Supply chain Expert Paula Rogers recently lectured on the issue of sustainability at Melbourne’s RMIT University. Here she argues green values can lead to a stronger bottom line.
People often ask me what makes a supply chain sustainable. Sustainability is really just common sense and looking at things in a more holistic way. It is good management practice that will help give your business a competitive edge by making your operations more market responsive and cost effective. And with the increasing demand for what customers perceive as sustainable products and services, it is something we cannot afford to ignore.
Consumer spending on healthy and sustainable products and services in Australia currently exceeds $19 billion, according to recent research by market research company Mobium Group. It is growing at over 20 per cent each year, to likely reach $27 billion by the end of 2011. That is four per cent of consumer spending in Australia.
But a focus on sustainability is also essential for businesses to survive and thrive. Our local small and medium enterprises are typically customer-led, cash-strapped businesses, who cannot afford to ignore the costs associated with poor operational control, which eats away at their profit margin. We know that finding better, more efficient and sustainable ways to deliver well-executed safe product, on time, is always in vogue.
When I moved to Hong Kong, the textile, clothing and footwear trading capital of the world, in the mid 1990s, no one talked about ‘sustainability’. What drove change then was a series of EU directives concerning AZO dyestuffs and safer use of chemicals.
Ongoing improvements have bled into the architecture of our supply chain, challenging us to create more financially sustainable and profitable businesses, but also to be kinder to people and the planet – and to make increasingly conscientious customers happier too.
In 1998, as general manager of global operations with Li and Fung Trading, I dealt with the numerous issues we had around quality, delivery and the increasing awareness of labour rights issues.
We started with a long, hard look at our supply chain and service systems, located mainly in Europe, North America and Australia. Internal conversations quickly spread to our customers, vendors, factories and like-minded businesses to discover that we had much unharnessed expertise.
This led to the development of our global strategic sourcing plan (GSSP), helping to create a more integrated supply chain. Over the next five years, the GSSP helped turn our manufacturing operations into a finely tuned machine, allowing us to aggressively capture market share.
The progressive nature of the GSSP on the operations side saw us establish more clearly defined lines of responsibility, accountability and communication internally. This was reinforced through operations procedures and manuals. A stronger operational balance between merchandisers and quality assurance inspectors pushed more responsibility back to factories, improving morale and working relationships across the board. Halving claims was the planned and delivered outcome, with happy, less-stressed buyers the icing on the cake.
This kind of integrated supply chain approach is now becoming accepted practice internationally. For example, the UK government’s recently launched Responsible and Accountable Garment Sector Challenge Fund (RAGS) provides funding to improve labour conditions in poorer countries that supply the UK market. A key focus of RAGS is to strengthen production and operational management, as a way of improving working conditions in low labour-cost countries.
So how does this apply locally?
Today as industry liaison with the Council of Textiles and Fashion Industries (TFIA), I see many of the same issues. Robust contracts and operations manuals govern the standards and communication protecting retailers when dealing with their suppliers.
However, the corresponding documentation between supplier and factory/makers seems to be a copy of the customer’s specification and an order docket, leaving suppliers exposed. Lack of basic operational procedures frequently means that suppliers are spending more time dealing with complaints and problems in their business, rather than developing their business.
Finding ways for suppliers to invest in better operational management is likely to help push back responsibility, allowing suppliers more time to focus on how to grow the business.
To do this, we need to take a long hard look at how we perform, from the buyer’s perspective. Failing to deliver, even once, can bring many challenges. Not least to the buyer, where an incomplete range of merchandise is likely to have a harsh effect on sales. The devastation widens if the retailer has invested in an advertising campaign too.
The dynamics of break-even in retail means also that orders not delivered have a disproportionately adverse effect on profit margins. Buyers want to know that you have a mature enough supply chain to deal with issues that arise.
Systems like Ethical Clothing Australia accreditation provide a progressive solution to better manage local supply chains, both from a social and quality viewpoint. Retailers, brands and suppliers involved in the process get full supply chain mapping, including compliance auditing for a few thousand dollars.
With no corresponding system overseas, risk management is a huge challenge for companies, both locally and internationally. However, what I have seen is that drilling down into your supply chain and showing some attention to your suppliers lets them know that you are both interested and looking. We all know that when someone else is looking we are much more likely to perform.
I hope to see Australian textile, clothing and footwear businesses building and investing in more robust operational capability, digging deeper into their supply chains and taking more responsibility for the impact their product has on the producers, the environment and the wearer. Australian consumers deserve more choice.
Paula Rogers is the industry liaison for the Council of Textile and Fashion Industries of Australia, and has 25 years’ experience in the field of supply chain management. She is on the board of the Fair Trade Association of Australia and New Zealand and is an advisor to the UK Government’s RAGS Challenge Fund.
Ship to store
The global strategic sourcing policy included the following strategies:
• More clearly defined lines of responsibility, accountability and communication internally, through regular global operations
conferences which fed into an annual review/monitoring of operation procedures and manuals.
• Stronger operational balance and communication between merchandisers and quality assurance personnel, with more responsibility pushed back to factories.
• Reducing the complexity of factories used to service our business through stronger contracts, where all factories were approved only after a positive evaluation, for technical and social compliance. Vendors self-eliminated many sub-standard factories, thus reducing the number of factories used for our business by 40 per cent. By using fewer factories, manpower was redirected to evaluating factories and preventing problems.
• In a five-year period, while business turnover grew 30 to 50 per cent, from approximately US$200million to in excess of US$1 billion, our customer claims halved from 1.5 per cent to 0.75 per cent of sales turnover, making a substantial difference to our bottom line.
Logisitcs experts provide tips for emerging designers on how to avoid costly mistakes in supply chain management.
DHL Express Oceania senior vice president Gary Edstein
1. What do emerging labels need to know when starting out?
They need to map out their supply chain and know where they will be sourcing samples, where the garments will be made and where they will be sold.
2. What common mistakes are made?
They may find shipping documents such as customs declarations or commercial invoices are illegible or incomplete or not prepared in English. Often improper value is assigned to the shipment and samples shipments aren’t properly marked. They may not account for shipments being held for duties or taxes payments at the other end.
3. What needs to be considered for international shipment?
Designers need to ensure that once overseas freight, insurance, duties, taxes and landed charges are added to the cost of the garment, that they are covering those costs in the recommended retail price. Conversely, they should be aware that those additional freight charges don’t raise the garment cost too high.
4. What charges should they be aware of?
They should be aware of: export charges, overseas freight and insurance, duties, taxes and landing charges at destination - such as port fees, customs clearance, cartage and local insurance.
5. How much documentation is involved?
A commercial invoice must contain: the complete name and address of the shipper, consignee and purchaser, article identification, fabric composition, description of the merchandise, number of articles, number of outside packages, currency, level of sale, unit value, total value, country of origin.
Dean World Cargo managing director Bruce Haines
1.What do emerging labels need to know when starting out?
Whether shipping to domestic markets or internationally, designers need to make sure they do their costings properly.
2. What common mistakes are made?
Small orders always attract minimum costs, so this can blow out the budget quite quickly. Without any scale, business costs do rise disproportionally. There is a trend now to ship direct to customer’s stores rather then their distribution centres and this can be expensive if not allowed for.
3.What needs to be considered for international shipment?
International shipments in particular have some high upfront costs so these need to be allowed for. Designers should watch out for selling terms, particularly when selling overseas and try for free on board terms. Selling free into store overseas is very difficult to cost so watch out for that. Most overseas buyers are used to importing so designers should draw on their expertise.
4.What charges should they be aware of?
They should watch out for credit risks and buyer discounts as these can really eat into margins.
5. How much documentation is involved?
Invoicing and paperwork is always daunting especially in relation to exports, so designers should use a professional freight forwarder who will alert them to buying terms, overseas GST issues and customs regulations etc.