Building Supply Chain Resilience in the Fashion and Luxury Goods Industry

Building Supply Chain Resilience in the Fashion and Luxury Goods Industry
November 23, 2023 8 mins

Building Supply Chain Resilience in the Fashion and Luxury Goods Industry

Building Supply Chain Resilience in the Fashion and Luxury Goods Industry

Data and Governance have an important role in managing reputational risk and preventing supply chain issues in the Fashion and Luxury Goods Industry.

Key Takeaways
  1. Make sure you know, understand and quantify all your risks. Don’t only focus on the classic insurable risks but also the non-insurable ones like reputation.
  2. Get comfortable with your business continuity plan, from cyber risk to supplier contingencies.
  3. Make a conscious and risk-based decision about your risk transfer. What you can’t measure you can’t manage. Look at the risk first before the transfer.

In a hyper-connected world driven by social media and the 24-hour news cycle, luxury goods businesses face a constant threat to their brand and reputation. And for a luxury brand, that threat matters even more given the expectation consumers have when paying a premium price for a premium product. The brand is often as much a part of the consumer experience as the actual product itself.

While potential reputational damage is a risk that needs to be carefully managed and considered, its occurrence is usually symptomatic of another risk — like a failure in the supply chain that leads to the ultimate reputational problem of failing to meet consumers’ expectations in terms of quality of the product or availability.

This is why building supply chain resilience, embedded in a strong governance framework and the use of data, is so important when it comes to navigating business volatility and responding in a timely way — especially in an environment of increasing uncertainty through climate change and political unrest. It not only ensures “business as usual,” but also offers another route for a brand to build trust both with its suppliers and consumers.

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A luxury goods business should look at a supplier’s own resilience when taking them on as a supplier, but also make sure there is a system to monitor that resilience on an ongoing basis.

Robert Connery
Global Industry Leader for Retail and Consumer Goods, Global Risk Consulting, Aon

Prepare with Business Continuity Plans

When considering supply chain resilience, business continuity planning has been dramatically elevated to the board level for most businesses. Every luxury goods business should have a business continuity plan in place. Start by asking key questions such as: Is there a raw material or key component of their product that is especially critical to the brand that customers are willing to pay a premium for? If that material or component was changed or compromised, would the end product lose value? For the suppliers of those key elements, are they reliable in their ability to provide that product and how can that be evidenced?

Supplier resilience might be related to anything from potential labor issues to natural disasters, political unrest or the supplier’s own cyber security preparedness. The pandemic revealed numerous cases where this logistics stage broke down. For example, there were many Italian manufacturers who were unable to import goods for assembling products, not to mention the closure of many local suppliers.

Whatever the potential risk, luxury goods brands need to understand potential supplier impacts and either change that supplier or ensure that their business model is not reliant on a single source.

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Businesses can start to move their suppliers around if there is too much risk concentration in terms of their supply chain.

Frank Forster
Head of Strategic Risk Advisory, Global Risk Consulting, EMEA, Aon

Use Data to Make Informed Decisions 

The increasing availability of supply chain analytics means there is now more supplier-related data to help brands make more informed decisions about their global supplier network. Data can also reveal if there is an accumulation of risk in a particular area — which could mean a business looking at alternative supplier arrangements to reduce business interruption risk. It’s a proactive approach to managing risk that can also pay off in terms of securing insurance.

Another area of potential loss for a luxury goods brand comes from products in transit or in storage with a third-party supplier. Again, it’s about asking suppliers the right questions around issues like security awareness and the existing controls in place. Making sure that contracts clearly state what the security protocols are and how they are enforced is vital.

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Insurers often carry the contingent business interruption risk, such as if a supplier’s production site burns down, so they are increasingly looking for signs that the supplier risk is being actively managed.

Frank Forster
Head of Strategic Risk Advisory, Global Risk Consulting, EMEA, Aon

Develop Reputational Risk Modeling to Prevent Potential Damage 

Of course, if a luxury brand gets any of these elements wrong, they can contribute to further reputational issues. Aon has invested in proprietary modeling capabilities to identify how several defined risk events — ranging from a cyber-attack to fires, explosions, financial irregularities, or governance and business practices — can dramatically impact shareholder value. Once businesses have developed their own register around reputational risk, modeling can help interpret that organization’s reputational risk profile and how it would react to certain scenarios. Then the business can determine which strategies to put in place to maintain a strong brand. Leveraging  technology in an effort against counterfeiting, as seen in the partnership between Chloé and Vestiaire Collective, is testimony to the value of proactively taking measures to prevent potential reputational damage.1 

Designing a Sustainable Future With Data and Analytics

This plays back to the importance of data in managing volatility. Many businesses are still not applying the kind of analytics that are essential. For any luxury goods brand, analytics will not only help them understand their risk profile, but also optimize their risk management approach, including how much insurance they need to buy and how much risk they can retain.

Want to learn more about the latest key trends and issues impacting the luxury goods industry? Download our Designing a Sustainable Future for the Fashion and Luxury Goods Industry paper.

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There are clear winners and losers following a reputational crisis; winners bounce back well and are sometimes even stronger, but losers see shareholder value decline.

Robert Connery
Global Industry Leader for Retail and Consumer Goods, Global Risk Consulting, Aon

1 https://faq.vestiairecollective.com/hc/en-gb/articles/16479047888401-How-does-Vestiaire-Collective-work-in-partnership-with-brands-

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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