Just Style, a site not noted for regularly serving as a forward-thinking provider of procurement and supply chain recommendations to its readers, recently ran a useful byline by Kurt Cavano, the CEO of TradeCard, offering up ten recommendations for cost reduction in the current environment. Setting the stage by noting that "prices for cotton have doubled in the last year" and "lumber prices in May were 79% higher" over the same year-over-year period, it's clear that "rising costs of raw materials, labour and transportation continue to come up on earnings calls." Yet what should retail suppliers do about it? I'm stricken -- yet not surprised, given his company's focus -- by how much of the potential cost savings recommendations are tied up in the financial supply chain as much as the physical one (and where the two intersect).
Among other recommendations that I agree with, Kurt offers one directly to retailers: "Allow your suppliers to take advantage of the 3,000-pound gorilla: As the giant in your supply chain you're financially stronger than most trading partners involved in the transaction. Help them out. Your suppliers in regions like Bangladesh and Turkey might be paying 12-15% interest rates. Allow your suppliers to take advantage of your credit rating." I could not agree more, and it's clear what choices are about in this area -- there are literally dozens of suppliers and resellers of supply chain finance/discounting capabilities in the market that offer treasury or third-party financing enabled options (including Tradecard). Yet uptake on these solutions remains remarkably low, considering their value.
Some of the other recommendations that Kurt makes suggest that companies focus on working capital improvements by reducing inventory at various stages of the supply chain and by working with local sources of supply and raw materials more effectively. Yet in many cases, especially in an environment with high commodity volatility and potential unstable lower tier suppliers, organizations may actually drive up risk and potential total cost by increasing supply risk and exposure. In other words, I'd suggest not diving into inventory and supply chain-based recommendations -- especially those that could lead to reduced control and/or visibility -- without thinking through all the risks first.