The Game Has Changed

Only agents of change will survive as the industry grows.

By Joe Andraski, July 16, 2012

It wasn’t long ago that companies were offshoring manufacturing, subassembly, technology, customer service, accounting and more. This isn’t to say that the practice has significantly changed—at least, not yet.

The rapidly declining global economy, the increase in inflation, the declining value of the U.S. dollar, emphasis on product quality vs. safety, environmental concerns and regulations, new labor laws, and, of course, the cost of oil are having a serious impact on the price of conducting business. The velocity of change is considerably greater than the ongoing march to outsourcing.

As an example, sweater manufacturers in China that enjoyed a margin of $2.00 per sweater just a short time ago now must deal with 30 cents, as reported in the Wall Street Journal.

The China National Textile and Apparel Council will focus on improving supply chain management in the near and long terms. They have acknowledged that low-cost labor is no longer the prime outsourcing driver, and that trading partners and their service providers must take a holistic approach to managing their business.

There is no quick fix to the economy, which U.S. Secretary of the Treasury Henry Paulson has predicted will continue to struggle. No one really knows when the housing market will bottom out and begin to make a comeback. The banking industry is presently in the worst shape since the Great Depression, depending upon which analyst or government spokesman is quoted in the press, and on which day.

The current state of affairs creates a mindset that fosters a majority of companies assuming a defensive posture. Companies are into line-item budgeting and red-lining any expenses considered discretionary. For example, Coca-Cola plans to reduce its advertising budget by $500 million, Ford has announced a loss of $8 billion, and Sara Lee is experiencing a dramatic increase in the cost of ingredients, as are Del Monte and McDonalds. And the beat goes on.

Consumers are reacting to the rising cost of gasoline, as well as increases in basic living expenses, by shopping at retailers that typically offer lower price points. They are postponing buying decisions, thereby impacting economic growth, which has a trickle-down effect.

What does all of this mean to firms that plan to be in business for the long haul? In my opinion, it’s about ensuring that they understand their culture, and whether they are prepared to break out of their silo mentality and extend their reach far beyond what it is today. For retailers that sell apparel, it’s about reaching out to raw materials suppliers and apparel manufacturers to improve the way products are brought to market, thus reducing the entire cycle by several months—not incremental adjustments, mind you, but major changes that produce major results.

It’s about engaging all supply chain players in the development of a collaborative game plan. The roadmap has been well established. The case for action is obvious, and the tools that will deliver results are on the shelf. If it doesn’t happen, management has no one to blame but themselves.

If you’ve read Joe’s Corner in the past, then you’re probably thinking, ‘There he goes again. Joe’s off on his collaborative junket, same old song.’” And I’d agree with you. Recent academic research confirms that collaboration is not a common practice. And yet, isn’t it a laugh that companies will report declining earnings, pointing to everything and everyone but themselves as the reason for their failures?

The game has got to change. Those who are change agents will survive, while those that do not… well…

Link to original article