Coronavirus Impacts Supply Chain, Crucial Contingency Plans Needed

Tracey Greenstein
·7 min read

Click here to read the full article.

As coronavirus intensifies and continues to spread worldwide, fashion industry solution providers and brands weigh in on methods for mitigating supply chain impacts, and strategic planning for an unpredictable future. Hint: create a contingency plan.

Nearshore Manufacturing

More from WWD

And that unpredictability may mean manufacturing closer to home — and reliance on robots. Rueben Scriven, lead analyst on logistics for Interact Analysis, a provider of market research for the Intelligent Automation sector, told WWD, “While 10 years ago, a large percentage of U.S. and European apparel manufacturing was outsourced to China and other Asian countries, rising labor costs, shrinking fashion cycles and environmental consumerism have led many apparel retailers to nearshore their manufacturing activities. The coronavirus outbreak will likely intensify this trend as apparel companies look to hedge against future outbreaks and minimize their reliance on potentially risky supply chains.”

Scriven added that fully automated warehouses and distribution centers are a possible panacea to supply chain disruptions. “Furthermore, to reduce the impact of potential future outbreaks on supply chains, companies may look to automate their warehouses and distribution centers that have particularly high population densities and would cause significant disruption if one was to be temporarily shut down.”

Scriven said JD.com, a Chinese pure-play e-commerce company, operates a fully automated “lights-out” warehouse in Shanghai that employs only four people while fulfilling 200,000 packages a day, challenging the reliability of man verses machine.

Contingency Plans

“A global crisis on the scale of COVID-19 is less ‘if it happens’ than ‘when it happens,’” Sharon Lim, chief executive officer of Browzwear, a digital fashion solution firm, told WWD. “That’s why it’s key that manufacturers build contingency plans to mitigate the impact to their business. At this point, the time frame to prepare for these changes is very slim.”

Lim said whether it’s sourcing or manufacturing, fashion businesses reliant on China are inevitably facing supply issues. “With factories closed and the flow of materials and finished products interrupted, they’re unable to get the products they need. Without contingency plans in place, manufacturers can’t get things like fabric, buttons and zippers [trims], and designers can’t get the samples for their showrooms made and retailers, especially ones who have adopted just-in-time business models, will be without merchandise to sell.”

What brands can do, Lim explained, is investing in digital technologies that take the pressure off of physical dependencies, as well as streamline efficiencies through solution providers to secure a more transparent, tighter supply chain.

“Every company should review their entire supply chain as well as that of their suppliers and make sure they have plan B in place for every piece of fabric, every button and every factory. They should also review their processes to make sure they’re operating as efficiently as possible, and where technology makes it possible, reduce dependence on physical items in lieu of digital ones, for example, using 3-D renderings in place of physical samples in their showrooms.”

Shanton Wilcox, U.S. manufacturing lead at PA Consulting, agreed that planning — specifically, creating a playbook for future crises — is the best path forward for brands. “Companies must determine where they are exposed to these risks and determine the impact of various scenarios. They then need to develop mitigation plans for a few of the most likely scenarios, creating a playbook that is applied should a scenario materialize,” Wilcox said.

“This needs to be a crossfunctional effort, a siloed approach will likely include unintended consequences or unplanned costs that result in additional losses,” Wilcox said. “This only gets an organization through this event, others will come, it’s inevitable. Over the longer term, companies should develop a risk management culture. It should flow from leadership into daily decisions, everyone should be thinking about ‘what happens if.’”

Ronen Lazar, cofounder and ceo at Inturn, an off-price inventory software company, said the “disruption that coronavirus is creating within the supply chain cannot be understated. As inventory is delayed by weeks or months brands should prepare for an onslaught of potentially out of season inventory. The brands equipped to efficiently optimize their inventory in real time are the ones that will be best positioned to weather the storm.”

Shipping Travails

Companies such as Logistyx, a fulfillment software firm, said in the wake of the virus, brands need to reconsider their processes for shipping and inventory reallocation.

Logistyx president Ken Fleming told WWD that during this outbreak, “some transportation modes may not be available to shippers, and they should consider new modes that may offer the best service in light of the crisis. For some, this may mean turning to air or water transportation for the first time. Other retailers have turned to bulk shipping to reduce tariffs and fees as products cross borders in bulk to later be broken into smaller packages to be shipped to stores, for example.”

“Leveraging technology to automate processes and decision-making can help retailers uncover the ideal shipping methods when left to consider different modes of transport and tap into an expanded global carrier network to achieve the best value for each shipment, whatever the product, destination or delivery occasion,” he added.

Fleming also said in response to the coronavirus outbreak, Gucci’s parent company and Logistyx client Kering recently closed 50 percent of its store network in mainland China and is “leveraging Logistyx’s parcel shipping technology to reallocate its inventory to mitigate the impact of the virus.”

“While many brands build a buffer of inventory into their supply chains, now’s the time to initiate a contingency plan to redirecting inventory from shuttered stores to active stores in other regions,” Fleming explained. “This can diminish further fallout and waste while ensuring active stores are properly stocked for back to school and other peak shopping seasons.”

Swift and Strategic Communication

And as apparel brands and retailers learn more about the impacts coronavirus is having on the Chinese workforce, forecasting for back-to-school and the holiday season must be adjusted — especially as the virus spreads to other continents, Susan Pichoff, senior director for community engagement at GS1 U.S., a standards organization, told WWD.

“The crisis is two-fold,” Pichoff explained. “It’s affecting productivity as well as transportation. Factory productivity is reportedly running at less than half of what it usually is (sometimes worse), and the transport of whatever goods that can be made are going to be significantly delayed. Apparel companies must work with partners to gain a full understanding of what will be available in their inventories to sell during their two busiest sales seasons.”

Communication with suppliers in China is critical at this stage, Pichoff added, noting that trading partners “must collaborate across geographic borders to lessen the effects of major disruptions like this on future profits.” Pichoff said global data standards promote agility in times of crisis, emphasizing that, “Standards help create end-to-end supply chain visibility, which means product, location and event-based information can be shared in real-time, and trading partners can better pinpoint products that are delayed or unaccounted for.”

Pichoff said standards are not only an effective risk management tool, but they are also valuable beyond a crisis. “Adopting standards to enhance visibility helps create a nimble supply chain. These standards also help make product data compatible with brand or retailer systems regardless of the solution provider they use — reducing extra wasteful steps associated with translating data from one proprietary system to another.”

For more Business news from WWD, see:

U.N. ‘Texpertise’ Event Looks at Fashion’s Sustainable Development Goals

Sustainability Ushers in a Better, Brighter Industry

Inspectorio Leads Brands, Retailers to Sustainability, Transparency

Sign up for WWD's Newsletter. For the latest news, follow us on Twitter, Facebook, and Instagram.