Three senior retail leaders weigh in on the state of supply chains in 2023

et conditions. The Havaianas perspective  Not every company was negatively impacted by the supply chain disruption. One example is Havaianas. Robert Esser, president of APAC and China for Alpargatas, Havaianas’ parent company, revealed that the company’s internal manufacturing set-up insulated it to a certain extent. “We are one of the last remaining global fashion brands that is also 100 per cent in-house manufacturing – a point of pride.  However, we did have quite significant increases in cost of goods from a raw materials perspective,” Esser told Inside Retail. Much of the complexity in supply chains over the last 12 to 18 months was happening farther upstream – so Havaianas experienced some of the same problems as other brands, but at a different point in the process. “Increases in cost of shipping both for raw materials inbound to Brazil plus outbound finished goods to our markets were a big factor for some of 2021 and much of 2022, but things have mostly normalised now,” he added. In the digital realm, the company had the same issues with the last mile for e-commerce operations and third-party logistics services. Again, he noted that much of this has moderated in the last two quarters and costs are coming back down again. “However, e-commerce now represents almost 25 per cent of total regional sales for Havaianas, so our costs associated with this have gone up considerably – offset of course by savings in attendant bricks-and-mortar fixed costs on the same revenue,” he explained. Some companies have moved manufacturing operations to lower-cost regions, in order to rethink the structure of their supply chains. Esser is not convinced by this way of thinking. “You get what you pay for, generally. Lower-cost regions in absolute terms tend to offer much less flexibility and other options for both manufacturing (labour pool, infrastructure) and also the supply chain,” he elaborated. When one takes into account inbound raw materials and outbound factors such as shipping, ports and sailings, China has a complete ecosystem that is hard to beat. Be it trade shows, buyers, or subcontractors, it’s all reliable, according to Esser. “Maybe you can save a bit on labour or tax incentives with new country opportunities, but until that whole 360-degree ecosystem is in place, savings come with teething problems that in my experience are not usually worth it unless there are huge savings at stake,” he opined. In terms of lessons learned from the last few years, Esser is of the opinion that in-house operations are more stable but less flexible as any major changes usually require capital investment and planning, which are hard to come by in a crisis situation. “Moving towards third-party logistics partners gives us more flexibility for seasonal surges, and adopting a three-drop strategy for new product introductions ensures the demand curve is a bit flatter than our previous annual collection process,” he said. East Imperial’s take For New Zealand premium tonic water and mixer brand, East Imperial, supply chain issues are still a factor for the company in 2023. “Supply chains remain volatile, and the smallest problem continues to have wide repercussions with timing on deliveries of finished goods, packaging and raw materials,” Anthony Burt, founder and CEO of East Imperial, told Inside Retail. According to Burt, the only sure way of ensuring supply over the past two years was to build and hold inventory, but the situation is now starting to change. “As we gain more trust in supply, it is time to reduce stock with the caveat of having strong relationships and trust of your suppliers, together with focusing on planning to ensure visibility of medium/long term demand across your supply chain,” he explained. Burt acknowledged that through digitalisation, consumers are more aware of what a good experience from a supply chain looks like and expectations continue to increase.  “I think both internally and externally, people are fatigued with excuses such as Covid-19, staffing or shipping delays, and we have now had time to understand and adapt to the new reality that is supply chains today,” he added. Burt revealed that the company is continuing to explore options to move manufacturing closer to customers, with the total delivered cost and flexibility being the key drivers for any decisions made on opening up new operations. In terms of lessons learned from the past few years, Burt feels that supplier relationship management and forward planning will be key moving forward.  “We have developed some strong skills over the past three years in working in a VUCA (volatile, uncertain, complex and ambiguous) environment. We are actively acting on key strategic activities that will help deliver future growth, stability and profit,” he said. Burt went on to say that managing inflation and profit margins are now keys for success across the retail industry.  “It will be key to understand the cost base of inputs and look for opportunities to claw back price rises where metrics have reduced, such as overseas shipping. As shipping rates reduce it is important for businesses to have a dynamic view on their costs,” he elaborated. Zalora’s point of view When it comes to e-commerce player Zalora, the online retailer has taken a very proactive approach towards managing inventory, fulfilment processes and forecasting demand in its overall commercial operations. “We have been able to manufacture and fulfil over 95 per cent of orders across Singapore, Malaysia, Brunei, Hong Kong, and Taiwan on time for over 24 international brands in addition to the storage and fulfilment of orders for more than 300 local and international brands,” Simone Cortini, chief platform officer at Zalora, told Inside Retail. According to Cortini, the company places a huge importance on meeting demand while ensuring having a healthy amount of inventory levels to meet profit margins.  For instance, an innovation lab was established in 2019 to bring together data warehousing and business intelligence teams to address complex problems and put data at the centre of business decisions. “In a similar vein, we launched our fulfilment service solution called, One Stock Solution (1SS), to address the rise in online orders amidst the first wave of Covid-19,” he noted. Under 1SS, Zalora provides partner brands with warehousing and last-mile delivery solutions. The offering consolidates stocks in fulfilment centres and offers a logistics infrastructure that can be used across all digital platforms for a multi-channel shopping experience. Interestingly, the company is the first and only fashion e-commerce retailer in Malaysia to obtain the AEO (authorised economic operator) status that gives its regional fulfilment hub an express lane at customs, making 24/7 cross-border movements seamless.  “To complement the regional e-fulfilment hub in Malaysia (44,000sqm), we have also added additional floor space of 40,000sqm in our Philippines fulfilment centre and 45,000sqm in Indonesia to serve our growing base of customers in these two archipelagoes,” he stressed. Embracing uncertainty At the end of the day, Cortini believes that supply chain issues are inevitable in the retail sector given the volatile economic climate. He feels that as companies adjust their supply chains to adapt, we may start to see the cost of transportation and logistics become more competitive. Nonetheless, he said that brands and stakeholders need to ensure that their supply chain operations are flexible and resilient to adapt to real-time changes, disruptions, changing customer behaviour, and other geopolitical movements. “Sourcing, manufacturing, and production have all been impacted by global economic headwinds. Demand is showing signs of a slowdown as a result, and this creates a situation where there is a bottleneck in production,” he noted.  This is where it is crucial for brands and stakeholders to prepare for an uncertain business landscape by adopting an adaptable and resilient approach that can withstand any challenges that may arise. At Zalora, the company has embraced data to understand the behaviours of customers in Southeast Asia. Another element is distribution channels. It has partnered with transportation companies and strategically located its warehouses in the markets that it operates in. “This strategy has worked, improving our shopper satisfaction rate from 66.6 per cent in 2020 to 72.2 per cent in 2022,” he concluded.