Fashion firms are rethinking their sourcing portfolios amid widespread disruption and uncertainty, but diversification for the sake of supply chain resilience is easier said than done.
“As an aspiration, rethinking sourcing to increase supply chain resilience quickly runs into an inconvenient fact: few countries possess the required supply base; the infrastructure; skills availability; access to innovation and technology; or ability to scale,” according to a study released this week by British financial services group HSBC.
China was the world’s silver bullet for sourcing for decades, but today, “Companies may have to build supplier relationships in multiple new markets to find the same mix of capabilities they had in one,” according to report writer Ajit Menon, HSBC’s head of sales and global trade solutions. “That’s the difficulty with implementing new sourcing strategies.”
But fashion companies are forging new paths, unable to turn back to the monolithic models that once characterized their sourcing strategies. A consequence of that is that buyers are now managing a “considerable expansion” in trading relationships, both in terms of the number of sourcing locales and the volume of individual suppliers, the report said.
Related Stories
“The uncomfortable reality for procurement is that it might be dealing with an additional supplier in Mexico or Brazil, as well as one or more suppliers in Asian economies such as Thailand, India, Vietnam, South Korea or Indonesia,” Menon explained. “The complications from a legal and payment standpoint are obvious, with multiple tax regimes, currencies, legal frameworks and so on: the onboarding challenge can be considerable.”
The ramp up to sourcing in a new country or with a new supplier can also come with unforeseen risks, according to Marissa Adams, HSBC’s regional head of global trade solutions for the Americas. As such, those tasked with procurement are also on the lookout for compliance issues of all kinds.
But deviations in supplier performance aren’t always a bad thing, Adams added, as different economies boast their own unique supplier bases. They may have specialized expertise in certain areas because of government-backed industrial and infrastructural development efforts, for example.
And those working to grow a relatively nascent industry or establish a base for production should be viewed with an eye toward the future; procurement professionals “must think not only in terms of suppliers’ existing capacity requirements, but the capacity that will be required in two, five or 10 years’ time,” the report said.
Adams recommended that firms take a four-pronged approach to planning for uncertainty, with the first step being to take a risk-based approach to sourcing analysis. “Rather than reviewing threats by tier, stock-keeping unit or category, focus on those areas in which the organization is most at risk, or where the biggest dangers lie,” she wrote.
“Often, these areas will be associated with specific regions or countries,” Adams noted. Apparel industry players have worked to divest their cotton production from China, as many believe forced labor has tainted the supply chain, for example.
While estimating the likelihood of disruption is challenging, firms can explore the likely consequences in advance of trouble. They should always be aware of which products or categories could be impacted, how quickly that shift might happen and whether any substitutes are available.
To that end, Adams also recommends that firms review all available contingency plans to avoid disruption. They should proactively analyze suppliers’ capabilities and skills, scalability, technology maturity, speed-to-market and production quality. Engaging in this process early and often can help companies head off emerging risks, and remaining prepared with a trove of sourcing options can help them pivot quickly in the event of disruption.
“If recent history has taught us anything, it is that the world doesn’t stand still: new geopolitical threats and uncertainties arise over time,” she wrote. “Your product offerings and supply base evolve. Repeat the exercise as new threats and vulnerabilities emerge,” she wrote.