Supply Chain Organizational Governance

Brands, Retailers Must Prioritize Data to Improve Purchasing Practices, Supply Chain Resiliency

After decades advocating for business that prioritizes workers and the environment alongside profitability, it is obvious to me that any efforts to pivot to address changing consumer demand and market uncertainty will be futile if workers are treated as commodities or taken for granted.

Brand Provided | By Marsha Dickson | Published 4 years ago | About a 5 minute read

Image: Quang Nguyen vinh/Pixabay

As many parts of the world either face or brace for another wave of COVID-19, it is becoming glaringly clear that the pandemic will continue to upend the consumer goods sector — and that the extent of the impact on retailers, brands and consumer behavior has yet to be fully realized. While most brands and retailers are already deep in the process of making business transitions to navigate changing consumer behavior, the journey will be a long one — and the pandemic will continue to bring a multitude of other disruptions throughout the entire value chain in the years ahead.

It is, of course, reassuring to see a growing contingent of forward-thinking C-suite executives recognizing that there is a tremendous opportunity to innovate and make necessary pivots as they withstand and emerge from this seismic shock. But beyond the necessary technology, product, delivery, and other operational innovations that must take place in order to not just survive but thrive; it’s critical that brand and retailer leadership maintain a steadfast commitment to improving conditions for workers in global supply chains.

After decades spent educating and advocating for business that prioritizes workers and the environment, alongside profitability, it is obvious to me that any efforts to pivot to address changing consumer demand and market uncertainty will be futile if workers are treated as commodities or taken for granted. According to McKinsey, normal consumer behaviors have been disrupted and different shopping patterns are likely to be maintained moving forward. Meanwhile, consumers also expect to pull back on spending in most parts of the world and — in an encouraging indication of decades of sustainability and corporate responsibility progress — value, quality, and brand purpose were cited as the top reasons for trying a new brand.

With this in mind, recovery innovations must include building stronger, more resilient supply chains that support the workers who make it all possible. For too long, supply chain sustainability has been undermined by poor purchasing practices — from inaccurate planning and forecasting, to not paying for orders on time, to delayed or shifting design and development requirements. While it is encouraging to see increasing attention being paid to the impact of buyer purchasing practices on profitability, working conditions, and other ESG outputs; we must move more quickly to improve supplier/buyer relationships that continue to be hindered by a lack of transparency, data and trust.

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Today, we have the opportunity to tackle longstanding supply chain sustainability roadblocks with renewed clarity through a reliance on data and an unwavering commitment to strengthening relationships between buyers and suppliers in support of people, planet and profit.

It is encouraging that several leading brands and retailers have already stepped up to the plate. Last week, the Better Buying Institute released the results of our annual survey, which examines the impact of company purchasing practices — such as planning and forecasting, cost and cost negotiation, and payment and terms — on profitability, business relationships and working conditions. Twenty-two brands and retailers invited more than 2,000 global suppliers to participate in the survey, and the findings underscore the importance of better purchasing practices in meeting post-COVID demand and protecting supply chain workers during pandemic recovery.

The report found that several brands had made meaningful improvements to their purchasing practices over the past year, especially related to planning and forecasting. This will not only yield benefits in terms of production efficiency and reduced financial pressure on manufacturers, but also help suppliers maintain a more stable workforce and decrease their reliance on temporary labor or excessive overtime to flex their production capacity with unexpected increases or decreases in orders. This is especially important as brands weather unexpected supply chain disruptions such as the pandemic.

Better Buying™ examined year-over-year improvements for 10 of the participating brands to identify progress and trends. Key findings include:

Data collected in 2019 showed five of the 10 companies made improvements to their Planning & Forecasting practices from 2018, which provided suppliers with the visibility they needed to plan production responsibly and ensure ongoing employment for workers. Eight of the 10 companies had fewer suppliers left with unutilized capacity due to forecasting inaccuracies, and six of the 10 had fewer suppliers left with excess materials.
Half of the companies improved their Cost & Cost Negotiation practices, by increasing the percent of suppliers that reported all orders were priced to cover the costs of compliant production. Eight of the 10 companies improved by decreasing their use of high-pressure cost-negotiation strategies. Improved costing is critical not only for suppliers’ business survival, but also for ensuring safe conditions for workers — protecting them from excessively low wages, unauthorized subcontracting, informal employment, and other precarious or abusive situations.
At least half of the 10 companies made notable improvements in Payment & Terms practices by paying suppliers on time and in full — which is critical for suppliers’ cash flow and ability to pursue all aspects of sustainability, and has been highlighted to a new degree during the pandemic. Four companies decreased their late payments by an average of 10 days, an improvement with direct links to suppliers’ ability to make wage payments to workers.

While there have been notable steps taken in each area, progress is of course ongoing and must be prioritized by all brands in order to continuously improve supply chain resiliency.

More than ever, we must take the old adage — "what gets measured, gets managed" — to heart, because it has yet to fully permeate day-to-day supply chain management. The lack of fully integrated sustainability work throughout companies — and the absence of reliable data demonstrating accountability for it — has prevented the necessary scale and scope of corporate responsibility progress and true supply chain resiliency for decades, making it difficult to protect workers and improve efficiency and profitability. The pandemic has brought that challenge to the forefront. Buyers must collaborate with suppliers as partners in order to improve data collection, communication, efficiency and protections for workers — because in a world of uncertainty, we can’t leave workers’ rights to chance.