Sourcing in a volatile world

To develop a profitable sourcing strategy, it is essential to consider various factors and make informed decisions. This process can be overwhelming, particularly if you aim to incorporate more ethical and sustainable business practices. In today’s volatile geopolitical landscape, sourcing reliably and competitively requires careful planning and flexibility.

The COVID-19 pandemic served as a wake-up call for many retailers and brands that had become overly reliant on distant sourcing, especially from China. Additionally, significant disruptions like the war in Ukraine and the ongoing situation in the Middle East have greatly affected both the cost of goods and access to markets.

When crafting your sourcing strategy, it is crucial to build in flexibility and resilience. Developing multiple sourcing options, both near and far, will help mitigate the impact of major geopolitical upheavals.

 

Supply chain disruptions

Geopolitical conflicts can disrupt supply chains by blocking trade routes or imposing economic restrictions on specific countries. Recent events, such as the crisis in Ukraine and the ongoing Israel-Gaza conflict, have significantly impacted shipping in the Red Sea. These disruptions lead to increased shipping times and costs, as normal routes are blocked. Additionally, containers may end up in the wrong locations, causing port congestion, particularly in Southeast Asia. For instance, Singapore, the second-largest port, is currently experiencing congestion, which has led to a dramatic increase in container prices.

 

Mitigation through nearshoring

Sourcing goods from Europe or nearer to your home market can help reduce delays and costs. Popular nearshore options include Morocco, Portugal, and Turkey. Egypt is also becoming an attractive option, as U.S. investment supports factory modernization.

Some countries that could be consider nearshore include Morocco, Portugal, and Turkey. Egypt is also becoming an attractive option, as U.S. investment supports factory modernization.

The key benefits of sourcing here include:

• Lower transport costs and speed to market 

• Less inventory - lower MOQS required than larger Far Shore Factories

• Increased stock turn - with the ability to repeat in season

• Less risk and possible markdowns  

• The above will  cut your warehousing costs 

• Sustainability benefits - with a lower carbon footprint 

• Easier to visit more factories to ensure ethical standards are of the highest level

• Access to organic and more mid-to-premium products 

• When you plan and calculate the end-to-end costs the margins may work 

 

 

 

 

 

 

 

 

 

 

A bit further afield...

Political unrest in sourcing countries can create uncertainty and risk for businesses. This includes prospective government changes, policy adjustments, and civil unrest that may affect the availability and cost of obtaining items. Geopolitical turmoil can result in the implementation of trade restrictions, taxes, and embargoes - the US election high on the radar is having an impact on sourcing from China 

Because of concerns about poor China / US relations there and increased tariffs on the horizon - Chinese factories have switched significant production to Vietnam to benefit from Free trade agreements, low costs, and quality of labour.

India has also been a major beneficiary of this strategy.

India - is “nearer shore “ than China with significantly shorter lead times and lower tariffs in several categories. There is also the tantalising prospect of a Free Trade deal with the UK now that their elections are over.

India and Bangladesh and Pakistan specialise in large core textile programmes and can do smaller more fashion/design-led techniques across home and fashion textiles They have strong jewellery, gifting, and leather specialties.

Retail100 Consulting works with QALARA a Global Sourcing company that can provide the service smaller brands and retailers require. Backed by Reliance - one of the biggest companies in India - they can provide excellent freight rates and offer a Landed cost price. They benefit from their scale and at a time when container rates are climbing can benefit suppliers who need to support container fills by consolidating across producers.

Africa - continues to grow as a sourcing route with Ethiopia and Egypt, Tanzania, and Madagascar growing in particular for home accessories, home decor, and tableware. China will remain a key part of your sourcing strategy. However, it is increasingly important to have a Blended Sourcing strategy - which will deliver a blended margin but allow flexibility and resilience in this volatile ever-changing GeoPolitical environment

 

Applying Goldilocks scenario planning to Sourcing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goldilocks Scenario Planning, when linked to sourcing, refers to a strategic approach where companies seek to identify and operate within an "optimal" range or balance that is neither too extreme nor too minimal—essentially finding the "just right" conditions. This concept is derived from the "Goldilocks Principle," which in various contexts, describes finding the perfect balance between too much and too little.

• Balancing Cost and Quality

  • Too Low Cost: Sourcing from the cheapest suppliers might lead to poor quality, higher defect rates, and increased returns, which could damage your brand's reputation.

  • Too High Cost: On the other end, sourcing from premium suppliers may ensure high quality but at a price point that erodes margins and reduces competitiveness.

  • Goldilocks Solution: Identify suppliers who offer a balance of acceptable quality at a reasonable price, ensuring both profitability and customer satisfaction.

• Supplier Diversification

  • Too Few Suppliers: Relying on a single or very few suppliers can lead to significant risks if those suppliers face disruptions (e.g., geopolitical issues, natural disasters).

  • Too Many Suppliers: Managing too many suppliers can lead to increased complexity, higher administrative costs, and potential inconsistencies in quality.

  • Goldilocks Solution: Maintain a diverse but manageable number of suppliers that can ensure supply chain resilience without overwhelming your management resources.

• Lead Times

  • Too Short: Requiring extremely short lead times might push suppliers to cut corners, resulting in quality issues or increased costs due to rush orders.

  • Too Long: Excessively long lead times can tie up capital in inventory, lead to stockouts, or make it difficult to respond to market changes.

  • Goldilocks Solution: Work with suppliers to establish lead times that balance efficiency with quality and responsiveness, enabling just-in-time inventory management.

• Inventory Levels

  • Too Little Inventory: Keeping inventory levels too low can lead to stockouts, missed sales, and unhappy customers.

  • Too Much Inventory: Excess inventory ties up capital, increases storage costs, and risks obsolescence, especially in fast-moving industries like fashion or electronics.

  • Goldilocks Solution: Optimize inventory levels to ensure enough stock to meet demand without excessive overstock, often achieved through effective demand forecasting and supplier collaboration.

• Geographical Distribution of Suppliers

  • Too Concentrated: Sourcing from a single geographic region can expose the company to regional risks like political instability or natural disasters.

  • Too Dispersed: Having suppliers scattered across too many regions can increase logistics complexity, lead times, and costs.

  • Goldilocks Solution: Develop a geographically diverse supplier base that balances risk with logistical efficiency, ensuring continuity without excessive complexity.

• Risk Management

  • Too Risk-Averse: Being overly cautious may lead to missed opportunities, such as avoiding emerging markets that could offer cost benefits.

  • Too Risk-Tolerant: Taking on too much risk might expose the company to potential disruptions or unethical practices, harming the brand.

  • Goldilocks Solution: Implement a balanced risk management approach that allows for calculated risks, ensuring supply chain resilience while capitalizing on opportunities.

• Benefits of Goldilocks Scenario Planning in Sourcing

  • Cost Efficiency: Helps in maintaining a balance between cost-saving and quality, preventing either from negatively impacting the business.

  • Risk Mitigation: Ensures that risks are managed effectively without overburdening the organization with either too much caution or too much exposure.

  • Operational Efficiency: Leads to more streamlined operations by avoiding extremes in inventory, lead times, and supplier management.

  • Adaptability: Allows for a flexible supply chain that can respond effectively to changes in market conditions or unexpected disruptions.

In summary, Goldilocks Scenario Planning in sourcing is about finding the "just right" balance in various aspects of the supply chain to optimize costs, quality, risk, and operational efficiency. It ensures that sourcing strategies are neither too extreme in any direction, enabling the company to operate smoothly Ethical concerns, including labor rights, environmental issues, and a growing emphasis on sustainability, should be a top priority in your sourcing decisions. Collaborating with your suppliers through open and honest communication is crucial. Transparency and accountability are essential for maximising the positive impact of your sourcing strategy in this volatile market