Taking back control of the supply chain

Retailers have over the years moved towards operating ever leaner business models, which has included a pretty much wholesale move away from any close involvement in the actual manufacturing of goods. But this is changing.

There is a move towards taking back control of the supply chain in order to have greater visibility of inventory – from the raw materials stage right the way through to the finished products reaching the customer. This wasn’t regarded as a particular necessity but recently various factors have highlighted the risks many retailers face with their supply chains.

We’ve had a pandemic along with political sensitivities, constrained shipping availability and wars showing the areas that can go wrong with modern day global manufacturing and the movement of goods. This has made life incredibly difficult and put the spotlight on how exposed many companies are with the security of supply of the products that are absolutely essential to making their businesses tick.

The other important factor is the increased responsibilities that will be placed on retailers and brand owners with the pending ESG legislation in the EU and the increasing demands of shoppers for seeing actual hard evidence to support the provenance of the products they are buying.

The potential for brand damage from a lack of visibility and control over their supply chains is becoming increasingly acute and is a risk that a growing number of retailers and brand owners are no longer willing to take. As is often the case the trends are being initially led by the luxury end of the market but they will invariably trickle down into the mainstream.

Recent stories to have hit the headlines include the factory making leather bags in Milan that was hiring illegal workers to produce products for Dior. The bags were sold to the luxury brand for a mere Euros 53 and then sold in stores for over Euros 2,000. This is not an isolated incident and the issue of brands having little control over the manufacture of their goods is only going to grow.

The answer is vertical integration and investment is being made in this area by many brands including the likes of Prada and Chanel. Philippe Blondiaux, global chief financial officer at Chanel, stated: “We are accelerating the vertical integration of our supply chain because we believe this is key to controlling our manufacturing and materials.”

Such trends are also apparent in the UK at the Andrew Martin International and Timothy Oulton businesses for instance. As much as 75% of the overseas products it sources now derive from its own workshops in Southern China and the company also owns its own tannery in Brazil. This shift to owning the manufacturing operations is a crucial part of its strategy and the company’s CEO Mike Durbridge says: “Vertical integration is very important as you need to be able to stand behind your product manufacturing and feel comfortable.”

NiX by Nicola Harding interiors

At NiX by Nicola Harding the company is very careful with its sourcing of products, with much being purchased from family-owned businesses in the UK, and it would ultimately like to garner even more control over its supply chain by investing in its own workshops

Companies need to ensure they can secure the volumes of raw materials that they need while equally important is having a full grasp of the provenance of these materials and also the conditions of the workshops in which their products are produced.  

Such moves also significantly shorten the elongated, convoluted supply chains that have built up in recent years and will help retailers become much more agile organisations with the ability to quickly shift production according to demand. The opportunity to change production on the back of improved forecasting tools also becomes a reality and the eradication of waste along with the reduction in the discounting of goods further helps the economics for retailers.

This greater embrace of vertical integration looks like an inevitability but what is also essential for retailers with such strategies is to deploy the necessary underlying technology solutions that can seamlessly integrate these different components. These will help reduce the complexity involved in bringing to reality these new future-proofed models.

Glynn Davis, editor, Retail Insider

Supported by: