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Optimising supply chain efficiency – Truworths

Speed to market is critical for a high fashion retailer and Truworths strives constantly to shorten lead times along its supply chain while balancing local and imported supply.

While imported apparel accounts for approximately 55% of total apparel orders, locally manufactured product is the preferred source of supply owing to its speed to market. Currently 45% of apparel is manufactured locally and Truworths aims to increase this over the next few years.

Local supply offers shorter lead times as suppliers can respond quickly to replenishing popular selling styles during a season. Quick response and fast fashion models have been successfully developed with key suppliers, enabling Truworths to respond more rapidly to customer buying patterns. Buyers can also make styling and colour changes as late as four weeks prior to delivery, ensuring that the ranges reflect the latest fashion trends.

Refer to Material issues, risks and opportunities for more detail.

Managing the impact of COVID-19

The outbreak of the COVID-19 pandemic had a severe impact on the international and local supply chain, affecting all aspects of production, shipment and delivery.

The initial impact was on production and shipping from China when factories, mills and all transportation were abruptly stopped as that country went into lockdown on 23 January.

Fortunately, the bulk of Truworths’ merchandise orders for the winter 2020 season were shipped in early-January, ahead of the Chinese New Year in late-January, which is traditionally a low production period.

The impact of the Chinese lockdown was greater on the last deliveries for winter and on fabric and denim production for the early summer 2020 season.

The most significant impact on Truworths was the production out of Bangladesh and India for the summer 2020 launch from July to September owing to lockdowns in those countries.

Following the start of the national lockdown in South Africa with effect from midnight on 26 March only essential goods were allowed to be transported within the country and through the seaports, which not only impacted sales, but caused significant disruption to the entire supply chain.

Transport restrictions meant that remaining orders from China were not able to be airfreighted and were then shipped for later arrival. Alternative modes of transport were impacted not only due to flight restrictions but also the significantly increased freight costs. Once courier services were permitted to operate from lockdown level 4, lead times were extended significantly along with higher costs.

The severe port congestion in South Africa caused by an inability to manage the volume of imports and exports resulted in cargo being rerouted, with certain deliveries being missed, and delays in fabrics and trims for manufacture by local suppliers.

When South Africa entered lockdown, Truworths adjusted sales forecasts to manage stock levels, with the planning and buying teams negotiating with suppliers to either cancel or preferably delay orders.

Sustaining the local supplier base

The viability of the local apparel manufacturing sector has long been under threat and this was compounded in recent months by the COVID-19 pandemic.

The restrictions on these manufacturers operating during the hard lockdown, followed by periods of working at reduced capacity, placed a significant financial burden on local suppliers, many of whom entered the lockdown already under financial pressure. In the current constrained spending environment consumers are increasingly price sensitive and this is placing further pressure on cut- make-trim suppliers (CMTs) to reduce their profit margins, which is detrimental to their sustainability.

Owing to lockdown restrictions the local manufacturing sector was impacted by delays in the supply of raw material while production capacity has been curtailed due to health and safety, and social distancing requirements.

The local supply base is also challenged by the inconsistent flow of the production cycle caused by high summer volumes and low winter demand, resulting in insufficient capacity to generate optimal volumes in the peak summer season and carrying excess capacity in the winter period.

Truworths is committed to ensuring the sustainability of its local supply base and undertook a strategic review of the CMTs used by the internal and external design houses which have mutually dependent relationships with Truworths. Processes were implemented to stabilise the operations of several CMTs, and these steps have preserved local employment and helped to ensure the sustainability of these key partners in the supply chain, while improving the quick fashion response capability of the local industry.

In the 2021 financial period Truworths plans to accelerate the strategic review of the local supplier base to build closer working relationships with design houses and CMTs and further its development of an integrated vertical supply chain in order to create a significant local supply cluster.

Sustaining the local supplier base

Advantages of imported product

Merchandise is imported in categories where local suppliers are not as price competitive as their offshore counterparts or do not have the manufacturing capabilities to meet the required production and quality standards. Categories with a high import component include selections of shoes, fashion accessories, lingerie, fully fashioned knitwear, winter outdoor jackets and denim.

The disadvantage of imported product is that fabric and styling is committed about four to five months prior to delivery. Repeat orders of popular ranges take longer than with local suppliers as they need to be shipped from the East.

Truworths has diversified its countries of origin and expanded its supplier base over many years into Bangladesh, Sri Lanka, Pakistan, India, Mauritius and Madagascar. However, China remains the major source of international supply.

Following the outbreak of COVID-19 in China the diverse countries of sourcing origin, together with the substantial local production, ensured that Truworths’ product demand could still be met. However, as the pandemic spread, all countries of origin were impacted which resulted in multiple disruptions in the supply chain owing to the different levels of lockdown and trading restrictions across all countries of origin.

Convenient and efficient online delivery

Shoppers on the Truworths online platform can choose to have their purchases delivered at home or collect them in store. The extensive Truworths store network makes it convenient for customers to collect and return purchases.

As a high percentage of customers select the ‘click & collect’ in-store service, Truworths is able to leverage its existing supply chain and delivery network to reduce costs and increase speed of delivery.

The preference for ‘click & collect’ also drives foot traffic in stores, creating opportunities for additional sales.

The e-commerce fulfilment model is being continuously enhanced to improve customer experience and additional stores have been incorporated into the fulfilment service to further improve delivery times.

Strengthening supplier relationships

Truworths has a well-diversified supplier base across a wide range of product types. The merchandise team monitors the volume of product being procured from each manufacturer as a percentage of total orders to reduce the risk of overexposure to individual suppliers.

The Truworths Supplier Code of Conduct and Good Business Practice is incorporated into all supplier agreements and commits manufacturers to comply with ethical business standards, labour legislation (particularly relating to child labour and minimum wage levels), international health and safety standards, environmental legislation and treaties to which South Africa is a signatory. Legislative compliance audits are conducted by Truworths as part of the new supplier enrolment process.

A supplier scorecard measures the performance of key suppliers. The scorecard guides the decisions of the merchandise buying teams in their choice of supplier and order quantities, resulting in Truworths growing volumes with better-performing suppliers. The scorecard also identifies areas for improvement in under-performing suppliers and these weaknesses can then be addressed through collaboration between Truworths and the suppliers.

Sustaining the local supplier base

Managing distribution capacity

Capacity in the Truworths distribution centres has been under increasing pressure at peak periods owing to the higher volumes of merchandise being processed. The lower unit growth over the past few years of slow economic growth has meant that these peak periods have been adequately managed and Truworths has arrangements with third-party warehousing facilities to store imported goods if required.

The planned development of a new distribution centre has been placed on hold owing to the financial impact of COVID-19. Management will continue to progress the project in terms of finalising local authority and building approvals as well as the design of the facility to enable construction to commence once approval has been granted by the board.