A Perfect Storm Exposes UK Retailers & Brands
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High Street retailers and brands face significant headwinds in 2021 considering extended lockdowns, Brexit, demand uncertainties and rising shipping costs. Operational resilience and agility are essential to survive in the near term and grow long term. But “best-practices” of years past tied to efficiency have proven short-sighted; particularly outsourcing of key responsibilities to suppliers, 3rd party logistics providers, overseas agents and banks.
The challenges of the last 12 months have been a wake up call. As McKinsey states:
“Shocks inevitably seem to exploit the weak spots within broader value chains and specific companies. An organisation’s supply chain operations can be a source of vulnerability or resilience, depending on its effectiveness in monitoring risk, implementing mitigation strategies, and establishing business continuity plans.”
Retailers and brands continue to face significant disruption in the form of uncertainties that impact consumer shopping habits and needs. Excess inventory, store closures due to lockdowns, and urgency to shift to e-commerce where non-traditional competitors excel, add up to a fight for survival.
The British Retail Consortium (BRC) reported that total sales fell 0.3% in 2020 compared to the prior year, turning in the worst retail performance since record-keeping began in 1995. However, the overall drop in spending masks an explosion in sales for some shops, and a dramatic collapse for others.
On top of rents on closed stores and furloughed staff, retailers’ and brands’ strategic supplier partners are at risk. Cancelled orders, delayed payments and dried up orders have brought peril to factories around the world. In March, 66% of all transactions on the Infor Nexus platform featured supplier payment terms shorter than 60 days. By September, more than 80% of transactions featured payment terms 60 days or longer.
Meanwhile, rising shipping costs continue to cripple global trade. The average cost to move a 40-foot container was $4,359 for the week ending 31 December, a 174% increase from a year ago, according to Drewry Shipping Consultants. The Financial Times reported on 19 January 2021 that the cost of shipping goods from China to Europe had more than tripled in the past eight weeks, hitting record highs as a shortage of empty containers stemming from the pandemic continues to disrupt global trade.
McKinsey has stated that the conditions of 2020 compressed five years of digital IT innovation into just a handful of months, as businesses redefined how they connect, collaborate and execute both inside their four walls and beyond. But the urgency to digitise, collaborate, and deliver (profitably) to customers’ needs is hamstrung by outsourced functions including sourcing, logistics and supplier financing. Current methods of communication and collaboration are still point-to-point and filled with silos between internal staff, external trading partners, and their systems. These physical and virtual walls hinder the plan-source-make-deliver steps designed to serve customers and power the brand.
Transforming from Reactive to Resilient
The foundation to obtaining visibility and agility to handle the challenges, disruptions and black swan events starts with network connectivity. The ability to seamlessly communicate and collaborate with internal and external team members is essential in any fluid situation – which is any day in the world of supply chain. When businesses operate on a network that functions as a “system of engagement” for the supply chain capable of plugging into any and all enterprise solutions, there forms a single version of truth that is accessible by all parties. With this in-hand, retailers, brands and their suppliers, logistics providers and banks have access to see inventory, data and capital. Thus, decisions are made with a clean, accurate picture of the full supply chain.
On a more granular level, this network approach builds stronger relationships between retailer/brand and its suppliers. Live collaboration on orders, prices, quantities and dates eliminate friction and errors. Suppliers are empowered with accurate data to execute programmes such as direct shipments or postponement strategies to better meet consumer demand and programmes can be deployed to deliver access to capital when it's needed.
A digitally connected ecosystem has the ability to execute as a single cohesive network instead of a string of individual parties. What does this look like?
- A single conductor orchestrates data, inventory and capital across all parties
- Document automation, touchless processing and exceptions management increase resiliency while decreasing errors, risk and vulnerability
- Multi-enterprise collaboration and execution increases flexibility by enabling smarter decisions at later points in the cycle to avoid disruptions, optimise inventory and improve margins
- Digital guardrails help assure supply to better serve customers, at greater profit. On time deliveries. Shorter lead times. Greater speed and convenience to improve customer experience
- Working capital optimisation: early payments are made available to suppliers, either self-funded or bank funded by a partner on the network
- Suppliers leverage the credit strength of the brand/retailer
- Multi-bank network provides greater coverage to deliver capital where it is most needed – suppliers overseas – as early as time of purchase order, due to greater visibility
- Capital-related costs and delays (raw materials purchasing) are eliminated
Getting started on the path to resilience
The core ingredients that keep the retail and fashion supply chain humming are capital, data and inventory. Long-term success and growth depend on the ability to break out of the before-times mindset of outsourcing control of the business and brand, and taking greater ownership in the plan-source-make-deliver cycle. Three steps to get started on this journey:
- Connect the entire ecosystem of internal and external stakeholders to ensure a single source of data, accessible by all.
- Take back control of inventory by instilling multi-enterprise visibility and collaboration into the DNA of the supply chain. Ensure all trading partners and 3PLs are digitally tied into each transaction.
- Free-up capital leveraging the power of a multi-bank network that can deliver access to capital to suppliers across the globe at competitive rates, while empowering internal treasury to hold its cash longer, if desired.
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