At a time when everyone is discussing the future of sourcing in the post-COVID-19 reality, the buzzword is Agile. But in reality, agility on its own is meaningless, and it is trust that is crucial in order to achieve agility. In fact, in the process of putting agility as the most important requirement of the future, we are overlooking the relevance of some simple, age-old principles in an uncertain new reality – the importance of trust in supply chains, the lessons to be learnt from the unorganised sector, and how to build trust-based supply chains in the organised sector. With my years of experience, through this write-up I am sharing how trust can be built at the strategic and operational levels and why trust in these levels is important.
The apparel industry has come a long way from the days of animal skins to smart shirts. Today, it is a force that drives significant economic development with a large impact on global GDP and is one of the main drivers of consumer behaviour worldwide. However, the supply chain is largely unorganised with few large, dominant players. In the 90s, the opening up of the economy gave rise to a prominent organised segment in apparel retail. The growth of this segment was further fueled by a shift in consumer tastes and entry of several foreign brands. Today, both segments co-exist, each contributing significantly to the market share, however with very different working styles and commitments.
Trust drives supply chains in the unorganised segment
In my many years in the industry, I have noticed that the unorganised sector works faster and more efficiently than the organised sector. Having observed both the segments closely, I have realised that the key reason driving this is ‘trust’. This trust is built over several years of working together, the partnership shaped by the owners of the business, who transact directly with each other. Hence, their view of business risk is very different. For the larger players, they have the regulatory and other constraints which drive their perception of risk. Due to scale and corporatisation, the organised sector does not enjoy the benefit of such trust.
Going beyond agile to built trust in supply chains?
Being Agile is about quickly responding to short-term changes in demand or supply and handling external disruptions smoothly. This is then added with Strategic Adaptability (adjusting, modifying supply networks to meet structural shifts in markets) and Alignment (incentivising to business objectives) principles to drive today’s supply chains. This appears to the going mantra for supply chains today.
But the question I ask is more fundamental. Can there be agility without trust? Trust between vendors and businesses lead to a bond akin to partnership, each going the extra mile for the other. This leads to a seamless supply chain, going well past the definition of agile and encompassing the principles of adaptability and alignment. I believe that trust can be built into supply chains in the organised segment as well. All retailers/brands need to relook at their functioning and inculcate certain values into their processes and systems. In my view, trust is built at two levels; transactional and strategic.
Transactional trust must be backed up by technology support. Given the large volumes of transactions, it becomes very difficult to rely on undocumented commitments. It is a risk for both parties to operate without a clear system of record. Friction is bound to happen without a technology platform. Without technology, a rogue action or a mistake by a lower level employee can permanently damage the relationship.
Trust at the strategic level will come about only through a strong alignment of values and interests. That is much harder than merely implementing some technology. This has to be built over a long period of time, with the parties standing with each other, through thick and thin, almost like a marriage.
Having defined that, trust must be built first at organisational levels through clearly articulated policies and demonstrated behaviour of the senior management. These must then reflect at the operational levels with processes and behavioural principles. However, this is easier said than done and requires some basic commitments at the organisational levels.
Building a culture based on ethics: Businesses have to instill a culture in their teams that allows an honest assessment of issues and avoids blame game on either side. Being ethical, honest and thorough will go a long way and can do wonders for relationships between vendors and customers. To put it simply, a combination of the businesses’ manufacturing terms and management decisions influence how their representatives and employees identify and adjudicate issues. Moral reputation makes it easier to build trust, which is then difficult to break. Being honest and thorough also helps solve problems quicker with vendors.
Transparency in payment related issues: It’s important to realise that timely payments are crucial. It is the key to retaining and adding good suppliers. Making sure that they are paid on time will prove that the brands/retailers are reliable customers and are easy to work with. If, for any reason, customers cannot make the payment on a date agreed, then informing the supplier of a revised date at the earliest is also very important.
Consistency in words and actions: Businesses need to have a well-articulated policy on vendor management. There should be clearly demonstrated decision making at the top to ensure that consistency is maintained at operational levels. Vendors appreciate consistency of actions, decisions and behaviour in their relationships with the customer. While there may be short-term blips, if the long-term trend is consistent, then the relationship will thrive. No vendor likes a customer who is very opportunistic.
And most important – Collaboration is the only way: Businesses function well when all stakeholders work together, helping each other with their issues. Retailers and vendors should cohesively come together and build a long-term relationship. There has to be a clear mechanism to set joint goals and measure achievements through a rigorous review process. This means institutionalising reviews, recognitions and celebrations. It is also important to ensure that vendors feel included in the success and growth of the company. This goes a long way in contributing to an inclusive culture.
However, these four critical commitments are not enough and what really distinguishes ‘trusting’ from ‘distrusting’ relationships is the ability of the parties to make a leap of faith: they believe that each is interested in the other’s welfare and that neither will act without first considering the action’s impact on the other.
So, while retailers may have a good intention, if it is not communicated by actions, the commitment becomes mere words. So, it is very important to build a reputation of dependability, the belief that their partners are reliable and would honour their word. But in reality, we cannot ignore that the retailer vendor relationships are typically unbalanced. Major retailers buy from numerous relatively small manufacturers and many a time, the retailers position themselves as power centres.
In a relationship of unequal’s, how can the powerful party build a trusting relationship?
The only way to create a balance is by being fair in handling this relationship. This concept includes two kinds of justice: distributive and procedural. Distributive justice deals with the fair distribution of the pie. In all practicality, it implies that the rewards and the responsibilities are distributed judicially to all the stakeholders. This needs to be managed through a process of joint reviews of commitment to each other’s success.
On the other hand, procedural justice relates to the fairness of the partnership management mechanism of the dominant faction. This should allow for a mechanism to manage Refutability, implying that retailers should build a culture in which a vendor can reach out comfortably to anyone in the organisation, be it other departments or senior management, without backlash from the operational teams. This is also the vendors’ mental cushion.
Another very important aspect of behavioural trust comes from Familiarity and Courtesy. Strong relationships are established when people interact. In this respect, an effort by the retailers to learn more about their vendors is often fruitful. The various functions such as buyers, merchandisers, designers, etc. must visit the organisation of the vendors. This helps break the ice between the teams and create mutual respect for one another. Relationships, thus, formed are long-lasting and encourage trust.
Courtesy is cornerstone of a good retailer/supplier partnership. Treating a vendor partner with respect and modesty is crucial to building the interpersonal relationship. Ultimately, relationships between companies are relationships between teams of people on either side. We should not forget that in an ever-changing business environment, a seamless supply chain built on trust is the need of the hour.
While everyone is discussing the future of supply chain in the post-COVID-19 era, it would be good to remember these simple fundamentals. As they will continue to drive business relationships irrespective of how the world may change. There are many intangible benefits of this trust-based working, like information on innovation, pricing, new launches as well as trends from other markets and companies which can be game-changing.
In fact, building ‘trust’ in a time of great uncertainty will probably be the difference between a good and a great supply chain in these trying times.
The article has been contributed by Anindya Ray, EVP & Chief Sourcing Officer – Sourcing & Quality, Arvind Fashions Limited.
About Anindya Ray
Anindya has over 30 years of experience in the fashion apparel industry. He has held various leading positions in functions such as Buying & Merchandising, Design, Marketing, Sales, Sourcing & Quality with brands like US Polo Assn, Flying Machine, Arrow, Calvin Klein, Allen Solly etc.