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No Room to Pass along Higher Costs – Brands are Forced to Find Efficiencies within the Supply Chain

Posted By Administration, Thursday, October 9, 2014
Updated: Tuesday, October 7, 2014

by Bryan Nella, GT Nexus

A series of issues are shaping and impacting the apparel industry. Labor wages, trade relations, currency fluctuations, and shifting demographics, to name a few. While cost pressures such as rising labor costs have been neutralized by various factors including declining cotton and material prices, it's a matter of time before the pressures become too great and finished goods prices are forced to rise. As Bill McRaith, CSCO at PVH pointed out during a recent apparel sourcing panel discussion, in the long term, goods pricing will eventually go up. That's the reality. Price rises will happen. I just have to do a better job delivering goods than others.

At the moment, retailers and consumers won't pay more. Bryan Riviere, VP Global Supply Chain Product Development and Sourcing at Levi's pointed out during the same sourcing panel that in the supply chain there is opportunity to attack and deliver better margins instead of passing along costs. This is easier said than done. Consider the mounting pressures facing today's supply chains:

  • Uncertainty: Places like Vietnam, Thailand, and Cambodia were viewed as safe sourcing options in 2013. Recent events occurred and these locales have raised concerns. Political issues and strikes have led to instability. Brands must have flexibility in their supply chains so they don't get caught off-guard.
  • Slow growth in global trade: The WTO predicts trade will grow by 3.1 percent this year, a significant drop from the 4.7 percent it forecast in April. Forecasts for 2015 were recently cut from 5.3 percent to 4.0 percent.
  • New competition today: Not just from the U.S. or Europe. It's from Asia. Names like Alibaba are popping up and changing the landscape. On top of that, there's a significant increase in trade within Asia – goods being produced and sold in the region. This puts pressure on capacity, materials and labor.
  • Supplier issues: Short lead times, high frequency style changes, diversity in logistics, fragmented and fragile vendor bases (financially).
  • Retailer issues: Markdowns, changing buying patterns, omni-channel, fast fashion, real estate, declining foot traffic.
  • Consumers in charge: The consumer is dictating price, where they buy, where and how goods are shipped. Brands and retailers have to find a way to make and deliver the product while remaining profitable.

How can brands and retailers better serve consumers while increasing profitability? How can they position themselves to handle inevitable rises in production costs?

A Closer Look into the Supply Chain
Brands and retailers have to look at how they're producing and delivering goods and find new ways to be more efficient to remove costs. Passing along cost increases to consumers or suppliers is not an option.

Here are five ways for brands and retailers to attack inefficiency and improve profitability in the supply chain:

  • Allow your suppliers to take advantage of your credit strength: As the giant in your supply chain you're financially stronger than most trading partners involved in the transaction. Help them out through programs such as early payment discounts and raw materials consolidation.
  • Cut out layers in your supply chain by shipping direct to store: Crossdocking and other programs can bypass the DC to eliminate costs and deliver goods in less time.
  • Stay close to the source: Perform customization or other services overseas. Find ways to reduce domestic inventory.
  • Diversify your sourcing portfolio: Spread out your risk and exposure to rising costs overseas. Work with trading partners in different regions. Consider sourcing closer to home for faster turnaround.
  • Conduct a paper assessment and change how you transact: Identify where paper exists in your workflows and eliminate it. Find a more efficient way to communicate and collaborate with your network of trading partners.

The playing field has changed in recent years. Consumers are hard to read and extremely demanding. An attempt to raise prices is extremely risky. For many, the likely road to growth and profitability follows an internal roadmap; one that examines supply chain operations, identifies inefficiencies and deploys new models for transacting, collaborating and orchestrating the production lifecycle.

Bryan Nella is Director of Corporate Communications at GT Nexus, the world's largest cloud-based supply chain network. He has more than 12 years of experience distilling complex solutions into simplified concepts within the enterprise software and extra-enterprise software space. Prior to joining GT Nexus, Bryan held numerous positions in the technology practice at global public relations agency Burson-Marsteller, where he delivered media relations and communications services to clients such as SAP. In previous roles he has worked with clients such as IBM, MasterCard and U.S. Trust. Bryan holds a BA in Mass Communications from Iona College and a MS in Management Communications from Manhattanville College.

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Tags:  Risk Management  Supply Chain 

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