Better buying guidelines for resilient supply chains
There are several critical steps for buyers to take now and in the near future to help build resilient clothing and footwear supply chains that can weather the pandemic-created storm and be ready to meet demand when it returns.
The ‘Guidelines for Better Purchasing Practices Amidst the Coronavirus Crisis and Recovery' have been set out by Better Buying following a survey of suppliers from 39 countries.
The group’s goal is to transform buyer purchasing practices through factory feedback. Among responses to supply and demand challenges due to the coronavirus pandemic, cancellation of orders is by far the biggest impact. 70% reported buyers have pursued this approach as a way to address their own cash flow problems.
Short-term crisis management
The guidelines provide a roadmap for brands and retailers to follow for short-term crisis management – with supplier cash flow at the top of the list.
- Secure the cash your company needs in order to cover its contractual obligations, including accounts payable with suppliers.
- Discuss with suppliers their financial health and whether they have the cash/liquidity necessary to retain workforce for at least three months.
- Accept and pay all existing purchase orders for goods that have been shipped, are ready or in progress, or are cut. Do not resort to outright cancellations.
- Rationalise current assortment plans and reconfigure orders to continue producing viable products – such as styles that will be relevant for consumers during the crisis period, or still viable later in the season.
- Engage suppliers to manufacture masks and other needed personal protective equipment for workers on the front lines.
- Extend delivery dates/accept shipping delays, as necessary.
Pay a portion of orders that have not been cut and future orders that are affected by changes in volume, have delayed shipping deadlines, or are on hold.
Major changes in business practices will also be required as demand picks up in later months.
"With buyers and suppliers reeling from the aforementioned impacts – not to mention the consequences of tens of thousands of furloughed employees, factory and retail store closures, and a plethora of broken contracts – we can expect an industry-wide scramble to recover some sense of normalcy," report authors say. However, they warn: "Take caution: when demand picks up and companies start placing production orders again, business as usual will not be a viable strategy."
Better Buying is urging brands and retailers to prepare for a future where their suppliers will not provide credit through long payment terms, and will even expect advance deposits or COD (cash on delivery) payments.
There will also be the "bullwhip effect" to contend with. Buyers that reduced their inventories during the initial crisis management will find themselves under intense pressure to quickly re-stock their stores once demand returns. The sharp increase in demand for production capacity, in addition to the sheer volume of goods that will need to be produced, will have far-reaching consequences for production planning and efficiency, product quality, and working conditions.
Guidelines for crisis recovery:
- Keep human rights/sustainability/compliance staff intact to support an anticipated crush of orders as demand returns, so that recovery is socially, economically, and environmentally sustainable.
- Work closely with suppliers to plan and secure capacity needed and provide updated forecasts.
- Obtain the cash necessary to pay up-front or upon delivery for new orders through corporate bonds, loans, credit lines, or other formal finance mechanisms.
- Work closely with suppliers to plan needed development and production time and time-and-action (TNA) calendars allowing mutually agreed shipping deadlines. Expect and accommodate transportation delays.
- Closely coordinate with nominated raw materials and other suppliers to align lead times, deliveries, and payment terms with Tier 1 suppliers' needs.
- Make efficiency a high priority in corporate operations and day-to-day business with suppliers – for example, normal travel associated with global sourcing and production may be slow to resume and carries high costs as well as delays in decision-making. Instead, implement virtual fittings, onsite or virtual approvals, and virtual meetings with suppliers to streamline communication and speed to market.
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