November 10, 2022

Supply Chain Management is Forever Changed

Supply chain management forever changed

Today’s fashion and consumer goods companies face a stark reality; they must rethink virtually everything about their supply chains. What’s driving this is, quite obviously, the massive changes of recent years that include factory lockdowns, record-high inflation, labor costs and shortages, unsettled consumer demand, sustainability interests, and a host of other constraints.

The impacts to supply chain management are profound. This is evidenced by the fact that the terms “supply chain” and “supply chain management” weren’t even generally used outside of business before the pandemic. Remember how, just a few years ago, we used to have to explain to folks what supply chain professionals are and what they do? More recently, shortages and empty shelves at retail - think toilet paper and baby formula – have put the supply chain front and center with the entire world’s population. These days, supply chain issues are blamed for virtually every out-of-stock and price increase, regardless of the actual cause.

The impacts also include a massive shock to the supply chain management profession. While many talented employees’ careers were advanced, others burned out and left the profession.

All of this highlights the absolute need for more robust supply chain management.

Reorganizing Supply Chain Networks

According to an August 2022 survey conducted by  Gartner, 74 % of supply chain leaders made changes to the size and number of locations in their supply chain network in the past 2 years. 51% of the more than 400 respondents said that they increased the number of locations, while 23% said they reduced the size of their network. 24% reported making no changes to the number of locations, but they have increased the inventory capacity within the network. Overall, more than one-half of survey participants reported making changes to manufacturing and supplier networks supporting at least 20 percent of revenue.

“There’s clearly a supply chain redesign underway, but not everyone is moving in the same direction or even to the same extent,” said Kamala Raman, Vice President of the Gartner supply chain practice. “Supply chain leaders have been modifying networks in a number of ways, be it with expansions, consolidations or simply modifications to buffers—which are more reversible than footprint decisions. The signs are clear that in a fragmented world, global firms have been making changes to their heavily cost-optimized, one-size-fits-all networks, and now favor a mix of global, regional or local elements.”

Industry Leaders Make Bold Moves

Many retailers have tried to build their own vertically integrated supply chains. Still, American Eagle Outfitters (AEO) Chief Supply Chain Officer, Shekar Natarajan, recently told Sourcing Journal that retailers and brands should be working together to make these efforts work. “Building more assets and buying more resources is not the answer – sharing is.”

Designer Brands Inc. (DBI) plans to pull back on manufacturing in China. The owner of DSW revealed earlier this year that it is committing to cut its percentage of China-sourced goods from 80 percent to 50 percent by 2024.

“The reality is we don’t want to be that invested in one country,” Bill Jordan, president and chief growth officer at DBI, said at the company’s annual Investor Day in April. “We want to be able to source every category of goods that we make in at least two countries. Doing that will diversify and limit our risk but will also open up speed and cost opportunities for us.”

Specialty apparel retailer Gap Inc. is looking to strengthen its nearshoring capabilities, recently committing to increase Central American sourcing by approximately $50 million per year for a total of $150 million by 2025. To guard against issues, Gap limits the percentage of production allocated to any particular region or nation. “Everything we do in the supply chain is to mitigate risk and to get our best possible combination with the lowest possible risk,” said Alex Thomas, Vice President of Global Quality.

 Komar Brands is also looking at nearshoring. Speaking at the PI Apparel Supply Chain Forum 2022, VP of Production and Sourcing, Yelena Mogelefsky, said, “All of a sudden, nearshoring and finding factories closer to home have a whole new meaning. Can I afford to pay a little bit more but ship quicker? And sometimes, that answer is yes.”

Mogelefsky added that FOB cost “might not be the end all, be all when deciding where I place products.” Among the factors being weighed is the cost of logistics, including container prices. One of Komar’s strategies has been to cluster orders at factories so it can fill containers for maximum value. “In recessionary periods especially, how fast you get product could be just as important as how much that product cost. In a time when stores don’t want to buy as much, if you can be the person that fulfills back orders, if you can get goods in faster, I think that you have the upper hand.”

“China Plus One” Persists

Amidst all the discussion around nearshoring, China continues to get the most attention in any supply chain conversation. 95% of respondents in the Gartner survey said they are evaluating changes to their China sourcing and manufacturing strategy, and 55% of those have already acted on these plans.

Even so, Gartner believes that most organizations are still operating with a “China Plus One” approach by leaving most of their China-based network intact and placing net new additions in other markets. Many of those that are diversifying from China are moving work to other Asian countries.

Reducing Supply Chain Risk

Regardless of the supply chain model you use, events of the past few years have also made clear the need to improve supply chain risk management.

Many organizations had already begun to beef up their supply chain transparency and control by deploying collaboration and factory management tools. But, before the pandemic, investments in supply chain risk technologies and initiatives were difficult to justify. The reality is that companies often hold off on supply risk management until after a disaster hits.

With substantial risks realized over the past few years, many are now embracing supply chain risk management investments. In evaluating these technologies, they are finding some of these solutions are very good at identifying risks in real-time, but only one tier up in the supply chain. In other words, they fail to provide visibility across multiple levels of suppliers. This “n-tier problem” is a common challenge in Asian and other complex supply networks.

Retooling Your Supply Chain

Fortunately, the latest information technology solutions from CGS can help you significantly reduce supply chain risk by gaining visibility and control over your N-tier suppliers. The newly reimagined CGS BlueCherry® SFC Essential™solution empowers manufacturers and sourcing teams with the transparency needed to track the real-time status and get answers immediately as factory floor activities occur. It gives retailers, brands, and manufacturers the real-time information they need to head off, pivot, address problems and make course corrections in the face of quality problems, supply delays, non-compliance and other issues. Built-in Advanced Analytics feeds the automatically collected real-time information directly to dashboards that can be viewed on desktops or mobile devices anywhere internet service is available.

To learn more about how CGS is helping fashion and consumer goods supply chains digitize and optimize their operations to meet today’s business challenges, download the free "How to Build Better Supplier Relationships While Boosting Efficiency" whitepaper. For more information about CGS’s complete line of integrated supply chain solutions, visit the website.