"In spotlight now: The critical role of supply chains, as per Under Armour's COO, after 20 months of tumultuous events"
Buckling Down: Under Armour's Supply Chain Tango with the Pandemic
In the stormy landscape of 2020, Under Armour raised their colours high and christened their special squad "Project Buffalo." Named after the American Bison's knack for facing challenges head-on, this team was established to tackle the real-time supply chain crisis unfolding as the new coronavirus shadowed across China and other nations.
With a sneaking suspicion that a prolonged crisis was imminent, Under Armour's former COO, Colin Browne, seized the opportunity to get ahead of the looming storm. He believes that positioning the team strategically was crucial in helping Under Armour weather the pandemic's recurring waves.
Fast forward to the present, and Project Buffalo remains on its toes, navigating the ever-changing landscape of the pandemic and its impact on Under Armour's industry. The challenges that the team addresses change almost daily, as the supply chain snarls of 2021 differ from those experienced in the spring of 2020.
In November, Under Armour's Chief Financial Officer, David Bergman, noted that the supply chain backups had moved to local ports of entry, presenting new challenges the team was monitoring. Meanwhile, congestion at ports of origin had eased, and overseas factories, though not fully operational, were up and running. Earlier in August, Under Armour was closely watching the factories in Vietnam due to the COVID-19 outbreaks, which led to closures and slowdowns, as well as congestion in Asian ports.
With his years of sourcing and supply chain experience, Browne aims to guide Under Armour towards good fortune. Before climbing the ladder to COO, he served as Under Armour's global sourcing president, coming from VF Corp, which owns brands like Vans and The North Face. Prior to that, he worked for global supply chain giant Li & Fung and companies like Reebok and Bally.
Browne emphasizes that the new normal in supply chain management revolves around making more money, rather than saving 10% by sourcing cheaper products. Indeed, Under Armour has been successfully reducing inventory levels, resulting in lower carrying costs throughout the supply chain. However, managing inventory also entails managing prices and consumer expectations.
Thanks to less promotional activity in its DTC business and lower promotions and markdowns in wholesale, Under Armour posted 400 basis points of "pricing improvements" in Q3. Overall, the company's revenue is up more than 35% for the first nine months of 2021 compared to 2020, while profits have roared out of the red, recording over $400 million in operating income for the first nine months of 2021 compared to an operating loss of $669.3 million in the same period the previous year.
The pandemic has accelerated changes in Under Armour's approach to supply chain management, which the company has been working on for years. With critical data and technology insights, Under Armour aims to create a personalized product line that resonates with consumers, thereby reducing the number of SKUs.
These days, Under Armour's consumers can't imagine living without their goods, as Patrik Frisk, Under Armour's CEO, puts it. Constrained demand is now a focus, and Under Armour is taking steps to ensure they don't oversaturate the market with products.
Speeding Across the Logistical Burning Sands
Today, supply chain challenges demand attention like never before. Soaring commodity prices, freight and shipping rates, worker shortages, and frequent delays plague every link in the chain, making it an arduous journey for companies like Under Armour.
In this harsh environment, Under Armour grapples with constraints, but technology helps shorten the process instead of treating it as an event. The company is working to reduce its supplier base and forge deep strategic relationships with key suppliers. In addition, they are considering reshoring production in select regions to reduce the distance between the manufacturing and the consumer.
Executives believe that the geographic diversity of the supplier base shields Under Armour from deeper struggles caused by global crises. For example, its emerging markets in 18 countries produced 50 primary manufacturers for its apparel products during the last fiscal year. Despite this global outlook, production of Under Armour's footwear is more concentrated in Vietnam, Indonesia, and China.
While specific updates on Project Buffalo's current status are scant, it is clear that Under Armour's supply chain is under pressure, grappling with ongoing disruptions such as factory delays, material shortages, and logistical bottlenecks. The evolving supply chain challenges over the past year reflect ongoing industry-wide difficulties that Under Armour is actively addressing by focusing on supply chain resilience and restructuring.
- As Under Armour navigates the ongoing pandemic, technology plays a crucial role in speeding the supply chain process and resisting conflicts that emerge as an event.
- Under Armour is contemplating reshoring production in specific regions to shorten the distance between manufacturing and consumers, and is working to reduce its supplier base to forge deeper strategic relationships.
- The company's diverse supplier base across 18 countries offers protection from deeper struggles caused by global crises, although production of its footwear is more concentrated in Vietnam, Indonesia, and China.
- In the unpredictable business world, Under Armour's former COO, Colin Browne, aims to position the company for success by focusing on creating a personalized product line that resonates with consumers, reducing inventory levels, and shifting the supply chain management approach from cost-cutting to revenue-generation.
- With tighter control over inventory management, Under Armour has posted significant improvements in pricing, resulting in over $400 million in operating income for the first nine months of 2021, a major turnaround from the significant operating loss in the same period the previous year.
- Meanwhile, the television industry and financial news outlets offer reminders of the difficulties faced by retailers and other businesses in a world affected by changing consumer behaviors, volatile markets, and global crises – all factors that require agile supply chain strategies to maintain a competitive edge.
