When it comes to sourcing, retailers must weigh up price, quality and delivery – every country has its pros and cons.
Volatile raw material prices, rising labour costs in traditional manufacturing countries, increased logistics expenses and currency devaluation are leading to inflated supply chain costs and are hitting retailers in the pocket right when they need it least – at a time when austerity-hit consumers are reining in their spending.
As a result, fashion retailers are focusing on wringing out those supply chain costs by weighing up the value of both old and new manufacturing markets and by working more closely with their suppliers than ever before.
The intrinsic value of retailer/supplier relationships was a sentiment shared by 75% of sourcing executives in a recent survey by international consultancy Kurt Salmon, and was a message echoed at the Association of Suppliers to the British Clothing Industry’s (ASBCI) supply chain seminar in March. Speaking at the event, Maurice Bennett, co-founder of womenswear chains Oasis and Warehouse, and currently joint managing director of womenswear chains Long Tall Sally, Kookaï UK and chairman of London indie Austique, described managing the supply chain, building relationships with suppliers, and buyers gaining a deeper understanding of the manufacturing process as “crucial”.
“Some buyers’ only training consists of negotiating skills to beat down prices, whereas their knowledge of [the] manufacturing process if often deficient. With knowledge, negotiations can be carried out in a much more co-operative way,” he said.
Sara Honeywell, supplier relationship manager at home-shopping retailer Shop Direct, which sources own-brand product from China, Bangladesh, India, Thailand, Malaysia, Indonesia, Vietnam and Cambodia, and from several countries in Europe, including Turkey and Poland, says gaining insight into the manufacturing process can help retailers identify areas in which to strip cost out.
“This may require production lines to be re-engineered or finishing processes to be handled differently. Ultimately, the more efficient our suppliers are, the more efficient we are. There is never any doubt that this is a worthwhile investment,” she says.
without doubt china remains the number one sourcing destination for UK fashion businesses. Mike Flanagan, chief executive of sourcing information specialist Clothesource, sought to dispel certain myths when he told delegates at the ASBCI seminar that China is in fact neither the cheapest, nor the fastest-growing sourcing location, which is actually Nicaragua, and that despite increased labour costs, wages there are rising slower than in Delhi and Bangladesh. He did say China is “a near paragon of timely delivery, easy access to raw materials, relatively honest and straightforward customs procedures with reliable energy supplies.”
However, there is evidence that due to the increased labour costs, China may have to refocus on premium product as fast-fashion retailers head elsewhere to protect their margins. Matthew Jiang, general manager of Chinese manufacturer Zhangjiagang Guoyang, confirms this: “It does impact our business. Instead of reducing our margins we can focus on better quality goods, abandoning super-low price orders and doing more high-class brands with more added value.”
Esther Lutz, managing director of business development Europe at TradeCard, which acts as a supply chain platform and is used by retailers, brands, service providers and about 8,500 factories, says she expects to see migration accelerate into countries such as Pakistan, Sri Lanka and Bangladesh, as a result of rising costs and capacity shortages in China: “A lot of our customers are actually having a mixed strategy; they don’t want to put all the eggs in one basket.”
Countries closer to home are also benefiting because they offer buyers quick shipping, which means they can be more reactive to market trends. “A requirement for ‘newness’ has recently driven some of our clothing sourcing into Turkey. The shipping time of around one week gives a three-week advantage over Asian countries and can be difficult to compete with,” says Honeywell.
European manufacturers also accept smaller orders than volume-centric Chinese factories. Hannah Spreadbury, senior assistant buyer at footwear chain Dune, is able to place orders for 120 pairs of shoes in Italy, the footwear retailer’s main sourcing market, whereas Chinese suppliers would demand orders of at least 1,000 pairs. “Ultimately, price and competitiveness are still key drivers, so having a wide supplier radar remains critical no matter which countries we are looking to source from,” she says.
UK manufacturing is also experiencing a resurgence as a result of rising production costs in Eastern Europe and Turkey. “UK sources have the ability to react closer to the season and offer the benefit of three to four-week delivery times, which are crucial in offering customers the latest trends quickly,” says Honeywell.
No matter which market retailers choose to source from, it’s essential to understand how the country works, what the infrastructure is like, and to have the appropriate logistics in place. Jackie Potter, director of industry sales at logistics firm DHL Express, advises referencing The World Bank’s 2011 Logistics Performance Index, which rates countries on their general logistical capabilities.
China is likely to remain the number one sourcing destination for the foreseeable future, but the next few years are likely to see a slow migration to competing markets, as retailers weigh up price against quality and speed of delivery, and an increased focus on closer relationships with manufacturers as retailers attempt to reduce supply chain costs.
SPOTLIGHT - Six manufacturers from around the world
Arvind (India) Naroda Road, Ahmedabad, 380025, Gujarat
Established in 1931 with an initial share capital of INR2,525,000 (£35,000), Arvind has been exporting since 1987 and claims to be the world’s third-largest denim manufacturer. It makes denim and high-quality fabric for cotton shirting and trousers for customers such as Banana Republic, Esprit, French Connection and Debenhams, and since the disbanding of quotas in 2005 has focused on making its operation vertical via improved facilities and a one-stop-shop service.
Contact: Ashish Kumar, chief executive
Tel: 00 91 99 00546500
Dishang Cherry (China)
Dishang Cherry (UK), The Exchange, Station Parade, Harrogate, North Yorkshire, HG1 1TS With annual sales that exceed $1bn (£627m), Dishang Cherry was established by Lihua Zhu in 1993. The business operates 49 wholly owned factories, has more than 15,000 staff, and manufactures more than 50 million garments per year. It counts Ralph Lauren, Next and Zara among its customers and derives 20.82% of its sales from Europe, around 5% of which is from the UK.
Contacts: Barry Jones and Christian Kaiser, business development managers
Tel: 01423 500910
Emek Mahallesi Ordu Cad. No 4, 34785, Istanbul This Turkish manufacturer produces women’s woven garments including dresses, blouses, shirts, skirts, trousers, blazers and shorts for large retailers such as H&M, C&A, Next and Zara. Year-on-year order volumes have shot up 20% as retailers look to source closer to home. Görkem produces a yearly average of 5.5 million garments across its two sites in Istanbul and Çorum, and offers design, pattern and sample making, cutting, finishing, quality control, packing and logistics.
Contact: Selim Aksiyote, general co-ordinator
Tel: 00 90 216 4206300
Wharf T&T Centre, Harbour City, 7 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong KTC focuses on technical performancewear garments featuring laser cutting, bonding and welding technologies. Established in Hong Kong in 1971, it opened a joint-venture factory in Sha Ping, China, in 1981, making rainwear for Adidas, and then opened a factory called Trio in Vientiane, Laos, in 1996, manufacturing exclusively for a German workwear brand.
UK performance brands Rapha, Musto and
UVU represent 10% of its turnover.
Tel: 00 852 23 173 111
63 Mohakhali C/A, Dhaka 1212, Bangladesh Bangladeshi manufacturer Tropica opened the doors to its Dhaka factory in 1984, where it has manufactured for UK retailers including Next, and currently produces woven shirts, trousers, shorts, blouses and dresses for brands including Ralph Lauren, Tommy Hilfiger, and Obermeyer. Specialising in denim with a number of special washes, the 36,000 sq ft factory has a monthly production capacity of up to 126,000 pieces, depending on the style.
Contact: Tanvir Kabir, merchandising manager and acting chief operating officer
Tel: 00 880 2 888 1330/ 00 880 2 888 1626-7
Zhangjiagang Guoyang (China)
115 West of Zhazhou Road, Zhangjiagang City, Jiangsu Province, China This Chinese manufacturer specialises in knitted men’s and women’s garments, including sleepwear, lingerie, sportswear, casualwear, T-shirts and jogging suits. It also supplies fabrics, including cotton jersey, modal, tencel jersey, interlock, pique, mesh, velour, terry fleece, micro-polar fleece, coral fleece, yarn-dyed stripe and jacquard. Customers include Etam and House of Fraser. Annual turnover is $10m (£6.2m).
Contact: Matthew Jiang, general manager
Tel: 00 86 512 58682217