Risk in the supply chain comes in many forms, but one of the most volatile and unpredictable is geopolitical risk-risk of one country’s foreign policy unduly influencing or upsetting domestic political and social stability in another country or region. Other forms include the crippling result from inadequate or poor product quality testing and supplier management programs.
In the last few weeks, we have seen the tinder pot start to flare up in the South China Sea, specifically the relations between Vietnam and China. Li & Fung Ltd., the world’s largest provider of clothes and toys to retailers recently released an article exposing the anti-China protests that unleashed in Vietnam which poses a threat on production in many of their suppliers’ factories.
Factories have closed their doors, putting a stop to production in response to an upsurge of violence, riots, heavy damage to factories, and clashes between workers and military forces leaving the industry on edge. Since Vietnam accounts for the second-largest sourcing country behind China for major industry contributors such as Li & Fung, such delays can have a critical effect on production and delivery globally.
Considering a large volume of apparel and footwear shipped to Australia, flows through this region, brands and retailers must understand that if these tensions and small skirmishes continue, they could have major implications in terms of production hold-ups and delivery delays in the retail industry alone.
We have also seen earlier this year, Australian customers have been asked to return 201,000 items – 24 styles of jeans and one style of sheet and pillow slip – after they were found to contain unacceptable concentrations of hazardous azo dyes.
When certain azo dyes have prolonged contact with skin they can break down to form “aromatic amines”, some of which the World Health Organisation International Agency for Research on Cancer classifies as known carcinogens. The way to manage this is through greater visibility into the development and production processes, a task not easily achieved based on geographical separation alone. So technology and process has to be improved.
Australian brands and retailers need to be aware that the volatile socioeconomic climate coupled with the continuing pressure to introduce further government regulations to protect Australian consumers from poor quality garments has created an environment where strong risk mitigation practices are not only a competitive advantage, but a critical lifeline for brand survival. Brands and retailers must take measures to help ensure accountability and full supply chain transparency on a host of issues. A single supply chain tragedy can cause damage to a company’s brand reputation; therefore it’s critical for brands to be more proactive yet reactive within their supply chain processes.
With increased visibility into key information about suppliers, purchase orders, production milestones and shipment targets, supply chain managers can mitigate, intercede or re-mediate in order to maintain the supply stream. In the instance of geopolitical risk, if you have full visibility over your supply chain and have the capability to pinpoint where exactly your supplier was geographically based using one portal, you can make quick and executive decisions by moving your orders to other suppliers where there is low political risk, allowing you to save costs and delays to your product life cycle.
In addition, helping to ensure your brand is compliant with government regulations; technological solutions that offer preventative measures making it possible for you to collaborate between your brands suppliers and manufacturers during and throughout the raw material design, development, and testing, pre and post-production stages is the right step to make in protecting your brand.
Global sourcing has complicated apparel and footwear supply chains with an array of risks and variables that must be managed – proactively and reactively – to avoid disruptions similar to the ones we have experienced recently. In order to ensure risk is minimised in your supply chain, you need to implement process and technology changes that identify the risk, utilise the best approach to reduce each type of risk, analyse future risk through strong reporting, and collaborate with the parties in your supply chain for early visibility and agility to react before, during and after disruptions.