Supply chain management

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In some cases, retailers develop close relationships with a few, major suppliers which undertake most processes of product development, production, quality control and distribution. This type of supply chain can be effective at reducing the cost of bulk production and promoting retail control over margins, product development, quality and delivery. However, with increasing demand for wider product ranges, lower costs and greater flexibility, many direct manufacture supply chains are undergoing restructuring to encompass sourcing, outward processing and global manufacture.

Examples of winning strategies include: Dual sourcing – That is to source initial small volumes from small manufacturer near to market and bulk order from low cost suppliers. Outsourcing If the manufacturer owns IPR, the company may source bulk production from an ‘approved’ subcontractor. This gives the manufacturer greater flexibility to fluctuations in demand. Sourcing Finished Product For some products, manufacturers need to buy finished product from a specialized supplier.

FLEXIBLE SUBCONTRACTING NETWORKS

In this model, a first tier supplier (or in some cases the retailer itself) undertakes the role of product development, pattern making, lay planning, and material procurement and production management. A network of subcontract firms undertake the construction of the product. Finished products are delivered back to the first tier supplier or retailer for checking and distribution. The first tier supplier, by using a range of subcontractors, is able to provide flexibility to fluctuations in demand by switching supply on or off accordingly; they can vary costs and lead times and offer a wide range of products.

Subcontractors are responsible only for making up the product, and therefore have limited overhead costs. However, competition within the network also means that they have little security and prices are often driven down by under-cutting. GLOBALISATION Globalization includes all aspects of the industry. Global supply incorporates goods bought in from overseas manufacturers, goods manufactured overseas in factories owned by parent companies or their joint venture operations and goods made overseas by subcontractors under outward processing agreements.

OUTWARD PROCESSING

A more flexible means of globalization that has developed recently is outward processing (OPT) of manufacture. An increasing number of retailers and manufacturers, large and small, are taking advantage of lower cost sources of OPT supply. AGENTS AND WHOLESALERS Many small retailers buy goods in advance of the season through agents or wholesalers that distribute goods on behalf of branded goods suppliers, small manufacturers or importers. In return the agent receives a commission on sales, only when the retailer pays the supplier, and only on goods of adequate quality.

Wholesalers buy in goods for re-sale, either through forward order or from stock. The wholesaler is therefore responsible for selecting a range of merchandise, negotiating the price and ensuring delivery. In return the wholesaler receives a margin on the re-sale price of the goods, but may have to discount any stock left at the end of the season. Many retailers use wholesalers as a source of replenishment or complementary lines during the season in response to sales. Stock is purchased from agents and wholesalers through trade shows and showrooms.

3. COST AND VALUE vs. AVAILABILITY

One of the key decisions in sourcing and supply is balancing the equations of relative cost and value. However, lack of availability has a detrimental effect on both cost and value, and in some markets, takes precedence Some costs can be reduced by sourcing from low labor cost countries or from particular types of companies. However, other costs may be increased. The value of product availability, quality or innovation may outweigh the cost savings Unfortunately, ‘value’ is a relatively intangible property and it is difficult to quantify some of its elements. These will vary according to the type of product or market.

The decision of where to have goods made and what kind of supply chain structure to adopt depends on identifying the full costs associated with supply and being able to allocate some comparative costs to the value inherent in the product and its availability. The true cost savings or costs incurred can then be identified, and will vary between products and markets.

ASSESSMENTS AND ACCREDITATION

An increasing number of companies are adopting methods of assessing their existing and potential suppliers (and customers) to establish that they can meet the objectives of the supply chain (for example, low prices, fast response, environment friendly, etc.). Some of the methods used for making such assessments are explored below.

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