Post-pandemic supply chain shift
Ibnul Wara |
May 12, 2020 20:58:03
Post-pandemic fashion industry is expected to see the biggest paradigm shift in supply chain in decades. Being socially responsible and offering competitive pricing will no longer be enough during such uncertain days ahead in the fashion world. Flexibility is a value that will take on greater importance as markets start to come out of the lockdown and retailers and brands start to re-open their doors. The initial hurdle to be faced by the retailers will be to handle the huge stock that piled up over the last 8 to 10 weeks. Lucky will be the ones who still have some part of their stock rolling through online sales, but such numbers are meagre. Being back in business, brands that do make it to the other side will be focusing on: (a) Consolidated supply chain; (b) Flexibility; (c) Collaborative innovation; (d) Remapping the supply chain through near shoring.
A stable and manageable supply base will be of critical importance for brands and retailers as they prepare to handle unprecedented challenges in day-to-day operations. They are likely to consolidate their suppliers and concentrate on working with a few reliable ones. The partners who have proved their ability to live up to this reputation are likely to remain in the game and their efforts will be paid off during these challenging times.
‘Flexibility’ will be the new buzzword. Every customer will be seeking flexibility from vendors in a multitude of ways. Firstly, the brands and retailers will be seeking flexibility to commit later and still have room to reallocate, if circumstances change. The post-pandemic world will be full of fear of uncertainties and unpredictable behavior. It will thus not be desirable for brands to commit six to nine months ahead. It will be vital for them to be able to commit as close to date as possible, and yet meet the deliveries. There will also be the need to become more flexible with payment terms. Additionally, the post-pandemic world will see an increase in credit risk by several folds. There ality is that brands that do make it to the other side will still be struggling to stay afloat for months, or even years, after the economies start to rebound. New robust international banking mechanisms, that safeguard the suppliers against the higher credit risk, will be required. As a supplier, it will be crucial not to fall victim to such risk in desperate measures to win back orders. It is easier said than done, but still, this will be the most difficult call for manufacturers during these desperate times of survival.
The world will be seeking innovation like never before. Customers will be collaborating for innovative solutions from vendors for making the processes smooth and seamless. Technological adaptivity will play a key role in achieving this goal. We can expect to see a lot more 3D proto-approvals taking place though shared software as opposed to actual samples being sent, in order to save time. For Bangladesh, this will require factories to be receptive of the change from conventional methods and adapt to such technologies by embracing them. Vendors will have to step out of their comfort zones and start thinking outside the box for extraordinary creative solutions which make them stand out. While travelling to customers will be replaced by frequent video conferencing, budgets may be reallocated to continuous innovation.
Near shoring production in order to be geographically close to the supply base will be a key sourcing preference to ensure flexibility and greater control. Turkey is likely to be a winner in this game with its proximity to not only Europe and USA but also to the Far East. With a population of 84 million and a strong supply chain not only in apparel but also in leather, footwear, gems and precious stones, Turkey offers a rounded solution to the needs of the fashion industry and a promising destination to ramp up production. Turkey is not only going to play a vital role as a value-added manufacturing hub, with the Trans-Caspian International Transport Route- The Middle Corridor, Turkey plays a very important role in an efficient connectivity of China with Western Europe.
China, on the other hand, has shown a level of agility during the pandemic which has made brands to have a rethink against a potential shift. Recent surveys show brands that have been actively reducing their dependency on China are now putting that idea on hold while some are in fact opting to ramp up and bring production back to ‘The World’s Factory’. Others are strongly focusing on Southeast Asian countries like Vietnam and Cambodia who have managed the pandemic outbreak most effectively, and hence can be considered a safe contender as far as deliveries are concerned. In addition, these countries have the competitive edge of being closer to the entire raw material supply chain, thus being able to offer greater flexibility which will be the much sought-after option in the coming days.
While co-located near shoring of the entire supply chain remains a challenge and requires strategic long-term investment, China and other South-East Asian countries are likely to reap this benefit while the pre-pandemic favourites, India and Bangladesh, lack the comparative advantage. These countries have import dependency for certain raw materials such as metal accessories and essential components for products such as sportswear, outerwear, leather goods and footwear which will pose a challenge for them in terms of speed to market as well as flexibility.
Although near shoring may not seem to be a cost-effective solution in the short term, in a mid-to-longer timeframe, it is likely to pay off by covering the loss of time and hence revenue, while allowing retailers to buy closer to date.
WHAT THIS MEANS FOR BANGLADESH: Bangladesh needs to prepare for intense competition internationally in a bid to retain its global market share in manufacturing. The country will need to be able to utilize its competitive, skilled labour force in more efficient ways to boost productivity while also to embrace technological innovations and provide more creative solutions. While the import dependency on China for certain raw materials cannot be eliminated in the short term, we need to efficiently manage our supply chain to shorten our lead time and allow more flexibility for the customers.
Bangladesh’s financial sector will need enhanced protection measures for exporters against credit risk. One way of doing this could be revisiting and updating the Export Credit Guarantee Scheme (ECGS) of 1978 which is administered by the Shadharan Bima Corporation. Most importantly, the country needs to prepare itself to accept an overall change in the way of work and also be open to smaller volumes and higher SKUs (Stock Keeping Units). The post-pandemic world will essentially require an overall shift in the mindset of our manufacturers and will require greater focus on flexibility and innovation if we are still to remain a contender as one of the fastest growing economies globally.
The writer is Managing Director, Austan Ltd