The Kearney report points out its estimates of lost earnings due to supply chain disruptions, which range from $9bn to $17bn, were calculated shortly before the Omicron variant emerged so these figures are likely to be on the conservative side.
Worth around $400bn total annual revenue, the study says the North American apparel and footwear industry experienced significant supply disruptions in 2021. This made it challenging for companies to meet rebounding consumer demand.
The study shows the industry also endured a variety of unanticipated cost increases in 2021, including the rising cost of cotton (up 40%), transpacific container shipping (up 300%), air freight (up 50%), and OTR freight (up 20%), while labour shortages drove up logistics, warehousing, and retail wages, further contributing to industry-wide spikes in supply chain and general and administrative expenses.
“Our 2022 analysis explored the industry’s vulnerability to ongoing supply disruptions and cost shocks,” explained Greg Portell, lead partner of Kearney’s Global Consumer Practice.
He said: “We benchmarked hundreds of supply chains’ preparedness to absorb unexpected challenges in ways that maintain reliability and minimise costs ― a trait we call ‘resilience.’ We then calculated what lack of resilience could cost the North American apparel and footwear industry overall this year.”
Brian Ehrig, a partner in Kearney’s New York office added: “The good news is there are many practical steps companies can take to make their supply chains more resilient. We suggest they start by focusing on what they can control. Immediate opportunities include complexity reduction, fresh sourcing strategies, and more rigorous alignment of inventory management with merchandising.”
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He pointed out: “Longer term, we see companies improving resilience via nearshoring and reshoring, to make their supply lines less vulnerable, while also building up regionalised supply chains within their existing footprint. Platforming could also have a big impact, as we often find high levels of fabric commonality and interchangeability across brands that is underleveraged. Apparel and footwear companies can use that commonality to reduce costs and flexibly prioritise within their product portfolio when disruption strikes.”
How to avoid supply chain disruptions and be more resilient in 2022
The study contains recommendations on how the industry could take control, including:
- Complexity reduction: For example, reduce the long tail of SKUs, fully digitise product development.
- Optimise ocean shipping: Rethink global product flows and carrier strategy to acquire capacity and improve service levels.
- Inventory management: Shift to AI demand planning to sense and respond quickly to changes in demand, share sell-through data with suppliers in real time to allow them to position materials and capacity and anticipate replenishment.
- Fresh sourcing strategies: Build redundant supply bases with strategic partners, preposition materials, book and guarantee capacity, eliminate samples.
The full Kearney report can be found here.
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