As it is changing consumer requirements that have in many ways been the driving force behind multichannel, inevitably much of the change in terms of supply chain has been centred on the outbound section of the value chain and fulfilment. However, the remit of the supply chain function is also evolving in the inbound portion of the value chain.
As published in Retail Week & DWF Supply Chain: Trends and Innovations in Retail 2014-15 report
When asked to identify key priorities around sourcing and supply, 27% of the retailers interviewed for this report mentioned working more closely with suppliers, the same proportion that nominated containing or reducing costs as a sourcing priority. Some 20% of the sample referred to reducing lead times as a key priority.
For the supply chain director of a fashion retailer, closer collaboration reflects how the role of his suppliers is developing. He believes suppliers are less reactive than they were and more engaged in the entire commercial process from source to consumer.
“The role of the supplier is changing,” he says. “The traditional supplier was just the owner of a manufacturing site and everything else was done by retailers and agents. That is not the case anymore. Increasingly the suppliers are becoming collaborative partners in your business model. And that is a very good thing. Having great suppliers is a great boon for retailers.”
He continues: “’Partner’ is a hackneyed word and I don’t really like it, but the role of the supplier in the spectrum of the business process is changing. Product design is a good example of modern collaboration between retailer and supplier.”
The supply chain director of a supermarket operator stresses the importance of supplier relationships in the food sector, emphasising the value in providing suppliers with as much information as possible. “In sourcing and supply we tend to have very long-standing relationships with a lot of our suppliers,” he says. “The efficiencies that we’re looking for in sourcing and supply are primarily about providing our suppliers with better information with which they can plan their supply to us. In the supermarket world, which is driven by promotional activity, some of our assortment is weather-dependent so we are trying to provide suppliers with as much foresight and insight as possible so that they are ready to respond to demands as they come through.”
Suppliers will increasingly be entrusted to ship directly to the final consumer, says the logistics director of an online retailer. “I think that there will be more drop shipment models. Retailers will source and dispatch direct from their suppliers location.”
This clearly brings cost savings and efficiency benefits to the supply chain, but in potentially shortening speed from source to consumer it is also a win in terms of customer service. Indeed, reflecting once again how focused today’s supply chain professionals are on the final consumer, this logistics director sees the customer as the main priority when it comes to sourcing and supply.
“The biggest priority is the customer,” he says. “Everything we do, we do with the customer in mind. So when we look at sourcing and supply we consider what it is that we are offering the customer. So whether it’s an initial buy or a repeat buy we make sure that we can produce that product to the right quality and deliver it to the customer in the time frame that we have promised. We make sure at the beginning of the supply chain that what we are building has the customer at the heart of it.”
Consumer sentiment around ethical sourcing continues to impact on sourcing and supply, though interestingly 7% of the retailers identified this as a sourcing and supply priority. This could imply that supply chain directors feel they have set appropriate action in train in the wake of Rana Plaza and other tragedies. In Retail Week’s previous supply chain report ethical sourcing and improving supply chain transparency were identified as priorities by 34% of the retailers.
Consumer concerns also feature in decisions around environmental sustainability. While cost may be the primary reason why retailers are looking to shorten supply chains, notably moving sourcing out of China either to other countries in Asia or back to the UK and Europe, environmental concerns are also weighing in those decisions, says the head of transport at a specialist retailer.
“The key priorities around sourcing and supply are quality and cost but we are also looking at our environmental responsibilities,” he says. “We have sites in China where we source product. We are getting it cheap and the quality is what we want but actually there is a big environmental footprint. We are wondering if it is still the right thing to do. We are looking at Eastern Europe again; we might have to pay a bit more but the lead time would be shorter and the environmental footprint would be halved.”
A distribution director at a department store operator adds: “We are looking for suppliers closer to home and even locally. We are re-evaluating supply chain risk and realising the CSR aspects of shipping stuff around the world.”
Moving sourcing closer to home
The fundamental benefit of moving sourcing closer to home is in shortening lead times and cutting costs, says the supply chain director of a fashion retailer. “Supply chain is truly global but there is an interesting debate about how much of it is coming closer to home. China is becoming so expensive, Eastern Europe can now compete with it. The lead time benefit is about three weeks. Employment salaries in Portugal have reduced 11% in the last year. Labour prices in Turkey reduced by 8%. China labour inflation last year was, depending on the city, 15% to 25%. Portugal with two drivers is seven days away and China is 28 days away which is three weeks’ lead time improvement.”
Moving sourcing closer to the final customer will not always mean back to the UK. For those retailers expanding their estates internationally, or for the many retailers building substantial consumer bases outside the UK through online and mobile channels, the establishment of regional distribution centres is being increasingly discussed.
Watch out for our next blog post which will look at the pivotal role of Supply Chain Professionals.
If you have any questions or would like more information, please contact Hilary Ross Partner & Head of Retail, Food & Hospitality sector.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.