These 5 Factors Will Dramatically Impact Future Supply Chains

No one in the footwear and apparel industry has a crystal ball, and if they did, it’s not likely they’d be entirely versed in what to do with what they saw.

Though there’s no way of knowing everything that’s coming around the bend for supply chains, a few things are apparent: the supply chain has been upended, the status quo won’t survive and niche players with new concepts will continue to unseat traditional players that can’t give up on their old ways.

That was all made clear at the Sourcing Journal Summit in Hong Kong last month, where leading consultants from McKinsey & Company, PwC and AlixPartners shed light on what they’re seeing in sourcing and shared best practices for navigating it — and changing to suit.

“There’s more change required and there’s more sophistication required,” McKinsey & Company senior partner Achim Berg said. “We’ve seen more and more technology coming in, more and more talent development coming in, and I think that’s the basis for that change.”

Here are five predictions for what’s set to impact the supply chain in the coming year.

1. Disruptors will snag more market share

As Li & Fung CEO Spencer Fung outlined at the Sourcing Summit, “There are more than 50 billion-dollar brands that people just don’t know about.”

A lot of these brands are highly niche, navigating the market without much overhead at all, and clearly unhindered by taking risks.

The question, however, has been how much market share those disruptors are really taking, and how much impact it’s really having on the more traditional players.

If you ask Berg, it isn’t a matter of small companies versus traditionals in the retail shakeout. Either way, he said, “We will see some leaving the market and we will see others growing. We’ll also see that a lot of the players will adapt to it. And let’s not forget this is still a highly profitable industry.”

In McKinsey’s research, the consultancy found that looking at the discount and luxury categories, on average, the EBITDA has hovered around 9.5% for the better part of the last decade, which proves there’s enough profit in the industry, he said.

“What is changing is that 20 percent of top performers used to capture the largest share of it and by now they do even more than that. So, it’s a bit of a winner takes all in this industry, and therefore, we will have — and we’ve always had that — some losers in the game” Berg said. “And we will see some new and innovative concepts that will grow and become highly profitable.”

Though disruptors are carving a space for themselves, the question for AlixPartners managing director Murali Gokki has been whether they’re actually profitable.

“The traditional players are being challenged by the disruptors and being challenged by the profitability,” Gokki said. But what the traditional players have as a leg up in many cases, is a better command of managing their supply chains than some of the disruptors have. That presents an opportunity for shared learning, where traditional players can learn from disruptors on how to be more customer centric, and disruptors can learn from traditional players how to better build their current operations and invest in productivity. “It’s going to pay dividends in terms of how you are getting through your profitability and keeping the disruptors off your turf.”

2. There will be a lot more consolidation

Regardless of just how much damage disruptors are actually doing, many of them are still driving the retail equation, and they have consumers’ attention—which means there are more brands and retailers that will be rendered irrelevant.

“There’s going to be a lot of consolidation happening,” Gokki said, adding that it won’t just be in stores. “Suppliers will become global. It’s no longer a China-based supplier or a Vietnam-based supplier — even Asian factories will have factories in multiple areas.”

These now-smarter suppliers will start to transition from independent organizations to being more integrated partners with the brands and retailers they supply product for in order to gain the development and efficiency the new supply chain demands. And this means brands and retailers may start to shrink their number of suppliers to the select partners best prepared to accommodate their business.

“We do foresee a lot of consolidation in the supply chain,” Gokki said.

3. China will not be unseated by upstart sourcing countries

Though the industry loves to talk about China’s dwindling significance as an apparel supplier, the country still outnumbers the next biggest supplier in the sector in terms of exports, by more than triple.

And though more companies are looking for continued supply chain diversification, particularly as trade tensions heat up and new tariffs fly from one country to the next with little warning, China will still remain a major player.

“I think the message is: the caravan is still moving,” Berg said. “And we’ve seen that with sourcing from East Africa, but if you’re looking for volume, more or less it won’t change. China is still the biggest exporter and for the foreseeable future, that won’t change.”

4. There will be a shortage of skilled workers

As supply chains get more digital and the worker skillset shifts to accommodate it, companies will have to find ways to attract new talent.

“I think that’s a totally under-discussed topic in our part of the industry: how we really get skilled, experienced talent to work in this part of the industry,” Berg said. “Everybody wants to have data scientists, but you need to attract them, you need to develop them, you need to nurture them, or if you can’t access them, you need to find other ways where you can get that expertise in house.”

In some cases, companies will be met with a shortage of skilled workers who can take the technology and operationalize it, Gokki added.

5. Workers will be displaced in the digitized supply chain — but there’s a way to handle it

When tech comes to town, no matter how beneficial, it’s going to render some roles obsolete.

“You’re going to see a displacement of workforce, even in white collar jobs,” Gokki said, adding that there should be coordination in fielding the shift from human to automated work, in the form of either creating a new skillset to manage new technology or upskilling workers in a particular area to manage new demands. “If you don’t address that process in your workforce, it’s going to be a challenging process to go through.” 

Looking at things further up the chain of command, management, middle management, and even the C-suite, will have to give over control of certain things that tech may improve.

“There is data that will be better than our gut feeling on the next trend,” PwC Strategy& Principal Dr. Axel Nitschke, said. “It’s the attitude towards technology. It’s also the attitude toward open networks and sharing.”

Imparting a final piece of wisdom for managing people in the future supply chain, Nitschke said companies must pay attention to their people and what they bring to the business.

“The one piece of advice is: embrace technology, but manage and care about the people who leverage it,” Nitschke said.

Editor’s Note: This story was reported by FN’s sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.

More From Our Brands

Access exclusive content