Supply Chain Spending in Tight Budgets
In these times of weak consumer demand and high interest rates, corporate belts are tightening. Resources are declining for some previously top priorities, such as environmental, social and governance (ESG) compliance. So, what are fashion and consumer goods supply chains spending money on today?
It all comes down to corporate priorities.
A couple of years ago, top spending priorities ranked in order:
- Supply Stability,
- Cost Containment
Today, cost containment heads the list. In a recent U.S. Bank Survey of 1400 finance leaders, the trend of demoting growth as a priority is evident. “There are clearly concerns about where revenue growth is going to come from,” explained U.S. Bank Senior Executive Vice President Stephen Phillipson. “So, you get a focus on expenses.”
Driving revenue growth fell from the second highest priority (35% in 2023) to the fifth spot this year (23% in 2022). The U.S. Bank team calls this a shift into “defense mode”. Respondents to their survey cited the following top three priorities across the entire business for 2024.
- Cutting costs and driving efficiencies (33%)
- Deploying technology (32%)
- Improving risk identification and mitigation (31%)
As was the case in 2022, the finance leaders’ three most important business risks today are talent shortages, the pace of technology change, and high inflation. Several perennial key risks have fallen on the agenda. For example, changing consumer demand declined from 29% to 21% as businesses have adjusted to post-pandemic consumer behaviors and preferences. At the same time, fewer consider supply chain disruption a major threat, as global bottlenecks and shortages of goods and components have eased. 23% now consider rising interest rates a major risk, compared with 17% a year ago.
Brand and manufacturer responses to U.S. Bank’s survey broadly mirrored the broader industry group, although they were significantly more cautious about interest-rate risk and regulatory changes.
Pulling Back on ESG Initiatives
The survey also found that finance teams have halted some ESG-related work. For example, just 25% are currently assessing the risk that climate change poses to the business’s operations and supply chain, compared with 45% two years ago. The drop-off in activity could be due to companies cutting back on ESG activities, as only 58% say their business focus on ESG activities has increased in the past 12 months, compared with 71% two years ago.
“Inflation is causing a lot of trade-offs to be made against other priorities, including sustainability and broader ESG objectives,” smart procurement expert Alex Saric told Sourcing Journal in September. “With margins growing thinner, concerns about the bottom line are trumping sustainability goals.”
However, reluctance to spend now on ESG initiatives opens companies up to ESG risks, significant penalties and potential missed opportunities in the future. This risk increases as regulations that require businesses to report ESG metrics rapidly grow worldwide.
Achieving Cost Savings
When asked how they expect to deliver cost savings, most finance leaders said they will invest in technology. Specifically, data analytics, AI and cloud computing are their tech investment priorities.
However, finance leaders see several challenges slowing their companies’ efforts to digitally transform their supply chains. Their top three concerns are:
- Reluctance and resistance to change (40%)
- Lack of enterprise-wide digital transformation strategy (37%)
- Lack of awareness of new technology and its potential benefits (34%)
Clearly, many are finding it hard to determine which technologies can provide the biggest bang for their shrinking buck.
Specifically designed for fashion and consumer goods supply chains, the latest BlueCherry® Shop Floor Control Essential solution brings a proven track record of impressive cost and time savings. It empowers suppliers to reduce costs and improve productivity and overall product quality. It also serves to minimize non-productive time and improve on-time deliveries.
Stability Becomes Paramount
Aside from the need to decrease spending, supply chain resilience has taken center stage. Much higher levels of collaboration across the complete supply chain are required to combat the continuous disruption fashion and consumer goods companies have been experiencing for the past several years. Sourcing teams need to understand suppliers’ ability to deliver on time.
Unfortunately, most buyers lack insight into basic production metrics like capacity, productivity, downtime and defect rates. Manufacturers often maintain KPls manually, with no simple and reliable way of sharing them. As a result, both parties fail to achieve the cost savings and stability needed today.
While oversight of Tier 1 suppliers is relatively easy to achieve, few companies have visibility across multiple tiers of their supply chains. Most organizations today are still at a basic level, with a long way to go to achieve such “N-tier” visibility.
Tighter collaboration with suppliers becomes even more vital as brands and retailers seek to diversify sourcing. The pandemic and geopolitical tensions between the U.S. and China have awakened them to the need to spread their business to other regions, including reshoring and nearshoring in the Western Hemisphere.
New cloud-based applications can enable the exchange of data between buyers and suppliers.
BlueCherry® Shop Floor Control (SFC) provides sourcing teams and suppliers with previously unattainable real-time visibility and collaboration. It provides the real-time information they need to track production milestones and monitor order status, line and factory productivity, quality, and compliance metrics. Given this knowledge and oversight of supply chain operations, sourcing teams make faster, better-informed buys, inventory allocation, and operational decisions. Relationships are improved when buyers work with suppliers with solid digital communications that make it possible, for example, to collaborate on cost reduction initiatives and monitor ESG and regulations compliance.
In addition to new technology, highly effective supply chain collaboration requires a willingness to share information. The latter requires a paradigm shift, as comprehensive information sharing between buyers and suppliers is not inherently present in most fashion supply chains.
Still, the age-old reluctance to share information is beginning to break down. Most companies now know this is the right thing to do as long as they have control over what is being shared. Some buyers are also accepting higher pricing for goods that reduce significant risks and are beginning to base decisions on total costs instead of simple cost per unit.
For business and supply chain leaders, the next few years will likely see too little money chasing too many projects. Some tough decisions will be needed. For fashion and consumer goods supply chains, BlueCherry SFC provides the biggest bang for the supply chain investment buck.
Visit the Website and Download the brochure to learn why many fashion and consumer goods companies see BlueCherry SFC as the simplest path to making supply chains more cost-effective, efficient and transparent.