The Long-Term Impact of the Red Sea Crisis on Retail Supply Chains

[Music] the immediate and long-term impact of the Suz crisis on retail supply chains Samir Anan is supply chain leader with e parthan on Americas hello Samir hi Robert thank you very much for taking the time with me what is the current and ongoing impact on global retail supply chains of the sued Canal Crisis sure Robert I me as you think about it let's first start with you know who are we talking about there is a host of when we talk about Brands and retailers there's a host of categories that are impacted by this I mean not typically the the categories where You' have got retailers manufacturing overseas in APAC primarily and apparel comes into that category shoes comes into that category um furniture comes into that category toys comes into that category like but there are others food and beverage household products a lot of that is produced locally in respective markets there the impact is less so the impact might be more if they are say importing to tomatoes from Italy and there might be some impact of that right so in the in the near term what we are seeing as the we are working with our clients on it right the impact has been the extended lead times uh in some cases it has been about longer lead times to go around the Cape of Good Hope to get the product and that has lenden the supply chain for some folks uh for some of our clients while for other clients they are Translating that into Air Freight and trying to ship the goods on in an expedited manner now the choices that are made are made based on the nature of the product even within their categories where they believe that they have got enough of the inventory already built in and they can manage through that versus others where they're seeing this is the time I want to gain share I want to gain sales so I might need to expedite the shipments and hence focus on air freading so that's from a very very you know near-term perspective that is what companies are doing because of the ongoing what we see with our client base what they're doing because of the ongoing crisis one way or another though regardless of what alternative they choose it's costing more money correct and absolutely either they're absorbing that either carriers are absorbing that and retailers are absorbing that or they're passing it on to consumers or is it a combination of the two absolutely eventually the cost does get passed through to the customers and the consumers let's make no no mistake about it at times they're absorbing it to your point Robert right and that will get reflected in the the quarterly pnl reports for publicly traded companies when they come out and they discuss the impact of these crisis and you see some of that in the news you know some companies are saying it is impacting our margins they have come out and talked about it in the near term right in the near term there might be a quarterly impact but in the long term again companies are thinking through more more longer term strategies to be able to tackle this or any such scenarios on an ongoing basis I mean this crisis hasn't been H around for that long are you actually seeing concrete actions by retailers and Brands right now to take steps to diversify their supplier bases for the long term yeah so Robert what we see at least the discussions we are having with our client base um it is a combination of Crisis that is causing companies to think about the long-term supply chain strategy so see is just one aspect of that overall there is geopolitical tensions that are observed there is the ongoing challenge in Ukraine there is continued challenges in Asia right and we are also looking at two of the largest democracies going to election in this year so as when we talk to our clients they are not looking at us okay I know I have got a pain right now I can take a medicine and I'll feel better but what if some of these challenges were to persist in a longer period of time or other new black s events were to crop up that would cause a challenge for us we don't know what we don't know but fundamentally if the output of that is that I have a problem procuring product from certain geographies and getting it to me on time in full you know without having to add up a whole lot of inventory in my warehouses then I don't need to think about it so what we are seeing across different client categories different sectors is a desire to look at their overall strategy and think through given the stress test and the the profile that they are paring through right now is should they be actually revisiting what should be their strategies they are all focused on kind of thinking through at least I'm having a number of dialogues and we are actively supporting some of our clients with that well the Red Sea crisis happened at a time when certain shift in supplier strategies was already taking place that companies were already reducing their Reliance say on production in China in favor of Southeast Asia in favor of Mexico and maybe even in some cases back to the United States so is this just going to accelerate a process that was already underway or does this particular Red Sea crisis cause them to shift those strategies that they had already started to to look at I think it has intensified the focus on the coming up with very concrete execu executable ideas in context of those strategies to your point Robert they were already stting to think about some of these elements whether it is the raw materials and where they Source the product from you know sourcing cotton you can Source from many places but again there's a specific variety and all that you need for because you focus on raw material innovation in your product and that is what the consumer buys when they buy your uh product say client a right or somebody who's making toys and they were making in a particular geography but they find that from a skill set and capability perspective I might as well be able to make it in Mexico and so what does that mean so it is more about getting more concrete earlier it was scenarios and Analysis the ability to move was what was being discussed I mean I recall having a discussion with one of our clients as CEO as they were getting ready for their board discussion and they were like s hypothetically were talking about what this can look like but now the shift that has occurred is no no no we need to have very clear plans we had the discussion with the board the directive is there that we need to move and Supply chains are physical you know aspects there that you need to make changes and they will take time we cannot just say Okay y I made a change so starting tomorrow I'm going to produce in Mexico or in laam somewhere Etc no there's a lot that goes into moving from a consideration and a vision and objective to actually going through a formal strategy and execution so we have seen that intensify we look further into the future though and we look at ways in which these strategies might manifest themselves going forward do you look at a a landscape in which there will be more Regional diversification will it be more likely that a retailer or brand will choose to Source from multiple parts of the world which is a rather costly thing to do as opposed to what they've been doing up to now but are they going to by necessity have to start thinking that way so before I answer that question Robert let me just make sure that you know we I know because right now this is the topic in B everybody thinks in terms of I need to answer on this particular aspect and say what is the choice but if you take a step back and think about what the chief supply chain officers the CEOs the CFOs are thinking about when it comes to supply chain productivity or lowest lower cost operations never gets a pass the expectation of I need to deliver on the lowest cost possible possible without compromising on service without compromising on you know capability is Paramount second is what we talking about right now the notion of resiliency we need to have a more resilienc chain because of all of these events that can hit us and what should we think about that's second consideration there's a third consideration that is still around agility in the supply chain what if we do actually see a trend catching on we want to be able to capitalize on the trend bring the product to the market quickly and more often to be able to capitalize on that that expectation is also there with Supply chains fourth while we see it in the news a little bit about you know uh uh companies are not talking as much about ESG companies are thinking about sustainability in a f fundamental manner in terms of how it is integrated into their supply chain so that is also now a choice I mean even this red SE crisis you know going through around the long of Good Hope I'm my carbon footprint is expanding I'm traveling longer so there are those considerations right and then of course there's a um consideration around flexibility how do I flexibly move my supply chain if events happen so when we talk about to go back to your question about s does this you know this going to intensify Regional diversification I don't see clients thinking about it unidimensionally it's not just a resiliency answer it's really answer driven by these four or five Dimensions that I just called out that companies are thinking about and saying what the trade-offs are will they go and diversify that might be important just from a Paramount ability to serve the consumers so yes they will diversify what the right choices are what is the volume allocation whatnot that has to be thought through so Supply diversification for raw materials is important Supply diversification for contract manufacturing is important you know so absolutely those are considerations that companies are thinking about near Shoring is important these all come with trade-offs I might gain in lead time and I might gain in responsiveness and ability to chase Trends if you use the example of say a parallel toys but I might not but I might lose out in cost on a relative basis so how do I think about those and what does it mean to me given my objectives and what I have promised to the street and what I have promised to my shareholders those are the choices that companies are making right now well I guess if we want to look at it from a positive angle this might be spurring a discussion that might not have otherwise happened but now companies that are on top of this maybe are using it as an opportunity to re-evaluate and transform the supply chain practices so that can only be a good thing right absolutely companies are using that as a we are seeing leaders and and and you know agile smaller players using this as an opportunity to say this might give me the impetus for my next way wave of supply chain you know uh structure and configuration changes as well as enabling planning capabilities and Manufacturing capabilities and Logistics capabilities to be transformed so we are seeing a lot of dialogue and a lot of clients who are thinking about and setting the stage for those conversations for the next three to five years well let's hope this means the end of purely reactive Supply chains and ones that are proactive and thinking through these these strategies of the future Samir Anan of ey parnon thank you so much for being with me today really appreciate it thank you for

Channel: SupplyChainBrain

Views: 165

Keywords: Suez Canal crisis impact, Retail supply chains, Apparel supply chain, Toy industry challenges, Furniture logistics, Strategic supply chain shifts, Global supply chain adaptation, Long-term supply chain strategy, Supply chain resilience, Supply chain sustainability, Logistics challenges, Business strategy insights, Retail industry trends, Global uncertainties, EY Parthenon Americas, Samir Anan interview, Immediate supply chain impact, Long-term supply chain effects

Id: N4BOxtdzkyg

Length: 11min 7sec (667 seconds)

Published: Thu Jun 27 2024