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What Fashion Supply Chains Can Do Now to Dodge the ‘Bullwhip Effect’

While factory production in much of China is returning to normal levels, the coronavirus outbreak is speeding across Italy, France, the U.S. and other nations and continuing to upend manufacturing and shipping across the globe. With any crisis that unfolds over time, there’s a natural human impulse to step back and watch to see what happens rather than gathering as much relevant information as quickly as possible and then taking decisive action based on it.

However, now is no time to be caught like a deer in the headlights. Executives at multinational fashion and apparel companies cannot delay decision making to see how this all plays out—they must prepare for business recovery now, as there will be a bullwhip effect on supply chains once the worst of the crisis is over. That is, companies that have dramatically slashed inventory to weather the pandemic will find themselves scrambling to get new product.

When that moment comes, suppliers will be overwhelmed with a backlog of orders as well as a deluge of new ones. There will be shortages, and companies that wait until that moment to get their orders in will be at the back of the queue.

Also, executives who helped lead their company through the banking crisis back in 2008 cannot navigate the COVID-19 crisis the same way, according to Harvard Business School Professor Gary P. Pisano, because that was a structural crisis—the banking sector was failing at the time. This crisis is not structural, at least for now, although the outcome will largely depend on how policymakers respond.

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The coronavirus pandemic is also very unusual in that it’s affecting both supply and demand, Pisano noted. Factory workers in many regions have been unable to go to work, so supply is down. Meanwhile, stores are closed and people aren’t shopping, so most demand for all but essential items has plummeted. Pisano thinks, however, that the overall economy should bounce back as long as the current health crisis doesn’t last past May or June. But that’s very uncertain at this point, he said.

Here are a few things global supply chain leaders can do right now to help ensure their organizations are optimally positioned to get back to business as usual as quickly as possible whenever the crisis begins to wane:

  • Continue to communicate daily with all key people and teams, including regional corporate teams, C-suite peers, employees, local factory managers, logistics partners, customers and, of course, suppliers.

Supply chain leaders need to know which orders are expected to be on time and which are not, as well as when those suppliers whose operations are suspended will come back online and how fast they think they can ramp up to pre-pandemic levels. For example, many luxury brands need to hear from local teams in Italy about when think they may be able to return to at least partial production capacity. By communicating with suppliers daily, leaders can monitor production and potential delivery delays in order to identify gaps, and then move quickly and early to plug those gaps.

Once the crisis subsides, and supply chains start experiencing the abovementioned bullwhip effect, clear communication between customers and suppliers, as well as accurate data, will become even more important, according to Pisano. He notes that suppliers will also need to watch and understand the end market to avoid sending confusing signals.

“Partnerships between retailers and suppliers must be aligned during this time,” said Steve DiBlasi, vice president of product development and global sourcing at Lanier Clothes, which manufacturers Kenneth Cole and Cole Haan men’s suits. “Clear communication is the key to getting through this uncharted and very challenging time. Knowing what retailers need and anticipating the right inventory is the key.”

  • Take accurate inventory of all stocks to identify what can be used as soon as production returns to normal, and work to get all needed materials in stock now. When the logistical chaos hits as soon as the worst of the crisis is over, companies that have planned ahead can use their in-stock materials as a bridge if there’s an outage or delay until supply deliveries stabilize.
  • Put orders in now instead of waiting a few weeks to see what you’ll need then. Global supply chains will be overwhelmed with orders as soon as production and shipping return to more normal levels. Those who wait until then to order will be at the back of the line and face additional delays that may run from weeks to months.

Factories will work overtime to meet demand at that point, but some will overpromise and underdeliver. Companies that waited too late to order will face input delivery delays, shipping bottlenecks and increased costs when having to choose to ship goods by air at the last minute instead of by sea.

  • Build in delivery delays and logistics disruptions. Prebooking air freight and trucking capacity now will help alleviate the effects of the crush when producers in multiple regions start coming back online. Those who planned ahead will have an edge over those who waited to secure shipping capacity.

The global retail and fashion industry should be preparing now, so when suppliers whose businesses are currently disrupted restart manufacturing operations, production of finished goods can also restart right away. Supply chain leaders who act decisively now and plan for how they will return to normal at the first opportunity will be much better prepared to recover from the pandemic crisis than those who wait to react.

As managing director and president, worldwide, of Chargeurs*PCC Fashion Technologies, Angela Chan oversees all operations and business functions for the world’s leading interlining company, a division of France’s Chargeurs Group. Prior to joining Chargeurs in February 2018, she served as chief sourcing officer and SVP of global business development at Destination XL, an international multichannel men’s apparel retailer. Her previous experience includes executive positions with major clothing companies such as Rocawear and Redcats and several years as a consultant with Gerson Lehrman Group, where she performed analyses of retail and fashion companies for corporate financial investment firms.