Sourcing and supplier relationships: What are the key priorities?

Supply Chain 2014-2015

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.

DWF Chart41 P21

Closer collaboration

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.

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Jonathan Moss

Partner - Head of Transport Sector

I act for international traders, charterers, shipowners, insurers and reinsurers, handling commercial disputes often concerning high profile, international incidents. I am ranked in three separate areas of practice in the leading, global legal directories.

Hilary Ross

Executive Partner (London) - Head of Retail, Food & Hospitality

Recognised by The Lawyer as one of the UK’s Top 100 lawyers, I advise clients on compliance and challenges across the EU in relation to products, systems and safety.

Dominic Watkins

Partner - Head of Food Group

I am Head of DWF’s internationally renowned food sector group as well as being Head of Regulatory in London.

Ed Meikle

Partner - Head of Retail Group

I advise on all aspects of intellectual property law, especially advising businesses in retail, food, sport and consumer products on the development, commercialisation and protection of their brands and technology.