Outlook 2013: Ten supply chain takeaways
Apparel industry executives canvassed by just-style for this year's annual management briefing on issues to watch in the year ahead are cautiously optimistic there will be some improvement in the business environment in 2013.
But when it comes to sourcing and the supply chain there's a lot of talk about facing up to the 'new normal', an environment where supply exceeds demand, conditions remain intensely competitive, margins continue to be squeezed, and retail buying patterns favour smaller quantities, shorter lead times and a need for greater flexibility.
1: Managing a more inflationary environment. Cotton prices might have eased, but the issue of rising production costs across the industry (materials, wages, inflation, utilities, transportation, currency exchange) is not going away. Indeed, cost was the single most important challenge cited for the year ahead - with one leading manufacturer preparing to put its prices up this year for the first time in a decade.
2: Build strong strategic partnerships. With production costs rising but retail prices staying flat, the challenge is how to improve overall efficiencies and maintain margins without affecting quality, design and availability. The supply chain will need to work much more closely from end to end, with closer collaboration and strategic partnerships to improve efficiencies and productivity, quality and working environments, executives say. Creating longer-term partnerships can also help lower overall costs.
3: Stand out from the crowd. Another way suppliers can help develop a leading edge is to differentiate themselves from the competition. Cost, speed, quality and an ability to handle better and best products are key, but other areas are increasingly important too when it comes to building long-term relationships, including a focus on sustainability, CSR, design, inventory management. The best product is not necessarily the cheapest, but one that can help retailers make the best margin, reduce inventory levels or improve stock turns.
4: Don't put all your sourcing eggs in one basket. A more strategic - and longer-term - approach is also required when it comes to planning production. This may involve a combination of global and local sourcing strategies designed to minimise lead times, chase full price revenue, as well as capitalising on preferential trade arrangements: changes to the European Union's (EU) Generalized System of Preferences (GSP), DR-CAFTA, and the Trans-Pacific Partnership were all singled out. The opportunity to simply switch countries or vendors to obtain significantly lower prices is a thing of the past.
5: Do the right thing. As pressure mounts for faster speed and lower cost, retailers and brands need to think twice about making sourcing decisions based on cost alone. Recent factory fires in Bangladesh and Pakistan should be seen as a wake-up call to the industry that asking manufacturers to improve working conditions while at the same time squeezing margins does not make sense. The apparel industry will come under increasing pressure to be transparent, traceable and accountable on social, safety and environmental issues - and the unions and activists will be watching ever more closely.
6: Shortage of skills. Creating the supply chains of the future requires skills - and the lack thereof is an ongoing concern. From design, through sourcing to the factory floor, a lack of the "right people" was lamented. Companies should be investing in new skills to ensure they have the capabilities they need to succeed in the years ahead, while brands and retailers must understand production and processes if their expectations on what can, and cannot, be done are to be met.
7: Offline versus online opportunities. The rise of multichannel - in store, online, mobile - is a big challenge, as well as an opportunity, for apparel businesses if they want to improve sales and profits in 2013. One of the main issues here is creating a seamless shopping experience across a fragmented set of channels, bringing together customer intelligence, stock systems, fulfilment and customer service.
8: Don't under-estimate data. Advances in technology are creating huge amounts of data - so make use of it, our respondents said. At one end of the spectrum, data on the true end-to-end costs of sourcing product can be used to balance cost by region with quality, delivery requirements and levels of risk and flexibility. At the other, retailers can use data about individual customers to personalise the shopping experience, tailor their pricing and promotions, and apply that knowledge to help boost sales.
9: Adding value adds a competitive edge. Although consumers remain under pressure, an element of "fast fashion fatigue" means many are now paying increased attention to quality and will pay a premium for the right product. Adding value through strong branding, design, detailing, designer collaborations, and smart product innovations - and ensuring speed, accuracy and agility in delivery - can help to break the cycle of discounting, as well as justify higher prices and protect margins.
10: Listen to the customer and keep retailing exciting. Consumers will continue remain in the driving seat in 2013, and retailers and brands need to make themselves compelling and exciting if they want to improve sales and profits. Investment in stores, in channels, in product, in experience and in service are key, as is clear segmentation, both by price but also by theme, lifestyle or trend. But the whole supply network has a role to play too, by working together to ensure great products are delivered to end customers. The supply network that accomplishes this at the highest level will win.
Click on the following links to read all articles in the Outlook 2013 report:
Outlook 2013: Apparel industry challenges
Outlook 2013: Apparel industry opportunities
Outlook 2013: Other issues to watch
Outlook 2013: Lessons that should have been learnt
An interactive databank with intelligence on the major apparel sourcing countries
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