With the end of Chinese import quotas on the horizon and a host of other countries in the Far East developing more sophisticated manufacturing operations, retailers are facing some of their biggest supply chain challenges ever. Shoppers' increasing penchant for buying fashion online and the fact they expect to pay ever-lower prices for their clothes means sourcing experts have plenty to think about.
Supply chain experts across the retail sector compared challenges and strategies at the recent Drapers Supply Chain dinner, to discuss what is keeping them awake at night. For some retailers, the main challenge was how to make sure the supply chain kept pace with the strategic goals of their business. Guests said that retail expansion, acquisitions and the expanding fashion aspirations of department stores had all created headaches.
John Lewis' head of supply chain Andy Banks said the retailer was striving to become a destination store for its fashion in the same way that it has for electricals and homewares. "Our main concern is how to manage the increasing complexity of the supply chain," he said. "John Lewis is known for good customer service, but the supply chain is expensive. We have a relatively small fashion business, so we are looking at whether we have the scale to leverage more of the supply chain for that."
Mosaic Fashions is already a well-established business, running the Oasis, Coast, Whistles and Karen Millen chains. The group bought Rubicon Retail last year, adding another raft of names to the company. While the new chains' existing supplier relationships are likely to remain, there are still challenges involved.
Mosaic's group distribution director David Roberts said: "Our big focus is integrating Rubicon, which includes Warehouse, Principles and Shoe Studio Group, into Mosaic. With 18,000 SKUs on clothing and 10,000 to 14,000 on footwear, it's not really possible to put 30,000 SKUs through one place."
For those international retailers at the summit with ambitions in the UK, the focus was on separating supply chains rather than consolidation. Following a lacklustre performance in the UK recently, Gap has been trying to revitalise its offer. After being overtaken in the fashion stakes by the likes of Zara and Topshop, and having lost its price position to the value retailers, the company said it had spent the past 18 months recruiting a London-based merchandising and buying team to make product more UK-focused.
Gap supply chain director Julie Boswell said Gap Europe was almost like a start-up business under the watchful eye of the US company. "We are trying to break away from Gap's North American sourcing and establish a route that will allow us to supply the European market faster," she said. "There is a 52-week pipeline from North America, so we're finding ways of working more directly with manufacturers."
Gap's technical services director Joanne Soulsby added: "Our focus is how to shorten lead times, become more involved with product development and build supplier relationships."
Another topic under discussion was how the increasing complexity of global supply chains is creating opportunities for those who help to manage them. Holistica, a joint venture between third-party logistics contractor Christian Salvesen and international freight management firm APL Logistics, offers a one-stop shop for bringing deliveries into the UK and distributing them, and has a single contract single provider approach for moving products from the country of origin. Holistica commercial director Peter Ward said his challenge was keeping on top of retailers' fast-moving supply chains. "The market is ready for something new in logistics and our business is trying to provide that," he said. "The question is whether the market understands the opportunity Holistica brings."
Guests heard how the rise of value retailers, as well as supermarkets' ever-improving fashion, had been fuelled by cheap manufacturing costs in the Far East. Import duties from China are set to end next year, which could see a surge of retailers rushing to place orders. But anti-dumping duties and other protectionist measures could still come into force. As a result, China's status as the cheap "world factory" is likely to change as manufacturing costs rise and currency becomes more expensive.
Alistair Charatan, head of supply chain development at Woolworths, said the rising costs of manufacturing versus the UK's insatiable appetite for lower prices was also a challenge. "The cost of product is falling, but the cost of making it is not getting any lower," he explained. "Labour and fuel costs are rising and we source from farther afield. But how do we source overseas while keeping prices down?"
Sourcing directly rather than using a third party had become increasingly common among retailers at the event, with many aiming for benefits such as speed to market and lower costs. Marks & Spencer head of supply chain development Stephen Ashton said the pressure to improve margins was a major challenge. "Developing a supply chain that can move at different speeds is a problem," he said. "There are also historical issues - there are suppliers that have a stake in the business, for example. We aim to move away from that model, but it opens a Pandora's box of geographical issues. We need to get the balance right between the core market and the new markets."
M&S head of supply chain and planning Maz Majid added: "The accuracy of the sales forecast is key and that all relates to how well we are able to maximise the opportunities."
Roberts said Mosaic had to juggle the need for integration while maintaining existing successful processes. "We are fairly basic at the moment in terms of direct sourcing," he explained. "Logistics will be a problem when you have to send one piece to six different places. But Mosaic is a new business with various existing operations. Chief executive Derek Lovelock rightly says the brands must retain their identity and not be homogenous, so each must have its own supply chain."
At Gap, Boswell said he was also wrestling with a plan to change the retailer's existing strategies. "Our team in London is developing and it's all about the European aesthetic," he said. "You can get a lot of leverage from the North American connections, but we want to move away from the US business. We also need to cut our lead times. The US company does not have that challenge, so sometimes it's tough to communicate to them how necessary that is."
For many at the event, one of the major issues was working out how to take advantage of ecommerce. Online shopping spend is predicted to double to £2.93 billion by 2011 and, while most were aware of the opportunity, selling volume online was a new strategy for many.
Mosaic group distribution director David Roberts said: "The key to making online work successfully involves finding a different returns model and redirecting product back into the mainstream business. We should be able to fast-track returns into certain stores quickly. We are also trying to develop a route to market that does not poach from stores."
Ashton agreed. "Fashion has a short shelf life," he said. "The seasons are another big issue: you have to get returns back quickly because they will be out of season quickly."
WDT, which owns brands including Firetrap, Fullcircle and Sonneti, does not yet have a transactional website, but logistics and operations director Nick Fox said he could see the potential. "There's a real opportunity to cross fertilise," he said. "The more we put online, the more people ask for it in-store."
In contrast, Argos has an established home shopping operation, with different-sized orders separated into categories to make logistics more economical. Distribution director Catherine McDermott said: "We break it down into one-man and two-man delivery teams. It makes sense from a logistics perspective."
Another hot topic was understanding which products work best online and how much of a retailer's offer should be available on the web. Danny Power, head of operations at Hugo Boss, said: "If we did ecommerce we would have to think about returns. But one of the issues is what offer you put online. Do you put a big offer on there, or maybe just wallets or accessories?"
Boswell hoped it was only a matter of time before Gap launched a UK website. "Gap's North American ecommerce operation has been very successful," he said. "In every board meeting there is a discussion about when Europe will get online."