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Supply chain – Truworths

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

Local manufacture is a critical component of the supply chain owing to its flexibility and speed to market advantage. Over the past years Truworths has steadily increased its local supply capability where currently 45% of apparel units are manufactured locally. For many years Truworths has been consistently committed to maintaining a high percentage of local production to leverage the fast fashion and quick response models. Despite the high base, the plan is to increase this mix over the next few years where it is appropriate and commercially viable to bring production onshore.

Supply chain under pressure

The supply chain has been and remains challenging since the outbreak of the COVID-19 pandemic in early calendar 2020. Rolling lockdowns in various countries of origin and within South Africa caused delays in production of fabric and finished garments. Factories had to shut down with no warning when COVID-19 outbreaks occurred and this type of disruption impacted both road and sea freight transportation.

Global shipping delays have mainly resulted from the shortage of containers and vessel availability in the Far East. This has led to delays in goods leaving their ports of origin and also delays en route as harbours are under pressure with the docking of vessels. This is reflected in increased freight costs while delivery lead times have moved out by a few weeks. This applies to both imported goods and the fabric used by local manufacturers.

A steady increase in shipping traffic on the China-USA route also negatively affected the availability of routes servicing South Africa from the East. These shifting demand patterns are also causing ongoing delays due to congestion in key ports servicing routes to South Africa, including Singapore.

Intermittent major congestion at the Cape Town harbour has led to delays in goods being delivered to the Truworths Distribution Centre. The congestion has at times forced ships to wait for extended periods before docking while some vessels have had to bypass the Cape Town port and only dock on the return journey.

In the local supply chain, lack of consistent demand, particularly for smart product, and trading restrictions due to COVID-19 have negatively impacted the viability of cut-make-trim (CMT) suppliers as retailers have reduced their order volumes in line with declining consumer demand.

Ongoing absenteeism and capacity constraints due to COVID-19 have hampered output and efficiencies in most local and international factories.

Advantages of local manufacture

Local supply offers shorter lead times than imported product 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 changes as late as four weeks prior to delivery, ensuring that the ranges reflect the latest fashion trends.

The recent rebates granted pursuant to the Department of Trade, Industry and Competition’s Master Plan for the Retail – Clothing, Textile, Footwear and Leather (R-CTFL) value chain on the duty on the import of woven fabrics is a positive step which will improve the competitiveness of the local clothing industry in producing woven product specifically.

The sustainability of the local apparel manufacturing sector remains under threat and is therefore a key focus area.

Sustaining the local supplier base

The viability of local suppliers has been negatively impacted by the COVID-19 pandemic, with some factories being forced to close due to reduced demand.

The local clothing manufacturing sector has been impacted by delays in the supply of raw material, while production capacity has been curtailed due to COVID-19 health and safety, and social distancing protocols. In the current constrained spending environment consumers are increasingly price sensitive and this is placing further pressure on CMTs to reduce their prices and resultant profit margins, which is detrimental to their long-term sustainability.

The local supply base is also challenged by the inconsistent seasonal demand caused by high summer volumes and low winter volumes, and exacerbated by an increase in product that can only be commercially sourced offshore. This results in excess capacity in winter and insufficient capacity available to meet volumes in the peak summer season.

Truworths is strategically committed to ensuring the sustainability of its local supply base. The executive and merchandise teams have continued to work closely with suppliers, particularly the exclusive design centres, to provide support to mitigate the impact of lower sales and demand, and to smooth seasonal peaks. This has ensured the sustainability of these key partners, limited attrition in the supplier base and preserved employment, while capitalising on the fast fashion response capability of the local industry in order to react to shifting consumer demands. This has been particularly valuable given the quite extreme lifestyle changes that were driven by COVID-19.

Creating an integrated supply chain

As part of the strategy of developing an integrated vertical supply chain, Truworths acquired Barrie Cline Clothing, its largest ladieswear apparel design centre, with effect from 1 April 2021. Barrie Cline has been a supplier to Truworths for over 30 years and is closely aligned to the needs of the Truworths ladieswear business.

The acquisition complements Truworths’ existing in-house design capability which focuses on men’s and kidswear. The Barrie Cline business will be relocated to the Truworths head office and integrated into the Truworths Manufacturing Division. The acquisition will improve efficiencies across the integrated design centre and enable Truworths to directly control the largest bespoke design centre servicing the business.

The in-house design capability will significantly enhance Truworths’ ability to design and create unique ranges for customers while generating economies of scale in areas including fabric purchasing, production planning and logistics.

Advantages of imported product

Imported product accounts for approximately 55% of total apparel units. 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.

In recent years Truworths has diversified its countries of origin and expanded its supplier base into Bangladesh, Sri Lanka, Pakistan, India, Mauritius and Madagascar. Bangladesh has shown the highest growth in the past year. However, China remains the major source of international supply.

The COVID-19 pandemic has created a renewed realisation of the need for retailers to diversify their supplier bases. The merchandise teams evaluate new countries of origin on an ongoing basis to ensure that Truworths is sourcing product that will at least meet, and often exceed, the expectations of customers.

Managing 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 units so as 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, and environmental legislation and all treaties to which South Africa is a signatory. Legislative compliance audits are conducted by Truworths during the course 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 development areas can then be addressed through collaboration between Truworths and the suppliers.

Expanding distribution capacity

The planned development of a new distribution centre on a site adjacent to the Truworths Distribution Centre was delayed in order to review additional options. Management continues to engage with the City of Cape Town and professional service providers to consolidate the land adjacent to the existing distribution centre as well as finalising the design of the new facility.

The Group is also considering alternative greenfield sites for a new distribution centre and a decision on the development of the new distribution centre will be made in the 2022 financial period.

Civil unrest

Shortly after the end of the period South Africa witnessed civil unrest and rioting, which temporarily disrupted some parts of the Group’s operations. Besides the loss of stock, damage to property and loss of profits, these events also impacted the Group’s supply chain.

The Group’s third-party logistics provider responsible for delivering merchandise to its South African stores and to e-commerce customers experienced major disruption due to warehousing infrastructure damage and risks relating to road transportation in KwaZulu-Natal (KZN). This meant that the Group’s stores that were not directly affected by the civil unrest were also adversely impacted, as they were not receiving deliveries of merchandise allocated to them.

The Group also has manufacturers in KZN that have been looted or have had garments, raw materials and equipment vandalised, in some cases rendering these manufacturers inoperable until further notice. Some factories that have not been vandalised or looted have been impacted by the unrest, as employees were either fearful or unable to return to work in affected areas.

The bulk of Truworths’ locally produced merchandise is supplied by manufacturers based in the Western Cape, while imported merchandise generally arrives via the Cape Town harbour. These factors have significantly limited the direct impact of the civil unrest incidents on merchandise sourcing and procurement. By end September (post period-end) most of the affected stores (51 of 57) had reopened and are operating as normal.

Sustaining the local supplier base

Convenient and efficient online delivery

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

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 speed of delivery.

Enhancements to the e-commerce fulfilment process in the past year have not only reduced average delivery times to customers but also reduced costs. A new geographic fulfilment model will be implemented in the 2022 financial period to shorten the lead time from the placement of orders to delivery to the customer.