Managing Risk in the Digital Era - a Focus on Apparel

December 2, 2020

Continuing our global series of Serai webinars, on November 27 we brought together industry leaders from across the apparel and risk technology ecosystems to speak on the latest trends and best practices for effective risk management. We were excited to host over 200 attendees, and we hope you find this summary of the insights on managing risk helpful.

At Serai we believe in the power of trusted relationships, and the potential of the network that these can create. This belief led us to launch this series - bringing valuable insights from throughout our network to assist brands and manufacturers across the world make more informed decisions. Check out the full recording and event summary below!

For the global apparel industry, the unpredictability brought on by Covid-19 has created a need for more effective risk management practices. In a period where there is a high likelihood of some brands facing unexpected bankruptcy, risk factors such as uncertain payment terms or an overreliance on a single customer or supplier can put a company in a volatile situation. Fortunately, with the industry increasingly adopting digital solutions, risk management no longer needs to be complex or costly.

Vivek Ramachandran, CEO of Serai, Aurélien Duthoit, Senior Sector Advisor at Euler Hermes, Pallak Seth, Vice-Chairman of PDS Group and Kar-Lyn Tan, Product Lead of Risk Solutions at Serai came together to discuss risk management trends from a macro perspective, the main issues facing the apparel supply chain and how companies can use digital risk solutions to benefit their business.

Prepare to mitigate your risks

Aurélien identified three apparel industry trends that are impacting the need for risk management: greater complexity in supply chains, the accelerating pace of digitisation and a plateauing per capita consumption rate in apparel.

Supply chains are becoming more complex due to the ongoing diversification away from China towards other manufacturing bases. Between 2015 and 2020, China’s share of world textile exports dropped from 36% to 32%. This change aids a degree of risk mitigation, but it also presents new opportunities and considerations for buyers choosing to enter different countries and manufacturers catering to these new customers. Vivek stressed that it is now essential, more than ever before, for both buyers and suppliers to share information more freely and learn how to evaluate the financial standing of their counterparties.  

The accelerated pace of digitisation is evident by the rapid rise of e-commerce sales for big apparel brands and the wider adoption of digital trade solutions. Aurélien stated that digitisation helps maintain a sense of business continuity for the industry, and that digital platforms such as Serai, help to expand the reach of buyers and suppliers. According to Pallak, for suppliers to remain agile, they must consider using digital tools to simplify their processes and reduce costs.

The plateau in per capita apparel consumption has come from a shift in consumer behaviour led by the growing awareness of the environmental impact of buying clothes. This has led to greater scrutiny about how clothes are manufactured and increased demand for more durable and ethically-made clothing. Brands have responded by stepping up the sustainability requirements for their supply chain. Aurélien warned that those brands who embrace audits or certifications in this area late could lose customers and lag behind their competitors in the years to come. 

Top risks facing suppliers

Pallak identified five key risks for companies across the industry’s supply chain: credit risk, customer dependency, compliance, currency and cost. Of these, he considers credit risk the largest area of concern for suppliers.

Credit risk has been exacerbated by the shift to online consumption from traditional brick and mortar stores, adversely affecting the balance sheets of many retailers. Given the subsequent challenges facing suppliers, Pallak recommended that secure payment terms be worked out before onboarding any customers and the implementation of regular tracking of customers’ financial health. Regular reporting on credit risk should be implemented and due diligence carried out for both buyers and suppliers.

Looking at the other risks, customer dependency is about making sure that no single customer or supplier represents too large a share of the business; new compliance requirements from buyers in the areas of ethical, social, health and safety; currency risk is due to the increasing volatility in exchange, and cost is about micromanaging expenditure to keep the business competitive in a challenging landscape. All these risks, Pallak believed,  must be assessed and managed properly to ensure the company’s sustainability.

Digital risk solutions can get companies started 

The speakers all agreed that the rapidly changing business environment made risk management critical. Kar-Lyn pointed out that risk management strategies can be tailored to suit individual companies in a way that brings the necessary benefits without high degrees of complexity. Adhering to the four pillars of risk management: identifying, assessing, mitigating and monitoring, will help companies make more informed decisions.

However, companies may not know how to get started with building their risk management capabilities. That’s why Serai has partnered with the world’s top data analytics and risk management experts to provide companies more accessible risk solutions. Companies looking to identify and address risks early on, monitor the financial health of their buyers or suppliers and seek expert opinion will benefit from the available range of digital risk solutions that can be tailored to their needs. These include customised digital reports and assessments, technology-driven risk insights and help from a third party to monitor customer creditworthiness. 

Vivek wrapped up by highlighting that as a buyer or supplier, it is very important to learn how to assess your partner in terms of both business model and credit standing. Building this capability in risk management is the first step towards safeguarding a business in the digital era

Serai is offering third-party risk solutions from leading global providers including Dun & Bradstreet, Coface and Euler Hermes. Find a range of solutions catered to your risk management needs, as well as discounted prices for Serai members. Find out more here.

If you’re interested in accessing the latest industry news and networking with potential business partners in the apparel industry, locally registered companies can sign up for Serai.