Managing the Global Supply Chain in 2022
Updated: Feb 9, 2022
We have read story after story of disruptions in the global supply chain More likely you are directly experiencing the disruption or its impact, or both, and you are not alone. Nearly 60% of apparel and footwear brands report they have been impacted by disruption during 2021. Here is our perspective of supply chain disruption issues and impacts:
Character Introduction: Increased Time (to produce & deliver) driven by:
COVID outbreaks inside factories and port operations
Shipping lines pulled ships offline at pandemic start (extending lead times from 25 days to 60 days)
Rolling power blackouts in China
Brexit’s impact on UK truck drivers
Stranded assets/mismatched assets relative to logistics demand
Lingering pieces of the U.S. - China trade war
Plot Climax: Increased Costs (to manufacturer & deliver) exacerbated by:
Increasing labor rates, even prior to the pandemic
Ships pulled offline early in the pandemic created a shortage as demand was increasing
Shipping containers costs increased from an average of $,2000 to $20,000 per container
Over-extended last-mile freight providers due to increased home deliveries
Cotton shortages (in August cotton prices were +18% above 2020 levels)
Overtime due to all of the above
Slashed profit margins
Missed consumer demand windows
Leading to fewer choice for consumers
Further exacerbating lost revenue
The big question is - Will the supply chain issues continue in 2022?
What action plans will brands implement to stop the damage? Here’s one example: in October, ASOS stated their 2022 profits could fall by 40% due to all of the above. There is no single “Cinderella shoe” to fit these issues into a happy ending. We have found some keys in analyzing then executing surgical choices, unique for that brand (or opportunity within a brand) vs. a broad-brush, “best practice” approach. Our approach to mitigating this season of Supply Chain Disruptions involves precision investment, fortifying supply and maximizing service.
Precision Investment: we use consumer data (internal and broad economic trends) to surgically fund those categories, markets, stores, seasons, projects, etc. which support near term growth while mitigating midterm risks and unknowns. We further hold back some liquidity for what will certainly be unforeseen plot twists (some of which may be opportunities disguised as a short-term scare).
Fortify Supply: our recommendation is to lean into repeatable, replicable raw materials and strong vendor-partnerships, including open dialog about more than delivery dates. These conversations allow brands to gain transparency about on-the-ground situations, political or economic dynamics, cash constraints and more, in order to create a holistic action plan that considers all partners. Many articles on this topic recommend diversifying supply and near-shoring which should always be considered as part of a 3 to 5-year sourcing strategy. But in the short run, strong consistent relationships and transparent problem-solving are the strongest antidote to plot twists.
Service, Service, Service: as customers adjust (or frustration grows), our approach is to listen and respond transparently and authentically. We have found success in stepping up elements of service, and increasing communication levels, to reduce consumer anxiety and ensure LTV. This is especially important for “local” consumers where you have the greatest ability to respond effectively. Service levels should rise for your internal stakeholders also. Staff members inside the brand are under incredible pressure to deliver results in the face of unprecedented challenges. Listen thoughtfully, offer greater support, continue to leverage teamwork across the brand to demonstrate active problem-solving.
Even with strong execution of these strategies, it would be disingenuous to say we’ve achieved happy endings, every time. But what we have achieved: the wise application of these strategies, alongside experienced operators, delivers “more wonderful” and consistent results.