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Retailers need to measure costs of global sourcing

Retailers need to be able to measure the true cost of their global sourcing strategies to get the most value out of their supply chain.

A survey by PricewaterhouseCoopers into the sourcing concerns of retailers and brands across Europe the US and Asia revealed that the softening of the European and US economies, high fuel and commodity prices as well as environmental and social concerns mean that it is more vital than ever to accurately measure the cost of and manage the risks associated with global sourcing.

PricewaterhouseCoopers spoke to 59 executives in eight countries responsible for their company's sourcing strategies. Just over half of them were retailers and 7% were from textile or clothing businesses with sourcing budgets ranging from $60m (£30.7m) to $10 billion (£5.1bn).

The survey showed that although the key driver for global sourcing strategies was price, 21% of the businesses questioned did not know what savings to expect and 25% of them did not know how much they had saved as a result of their global sourcing strategy.

Retailers and brands tended to measure the costs that are easy to track such as transportation, logistics, customs and warehousing. Only half of those surveyed measured supplier quality, reliability and compliance, or the cost of out-of-stocks. Almost a third of those polled had no formal review process in place to monitor global sourcing issues or to review their strategy.

CSR issues figured highly in respondents' views of what posed the highest risks to the integrity of their supply chains with 61% saying business ethics such as bribery corruption and money laundering were relevant and 59% citing working conditions as an area of concern. Broader human rights and community development issues were mentioned by 53% of those surveyed while 41% mentioned the issue of their carbon footprint.

PricewaterhouseCoopers recommended that retailers looking to handle the carbon footprint and climate change risk posed by global sourcing strategies needed to understand the carbon intensity of their key categories and identify quick wins and priorities whilst encouraging suppliers to bring new and innovative low carbon solutions to them.

Carrie Yu, global retail and consumer leader at PricewaterhouseCoopers, said: "It is more vital than ever to measure the cost and manage the risks of global sourcing. The results show that while some companies have a robust process for reviewing and monitoring the benefits of their strategy other companies are not aware of the potential benefits or do not have the systems in place to track them."

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