Repairing the broken buyer-supplier relationship - Just Style
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Repairing the broken buyer-supplier relationship

By Georges Corbineau 06 May 2021 (Last Updated May 6th, 2021 14:17)

A year into the pandemic that shook the world and exposed the fragilities that exist in the global apparel supply chain, we take a look at the impact on the buyer-supplier relationship.

Of all the eventualities clothing suppliers and brands had on their lists pre-2020, it’s a safe bet a global pandemic wasn’t one. Covid-19, its rapid spread across the world, and its subsequent impact on consumer spending quite literally threw the industry into turmoil.

The pandemic reinforced two things: the fragility of global supply chains and the power imbalance between suppliers and buyers. As of December 2020, UK retailers alone had cancelled orders worth GBP730m with Bangladeshi suppliers according to The Times; their US counterparts, around $500m.

As the global apparel industry now works on building back better, several questions remain: Have those two things changed? Will they change? How and why do they need to?

“As you would expect, the pandemic has placed huge pressure on apparel retailers since the Covid outbreak in 2020,” explains Daisy Hammond, director at supply chain expert Capgemini Invent.

“The buyer-supplier relationship has become very transactional. Not only is this inefficient, it doesn’t allow for brands to build and maintain a relationship with that supplier” – Flora Davidson

“Even as early as March last year, countries such as Bangladesh were reporting significant order cancellations with over 1,000 garment factories reported to have had their orders scrapped since demand tapered off. At the same time, some retailers were initially weighing up the supply-side risk of being able to fulfil customer demand due to the source of the outbreak and China’s ongoing dominance as the largest clothing exporter in the world. But as 2020 continued to unfold the demand side came to the fore as global fashion industry’s profit was expected to fall by as much as 90% by the end of 2020.”

One year on, success stories of supplier-buyer relationships are few and far between.

The challenge suppliers were facing as a result of the pandemic was widely reported across the globe. The actions of brands – who faced their own challenges such as paying overheads and figuring out what to do with millions of dollars worth of unsold stock – saw consumers come down on them, hard. Many U-turned on initial decisions and agreed to honour payment for orders that had been placed.

Exposing weak links

“One of the first things to address is that the buyer-supplier relationship has become very transactional,” asserts Flora Davidson, head of product and co-founder of SupplyCompass. “It’s a very complicated process back and forth, often with a lot of it managed on email, with multiple attachments. Not only is this inefficient, it doesn’t allow for brands to build and maintain a relationship with that manufacturing supplier.”

Additionally, the lack of structure and informal nature of the order process is a challenge. 

“This informality can also mean there is a lack of accountability and commitment, for example, in honouring what’s been asked for. People are able to wiggle out of things more easily.”

While suppliers recoiled at the action of buyers, for many it was the wake-up call they needed.

“I see suppliers asking for money upfront or more security now,” says Andrew Olah, founder of Kingpins. “Anyone that has pre-paid for their orders will take them obviously. Sellers need security. Or they just continue to absorb the whole risk.”

Building partnerships

“Sellers and buyers often seek profit more than long-term vendor/factory relationships” – Andrew Olah

The decisions made early on in the pandemic came out of a concern for self-survival. But a humanitarian crisis was fast unfolding. As suppliers moved into distress, workers across the globe were facing loss of income and the danger of poverty and hunger. 

The realisation set in that the supplier-buyer relationship has to evolve to something stronger for the fashion industry to survive.

“I like the word partner because partners share in profits, and the margins are not shared in vendor/factory relationships,” says Olah. “In fact the relationships are transactional although there are plenty of wonderful long term relationships. I think the length of relationships tell the full story of how each party regards the other…Long-Term Relationships (LTR) are all about communication, transparency, collaboration and empathy. It’s [a] realistic [expectation]. And it happens a lot but not enough, the only barrier being sellers and buyers often seek profit more than LTR’s.

“I’m hopeful that building long-term relationships becomes the most important criteria in selecting or maintaining suppliers – and that suppliers look at the customers the same way.”

The idea of a “partnership” is one where there is a more collaborative approach. Involving suppliers in decision-making moves them from the people that produce and deliver your goods, to an extension of your business, says Davidson.

“The ideal supplier-buyer relationship would be more of a two-way relationship that involves buyers, for example, saying ‘This is what we need as a business, these are my limitations and restrictions, and these are my needs and why I need it. How can we get there together.’ If you bring people on the journey of where you need to get to, that’s essentially what collaboration is.

“It’s about creating and building deeper relationships between retailers and suppliers – away from transactional relationships to ones with greater shared accountability and agility” – Daisy Hammond

“There can be extremely strong, strategic opportunities if the partnership is well-formed and nurtured.”

Flexible supply chains

When Covid hit, a knee-jerk reaction by buyers was to cancel orders already placed, leaving suppliers in limbo as they’d either ordered the raw materials to start producing goods, or goods had left the factories and were on their way to the buyer. It is not unusual for payment terms to be credit-based.

Going forward, smaller batches, increased transparency and utilising efficient processes that are supported by analytics and digital tools are going to become the norm. Demand-driven production will also become more commonplace.

But Hammond says while artificial intelligence and machine learning are more frequently showing a greater forecast accuracy, you need to have the right supply chain and commercial models in place to be able to respond to conditions that no one could ever predict.

“Demand-forecasting leads to leaner manufacturing, and ultimately reduced waste and production costs. But it depends on a strong and transparent relationship with the manufacturer as this involves flexibility in previously agreed terms such as a reduction of minimum order quantities of certain materials.”

Sustainability

Social and environmental sustainability are fast becoming mainstream. Companies are increasingly being scrutinised on the safety of the workers in their supply chains and what they are doing to slow climate change.

According to the report ‘Time for change: How to use the crisis to make fashion sourcing more agile and sustainable’ from McKinsey & Co, close supplier partnerships will be key to harnessing and scaling up the move to a new, and possibly better, normal in the fashion industry. 

A key part of surviving in a post-Covid world is investing in innovation along the entire fashion value chain. In design there is AI planning and 3D design, while in merchandising and planning there is now virtual sampling.

“Technologies and processes successfully implemented during the crisis will have a profound effect on the industry’s future. Fashion players need to identify, prioritise, and scale up innovations that worked and benefited them the most during the crisis,” the report notes.

Standardising processes

“Another important point in getting a better relationship is respecting each other’s limitations and non-negotiables on either side,” says Davidson. Verbal agreements will become a thing of the past. There will be no room for assumptions.

“That goes for suppliers – for example, understanding why a retailer or a buyer needs something, but also vice versa – for buyers to understand the limitations such as certain material supply chains may be delayed by months and that there are things out of suppliers’ control.

“If you consider in an industry where there are hundreds of thousands retailers and brands all setting up their own processes, each with their own unique demands, it’s really challenging for efficiencies to happen and for factories to navigate between all these different ways of working if they’re working with 20 brands, for example. The answer has to be around establishing a standardised process for the industry that works for everyone.”

Ultimately, a successful partnership is one where trust is at the core.

“It’s about creating and building deeper relationships between retailer and supplier – away from transactional relationships to ones with greater shared accountability and agility,” says Hammond.

“In practical terms this means more regular information and data sharing – from pre-season estimates to in-season weekly performance reporting – being open and transparent with what’s performing, how it may impact future forecasts, being more flexible with capacity planning, fabric commitment and order volumes in order to best respond collaboratively, redeploy resources and make the right trade-off decisions.”

A series of articles looking at ‘Redefining the apparel industry for the future’ appears in the latest issue of just-style magazine. It’s free to view, and you can click here to read more.