Today, constant external threats are the new norm. As though it weren’t challenging enough already to deliver on-trend product to the right place at the right time every time, supply chains must now account for, manage and mitigate extreme weather, escalating prices and trade policy run amok — just to name a few.
In the “Navigating a Margin Squeezed Era” panel at the American Apparel & Footwear Association’s Executive Summit, executives spanning operations, supply chain and finance shared how they are managing teams, operations and tech stacks through the dense cloud of uncertainty.
While their approaches vary, they share some beliefs and strategies, which begins with keeping the end consumer first, shoring up relationships and embracing change. And the most important in these times: Don’t let external shocks derail you from your overarching mission.
“Companies that are tactically reacting to disruptive environments are not going to be successful. I think people doing that are really on the heels when things occur,” said Chris Volpe, COO and CFO of United Legwear & Apparel Co.
Part of United Legwear & Apparel’s proactive approach to challenging times is aligning with manufacturing groups with operations that span countries and regions. “We work with suppliers and integrate our supply chain by consolidating with manufacturers and trading companies that have diverse countries of origin and diverse regions of the world. This allows us to flex and move based on the dynamics that change every day,” Volpe said.
This distributed network means the company is never caught flat footed when the inevitable happens like a middle of the night social media post from the White House.
By leaning into fewer but better situated partners, the company has enjoyed agility throughout the trade war. “Luckily, we haven’t heard anything about TPL [tariff preference levels] or yarn-forward rulings. So, you can move fabric from one country to another, be able to mitigate or reduce your exposure to the tariffs,” he said.
Leveraging relationships
While geopolitics has had many brands and retailers reevaluating who they were working with, Sally Gilligan, chief supply chain and transformation officer at Gap Inc., said it’s equally important to examine how you’re working together. She’s found success with viewing suppliers as an extension of her business, not separate entities. Operating in this manner allows Gilligan to not only identify problems but resolve them no matter where they occur along the value chain.
“You can choose to treat suppliers transactionally, but you’re not going to get the result out of investing in improvement collectively, and that means thinking through the economic models, the trust models, and going back to first principles,” she said.
The key for Gilligan is true collaboration, not just delivering partnership lip service. That starts with aligning on the vision for the customer experience and then incorporating production partners in the ideation stage. And the benefits are clear.
“They see a lot more than we see with just our portfolio of brands [so it’s about] letting them be a part of the solution, not telling them what you need,” she said. “Many of them are more sophisticated and have more industry insight than any of us as individual brands.”
Merritt Shwedel, chief operating officer of Spanx, takes a similar view. She starts by making sure everyone is on the same page in terms of what defines success and how best to show up for the end consumer. “If you and your suppliers don’t have the same goals, then you are going to be in opposition, and you are going to have issues of waste or fallout that aren’t going to be successful,” she said.
Volpe espouses constant communication, which sometimes veers into overcommunication when things are especially tough.
“During the tariff time, during the Covid time, when people were in difficult times, when we were all managing cash flows, managing inventory flows, and managing shutdowns and everything else, I just felt it was so important that the principals and suppliers that we were relying on and who were relying on us knew that there was a trust and a transparency,” he said.
That openness extends to financials. United Legwear & Apparel shares its gross margins with its supply chain partners and they do the same. This level of transparency underscores the trust that’s derived from years-long relationships and it facilitates problem solving.
“It’s not always about reducing a cost,” Volpe said. “It could be increasing the inventory turn, efficiency and getting product to market faster.”
By improving these metrics, the company can salvage margin that would otherwise be lost, he explained.
Protecting margins
When it comes to protecting profits, Volpe appreciates creative problem solving, not just penny pinching. “My objective is to get 13 months out of every year, and if you can do that in a successful manner, that’s revenue growth, that’s margin growth. And if you can do it without reducing one cost, you’ve actually accomplished a great amount of return on your investment,” he said.
Finding efficiencies plays a big role in margin protection. For United Legwear & Apparel, that means using the same fabrications across its bag line and its accessories. Ultimately it streamlines product development and merchandising, which translates into days and dollars.
Shwedel takes a similar approach at Spanx, and says it can be a major unlock.
“Thinking about the essentials and getting down to the building blocks of what you’re using, and making sure that you’ve got a very tight palette of materials and options that you’re leveraging in the best way possible continues to be a competitive advantage,” Shwedel said.
While some would see the design constraints as limiting, she said working within parameters can spur innovation. To illustrate her point, one example, in particular, came to mind.
“If you look at Taco Bell and how they innovate, it’s amazing. They have a really limited set of ingredients, and they take that set of ingredients and repurpose it in so many ways, and it keeps exciting the customer,” Shwedel said. “They figured out a way operationally to manage it profitably and consistently. We can take a lot of inspiration from that when we think about the modularity.”
Volpe is also leaning into artificial intelligence and 3D technology as critical tools for managing through a challenging landscape. “AI is a huge initiative on inventory planning for us,” he said. “We’re trying to deploy tools on the merchandising side, on the product development side, on the design side. There’s huge amount of costs that are available to save, just on freight and sampling.”
Driving transformation
Adopting new technology itself can create friction. The panelists agreed that implementing change is important for the future of their companies but too often, that pivot to something new is held back by legacy thinking.
“You take for granted that many of you are in companies that have operated one way for a long time, and that’s muscle memory. You’re building true new muscle memory. Plus, you’re also taking an employee on a different career journey than they potentially have anticipated,” Gilligan said.
Getting the team on board with new ideas and processes is about repetition — a lot of repetition, she said. Change management is driven by what Gilligan calls talent investment, which consists of an abundance of skills-based training, listening and reiterating. And she supplements the new muscles she’s building in house with new hires that can act as a fast pass toward accelerating change for the whole organization.
Here, communication and planning play a big role. When leading a transformation, Gilligan breaks the strategy into stages, complete with timelines, contingencies and outcomes so that how and what they’re doing is clear to the team.
“You can never plan enough,” Gilligan said. “The expectations of failing and learning are different in each one of those phases, and you do have to train cross functional partners. You have to set that expectation early and be really clear on the outcomes of each phase.”
You also have to remain flexible, she said. Even as you’re executing your plan, Gilligan said it’s important to pay attention to what’s happening in your space and beyond. “[It’s about] continuing to have outside signals like, who is doing it better, who’s doing it faster? Just because you have a multi-year transformation plan doesn’t mean it shouldn’t adjust as you go.”
