Taking control of your supply chain can cut costs and extract more value, says David Wild

In the year ahead it is the cost trends within the supply of merchandise that are set to test our capabilities and skills. Success and competitive advantage will hinge as much on our supply chain credentials as what happens in store.

There are rising cost pressures abroad. Exchange rates and raw materials are two key factors. Shipping, recently at unprecedented low levels, is now showing massive increases.

The reasons for these rises are manifold and they often result from complex interactions rather than simple supply and demand. Meanwhile, labour rates are similarly influenced by competing pressures.

How we deal with these supply chain issues is more than ever in our own hands. The rise in the sourcing of own-brand products was the catalyst for retailers to become more closely involved and, ultimately, take ownership of their supply chains.

Dealing direct with manufacturers gives retailers the opportunity to forge longer-term partnerships. This year these will be a vital factor in eliminating unnecessary cost and extracting value for customers

Once manufactured, a fully integrated supply chain means we control the flow of products more effectively. We can forecast more accurately, work on minimum order quantities and share risk with our partners in areas like supplier-held buffer stocks.

At Halfords our team in the Far East consolidates supplies, loads containers to maximise utilisation and arranges shipping that better suits our sales pattern in the UK.

The key factor is flexibility. We must move manufacturing around the region depending on local economic factors. Recently we opened a new office in Shanghai to access new lower-cost sources of manufacturing in central China.

Labour rates across different territories and the outlook for import duties also drive sourcing models. Bikes are a good example. They are a major product for Halfords but import tariffs on bikes from China are prohibitive so we source them from Taiwan, Sri Lanka and Thailand to ensure best value.

Part of our team’s remit is to keep relationships warm with potential suppliers across the region. Start small with one or two lines, help manufacturers develop their standards, then switch greater volumes to them to create advantage as economic conditions allow. This facility has also extended our capability to source new ranges and diversify product lines like our move into camping.

The Far East infrastructure will play a fundamental part in mitigating some of the current economic headwinds. Good planning, longer-term relationships, guaranteed volumes and flexibility will all help us leverage a better deal from our supply chain partners. It also helps us avoid some of the risk factors and surcharges that are imposed on spot buyers.

Napoleon called us a nation of shopkeepers. As a general he would also have understood the importance of good supply lines to a successful enterprise.

David Wild is chief executive of Halfords