Now or Never: the Case for Flexibility and Diversity in Supply Chains

Fashion manufacturers, brands, and retailers know supply chain disruption and market pressures well. Before COVID-19, they faced challenges of highly competitive markets which had grown exponentially with some estimating consumers now buy over four times more than they did twenty years ago. Then, during the pandemic, the fashion industry was challenged by how to manufacture and deliver products to consumers; now they must keep-up with volatile consumption patterns.

COVID-19 was not the first major challenge fashion retailers and manufacturers have faced but it was a stark reminder of the need to be adaptable and resilient to change. To facilitate survival and growth in the fashion industry, it will be necessary for all stakeholders to anticipate, consider, and respond to macro developments (e.g. the Russia-Ukraine conflict) and micro developments (e.g. consumer demands). Supply chains are most susceptible to these developments and in the current unpredictable and consumer-driven economy, manufacturers must take concrete steps to build resilience, diversity, and flexibility into their supply chains.

Flexible Freight Agreements

One way to introduce flexibility into the supply chain is through contractual mechanisms governing the transport of raw materials and finished products. Increasingly, fashion retailers are using framework freight agreements with logistics service providers supported by service orders.

The framework agreement contains standard terms and conditions agreed between the parties which apply to future service orders. The parties then enter into separate service orders, as and when required, containing the specific terms and conditions of a given task, for example the services required, the quantity of cargo to be shipped, or the routing and commercial terms.

There are two key advantages to this approach. Firstly, as the framework agreement has been agreed between the parties, service orders can be limited to the commercial terms for the specific service. This saves time and resources, eliminating the need to negotiate such terms every time. Secondly, subject to the terms of the framework agreement and service order, service orders can be varied or terminated independently of (and may have a shorter duration than) the framework agreement itself. This allows fashion retailers the opportunity to adapt their supply chains in the event of changes in sourcing patterns or disruption – that may be caused by political instability in a region.

Multimodal Supply Chains

Fashion retailers are also increasingly seeking to minimise their exposure to risk stemming from external factors and improve efficiency by employing multimodal supply chains. This looks like shifting manufacturing and inventory strategies including onshoring and nearshoring.

Traditionally, supply chains would utilise limited sourcing options with either air or sea transport for long distance international transport. However, the traditional model leaves retailers open to exposure if that source or mode of transport fails. As a result, in recent years, there has been a move towards a more dynamic sourcing strategy.

One need only consider the disruption caused by the containership Ever Given blocking the Suez Canal for around six days, preventing goods from being shipped from Asia to Europe without navigating a much longer route. By incorporating multiple sources of supply and modes of transport, fashion retailers can minimise the risk of supply chain failure as alternatives exist to adapt and switch modes of transport, if needed.

Equally, diversification in the supply chain allows retailers to leverage the inherent benefits of each mode of transport. The fashion industry is highly competitive and operates around fast-moving trends. Using just one mode of transport often forces fashion retailers and manufacturers to choose between speed and cost; whereas a multimodal supply chain allows them to leverage the benefits of different modes of transport. For example, if textiles are to be transported from China to the UK, a significant amount of transport could be done by air and the remainder conducted by sea or a combination of rail and road.

Another way in which fashion retailers are incorporating flexibility in their supply chains is through a shift in inventory strategies. Following COVID-19, a number of fashion retailers moved from the ‘just in time’ to the ‘just in case’ strategy; increasing levels of inventory throughout the supply chain to cope with potential disruption.

Omnichannel Supply Chains

Supply chains have also had to adapt to meet consumer expectations with respect to how they receive the end product. Indeed, consumers want speed and choice.

Consumers now want options and flexibility with their buying and delivery experiences. In recent years, there has been a marked expansion in omnichannel supply chains, and consumers are often afforded the opportunity to receive their goods in-store, online via click and collect services, secure parcel lockers, as well as home delivery.

Many fashion retailers that maintain a traditional ‘bricks and mortar’ model have also expanded to offering other delivery options. Primark, for example, previously only offered in-store shopping but now is trialling an online stock-checker and click and collect option in some of its stores. Supply chains must equally adapt to accommodate newer delivery channels.

The Route to Supply Chain Success?

There is no way to completely safeguard a supply chain. Even the most flexible supply chains cannot remove all risks, as macro and micro developments will continue to impact the way in which fashion retailers approach their supply chains. However, by introducing flexibility into supply chain contracting and the supply chains themselves, retailers can minimise the risk of failure. A great example of this is the increasing reliance placed on intercontinental rail via the ‘Middle Corridor’ to ship goods from China to Europe (to avoid transiting through Russia whilst the Russia-Ukraine conflict continues).

A flexible supply chain is not merely a way to mitigate risk but is also an essential component in helping fashion retailers further their business model and strategy. For those employing a ‘China plus 1/n’ strategy, a flexible supply chain is crucial for assisting in outsourcing procurement and production operations to other countries. Additionally, flexibility helps meet the ever-changing demands of consumers.

Whilst there is no ‘one size fits all’ approach to supply chains, a failure to incorporate flexibility or otherwise diversify risk will likely not be fit for purpose in a modern, unpredictable, and global economy.