Sourcing in a Geo-Political Market

How sourcing should be driving transformation and mitigating supply chain risk.

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Endless articles and news coverage about supply chain have surfaced over the last 6 months, so what is left to be said about the topic? Actually, a lot. The real issue with the supply chain begins at the source and, sourcing, at most companies, rarely has a seat at the proverbial table.  Much like the reporters’ advice to “follow the money,” retailers should not be searching the harbors for their containers, they should be “following the materials.” Digitizing your overall supply chain and pivoting from reactive sourcing management to proactive sourcing management is the key to creating a more resilient brand.

Why now?

After 2 years of a pandemic, factory closings, inventory delays and economic hardships, the world suddenly became smaller. Every business, every person, every country was responding to the impact of a weakened workforce and a shift in consumer demand and product availability. And, while some companies transformed their operations and organizational structures by investing in new technologies, revisiting their production calendars and focusing on end-to-end supply chain visibility and traceability, others were focused on building their ecommerce platforms and fulfillment processes. One approach built a business path forward to yield more long-term benefits while the other approach merely responding to the short-term needs of the consumer. So, who is better positioned for the geo-political challenges we now face? Enter the conflict in the Ukraine, elevated tensions with China, and global energy supply availability and costs. 

The answer is not that simple. We first have to understand what the geopolitical risks are and then determine the top initiatives on which companies need to focus in order to become more agile and resilient to market disruptions and changes. 

What are the current Geo-political risks?

  1. Political climate
  2. Macro-economic instability
  3. Big data and cyber security risks
  4. Re-emerging markets and current market volatility

Working in a global market creates both options and complexity. Knowing where the options are and anticipating emerging complexities is at the core of becoming a proactive sourcing organization. Global pandemic aside, we are now entering a new market where Europe is facing impending repercussions from Russia’s invasion of the Ukraine. The political climate is cloudy as the conflict is expanding into NATO countries and into China (a major global manufacturer). This, coupled with rising energy and product costs, inflationary markets and signs of a recession ahead make the macro-economic world even more unstable. Add on the now ever-present threat of cyber breaches across all business sectors and you have a perfect storm of “now what?”

Amidst these threats of receding market partners, we are seeing other countries emerging as viable alternatives. Countries once shadowed from the commerce and manufacturing stage are re-emerging and casting some light on new ways of operating. Areas like Africa, India and Indonesia which fell from grace years ago are re-opening as technology, new consumers and infrastructure are catching up to the developed world.

How should retailers move forward?

Fixing the supply chain is more than just plugging the holes. It requires a new way of thinking and operating. While there is no one solution to every business problem, focusing on the following areas will start you on the right path:

  1. Increase your awareness to risks
  2. Create new ways to work
  3. Digitize your supply chain AND align your organization accordingly
  4. Design a strategic sourcing approach—pivot from reactive to proactive management

After Q4 2021, retailers scrambled to cancel prior season orders, air in new available inventory, re-merchandise their stores and websites to feature in-stock items and try to figure out where in the ocean their containers were. Fast forward to Q1/Q2 2022, retailers are now trying to figure out how to flow in new seasonal product, what to do with prior season arrivals and how to plan for any pandemic variants and warfare impact. This is in-the-moment management at best. Instead, retailers need to embrace a totally transparent supply chain and empower employees to elevate problems throughout the pipeline—starting at the source. Increasing visibility to risks early on will allow for companies to get ahead of major disruption rather than respond to it.   

In turn, retailers need to revisit how they work and create new ways to work that include back-up material sourcing, diversified manufacturing portfolios and a mentality that protects key items with duplicated/alternative networks. The days of consolidating factory partners for better quality control, consistent production criteria and best pricing is behind us. Retailers need to build an array of partnerships in different markets and be mindful of speed to market geographic options. This proactive management approach is not a one-time solution, it is a new method to be built into the process in an on-going fashion. One tip is to closely align with material partners in the cotton, wool and micro-fiber industries. They are continuously evolving and inventing fabrics, dye options, product uses and production capabilities and are a key resource to look into the next 3-5 years.   

Digitizing the overall supply chain is a must and if it is not currently on your strategic roadmap, pull over and add it.  Digitization provides a holistic approach to integrating the entire product process. This will enable sourcing to identify emerging fabrics, new factories and alternate development ideas even before design and merchandising start to dictate the next season. If there is an issue with cotton availability, companies should not be designing into this product line and then be surprised by this after retailers/wholesalers put in an open to buy order.  With sourcing as a partner up-front, risks can be minimized and course corrected. Sourcing + merchandising=more resilience.

Digitization also allows for technology-driven sample development which reduces sample production and lead times in between product corrections. It also provides traceability and transparency from start to finish so you can anticipate any bottlenecks and be in a position to estimate delivery issues before you need to react to delayed shipments.  In addition, digitizing the process can leverage artificial intelligence, create more accuracy and speed in decision making and allow for scenario planning. All of which lean into proactive management over reactive management.