Rethinking Supply Chain

Oberalp CEO Christoph Engl examins critically the outdoor industry supply chains in uncertain times

Until now, the technical term "shelf gaps" (out of stock) has been used almost entirely in the context of the food trade. In the meantime, this term has increasingly been extended to other industrial sectors. Also, in our industry, we started to talk about "delivery delays" and shifted the responsibility back and forth between producers, "You didn't deliver reliably and on time!" and buyers, "You ordered too late after all and then not the right parts!"? We spoke of "sold out!" because too little was ordered caused by too much demand" or of "sold out of stock" because too much was ordered, and too little was sold due to weak demand." Somehow, we always had the feeling that there was too much product on the market, not too little... And in just two years, we, as an industry, have learned the technical terms "supply shortages" and "stock availability" and introduced them into daily usage. Since 2020, we have typed these two terms into our keyboards or put them in our mouths 1000s of times.

We are facing exciting times and are in the middle of turbulent times

Who is to blame for this shift in semantics? Was it the COVID-19 pandemic that caused factory closures or/and was the Ukraine conflict with its global impact on raw material supply to emphasize supply chain topics??

Or were these events only the amplifiers for long announced and overdue changes? Would our business models have lasted for decades? Did we have a hidden hope that our consumers would return to formerly established behaviors instead of becoming hybrid? In other words, to opt for either "offline" or "online" and not constantly mix everything up, thus bringing additional turmoil into our usual routines?

Fact is: The usual paradigm of our industry (first, sales are made in a pre-order campaign and then, based on the sales results achieved, collections are produced in many countries around the world) is hard hit - if not already over. Also, we had the same process in place when producing and selling our products: a product was designed two years and more in advance, brought to a tangible sample status 16 months before presentation to the end customer and then sold as successful as possible at the dealer presentation. Twelve months before delivery, it was produced at different suppliers in various countries. It could then be delivered to the manufacturer's warehouse as early as possible via a complex logistics system to be distributed from there to the different sales outlets in many countries. Whoever sold more could also produce more - and the possibilities for doing so seemed endless.

Since 2020, this process has been turned upside down. Those who did not secure sufficient raw material and production capacities for their collections early on – and long before the advance pre-order was received – were able to sell successfully to their retail partners. Even if they did, they could deliver only a portion of the pre-orders acquired.

Supply and logistics chains were thought to be unbreakable until 2020. Due to the COVID pandemic and as a consequence, because of factory, city and country lockdowns, they have become extremely fragile. Everyone in the industry has felt this, – and the issue of managing a supply chain suddenly emerged as a strategically critical line of business for an entire industry. Revenue was generated by who could deliver the best – not who sold the best. Selling became a promise; delivering became the truth.

Made in Europe - Made in Asia?

41% of our goods for our six mountain sports brands are produced in 14 different countries in Europe, 58% in 10 different countries in Asia, and 1% in two countries in Africa and the Middle East. For this, 97 suppliers and producers are manufacturing: from ski bindings to tents, from waterproof jackets to via ferrata sets, from running vests to crampons. We have become very international with our supply chains – and the more convenient production conditions in faraway countries were less and less the decisive arguments for choosing a production location.

In public opinion – stimulated by politically simplistic opinion-making – European suppliers should be preferred to Asian ones. Made in Europe would be the new quality label– Made in Asia a sign of unpopular economic dependence and cheap production.

But we do not want to put it that simple. That's why we decided to discuss this topic at our Oberalp-Summit and make our position clear. In four 8-minute videos (https://convention.oberalp.com/en ), featuring not only our experts but also those from competitors and industry associations, we faced four essential questions:

1. Which is the best production location?

2. Why invest in the quality of the production facility?

3. Why do the goods never arrive on time as hoped?

4. What will the next few years bring?

So what was the output that we took from posing these questions?

We've received many opinions and theses on this important and controversial topic. As with many things, it is also the case here: there is no single truth; instead, it takes to position and express conviction. The Oberalp Group has been following a very clear production strategy for more than just the last two years - and this has only partly to do with the idea that it is possible to produce much more cheaply in Asia than in Europe. This is undoubtedly the case, even if the complex and cost-intensive transport routes mean that this advantage is becoming increasingly smaller.

Much more essential is:

1. We want to produce in places where there is proven competence and production culture.

Let's not delude ourselves: Production skills have been lost in recent decades in many European countries. Where are the sewing competence, the fabric processing culture, the production chains for tailoring, and where are enough workers for finishing?

It must not be a dogma that Europe is always a better production location than other countries in this world or vice versa. The decision about the production location will be influenced by hard factors like safety and speed of logistics, material availability at the production site, proximity to the place of use of the final products, and CO2 balances of the producers.

Europe can play a role here if these factors improve. Most of all: it is not labor that should be taxed but the negative environmental impacts.

What hardly finds a place in the whole "Europe before Asia" discussion is the question of fair, worldwide distribution of employment and income. As long as labor has such a high-cost impact on production because of too high taxation and the achieved level of economic prosperity, machines will have to replace human labor in Europe.

Our opinion is:

2. We want to produce where we can employ people in a good way with our orders and do not have to save costs using machines.

Very often, producing in Europe would mean significantly increasing the machine proportion of production to compensate for the higher wage costs. At the same time, this would deprive those in Asian or African countries of income opportunities they depend on for the lack of other alternatives. If these income opportunities become fewer, this leads to an increased risk of economic migration. People will want to move to places where the living and income opportunities look better than in their home country. We want to make sure that our producers and suppliers pay and treat their employees fair – and we also verify this through independent institutions. The Oberalp Group privileges its orders to help people earn a good income – and relies on automation where this makes more sense.

This climbing shoe from our brand Evolv has been produced in South Korea in the town of Busan. All suppliers are very close to our production facility. For example, our yearly production of 135.000 pairs of one model of our Evolv climbing shoes employs more than 160 local people in South Koreas Busan town!

POMOCA's ski skin production – meanwhile – is located 100% in Central Europe (in Germany, Italy, and Switzerland) – and this will remain so because it makes a lot of sense to do so.

And a final thought on the subject of "Asia or Europe" concerns the terminology that has been established in production chains: we are still talking about suppliers and producers – not calling them partners. We will change this.

3. We will – especially in Asia – turn our existing suppliers into long-term partnerships and build up joint sustainable production competencies and innovative production processes.

Suppliers and producers will become partners of our brand house. Our commitment to climate neutrality will require us to invest in our production and supply partners to bring them up to a high level in climate targets. Solar panels will help on our factory buildings in Europe, but many times over if we put them on the roofs of our partners in Asia and Africa. More long-term agreements that provide more security for both partners will replace contracts for seasonal production and minimum volumes. We want to share the risk more fairly, and we want to partner with all.

The upcoming years will challenge us. The industry will change, and we, as the Oberalp Group, want to be more agile in these changes. This is what has distinguished our Group and our partners for 40 years. We do not delay; we act with vision and with the risk that not everything will succeed. As manufacturers, suppliers, retailers, and consumers, we all must pull together as a big community for this to achieve.

?Christoph Engl, CEO Oberalp Group - May 2022