Changing relationships key to competitive supply chain
Mark Green, executive VP, PVH Far East Ltd
There has been a lot of talk in recent years about the need to develop more strategic relationships between retailers and their suppliers to improve flexibility and add value across the supply chain. But according to Mark Green, executive vice president of the global supply chain at apparel giant PVH, the biggest changes in sourcing are yet to come.
"When we look at the world of sourcing, sourcing trends are coming at us more quickly than we had ever imagined," Green believes.
"We're moving from price to value, from bulk purchase orders (POs) to just-in-time, long lead times to speed and flexibility, product development is now focused on innovation rather than just tech-pack execution, compliance is evolving to energy efficiency and sustainability, standardisation is now becoming customisation, quality is now about quality assurance, and factory efficiency is now about lean manufacturing and lean production."
Not surprisingly, this means customer and supplier relationships are also moving at a tremendous pace.
"We're going from a PO-focused and very transactional model to the evolution of a supply chain concept, and this idea of working more collaboratively with our vendors.
"From there we're starting to see the emergence of a value chain, and a value chain involves a much more integrated relationship with the vendor base."
Green, who is responsible for all offshore sourcing offices and operations at PVH Corporation, owner of Calvin Klein and Tommy Hilfiger as well as a stable of heritage brands that includes Van Heusen, Bass, Izod and Arrow, says another emerging concept is that of a supply chain eco-system, "where there is complete inter-dependency between retailers and their producers."
So what does all this mean from a relationship perspective?
"The old way of working, with POs, was very much 'them and us'," Green explains.
"Information was guarded; you never told your vendor anything about what you were paying, the relationship was a purely transactional negotiated relationship. KPIs (Key Performance Indicators) were totally conflicting. The factories just wanted to make as much money as possible; you just wanted to make as much margin as possible."
Now though: "We're moving towards collaborative planning and forecasting. There is a growing awareness that if we tell our factories more, if we give them a 12-month view, if we give them some stability, then we will get a payback."
This, he says, comes in the form of improved productivity and improved efficiency - which "will get passed back to us in terms of a better price."
He continues: "We're fairly aligned with the idea of sharing our vision and our goals. We believe in a greater level of transparency with our supply base as it feels good and feels like we're getting more of what we need: it's more of a win-win scenario."
The value chain
Even more rewarding, it seems, is the value chain.
"We're not talking about initial mark-ups any more, we're talking about speed to market, reduction in markdowns, maximising top-line sales, facilitating speed models.
"And the only way we can do this is by having a far greater degree of transparency with our core vendors, so that we allow them to plan, to work with us in terms of forecasting, in terms of smoothing production.
"We talk about open books, we talk about having transparency on cost. We want our vendors to make money and we want them to be profitable, we want them to want to give us capacity - because one thing that's for sure is that in the future there's going to be a lack of capacity, particularly in the good factories.
"So we're starting to work a lot more with our supplier bases on end-to-end supply chain solutions, lean manufacturing models, and just-in-time relationships."
Where this is heading next, Green suggests, is what he calls an "eco-system", a symbiotic relationship between retailers and their suppliers.
"Its about a total inter-dependency, so that if my brand is doing well my suppliers are doing well.
"My goals within PVH should be the same goals as my core suppliers; their KPIs should be the same as my KPIs, I should be sharing my profits with my suppliers. We're looking to ensure that everybody is working within this total end-to-end supply chain in a totally inter-dependent way."
Green admits this all sounds "a little bit strange and weird", but he can already confirm "some of these relationships are starting to work and shape up.
"And that way I call it a win-win-win: a win for the customer, a win for the retailer and a win for the suppliers because everybody benefits from the collaboration."
Vision and reinvention
Creating this inter-dependency not surprisingly requires leadership vision, and the ability to understand where the industry is going in the future.
In particular, the industry must learn to embrace change, Green believes.
"The survivors in retail today are the ones that reinvent themselves and stay relevant. So as leaders we've got to be flexible, we've got to embrace change as we work towards this new kind of relationship."
There also needs to be a move away from a blame culture. "For me, culture is the oil in the machine. If you don't work on the culture, the best processes, the best factories, the best systems will not work.
"You've got to have an environment where people feel very comfortable escalating and sharing issues, not just internally but within your supply chain - because if you can't escalate issues incredibly fast, you can't solve them.
"And when you move to a speed environment you have to have a culture that facilitates that continuous improvement, and nobody feels threatened."
Ultimately, Green points out, there is only one customer and that is the person who is buying the product. Everybody else in the value chain, the eco-system or the supply chain, is both a customer and a supplier.
"I'm in a buying office and I have a duty to give my customers good forecasts, orders on time, share my brand vision.
"And if everybody works together with the mind-set that all of us are trying to give that customer what they want, at the end of the day it changes the way that you think and it changes the way that you behave. And it just helps you to facilitate growth towards that inter-dependent relationship.
"We're a long way away from where we're going, but I do believe we're going there very fast. The survivors in the next ten years will be the people that grasp that and get ahead of the game, and start to make themselves invaluable to their customers.
He's also adamant that as differentiation at retail becomes harder and harder, retailers are increasingly looking at the supply chain to give them a competitive edge.
Not just when it comes to speed, reducing markdowns, and improved initial mark-ups, but also a shift in the services offered offshore, in everything from production tracking to quality control.
"Most of the more conventional areas are being worked on by most retailers" - such as fit approval in region, colour approval in region, fabric management, quality, and production management.
"The real unlock will be when they start putting a designer in the region or a merchant in the region, but we're probably a few years off that."
Mark Green was speaking at the recent Prime Source Forum in Hong Kong.
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