Keynote Panel, Part 2: Dealing With Supply Chain Issues

Posted by Marty Brochstein on September 12, 2013

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A pair of tragedies in Bangladeshi apparel factories in November and April once again brought attention to the subject of how, where and under what conditions a wide variety of consumer products are manufactured. Supply chain has increasingly become a topic of conversation, whether concerning such social issues as worker safety and environmental impact (along with how the brands and retailers whose products are being manufactured should react) or more hardcore business elements as how to get goods to market most efficiently.

It was also among the topics addressed during the Executive Keynote Panel at Licensing Expo 2013, which featured Brad Globe, President of Warner Bros. Consumer Products; Andy Prince, Senior Category Director of Toys for Walmart; Josh Silverman, Executive VP of Global Licensing at Disney Consumer Products; and Henry Stupp, CEO of Cherokee Inc.

In the wake of the factory fire in Bangladesh last November, Disney said it was pulling all production out of Bangladesh, a stance that Silverman reiterated. “We have to do what’s in the best interests of our brand and our shareholders. We made a decision, we stand by it, and we’re going to continue to stand by it,” he said.

“No easy solution”
Other companies have reacted by pledging to hold the factories to a higher standard of safety and working conditions. “What’s happened in Bangladesh is horrible, and it’s scary, and there’s no easy solution,” said Stupp. “[But] the fact is you cannot take that bulk of business that’s being done in Bangladesh, move it out and drop it into another country. Our belief is that Bangladesh is not going to go away as a supplier of our merchandise. We have a responsibility to make sure that we are identifying the best factories. …

“Every company has to make the right decision for themselves; we’ve chosen to support [manufacturing in Bangladesh] and make it better, and that’s what many retailers around the world have chosen to do, and I think we have that responsibility.”

But he also made a point, echoed by Globe, that “it extends all the way through the food chain. Consumers have to be willing to pay more, retailers have to be willing to pay a little bit more to make sure [that products] are being properly sourced. We obviously want to provide the best quality in an ethically compliant factory. That’s been our focus.”

As was noted in the previous report on the Keynote Panel, Stupp said there could be opportunities to bring parts of the supply chain closer to North America. For example, he said that moving denim production from Asia to Mexico would mean quicker turnaround and greater flexibility. “[But] the [initial] margin for the retailer would be less. However, they’d have less exposure on the inventory for less markdowns. So we could bring it closer, they could make the same money, we could have tighter delivery timeframes, arguably more control because it’s right in our backyard.”

That increased efficiency is a goal for everyone, from Prince talking about reduced order lead time and increased flexibility, to Silverman describing the performance goal as “Deliver on time, replenish on time. An empty peg, an empty slot is bad for us, bad for the licensee, bad for the retailer, bad for the consumer. You want partners with supply chains that are flexible.”

Franchise domination
Some of the panelists also broached the subject of how to break out of the cycle of sequels and known franchises that dominate large swaths of shelf space. Globe recalled earlier days when “retailers could try properties, they had enough confidence to at least give it shelf space and give it an opportunity to succeed. I think one of the challenges now, with the scale that we’re operating at, [is that] there’s very little room for error.

“So you have to be one those things that is a brand that has a track record in terms of the entertainment, in terms of the product sales, and can drive a certain amount of revenue. And when you can’t get to those criteria, it’s very difficult to get the shelf space.”

Prince pointed to another issue with franchises: the need for fresh product development with each new film. “It becomes a challenge when you start going into the second and third sequel: ‘What’s new? What’s the new news?’ Especially from a kid’s standpoint. If I got the web-shooting glove last time, I’m probably not going to buy [another one] this time.”

Creative DNA
Silverman commented on the fact that properties are coming from a host of different directions. When it was noted that no app-based property has come close to the success of Angry Birds as a licensing property, Silverman pointed to the creative DNA of the franchise.

“If you look at Angry Birds, it’s driven certainly by a great game, a really interesting game, but it’s character and storytelling. There’s a soul to the character, there’s a story to the character. You’re interested in ‘Why are those pigs so angry? Why are those birds so angry?’

“There’s a story arc to it, that really separates it from some other successful games like ‘Temple Run,’ ‘Cut the Rope’ or ‘Fruit Ninja,’ which are great games in their own right, but they don’t have that level of DNA or soul to them… I think that’s a critical piece to the success of Angry Birds.”

Tongue somewhat in cheek, Stupp approached the competitive challenge posed by Angry Birds from an entirely different direction.

“What we have to do is stay true to our offering, know that there’s a place, and when something like Angry Birds comes up, we say, ‘Buy the T-shirt; it goes really nicely with our Cherokee jeans.’ We support it because it drives traffic to the stores, and that’s the most important thing today.”