Over the last decade, global sourcing has become the norm in the apparel industry, with manufacturers outsourcing to emerging markets where labour is plentiful and usually offered at a reduced cost.
However, multinational, multi-tier supply chains are complex and inevitably result in more supply chain risks.
Businesses have experienced great turbulence in the last few years due to COVID-19, the Russia-Ukraine war, increased energy prices, and growing tensions in the Middle East affecting the Suez Canal. A whole swathe of challenges (geo-political, climate-related, sourcing and staffing) put business supply chains under pressure, with increased risks and inevitable costs that lead to financial and economic pain.
The TRENDS with supply chain risk management
Supply chain volatility arising from COVID-19 gave urgency to the need for greater supply chain resilience. Consequently, organisations reported significant progress in digitizing supply chains to gain visibility and manage emerging risks. McKinsey's 2022 survey of global supply chain leaders noted that:
- In almost every sector, more than 90 per cent of respondents report that they invested in digital supply chain technologies in the prior year.
- Companies which had implemented digital dashboards for end-to-end supply chain visibility were twice less likely to suffer supply chain shocks.
In 2024 using artificial intelligence to analyse big data, find patterns and make better predictions around demand and fulfilment is an emerging trend that is attracting investment.
"AI algorithms can analyse vast amounts of historical and real-time data to identify patterns and predict potential disruptions" which can be used in scenario planning to predict demand fluctuations, transportation disruptions, or supplier failures. AI in supply chain management looks likely to support the high priority of predicting supply demand in a fast-changing sector.
Despite business leaders' focus on supply chain technology in the last three years, mitigating supply chain risk is an inherently more complex task, which needs to be addressed at source wherever possible.
Macroeconomic challenges
Supply chain disruption is likely to continue affecting the fashion industry, in particular:
- Climate change and crop shortages - drought and floods are likely to increase due to climate change, impacting the availability of raw materials, such as cotton. Some of fashion’s biggest manufacturing hubs, including Bangladesh, India and Pakistan, are among the world’s most climate-vulnerable countries. Scarcity of raw materials risks driving up prices and limiting production.
- Trading route disruption and delay - from the unfortunate container ship, the Ever Given, blocking the Suez Canal, to Yemeni pirates attacking trading vessels in the Gulf of Arabia, the vulnerability of East-to-West shipping routes is worrying. "Major freight carriers, including Maersk and Hapag-Lloyd, have suspended operations through the Suez Canal to avoid the Red Sea and are rerouting vessels around the Cape of Good Hope". Longer journeys increase cost, reduce speed to market and put pressure on transport capacity.
- The impact of politics, activism and legislation - geo-political tensions and conflict; trade disputes and worker strikes; or non-compliant suppliers who may need to be replaced will all cause supply chain disruption. "Sustainable sourcing requires thorough vetting of suppliers to ensure compliance with environmental and ethical standards, which adds complexity to the procurement process and may result in higher costs."
Business leaders need awareness of the risks, contingency planning and long-term strategy to manage supply chain risks.
Supplier-related risks
McKinsey found a large portion of surveyed companies lack full visibility over their supply chain, despite their supplier network being the most likely point of disruption.
The BCI Supply Chain Resilience Report 2023 reports that at least a third of supply chain incidents were upstream of tier-1 suppliers, and probably more than that given 13.4% of respondents didn't know the incident source at all. When an organisation lacks transparency over its primary, secondary and tertiary suppliers, it becomes very difficult to trace back through the supply chain and locate the root of a problem.
how to unlock Transparency beyond Tier 1
Supply chain resilience is improving as a result of lessons learned from COVID-19: better contingency planning, digitized systems and visibility, but much more must be done. Robust supply chain transparency is necessary in order to satisfy investors, employees and customers, not to mention regulators, who are increasingly demanding public reporting on environmental and human rights practices at all levels of the company’s supply networks.
In order to prepare for any eventuality, companies need to prioritise supply chain risk management with a view to their whole supplier network. If, as the trends show, sustainable sourcing, transport disruption and healthy, compliant supplier relations, are all key to supply chain resilience, then it's vital to have visibility in real-time of those factors.
As KPMG advises in its article Supply chain trends 2024: The digital shakeup:
"Move towards a more collective and data-driven approach by using technology solutions and partnerships."
This is exactly how Segura works, by onboarding suppliers each time a purchase order is issued, all the way up-stream to tier 2, 3, 4, n.
By collaborating with suppliers it becomes possible to tie in your organisation's performance management. Your suppliers are incentivized to provide reports, meet compliance requirements and all documentation is captured in a centralized system, such as factory audits, corrective action plans, and ESG performance metrics.
Segura’s supply chain software creates a real-time audit trail which enables our customers to achieve this transparency. By creating a pre-approved network of suppliers, companies can manage their supply chain, with all of their transactions passing through the Segura platform. As a result, companies can immediately see if any unauthorised or unreliable parties enter the supply chain, and can take action to protect themselves.
Supply chain technology that reduces the risk of green-washing or not going green at all!
It's not just to prove legislative compliance that such a collaborative system with suppliers works. As KPMG notes;
"Digital platforms are providing a centralized system for suppliers to input their emissions data, which can then be easily integrated into a company’s sustainability reporting."
Indeed, with Segura, our clients can estimate carbon emissions, water usage, and capture material composition (to calculate sustainably sourced materials) to benchmark their green credentials now, and work towards their strategic environmental goals. The bottom line is our clients can capture and report on whatever data they need to back up their claims with confidence.
A real-time picture of each order in transit
With a real-time picture of the supply chain, businesses are also empowered to mitigate risks quickly when it comes to transport disruption. When Ever Given, the ultra-large cargo ship, became stuck in the Suez Canal in 2021, those retailers who had supply chain traceability were able to tell if they had containers aboard or in transit along the Canal. If they were affected, they were able to re-route shipments or place replacement orders that could be dispatched as quickly as possible.
Supply chain risk management requires full visibility
In summary, supply chain risk management requires high-quality supplier data that can cover several areas of vulnerability, whether legislative, environmental or logistical. This, in turn, can save businesses from financial penalties for non-compliance and costs associated with disrupted supply. And it can help companies plan for long-term risks related to changes in climate, geopolitics and the labour market.
About Segura
Segura Systems is a UK-based SaaS company enabling ethical, sustainable and efficient multi-tier supply chains.
Segura provides n-tier mapping, transparency, traceability, visualisation, compliance and reporting. Segura sits in the centre of your supply chain management structure creating a central repository for all your supply chain, ESG-related data and evidence, including third-party data sources.
If you'd like to learn how Segura can help you, please get in touch today.
