Rarely people understand the importance of supply chain for it is the pillar on which this industry stands.
Supply chain efficiency is of utmost importance when we look at the fashion industry. Failing at creating an efficient supply chain would mean failing in creating a sustainable business. The part 4 of this book dwells into some of the secrets which I have learnt, over time, in this industry.
The apparel industry came into existence from the time humans learnt how to make clothes. It has grown over centuries and has become a powerhouse, which drives consumer behaviour across the world.
However, for an industry this old, it comes across as a rather fragmented one. The supply chain is of particular concern in an industry with a few large players and none being dominant (size or scale).
Time & again, I have noticed that the unorganised sector works faster and more efficiently when compared to the organised sector. The key reason which drives this difference is “TRUST”.
From cotton to yarn, to fabric, to trims, everyone works on trust in the unorganised sector. This trust is built over many years of working, and one is seamlessly able to meet expectations fashioning a smooth supply chain. Even today, your ‘Zubaan’ (spoken word) is your bond in Mumbai’s Wholesale Textile Market.
This is possible because, in the unorganised sector, business owners transact directly with each other. However, due to scale and corporatisation, the organised sector no longer enjoys the benefit of such trust.
In developed markets like the USA, contracts form the basis of a working relationship. Inevitably, these contracts are one sided and tend to favour the larger entity which strains the relationships further. Hence, vendors and buyers tend to find comfort in operational level relationships, which often change with the employees. New partnerships are formed as new employees move.
The buzzword in the industry today is ‘Agile Supply Chain’, but the question I ask is more fundamental. Can there be agility without trust? Trust between vendors and businesses lead to a bond akin to partnership, each going the extra mile for the other. This leads to a ‘Seamless Supply Chain’, going well past the definition of agile.
While everyone is discussing the future of supply chain, in the post COVID era, it would be good to remember these simple fundamentals as they will continue to drive business relationships irrespective of how the world may change. In fact, building trust, in a time of great uncertainty, will probably be the difference between a good and a great supply chain.
So, how does one go about building trust?
Businesses need to create a culture, within their own teams, which allow honest evaluation of issues and not cover up by shifting blame. Hence, a combination of the brand/retailer’s manufacturing terms, and management decisions influence how its representatives (namely buyers/merchants) identify and adjudicate issues. Their judgements are then based on an honest assessment of the mistakes committed by either side.
Being ethical, honest and thorough will go a long way that can do wonders for relationships between vendors and customers. Moral reputation makes it easier to build trust, which is then difficult to break. Being honest and thorough also helps solve problems quicker with vendors.
Brands/retailers can exacerbate time pressures with poor forecasting, delays in providing necessary order specifications or approvals and sudden changes to order volumes, throwing off a factory’s ability to plan. Businesses that take fair responsibility for delays, caused by their own teams, including those that allow flexible delivery schedules, pay for air freight to transport products faster or waive financial penalties.
Hence, a symbiotic relationship needs to be formed between both parties based on the mantra of DEPENDABLE, CONSISTENT, TRANSPARENT & FLEXIBLE combined with the principle of 4C’s. There must be an effort to institutionalise and sustain this in current practices.
Businesses need to plan their volumes and inward schedules, meticulously to ensure that their own inventory levels and cash cycles are healthy. They need to build processes that allow for flexibility in the supply chain without disrupting it. This will be discussed in greater detail in upcoming chapters. Companies also need to have a dedicated team in finance which works on giving financial solutions and predictability on cash flows to the vendors.
It’s important to realise that timely payments are crucial. It is the key to retaining and adding good suppliers. Making sure that they are paid on time will prove that the brands/retailers are reliable customers and easy to work with. If for any reason customers cannot make the payments on an agreed date, then informing the supplier of a revised date, at the earliest, is also very important.
The payment chain or ‘Vitamin-M’, as it’s sometimes called, is very critical in business. A lot of the supplier base is in the MSME sector and extremely dependent on timely payments for their cash cycle.
Businesses need to have a well-articulated policy on vendor management with clearly demonstrated decision-making at the top to ensure that consistency is maintained at operational levels.
Vendors appreciate consistency of actions, decisions and behaviour in their relationships with the customer. While there may be short term blips, if the long-term trend is consistent, then the relationship will thrive. No vendor likes an over opportunistic customer.
It’s also important to make sure you treat them well and don’t neglect them. It is good to remember that your supplier isn’t just working for your brand. Many may be supplying to your competitors. This type of understanding will benefit the relationship and motivate suppliers to spend more time working with your brand.
A business functions well when everyone works together for better costs and higher margins, tackling each other’s issues as their own. Buyers and vendors need to look at building a long-term relationship and not merely a transactional one. This helps both parties to achieve their goals and build long-term trust.
There must be a clear mechanism to set joint goals and measure achievements through a rigorous review process. This means institutionalising reviews, recognitions and celebrations. It is also important to ensure that vendors feel included in the success and growth of the company.
Changing business dynamics are a constant these days. In such a scenario, building a high trust environment between buyers and vendors leads to greater flexibility. Implementing new strategies, getting vendors to invest in new technologies, new innovations, going the extra mile for each other becomes increasingly easier if the relationship is based on trust.
A support system between vendor and brand may extend to jointly negotiating raw materials, holding inventory, blocking capacities, improving efficiencies and financials; primarily doing things which one would consider simply beyond transactional.
Over the years in the apparel industry, I have found that many vendors aspire to work with big brands and retailers. While they are able to procure orders for a season or two, they are unable to impress the brand/retailer teams to do long term business with them.
Reflecting on my experiences, I believe businesses are not just looking at capabilities and manufacturing infrastructure or cost, they desire qualities that will set the vendors apart from the rest, qualities that elevate them to another level in their eyes.
What are these desired qualities, brands/retailers look for in a preferred vendor partner?
The first desired quality in a vendor is being ‘Dependable’.
Brands/retailers prefer to work with vendors who can meet their COMMITMENTS on time, within cost parameters and requisite quality. Commitments that vendors successfully meet are then used to improve their own visibility which also reassures their customers of their dependability. This is commonly practiced by successful vendor partners.
The second desired quality in a vendor is being ‘Consistent’.
‘Every time, on time’, is a mantra every vendor needs to follow. Being dependable, every time, on delivery, quality and cost. Best in class vendors tend to formally brief their customers about this regularly, thus building their reputation for consistency. This builds trust and reliability that helps build a long-term business association, season after season.
The third desired quality in a vendor is being ‘Transparent’.
Transparency is the key to building trust in business. When vendors are transparent with respect to costing, social & legal compliance, as well as dealings with nominated vendors, businesses feel confident working with them. Another thing which is expected of vendors is transparency in declaring their daily/weekly status on orders which can be a major hinderance in building trust if not handled transparently.
The final desired quality in a vendor is being ‘Flexible’.
Business is dynamic in nature, and these days even more so. Support from the vendor becomes the need of the hour in many circumstances. This support may vary from holding the goods for an extended period to reprioritising for early deliveries, reworking commercial terms, changes in shipping instructions etc. By extending this support and being flexible, the vendor reassures the customer and builds trust which allows the brand/retailer to see the vendor as a partner as opposed to a transactional profiteer.
Over the years, I have seen that vendors display some of these qualities, but not all. Typically, they tend to build relationships with junior merchants or managers – but not the company. As a result, when these people move to other companies – so do the vendors.
A mantra which will make them a preferred partner with the brand/retailer. A mantra which makes businesses succeed.
Vendors, who can deliver these qualities, consistently earn the trust of the brand/retailer and become the preferred vendor partner. They become their ‘go-to guides’ for all things business.
A mantra for all vendors to follow.
We elaborated the qualities of a vendor partner in the previous article. While we look for these qualities in the vendor, we must keep in mind that trust works both ways.
Brands and retailers also need to ensure that they are dependable with their commitments, consistent with policies, transparent in their transactions and flexible in accommodating their vendor partner’s needs in an ever-changing world.
We all know that vendors like regular confirmed orders, higher volumes, better prices or volume projections, to plan production.
However, the real fulcrum of the relationship with any vendor is built and maintained at the operational level.
One of pillars in the apparel industry is the Buyer/Merchandiser, and he/she is the key operational connect on a daily basis and is also empowered to take decisions that can make or break the end-to-end supply chain. This means that if brands/retailers wish to ensure trust, they must have a clear mechanism to manage the relationship at the ground level.
While we, time and again, speak about the expectations from the vendors, we tend to forget that it’s a two-way street. Vendors also have expectations. After all, buyers are the channels for their businesses to grow. If the buyer/merchant can successfully gain the trust of the vendor, it would lead to the seamless functioning of the overall supply chain.
The buyer/merchant, while working at the operational level, manages most of the key levers that impact ease of doing business and efficiencies for the vendor. In my experience, this tends to define how the relationship works. So, how does the buyer gain the vendor’s trust?
The 4C’s which will make a buyer a preferred buyer are:
Clarity: Communication is the key to a smooth supply chain. Lack of clarity plagues the apparel industry’s backend. From dockets, to packing, to shipping instructions, to commercial terms, a buyer/merchant should ensure that all minute details are clear to the vendor. Approvals, at every stage of the development and manufacturing process, are the bane of the vendor existence and lack of clarity here leads to delays, conflicts, biases and mistrust.
Time and again, vendors receive ambiguous comments like ‘sleeve needs to be longer’, with no clarity on precise measurements or from where to where. This leads to many misunderstandings and delays. Clear communication should be taught and practised to ensure ease of business.
Closure: Quick decision-making i.e., closure helps ensure that all open points are closed quickly. A buyer should be empowered and prepared to take quick decisions and give closure on all issues, in the day-to-day functioning of the business - be it cost closure or approvals. This is one of the biggest pain points with vendors. We often have scenarios where the owner of a multi-million-dollar company is personally following up with a junior merchant in the retail/brand company because his work has come to a standstill due to non-closure of open items in the order.
Companies should ensure that strict TATs (Turn Around Time) are defined for approvals and cost closures, failing which there should be a well-oiled escalation matrix to support this. Buyers and merchants, when on leave or travelling, should ensure that they empower either someone else in the company or the vendor to close unresolved issues on approvals and costs.
Since, some of these approvals within the company are cross-functional i.e., handled by different teams within the same company, responsibilities tend to get lost in corporate hierarchy. This can easily be managed today using digital platforms which allow cross-functional workflows.
Comfort: Vendors should feel comfortable in reaching out to anyone in the organisation, be it other departments or the senior management. In case of any escalations, they should not fear a backlash from the team dealing with them, operationally. It’s important that the buyers/merchandisers create a relationship based on trust rather than power.
The vendors’ comfort also increases when they know that their customers have long term plans for them. Formal and regular reviews, to discuss performance and future plans with the vendors, and involving other departments in these meetings, make vendors feel included in the company. This is a tool that the buyer/merchant can use to gain trust and make them comfortable. Efforts should be made to make the vendor feel like a part of the company.
Care: Vendors should feel that the brands/retailers are invested in their growth. This motivates them. The buyer should maintain a vendor performance scorecard and work out incentives for better performance. This need not be cost-increase but may be volume-increase or technical support. The buyer should also keep the vendor in the loop for their future plans. They should also discuss improvement initiatives and give support wherever possible.
Care can also be expressed by ensuring that vendors have a single-window dealings with the company for day-to-day issues ensuring ease of business. Companies can define ‘care initiatives’ for the vendors, thus institutionalising this process.
There are many intangible benefits these relationships can bring like information on innovation, pricing, new launches as well as trends from other markets and companies, which can be game changing. This along with seamlessness & flexibility can completely turnaround the supply chain dynamics of a company.
One of the biggest myths in the apparel industry is assuming that the vendor is only looking for higher prices and margins.
These 4 simple principles ensure that companies attract the best vendors/factories and create a long-term relationship which, in return, makes the vendors go that extra mile for them.
At a time when everyone is discussing the future of sourcing in the post-COVID-19 reality, the buzzword is ‘Agile’. But agility on its own is meaningless, and it is trust that is crucial to achieve agility. In fact, in the process of putting agility as the most important requirement of the future, we are overlooking the relevance of some simple, age-old principles in an uncertain new reality – the importance of trust in supply chains, the lessons to be learnt from the unorganised sector, and how to build trust-based supply chains in the organised sector. Through this write-up, with my years of experience, I am sharing how trust can be built at the strategic and operational levels and why is it important.
The apparel industry has come a long way from the days of animal skins to smart shirts. Today, it is a force that drives significant economic development with a large impact on global GDP and is one of the main drivers of consumer behaviour worldwide. However, the supply chain is largely unorganised with few large, dominant players. In the 90’s, the opening up of the economy gave rise to a prominent organised segment in apparel retail. The growth of this segment was further fueled by a shift in consumer tastes and entry of several foreign brands. Today, both segments co-exist, each contributing significantly to the market share, however with very different working styles and commitments.
Over the years in the industry, I have noticed that the unorganised sector works faster and more efficiently than the organised sector. Having observed both the segments closely, I have realised that the key reason driving this is Trust which is built over several years of working together, the partnership shaped by the business owners who transact directly with each other. Hence, their view of business risk is very different. For the larger players, they have the regulatory and other constraints which drive their perception of risk. Due to scale and corporatisation, the organised sector does not enjoy the benefit of such trust.
Going beyond agility to build trust in supply chains?
Being agile is about quickly responding to short-term changes in demand or supply and handling external disruptions, smoothly. This is then added with ‘Strategic Adaptability’ (adjusting, modifying supply networks to meet structural shifts in markets) and ‘Alignment’ (incentivising to business objectives) principles to drive today’s supply chains. This appears to be the on-going mantra for supply chains, today.
But the question I ask is more fundamental. Can there be agility without trust?
Trust between vendors and businesses lead to a bond akin to partnership, each going an extra mile for the other. This leads to a seamless supply chain, going well past the definition of agile and encompassing the principles of adaptability and alignment. I believe that trust can be built into supply chains in the organised segment as well. All retailers/brands need to relook at their functioning and inculcate certain values into their processes and systems. In my view, trust is built at two levels:
Transactional trust must be backed up by technology support. Given the large volumes of transactions, it becomes very difficult to rely on undocumented commitments. It is a risk for both parties to operate without a clear system of record. Friction is bound to happen without a technology platform, where a rogue action or a mistake by a lower-level employee can permanently damage the relationship.
Trust at the strategic level will come about only through a strong alignment of values and interests. That is much harder than merely implementing some technology. It has to be built over a long period of time, with parties standing with each other through thick & thin, almost like a marriage.
Having defined that, trust must be built first at organisational levels through clearly articulated policies and demonstrated behaviour of the senior management. These must then reflect at the operational levels with processes and behavioural principles. However, this is easier said than done and requires some basic commitments at the organisational levels.
Building a culture based on ethics: Businesses must instill a culture in their teams that allows an honest assessment of issues and avoids blame game on either side. Being ethical, honest and thorough will go a long way doing wonders for the relationships between vendors and customers. To put it simply, a combination of the businesses’ manufacturing terms and management decisions influence how their representatives and employees identify and adjudicate issues. Moral reputation makes it easier to build trust which is then difficult to break. Being honest and thorough also helps solve problems quicker with vendors.
Transparency in payment related issues: It’s important to realise that timely payments are crucial. It is the key to retaining and adding good suppliers. Making sure that they are paid on time will prove that the brands/retailers are reliable customers and easy to work with. If, for any reason, customers cannot make the payment on an agreed date, then informing the supplier of a revised date at the earliest is also very important.
Consistency in words and actions: Businesses need to have a well-articulated policy on vendor management. There should be clearly demonstrated decision-making at the top to ensure that consistency is maintained at operational levels. Vendors appreciate consistency of actions, decisions and behaviour in their relationships with the customer. While there may be short-term blips, if the long-term trend is consistent, then the relationship will thrive. No vendor likes an over opportunistic customer.
And most important – Collaboration is the only way: Businesses function well when all stakeholders work together, helping each other with their issues. Retailers and vendors should, cohesively, come together and build a long-term relationship. There must be a clear mechanism to set joint goals and measure achievements through a rigorous review process. This means institutionalising reviews, recognitions and celebrations. It is also important to ensure that vendors feel included in the success and growth of the company. This goes a long way in contributing to an inclusive culture.
However, these four critical commitments are not enough and what distinguishes ‘trusting’ from ‘distrusting’ relationships is the ability of the parties to make a leap of faith; they must believe that each of them is interested in the other’s welfare and that neither will act without first considering their action’s impact on the other.
So, while retailers may have a good intention, if it is not communicated by actions, the commitment becomes mere words. So, it is very important to build a reputation of dependability, the belief that their partners are reliable and would honour their word.
But we cannot ignore that the retailer-vendor relationships are typically imbalanced. Major retailers buy from numerous, relatively small manufacturers, and many times, the retailers position themselves as ‘power centres’.
In a relationship of unequals, how can the powerful party build a trusting relationship?
The only way to create a balance is by being fair in handling this relationship. This concept includes two kinds of justice: Distributive and Procedural.
Distributive justice deals with the fair distribution of the pie. In all practicality, it implies that the rewards and the responsibilities are distributed judicially to all the stakeholders. This needs to be managed through a process of joint reviews of commitment to each other’s success.
On the other hand, procedural justice relates to the fairness of the partnership management mechanism of the dominant faction. This should allow for a mechanism to manage refutability, implying that retailers should build a culture in which a vendor can reach out comfortably to anyone in the organisation, be it other departments or senior management, without backlash from the operational teams. This is also the vendors’ mental cushion.
Another very important aspect of behavioural trust comes from ‘Familiarity’ and ‘Courtesy’. Strong relationships are established when people interact. In this respect, an effort by the retailers to learn more about their vendors is often fruitful. The various functions such as buyers, merchandisers, designers, etc. must visit the organisation of the vendors. This helps break the ice between the teams and create mutual respect. Relationships, thus, formed are long-lasting and encourage trust.
Courtesy is cornerstone of a good retailer/supplier partnership. Treating a vendor partner with respect and modesty is crucial to building the interpersonal relationship. Ultimately, relationships between companies are relationships between teams of people on either side. We should not forget that in an ever-changing business environment, a seamless supply chain, built on trust, is the need of the hour.
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