in PPE]—that was around 12 percent of my sales last year.
How are you working with your factories to support quick-turn, small run orders?
You’ve got to be sensitive about what it takes a factory to make money. On one hand, you have capacity—you are one of the customers to fill up that factory. You’ve got to make an assessment that the factory I’m dealing with has adequate orders.
Every factory also needs to operate at a decent level of efficiency to get the maximum throughput. The larger the runs are, the more the efficiency level. When you have shorter runs, if you change from one product to another product very frequently, it leads to wastage.
Therefore, when I’m dealing with a partner factory, I will try and give them orders which leads to them achieving a minimum large run. That doesn’t mean 100 percent has to be larger run—with 70-80 percent longer runs and then the remaining 20-30 percent medium- or short-term runs, the factory is good. When you work with a partner factory wearing the factory lens, you are able to make it a very efficient and profitable, win-win relationship.
Where are you sourcing now, and which new sourcing regions are you either considering or ramping up today?
On an average, 65 percent of my sourcing comes from Bangladesh, and about 10 percent each comes from Sri Lanka, China and Turkey. And then the remaining 5 percent is from Vietnam or India.
I expect this present sourcing mix to pretty much remain the same going forward. The Indian government in the recent past has announced some significantly modern measures, which puts the apparel production sector into a very important spot in terms of their ability to make production of apparel cost efficient. And as a result, we would also keep a close eye on India as a sourcing location to meet our global demand.
As you’re considering where to source, what are your top considerations today?
For PDS, sustainability compliance is very important. Does the local framework within which a factory operates in a given country encourage, support, provide an environment to ensure ESG compliances? If that is the case, then it becomes a very important factor for us to put our sourcing effort into a given country, or with a given partner.
What keeps you up at night?
I sleep very well at night, so what wakes me up at times in the night is as we conduct our business, managing our risk, managing the way we conduct ourselves, managing our cash, to a large extent is in our hands. But at the same time, we deal with retail customers who’ve been adversely impacted with Covid. We always remain cautious that all our retail customers continue to remain healthy.
What makes you most optimistic?
There is a big apparel market around us. It’s an estimated $2 trillion market and growing. The world is consuming more—in many parts of the world GDP per capita is increasing—so consumption is here to stay.
What I’m optimistic about is how prepared, how have I organized myself, to make the most of this opportunity. We have carefully chosen our footprint by being asset light. We are actually a digitally enabled platform, which has onboarded 200 customers, 500 partner factories and global banks providing factoring and other facilities. For the $1 billion top line that we do, a typical apparel company would have been required to invest $500 million in fixed assets, whereas my net capital employed is not more than $150 million dollars. For me to scale up from $1 billion to $2 billion, my incremental investment is very small.
What’s in store for PDS in 2021?
We are focused on trying to increase the share of wallet with existing customers by working with them and offering them more categories. I am actually now working on home furnishings—we have started that as an offering.
We are focused on America as a market. About 11 percent [of business] currently comes from the U.S. Over the next few years, I want to double up to 20 percent.