The recession forced executives to reexamine their supply chains and find new efficiencies. Now, according to speakers at last week’s WWD Global Sourcing & Supply Chain Forum, getting back up to speed during economic recovery will mean recognizing where sourcing is headed.
This story first appeared in the March 23, 2010 issue of WWD. Subscribe Today.
Cutbacks in inventories and the culling of suppliers that brands and retailers engaged in to survive the downturn present a challenge to growth, said Michael McBreen, president of the global operations group for Wolverine World Wide Inc.
“A year ago, much of our conversation was, ‘How do I slow down my supply chain? How do I cancel orders without paying fees and penalties?’” McBreen said. “Today, we’re scrambling for capacity. As an industry, we’ve really set up a classic bullwhip effect.”
Companies such as Wolverine, which has a multibrand portfolio that sells in 180 countries, have relied heavily on Asian sourcing for decades. However, Asia, and China in particular, are quickly developing into powerhouse consumer markets. That transition has significant ramifications for sourcing.
“[Asia is] important to our brands, but more important to our sourcing strategies,” McBreen said.
Commodity inflation is a likely result of an economic recovery and a surging Asian consumer population, he said. Fewer factories are in business than two years ago, Asia has seen labor shortages and suppliers still face barriers to obtaining capital.
“In a world where the source countries are seeing GDP growth at a rapid rate, and the mature countries are having slow to no growth, the pinch point becomes clear,” McBreen said.
The experience between consumers and brands has also changed thanks in large part to technological advancement.
SEE VIDEO HIGHLIGHTS FROM THE MICHAEL MCBREEN DISCUSSION>>
SEE VIDEO HIGHLIGHTS FROM THE MARSHALL FISHER DISCUSSION>>
SEE VIDEO HIGHLIGHTS FROM THE ANGELA CHEW DISCUSSION>>
SEE VIDEO HIGHLIGHTS FROM THE MUNIR MASHOOQULLAH DISCUSSION>>
“The consumer today is more sophisticated, knowledgeable and has greater access to your brands than at any point in history,” McBreen said. “So when we look at that experience…and think of the traditional seasonal flows, we have to move away from that because we have to enable the consumer to experience our brands with fresh innovative product on a daily basis.”
Wolverine has responded by focusing on improving its speed to market and implementing product life cycle management techniques that allow it to break away from a seasonal delivery mind-set. Regrouping the company behind a core set of its topselling items and restaging its raw material strategy has enabled Wolverine to get new product on the shelves more often throughout the year.
McBreen is also convinced that ethical business practices must be a mandate. “This idea of sustainability is not just a ploy,” he said. “Socially responsible and sustainable environmental practices have an economic benefit, which helps our business strategy. Sustainability must and is integrated into the business strategy of any business operation.”
For Angela Chew, senior director of global sourcing at Casual Male Retail Group Inc., the recession reduced quality standards at some producers as well as squeezed sales.
“Maybe it was tough times, maybe it was everybody cutting back, but we had vendors who tried to ship us denim jeans that were three inches too short, underwear that was half the size,” she said. The retailer adjusted by focusing on its supply chain and moving away from areas where deliveries had been unreliable, such as Pakistan.
Chew took a hands-on approach to wring inefficiencies out of the supply chain, inspecting operations firsthand when it took two or three days to unload a container instead of two or three hours.
“We went out to the [distribution center] and unloaded some containers ourselves to figure out where our problem was,” she said. “We went to Asia, went to our factories and packed some boxes and loaded up some trucks.”
Even with years of such finetuning across the industry, Munir Mashooqullah, principal and founder of Synergies Worldwide, said there is more to be done.
“You may think that you’ve got down to your source and this is the best you can do with your supply chain. I feel there’s still a lot of work to do,” he said. “The U.S. is far behind the Europeans. They’re closer and they have their supply chain rates and percentage much more economical and understandable.”
Mashooqullah, who counts Polo Ralph Lauren Corp. and Inditex SA among his clients, said U.S. firms would have to get out of their comfort zones to be competitive. He said sourcing executives should think of themselves as “chief surgical officer” and cut costs where necessary.
“Between design, and commerciality and sourcing, somebody has to look at it and look at it very deep,” Mashooqullah said. “The world has changed, unfortunately not in our favor. So we have to look at ‘Is this necessary?’ If it’s an intrinsic value, it enhances the value of the product, fine. Otherwise, how can you reduce it? You may not need rivets on every pocket.”
Marshall Fisher, UPS professor of operations and information management at the Wharton School of the University of Pennsylvania, suggested giving more credence to the science of retailing, rather than the art. Fisher’s research with product sales forecasting found that brands and retailers can significantly reduce the odds of overproducing products that won’t sell, thereby lowering material and production costs. It can also lower lead times for those goods that prove to be hot sellers.
“Even though you can’t predict, just a little bit of orders from your customers, actual demand data, dramatically improves forecast accuracy,” Fisher said. “This is the most robust empirical finding I’ve seen. I’ve done this over and over again in a variety of product categories, from apparel, shoes, toys, consumer electronics and video games.”