What’s driving sourcing trends in apparel?
Faced with the never ending challenge of maintaining or increasing overall profitability, apparel retailers have used sourcing as one of their key drivers to achieve this holy grail. The market place and challenges continue to change and evolve but sourcing remains a key component if used wisely.
Asking ‘what country to best source my products from’ no longer solicits the simple response that it would have done back in the 1980s and 1990s. That was a time when major brands and retailers looked to low cost countries, and predominantly mainland China, for their cost cutting sourcing and production solutions.
Today sourcing experts recognise that it is in fact a balancing act. The requirement for low cost hasn’t gone away however there is an increasing appreciation for the fact that low cost does not directly translate to maximum net margin and that flexibility and responsiveness within the supply case and sourcing mix are the number one factors.
During the 1980s and 1990s many major retailers and manufacturers switched their source of supply out of the UK and other local locations to “low cost countries” in particular into mainland China.
This movement was driven by a desire to reduce cost.
While reducing buying costs – more appropriately the garment price - other costs increased particularly transportation but generally these were factored in to the sourcing decision. Other less obvious costs and impacts however weren’t always taken into account:
- Impacts of longer lead times on inventory holdings,
- On-time product availability and the impact on full price sell through and mark-down levels
The longer lead times and the reduction in responsiveness and agility as a result, meant that the entire supply chain needed to be carefully managed to ensure that the benefits of the lower garment cost price weren’t eroded by the adverse impacts elsewhere.
Businesses that continued to base measurement of sourcing and B&M (Buying & Merchandising) performance primarily on intake margin were at greatest risk of not achieving their objectives.
Through the noughties a combination of competitive and global economic shifts led to a move away from the more traditional, well established sourcing origins.
- Each of the far-shore “low cost” countries experienced labour costs increases significantly higher than in the retailers domestic markets making them less attractive as a low cost country, particularly in China
- Other countries developed and expanded their capability and capacity
- The cost of transportation increased and the speed of standard services slowed in response to higher fuel costs
As a result buyers moved from China to other far-shore low cost countries - Vietnam, Cambodia, Bangladesh and even on a regional basis within China. Elsewhere sourcing from Central / Latin America grew offering predominantly American markets some of the far shore cost benefits with shorter transportation cycles.
New markets don’t come without their challenges
As buyers have moved to new source markets, especially during market development, they have experienced:
- Quality and reliability issues – with product, with lead times and on-time delivery
- CSR issues e.g. Bangladesh
- Local capabilities limited – yarn availability, technical capability
- Transparency and traceability in supply chain – factories actually being used, base materials
These factors have meant that if the transition and change-over has not been well managed – and typically supported by increased activity on the part of the retailer e.g. creating additional local presence - there have been problems.
Swapping one low cost source for another was not necessarily a smooth transition
While many retailers still have primary focus and measurement of intake margin rather than full “life cycle profitability”, there is recognition (amongst some) that the wider view should be taken in sourcing decisions to factor in the achieved margin and markdown impact rather than just the primary landed costs elements:
- Inventory holding / working capital for long lead time
- Mark down impacts – late arrivals
- Supplier partnerships / in house product development capability, and
- Balance between cost, lead time, specialist expertise, inventory and availability
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