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Where Are the Supply Chain’s Biggest Growth Opportunities?

Although the e-commerce boom of the Covid-19 pandemic may have decelerated since 2021, brands still consider digital sales to be the ultimate retail growth driver. But the overall priority list for businesses is seeing a bit of a shift as more firms aim to reconfigure their supply chains in an ever-changing landscape.

According to the CGS 2023 Supply Chain Trend Report, 87 percent of approximately 350 executives from the fashion, apparel, footwear and home goods industries called online sales an “important” or “very important” growth opportunity.

While e-commerce remains top of mind for these softgoods companies, the second- and third-largest growth opportunities illustrate how the climate has changed for these industries. Sustainability and ESG initiatives are cited by 84 percent of respondents as vital, while 79 percent highlighted the need for diversification in new market segments/channels.

The rhetoric for the latter has even gained significant traction recently among not just retailers, but trade associations as well, with Footwear Distributors of America CEO and president Matt Priest recently calling for companies to look for production options outside of China.

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When CGS unveiled the 2022 version of the report last year, neither of the two new growth opportunities outlined were considered high priorities, with sustainability/ESG ranking sixth and diversification not even registering among the top eight opportunities.

“Consumers were driving this sustainability shift, as they are now more willing to pay more for products that were sustainably produced,” said Daniella Ambrogi, global marketing director at CGS. “But these investments in sustainability aren’t just consumer-driven anymore. Companies are making the shift as more ESG compliance regulations have emerged, and more technologies are available that can curb waste and emissions.”

Cost reductions hit the supply chain

Increasing sustainability and ESG investments also ranks second as far as total business improvement priorities go, according to the report.

But tops among the survey’s respondents is perhaps the most relevant to overall global concerns—reducing costs. With a global recession very much still in play, retailers are all looking for ways that they can cut expenses. The ranking comes as no surprise, especially when Amazon CEO Andy Jassy called cost-cutting the company’s number one priority in 2023.

The emphasis on cost reduction is understandable when the greatest supply chain challenge respondents have to handle in 2023 is inflation/economic uncertainties, with 63 percent calling it a serious problem. Another 31 percent called it a moderate problem, illustrating that just about every actor in this environment is impacted to some degree. Another 55 percent point to labor shortages or rising labor costs as a serious concern, while 49 percent shared similar worries regarding price and margin pressures.

“There’s an industrywide need to reduce costs to be profitable among brands, retailers, manufacturers and factories alike,” Ambrogi told Sourcing Journal. “Manufacturers and brands have to work together to enable processes that make products cheaper and more cost-effective.”

In yet another example of overall macro tides turning, Ambrogi noted that cost reduction wasn’t an area of focus among respondents in last year’s report.

Ambrogi told Sourcing Journal that companies seeking to step up to these challenges—whether it be expanding their e-commerce presence, bolstering sustainability and ESG initiatives or cutting costs—will need to ensure that the brand-manufacturer relationship improves going forward.

“To start the pandemic, the brands held the power, with many cancelling orders with manufacturers when they realized there wouldn’t be demand for product,” Ambrogi said. Relationships have recovered since then, but both sides must continue to build a more collaborative partnership. On the other side, manufacturers must be more prepared to deploy technologies required to bring their brand partners more visibility into the supply chain.”

It appears more companies across the supply chain are operating with a sense of urgency to rectify this. Forty-seven percent of respondents told CGS that they have already strengthened their supply chain relationships, with another 44 percent saying they plan to do so.

In aligning all supply chain stakeholders, areas like supply chain visibility and demand planning are expected to improve as well. As many as 87 percent of execs said they are either taking action to improve supply chain visibility and demand planning, or at the very least planning to act.

Supply chain execs call digitalization ‘average,’ but are gaining confidence

Digitalization initiatives within the supply chain would ideally deliver improvement in these areas as well, but companies by and large still consider themselves as middle of the pack. Fifty-six percent of companies described their digitization efforts as “average,” the CGS survey said.  

Only 8 percent of respondents called their supply chain digitalization efforts “excellent,” while 22 percent said their work was “above average.” Another 14 percent give themselves poor grades of “below average” or “very poor.”

Most brands are at least trying to make newer solutions work for them—70 percent either have or plan to implement technology to support process digitalization, such as PLM, ERP, inventory management, demand planning, supply chain tracking or logistics management.

As businesses continue to adopt modern supply chain technology, they are gaining more assurance that the efforts will work out. Only 23 percent of respondents said they had high confidence in their supply chain, while 63 percent said they had moderate confidence. While these numbers might not seem promising on the surface, they are strong indicators of improvement from 2022. Just 54 percent of execs expressed either high and moderate confidence last year.

Although 12 percent of execs rated themselves as having low confidence in their supply chain operations, that number was nearly half (46 percent) of those that expressed low confidence in the year prior.

“2023 is actually the first full post-pandemic year where there’s a sense that the supply chain can return to some form of normalcy,” Ambrogi said. “In 2020, there was a misalignment in demand, in 2021, there was no product, and in 2022 everyone was overstocked.”