[Music] The immediate and long-term impact of the Suez crisis on retail supply chains. Samir Anan is a supply chain leader with e parthan on Americas. Hello, Samir. Hi, Robert. Thank you very much for taking the time with me. What is the current and ongoing impact on global retail supply chains of the Suez Canal Crisis? Sure, Robert. I mean, as you think about it, let's first start with, you know, who are we talking about. There is a host of when we talk about Brands and retailers. There's a host of categories that are impacted by this. I mean, not typically the categories where you have got retailers manufacturing overseas in APAC primarily and apparel comes into that category. Shoes comes into that category. Furniture comes into that category. Toys comes into that category. Like, but there are others. Food and beverage household products, a lot of that is produced locally in respective markets. There the impact is less so. The impact might be more if they are say importing tomatoes from Italy and there might be some impact of that, right.

so in the near term, what we are seeing as we are working with our clients on it, right, the impact has been the extended lead times. In some cases, it has been about longer lead times to go around the Cape of Good Hope to get the product, and that has lengthened the supply chain for some folks. For some of our clients, while for other clients, they are translating that into Air Freight and trying to ship the goods on in an expedited manner. Now, the choices that are made are made based on the nature of the product, even within their categories, where they believe that they have got enough of the inventory already built in and they can manage through that versus others where they're seeing this is the time I want to gain share. I want to gain sales, so I might need to expedite the shipments and hence focus on air freighting. So that's from a very, very, you know, near-term perspective that is what companies are doing because of the ongoing what we see with our client.

base what they're doing because of the ongoing crisis. One way or another, though, regardless of what alternative they choose, it's costing more money, correct and absolutely. Either they're absorbing that, either carriers are absorbing that, and retailers are absorbing that, or they're passing it on to consumers. Or is it a combination of the two? Absolutely, eventually the cost does get passed through to the customers and the consumers. Let's make no no mistake about it. At times, they're absorbing it, to your point, Robert, right? And that will get reflected in the quarterly PNL reports for publicly traded companies when they come out and they discuss the impact of these crises. And you see some of that in the news. You know, some companies are saying it is impacting our margins. They have come out and talked about it in the near term, right? In the near term, there might be a quarterly impact, but in the long term, again, companies are thinking through more more longer-term strategies to be able to tackle this or any such scenarios on an ongoing basis. I mean, this crisis hasn't

been around for that long. Are you actually seeing concrete actions by retailers and Brands right now to take steps to diversify their supplier bases for the long term? Yeah, so Robert, what we see, at least the discussions we are having with our client base, um, it is a combination of Crisis that is causing companies to think about the long-term supply chain strategy. So see is just one aspect of that. Overall, there is geopolitical tensions that are observed. There is the ongoing challenge in Ukraine. There is continued challenges in Asia, right, and we are also looking at two of the largest democracies going to election in this year. So as when we talk to our clients, they are not looking at us, okay, I know I have got a pain right now. I can take a medicine and I'll feel better, but what if some of these challenges were to persist in a longer period of time or other new black s events were to crop up that would cause a challenge for us. We don't know what we don't know, but fundamentally if the

output of that is that I have a problem procuring product from certain geographies and getting it to me on time in full. You know, without having to add up a whole lot of inventory in my warehouses, then I don't need to think about it. So what we are seeing across different client categories, different sectors, is a desire to look at their overall strategy and think through given the stress test and the profile that they are paring through right now is should they be actually revisiting what should be their strategies. They are all focused on kind of thinking through at least. I'm having a number of dialogues and we are actively supporting some of our clients with that. Well, the Red Sea crisis happened at a time when certain shift in supplier strategies was already taking place. That companies were already reducing their reliance on production in China in favor of Southeast Asia, in favor of Mexico, and maybe even in some cases back to the United States. So is this just going to accelerate a process that was already

underway, or does this particular Red Sea crisis cause them to shift those strategies that they had already started to look at. I think it has intensified the focus on coming up with very concrete executable ideas in context of those strategies. To your point, Robert, they were already starting to think about some of these elements, whether it is the raw materials and where they source the product from. You know, sourcing cotton, you can source from many places, but again, there's a specific variety and all that you need for because you focus on raw material innovation in your product, and that is what the consumer buys when they buy your product, say, client A, right, or somebody who's making toys, and they were making in a particular geography, but they find that from a skill set and capability perspective, I might as well be able to make it in Mexico. And so what does that mean? So it is more about getting more concrete. Earlier, it was scenarios and analysis. The ability to move was what was being discussed. I mean

I recall having a discussion with one of our clients as CEO. As they were getting ready for their board discussion, and they were like s hypothetically were talking about what this can look like. But now the shift that has occurred is no, no, no, we need to have very clear plans. We had the discussion with the board, the directive is there that we need to move. And Supply chains are physical, you know, aspects there that you need to make changes. And they will take time. We cannot just say, Okay, y, I made a change, so starting tomorrow I'm going to produce in Mexico or in laam somewhere, etc. No, there's a lot that goes into moving from a consideration and a vision and objective to actually going through a formal strategy and execution. So we have seen that intensify. We look further into the future though, and we look at ways in which these strategies might manifest themselves going forward. Do you look at a a landscape in which there will be more Regional diversification? Will it be more likely that a retailer or brand will choose to Source from

multiple parts of the world, which is a rather costly thing to do, as opposed to what they've been doing up to now. But are they going to, by necessity, have to start thinking that way? So before I answer that question, Robert, let me just make sure that you know, we, I know because right now this is the topic in B. Everybody thinks in terms of, I need to answer on this particular aspect and say what is the choice. But if you take a step back and think about what the chief supply chain officers, the CEOs, the CFOs are thinking about when it comes to supply chain productivity or lowest lower cost operations, never gets a pass. The expectation of I need to deliver on the lowest cost possible possible without compromising on service, without compromising on, you know, capability is paramount. Second is what we talking about right now, the notion of resiliency. We need to have a more resilient chain because of all of these events that can hit us and what should we think about. That's second consideration. There's a third consideration that is still around.

agility in the supply chain. What if we do actually see a trend catching on? We want to be able to capitalize on the trend, bring the product to the market quickly, and more often to be able to capitalize on that. That expectation is also there with Supply chains. Fourth, while we see it in the news a little bit about, you know, uh, uh, companies are not talking as much about ESG. Companies are thinking about sustainability in a fundamental manner in terms of how it is integrated into their supply chain. So that is also now a choice. I mean, even this red SE crisis, you know, going through around the long of Good Hope, I'm my carbon footprint is expanding. I'm traveling longer. So there are those considerations right. And then, of course, there's a um consideration around flexibility. How do I flexibly move my supply chain if events happen? So when we talk about to go back to your question about s does this, you know, this going to intensify Regional diversification. I don't see clients thinking about it unidimensionally. It's

not just a resiliency answer. It's really an answer driven by these four or five dimensions that I just called out. That companies are thinking about and saying what the trade-offs are. Will they go and diversify? That might be important just from a paramount ability to serve the consumers. So yes, they will diversify. What the right choices are, what is the volume allocation, whatnot, that has to be thought through. So, supply diversification for raw materials is important. Supply diversification for contract manufacturing is important, you know. So, absolutely, those are considerations that companies are thinking about. Near-shoring is important. These all come with trade-offs. I might gain in lead time and I might gain in responsiveness and ability to chase trends if you use the example of, say, a parallel toys. But I might not but I might lose out in cost on a relative basis. So, how do I think about those and what does it mean to me given my objectives and what I have promised to the street and what I have promised to my shareholders. Those are the choices.

that companies are making right now. Well, I guess if we want to look at it from a positive angle, this might be spurring a discussion that might not have otherwise happened. But now companies that are on top of this maybe are using it as an opportunity to re-evaluate and transform the supply chain practices. So that can only be a good thing, right? Absolutely, companies are using that as a we are seeing leaders and and and you know agile smaller players using this as an opportunity to say this might give me the impetus for my next way wave of supply chain, you know, uh, structure and configuration changes as well as enabling planning capabilities and Manufacturing capabilities and Logistics capabilities to be transformed. So we are seeing a lot of dialogue and a lot of clients who are thinking about and setting the stage for those conversations for the next three to five years. Well, let's hope this means the end of purely reactive Supply chains and ones that are proactive and thinking through these these strategies of the future. Samir Anan of ey parnon thank you.

So much for being with me today. I really appreciate it. Thank you.

The Long-Term Impact of the Red Sea Crisis on Retail Supply Chains

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The Long-Term Impact of the Red Sea Crisis on Retail Supply Chains

The Long-Term Impact of the Red Sea Crisis on Retail Supply Chains

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