01 September, 2020 - 01 November, 2020
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An industry colleague said to me the other day that there was “not much understanding of supply chains”. He thought government procurement of personal protective equipment during the early period of the pandemic had been astonishingly incompetent as country after country wasted millions, even billions, of dollars failing to obtain the correct supplies of personal protective equipment for medical staff and others facing the virus.
In the UK this was far from new. A hundred years ago, UK industry was unprepared for the First World War. Supply chains and specific sourcing had developed greatly during the period from 1860 to 1910, with steamships and the telegraph transforming communications. Despite being a major manufacturing nation in 1914, Britain was short of many essential items such as specialist optical glass, synthetic dyestuffs, tungsten (needed to make steel), magnetos and a multitude of other things. The Prime Minister, Herbert Asquith, turned to George Booth, who ran the Booth Leather Group and the associated Booth Shipping Line, to use his business skills to manage the logistics of sourcing vital material and equipment. He worked with the War Department and as Deputy Director General of the Ministry of Munitions until 1919.
It is useless to think of hides, skins and leather as a commodity
The leather industry was a good training ground. Supply chains and networks go back thousands of years. Moroccan leather made of skins traded over the Sahara were typical. While leather was made using local material from early times, certain skins and tanning methods soon became favoured for specific end uses and markets. Hides and skins get talked about as a commodity, but almost from the start this has been a meaningless categorisation.
Today, like tungsten for the UK in 1914, most industries have some fixed locations for key materials which can create pinch points available as political tools. The Pope famously tried to monopolise alum through control of mines in Tolfa in the 15th century, intending to profit from its use in textile and leather production. Manufacturers found supplies in Turkey to break the monopoly.
Tanneries have a number of such nodes. Hides from the US, machinery from Italy and chemicals from western Europe are essential to produce many major types of quality leather. Many tanneries work with wet blue, carefully adjusted to fit specific needs or other part processed material made specially for them.
A clear technological capability in terms of innovation and quality has helped Italy maintain a global ascendancy as a major leather producing country, despite limited local raw material. Hence it has remained dominant despite the rush for offshoring of the 20th century. Something similar occurred with many individual tanners now world renowned for the production of specialist leathers such as calf skins, suede or garment leathers.
One network and many networks
To understand supply chains, we must add the impact of overlapping networks such as currency, international finance, shipping, the chemical industry, auditing and testing along with competitive ones such as synthetics and biomaterials whose impact is increasing. In some ways the luxury industry is part of the wider leather network – deciding network horizon is complicated – while in others it is a distinct world of its own. Yet, it has become a big buyer of tanneries.
In times of international stress, leather can now rarely be defined as strategic, so it is a matter of assessing the impact on our networks of the decisions of others. We think mostly of the battles between the U.S. and China, but there are many others ongoing. Japan is using specialist chemicals for semiconductors to pressurise Korea, in Finance the EU is trying to work its way around U.S. sanctions on Iran, and many countries are searching to find securer supplies for rare earth metals. Given politicians’ poor understanding of how supply chains operate, their decisions are not always logical and loaded with unexpected consequences.
Currently, there is a lot of talk of reshoring, and while we can note the regrowth in leather footwear production in Portugal and the return of some premium garment production to Italy, there are clear limits. New technologies like 3D printing can help reshoring with lasts and some components, but there are very few areas that can expect to become self-sufficient. Those with factories in China historically linked to serving western markets are already seeing barriers being erected, but are not necessarily trapped in the wrong place. They will start to pivot more towards the huge growing Asian consumer market. Finding ways to build in resilience and adaptability will be increasingly required.
Visualise your supply chain more as a network, or better as a series of overlapping networks, both cooperative and competitive and you will find it simpler to interpret. It is the dynamic and difficult a jigsaw you are going to be working with in future years.
September 2, 2020
Follow Dr Mike Redwood on twitter: @michaelredwood
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