Relationships, Freight & Materials Futures

RORing – Return ORelationships

Virtual Sourcing platforms have been gifted the equivalent of Willy Wonka’s golden ticket in 2020, providing trade continuity where travel is heavily contained. Marketplacing suppliers and the supply chain creates accessibility and visibility, but it doesn’t exactly foster authenticity. 

How many of you have heard of corner-cutting upstream? The pressure on manufacturing partners isn’t creating diamonds and survival means “at all costs” for anyone. With the stakes higher than ever staying alive beats integrity in the pecking order.

I’m blowing on a similar same horn here, good talent leading through crises in the supply chain has been more important than ever, having strong leaders here in Asia is absolutely fundamental.

The best relationships with supply chain partners exist closest to the source, intangible relationships that carry empathetic equity are short in supply in the digitally connected world, unfortunately virtual sourcing for all of the opportunities it generates isn’t in a position to succeed the human approach. Automation is good except when it comes to building trust and creating environments of authenticity. Your Sourcing Experts bring more value with these relationships than the KPIs that measure bottom line impact, just so long as they’re keeping their heads above the treeline. With international mobility at ZERO it’s these long-standing supply chain relationships that bring priceless returns.

Netflixing the supply chain gets Venture Captial and Wall Street attention, but what do venture capitalists know about the complexities of the supply chain? Empathetic Equity sits a near second to fiscal motivation in B2B settings. Internal conflicts revolving around “Doing the right thing” don’t exist when there’s a high level of care between supply chain partners. When the stakes are high you need battle partners.

Just remember how dangerous that chocolate factory was. Only Charlie made it to the glass elevator

Freight Futures

Last-mile supply chains aren’t keeping up with demand. Here’re the numbers; 

– Amazon’s normal on-time rate of 95% has dropped to 85% through Covid
– FedEx & UPS were increasing e-fulfillment capacity by 11.4% in 2020, but estimates say an 18% increase is required to meet demand

Back in school a drop from 95% to 85% still gets you an A Grade, no biggie. In e-commerce you get customer switching and lost dollars. Fulfillment costs are spiking because of stretched supply, UPS is planning to impose fees that could go up to as high as $3 a package for ground shipments &  $4 for deliveries that need to be flown.

You can’t tack on the added cost to your customers because free shipping matters. It has the highest click-through rate (CTR) of other holiday shopping promotions and it ranks very close to sales or discount prices (see below).

The headache of freight will go deep into 2021 when vaccine supply chains pick up much-warranted attention and providers turn their attention towards the shipment of the MVP (most valuable product) of our era. Airfreight prices will skyrocket and snowball down into the sea freight market. With all of the volatility it makes sense to go after some stability, FFAs or in E-Commerce’s case Forward E-commerce Agreements.

Nice in theory, but with last-mile suppliers holding the best cards the playing table needs to be flipped. Retailers can and have to pool/ed together to force better terms with increased scale. Several months ago one Head of Asia said some apparel supply chains (including their own) were already sharing TEUs, collaborating to reduce the cost of freight. 

Materials Futures

The traceability of materials back to the cotton fields of the Xinjiang region is a momentous task, its high tech and high cost. Tying into the empathetic empathy points above, reacting to the new legislation requires trust, high levels of knowing and strong supply chain relationships. This is the key workaround when traceability is a challenge.

With 20% of cotton supply coming out of the region demand for other sources gets a huge spike and vendors/growers benefit. The event may decouple the China supply chain in a slow and sustained fashion, the commitment from 39 countries to hold the nation accountable for its actions towards the Uyghurs indicates that restrictions will be enforced for a significant period of time. Forward Materials Agreements (FMAs) might be a coping mechanism for retailers working with vendors outside of Xinjiang. 

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