Spanish companies try to avoid bottlenecks, the shortage of containers in ports and the increase in maritime transport costs, as well as the long distances to send merchandise from China with a process of bringing factories closer to countries close to ours or to the markets where the final product will be purchased, that is, to the place where the consumer is. This path was already started before the pandemic broke out and the Ever Given ship ran aground in the Suez Canal. It is an attempt to achieve greater flexibility in the times and, therefore, to improve the ability to react to
possible supply problems
Behind this commitment to relocate production outside of China and to give more importance to manufacturing centers close to the end customer there are also two other trends: that of sustainability in order to reduce the carbon footprint and also that of customization of products according to each type of consumer in different markets. At the same time, the cost of transportation has skyrocketed, while that of many raw materials has risen to figures not seen in a decade.
“The current context forces companies to act and carry out transformations throughout their entire value and supply chain. With regard to manufacturing, we observe, in addition to production adjustments, a greater commitment to proximity and diversification of the supply options to have greater flexibility throughout the entire supply chain “, points out Ignacio Marcos, Senior Partner of McKinsey & Company.
In addition, companies try to avoid shortages and avoid a shortage of products at certain times or in peak seasons, such as Christmas. “This situation has two possible impacts on the industry: first, the impact on the price of the product which, due to the increase in transport costs, will grow and affect the income statement. At the same time, the shortage of maritime freight is impacting the supply chain itself, already heavily impacted due to the situation of the pandemic. Consequently, there may be limited availability of products at specific times ”, explains Ignacio Marcos.
In this scenario of uncertainty, one of the sectors that leads this commitment to local manufacturing is textiles, whose employers’ association confirms that the objective of accelerating processes is behind this trend. In addition, in the case of fashion, the main audience for many brands is usually Spanish and European and that is why fashion companies are beginning to prioritize production in countries such as Portugal, Morocco and even Spain. “More and more are manufactured in proximity, but it is true that there is a lot of production left in Southeast Asia, where there is now a slowdown in deliveries and a logistics bottleneck”, explains the president of Acotex, Eduardo Zamácola. “You have to have diversified merchandise and we have seen that with manufacturers in proximity we have a flexibility and agility that we do not achieve in Southeast Asia, where the quantities to be manufactured are very high and it is necessary to produce well in advance”, adds Zamácola .
Along these lines, Zamácola presents an example to demonstrate the reason why, according to him, it pays more and more to have factories or suppliers close to our country: «If I manufacture a shirt in China for 10 euros that sells for 80 euros and I order 4,000 units, but I see that I was wrong; in the end I have to sell that garment with a minimum discount of 30%. However, if I make about 1,000 units in Spain and I see that it works well, I can order another 1,000 and, if not, I won’t manufacture more; but I don’t have to do promotion. We are obsessed with cost when the most important thing is the retail price, ”he explains.
From McKinsey & Company they confirm that this movement is necessary among fashion companies to find new formulas to make their investment more flexible and to renegotiate conditions with suppliers. “It is about transforming the way of collaborating with strategic partners and suppliers, with a more flexible model that allows having a positive impact on the liquidity of textile companies,” adds Marcos, from the consulting firm McKinsey & Company.
The English Court, Tendam, Leroy Merlin
There are several examples of Spanish textile companies that are betting on ‘made in Spain’ production. For example, Tendam, parent company of brands such as Cortefield or Springfield, recently moved the manufacture of its footwear products to Toledo.
El Corte Inglés, in the textile area, is also increasingly focusing on local products. In fact, one of the group’s objectives, as stated in the 2020 annual report, is to “increase the assortment of local production”. Thus, it has the “Made in Spain” label for textile products designed and manufactured in our country.
Regarding the number of suppliers, the company chaired by Marta Álvarez reduced it by half due to the coronavirus, especially in its travel division, according to the 2020 annual report. Even so, 77% of the suppliers are Spanish, whose volume of purchases represents 84% (7,104 million euros). Its Portuguese division is also committed to proximity, where 70.4% of the suppliers are Portuguese and the volume of purchases represents 86%.
Another branch that increases production in Spain are household appliances or household products. El Corte Inglés reports that 70% of its suppliers in household appliances are national. For his part, Leroy Merlin Spain has been implementing a proximity value chain in our country for years. Company sources explain to ABC that they are betting on this strategy because “operationally it is cheaper.” Spanish suppliers accounted for 72% of purchases in 2020 (1,103 million of the 1,529 in total).
Morocco supplies Europe
The end customer thus becomes a key part of the value chain from the beginning. The president of the association of internationalized industries Amec, Pere Relats, who is also the CEO of Relats Group, explained a few days ago at a round table organized by the ‘Financial Times’ how the value chain is changing and made it clear that production is getting closer and closer to its end customer. What is happening, as he related, using his factories as an example, is that his factory in China has stopped exporting to Europe and its production supplies the Chinese market itself. The same has happened with its plant in Vietnam, which no longer serves the Old Continent, but Southeast Asia. At the same time, Europe is now supplied by factories located in Morocco, closer and closer to European consumers.
Labor and other costs are also decisive in decision-making in internationalized industries. “There are Amec companies that are bringing their production centers closer, for example, to Morocco. As wages and environmental demands go up in China, companies are moving to other countries. Keep in mind that there is the same geographical distance from Madrid to Casablanca as from La Coruña to Seville. At the same time, there is a growing trend and demand to be close to the customer ”, points out, for his part, the CEO of Amec, Joan Tristany. Nevertheless, dismantling a factory and carrying out the relocation also entails outlays to consider. “Another thing is that companies with production located in different places are rethinking how much manufacturing they have in each plant and then make changes to put more in one place than another,” adds Tristany.
George is Digismak’s reported cum editor with 13 years of experience in Journalism