Retailers and sourcing specialists shared their insights on global sourcing with Drapers.
With rising labour costs in traditional manufacturing countries such as China and volatile raw material prices dictating sourcing strategies, brands and retailers must forge stronger relationships with their suppliers. By focusing on these partnerships to tackle inflated supply chain costs, the quality and timely delivery of product will be ensured, while also mitigating the risk.
This was the overwhelming message among delegates attending the Drapers round table discussion on global sourcing in association with payment and settlement network TradeCard, held at Claridge’s hotel in London on 26 June.
With no equivalent of China on the horizon, TradeCard founder, chairman and chief strategy officer Kurt Cavano said sourcing executives are beginning to realise that maintaining margins by “chasing the cheap needle” to find ever lower cost bases is no longer the right path. Instead, they are now focusing on better relationships with a reduced number of suppliers. “They’re now starting to think more aggressively about how they can build a portfolio of suppliers that are reliable, that balances cost and allows them to grow their businesses in a safe way,” he said.
China remains the number one textiles manufacturing country, but with the country’s government committed to raising wages for factory workers, its once unbeatable competitive edge is slowly being eroded.
As a result, fashion brands and retailers are now looking beyond the country’s coastal regions, where wages are the highest, to factories that lie inland, with the northern and western regions now considered to be attractive propositions. Cavano said: “It’s harder to find a new vendor in the western part of China; it’s a lot easier to work with a vendor you’re working with along the coast that can actually help you move inland. The partnership is a key strategy.”
Neighbouring Asian countries such as Bangladesh, Vietnam, Cambodia, Laos, India and Indonesia are all enjoying the benefits of fashion brands and retailers venturing beyond China in search of cheaper labour prices. However, everyone agrees that manufacturing in these countries can be fraught with a variety of challenges relating to poor infrastructure that disrupts business, poor roads, power outages, a less productive and skilled workforce and capacity shortages.
In some countries, such as Bangladesh, there can be issues surrounding finance, where most businesses operate via a letter of credit. There may also be little or no access to raw materials, which means these would have to be imported from China anyway.
Premium retailer Ted Baker manufactures both in Europe and Asia, and production director Donald Browne said it has no plans to move out of China. “Obviously, we are looking everywhere and we will experiment. However, the problems in Bangladesh, they horrify me,” he said, referring to the country’s recent strikes.
The retailers present also agreed that countries closer to home, such as Turkey, countries in Eastern Europe and North Africa, and even the UK, are becoming more popular as a result, due to the flexibility they offer in terms of speed to market and the option to repeat popular products in-season.
Private label accounts for 20% of House of Fraser’s product mix, a figure the department store chain wants to increase, and executive director of menswear, childrenswear and beauty Allan Winstanley agreed there has been a shift. He said the business has moved 20% of its production back to the Mediterranean region, in particular Turkey and North Africa: “This is something we’re continuing to do, because we’ve noticed lead times have been sliding in China. Some product areas can be eight months from making a decision to getting the goods in.”
The sourcing specialists agreed that in order to build better relationships, transparency in terms of suppliers being upfront about processes and possible delays is key.
For those fashion brands and retailers sitting at the premium end of the market, the question of quality sits far higher on the agenda than price. “We’re not on the scale of the bigger operators. We have to put design and quality into our products, so we’re less likely to move as quickly and be looking for the next cheapest place. It doesn’t actually matter to us, it’s just not as critical,” said Winstanley.
Although Burberry sources much of its product globally, it also has its own UK factories in West Yorkshire. Vice president of internal manufacturing and global quality Lise Edwards-Warrener said quality comes first. “It’s about finding the right vendor for the right product and the right pricing structure, country of origin depending on the product, and the hierarchy within the brand,” she said.
The sourcing specialists also agreed that added-value services such as product design and development are becoming increasingly important to supplier selection.
Managing risk is essential to sourcing strategies. “It’s all about managing the risk in a diverse set of ways, ranging from technology all the way to vendors, to raw materials and the ethical considerations,” said Cavano.
Operating via a network of manufacturers can help shield retailers against upheavals in the socio-political and economic situations in producing countries, and even lessen the impact of natural disasters. Mighel Critten, new product development manager at A Suit That Fits, said the formalwear etailer has recently expanded its manufacturing base from Nepal to include India for that very reason, saying “the kind of strikes you see in Bangalore also happen in Nepal”.
Browne stressed that working more closely with suppliers will help retailers to spot potential risks early on. However, he added: “You’ve got so much more to think about these days to the point that we actually need these quite elaborate computer systems to actually help us produce and deliver goods. I can only see it getting more complicated.”
Layering technology into supply chain processes could help improve efficiency. “One of the things we’ve seen across our whole sourcing base is people being more aggressive about using technology to try and find other ways to save money in their supply chain,” said Cavano. He added that using visibility tools, such as those offered by the TradeCard platform, can help fashion brands and retailers to gain a better view of their supply chain.
Monsoon Accessorize IT director Paul Forester said brands and retailers need to look at their own internal processes, not just those of their suppliers, and work out how IT could help to ease supply chain pressures.
Despite the challenges, the retailers present agreed that working more closely with suppliers can help to identify areas for cost savings. Browne said: “If you’ve got that relationship, it actually doesn’t matter where they are in the world, because you work together to try to produce the right product at the right price.”