What: Retail success can be obtained through risk management from the weaknesses previously overlooked in modern global supply chains that were illuminated by the pandemic.

Why it is important: Business of Fashion compares the drop in cotton exports during the Civil War to the overlooked supply chain issues of today as a way of demonstrating how companies can avoid loss.

As it has been in the past, distributors continue to allow their economies and labour forces to be dependent on a single industry, commodity and/or source of supply. In today’s case, many retailers and brands rely heavily on the low costs provided by producing, sourcing, and manufacturing in China. 80% of Walmart’s non-food inventory is made in China. And 75% of Amazon’s new marketplace sellers, in its top four markets, are also based in China.

While low cost has been previously perceived as the optimal method for competitiveness, supply chain expert John Thorbeck warns of the extraordinary risks. It becomes increasingly more important to consider addressing risks as supply chain issues will become more frequent and profound as we become increasingly interconnected as a global community.

Thorbeck highlights the back-end costs that come with chasing the lowest fees. For example, massive orders and long lead times make responding to fluctuations in demand almost impossible. Consumer preference is shifting at an even faster rate with viral trends on social media platforms making products outdated before they even reach the rack. As a result, companies must face deep markdowns, slow turnover, write-offs and overflowing inventory in warehouses, much of which will end up in landfills. Changes in climate are disrupting seasonal weather which throws demand into chaos. And as the pandemic demonstrated, one issue at a single factory on the other side of the world can spur weeks of supply shortages.

Thorbeck attacks the very nature of supply chain structure criticizing the negotiations between companies as risking a cascade effect due to the loose connections between the parties involved, their planning and their motivations. Instead of simply shifting risk, Thorbeck recommends that brands should aggressively work to transform their supply chains into digital ecosystems where members share risk and work collectively to reduce it for everyone.

Part of this new supply chain ecosystem will require transparency between partners to avoid the risks generated from a lack of visibility regarding the suppliers’ suppliers. This can also help to address CSR which is becoming an ever more important expectation for consumers.

AI is also becoming increasingly important in the strategy of planning for supply chain issues. With AI,  companies can analyse weather patterns, industry sales projections, consumer trends, geopolitical strain and macro-economic indicators.

Finally, rebuilding one’s supply chain can lead to better company performance through collaboration, CSR, risk management, and trend projection that all help deliver the best offer to customers.

Retail’s new era of risk