Apparel sourcing decisions can make or break an apparel business. Balancing cost, capacity, and compliance, while maintaining navigation volatility, is not an easy task. Apparel businesses run in a fast-changing and highly demanding environment. Apparel sourcing in such a scenario can become the key to survival. Right apparel sourcing decisions offer greater process efficiencies and flexibility along the complete supply chain.
Today, apparel buyers are shifting their focus towards lower-cost offering countries, where alongside, some traditional low-cost countries are also losing their sheen. But the cost is not the only factor. Agility, proximity sourcing, and re-shoring are also the factors that have come into play.
Factors Affecting Apparel Sourcing
Trade policies and politics
Policies are one of the major contributors to the product cost. Trade politics, and thus the resulting trade policies are one of the key determinants of the decisions relating to the choice of suppliers. This is especially valid in the global sourcing scenario of the apparel industry.
A prime example of the effect of trade policies on sourcing decisions can be seen through the effect of the Trans-Pacific trade pact (with the US) resulting in the exponential growth of the Vietnam’s apparel industry.
Changing market environment
Price fluctuations, changing requirements with different market segments, market-specific security and customs compliance, customer value and consolidation, and the ethical values pertaining to the markets all define the choice of supplier countries.
Supply chain management
Lean retailing, advances in IT and multi-channel sales are forcing buyers to look for ways to optimize sourcing aligned to their supply chain management strategies. Dynamics of strategic sourcing function, like supply chain optimization, reduction of lead time to market, total cost focus, the cost to vendors, push functions and reduction in the vendor base and span of control, also factor into the sourcing decisions.
How Sourcing Decisions Affect Businesses?
Costs are increasing steadily, compliance is gaining more importance and awareness, compliance laws are tightening due to multiple unfortunate incidents apparel industry has seen recently, and buyers are continuously looking for new markets. These factors have made apparel sourcing much more complex. With an increasing demand for transparency in the supply chain and growth of multi-channel markets, the impact of apparel sourcing decisions has much wider span now.
There are multiple layers in choosing the right suppliers. Sourcing decisions not only affect the cost and profits a business gets, but also the product’s quality, order lead times, supply chain responsiveness, sales volume and the value system of the company. Good sourcing decisions also lead to long-term supplier relationships which further add many advantages to the list.
How Apparel Sourcing has changed over time?
Over the last 20 years, the fashion industry has significantly evolved. The advent of the concept of ‘throwaway’ or fast fashion has forced buyers to look for lower lead times, lower costs, and a better design, quality, and speed to market flexibility. Procurement officers in apparel industry have always focused mainly on the cost advantages, but now many other factors are taken into consideration. Cost, quality, capacity, speed, and risk are the five main criteria that dominate sourcing decisions. Corporate social responsibility and sustainability are the “buzzwords” which are also factoring in.
These conditions have brought about two major changes in apparel sourcing today, i.e. exploration of new markets and the degree of digitization.
New Markets
Rising labor and energy costs in China and the series of tragic accidents in Bangladesh’s garment factories have led apparel players to explore new sourcing markets. Bangladesh is still one of the top choices, but rising attention to the working conditions in the factories is pushing buyers to move part of their operations elsewhere. Hence, countries in Southeast Asia like Vietnam and Cambodia, and Sub-Saharan counties like Ethiopia, are gaining more importance. Their free trade agreements and lower labour costs are attracting more and more buyers.
Digitization
Digitization is another big change that apparel sourcing is experiencing. Like any other industry, apparel sourcing also needs to become more customer-centric and transparent across the supply chain. Although apparel industry is still at the beginning of its digitization journey, companies have started thinking along the lines of filling the gaps between sourcing and product development silos. Digitization is helping sourcing managers to get better supply chain visibility, and thus reduce their lead times, costs and manage sustainability.
3D design and prototyping
While talking of digitization, one of the recent technologies in the process of product development is 3D design and prototyping. These technologies can unlock far-reaching innovation in design. Many big players who have implemented 3D design and virtual sampling have observed a reduction of 2 weeks or more in the process of sampling along with cost-cutting. By integrating the fabric with these new technologies, companies can also integrate real-life costing into the process. For Example, Some solutions link the 3D sample directly to the marker efficiency.
3D design and prototyping also enable a manufacturer to have a closer collaboration between functions throughout the product development process as well as with the suppliers. Brands like Hugo Boss and PVH have gone way further by including these technologies into their sell-in processes.
Potential of Blockchain
Blockchain technology is another opportunity to look upon when one talks about digitization. The blockchain technology has the potential to increase the transparency across the supply chain by transforming the way information and transactions are captured, owned, stored and shared. In addition, it can enable much easier end to end tracking of products along the value chain.
Proximity Sourcing
Proximity sourcing is an intriguing concept that looks to balance cost and service, with going green or sustainability also increasingly playing a role in the decision-making process.
For example: currently, in the apparel industry, where many companies use Asian countries to make more mature, stable products but choose closer sourcing locations, such as Central America, for newer, fashion SKUs, accepting higher unit costs to gain speed and flexibility. This allows “the supply network to act more quickly to the more unpredictable nature of the demand”.
Re-Shoring and the apparel industry
Reshoring is the practice of bringing manufacturing and services back to the U.S. from overseas. It’s a fast and efficient way to strengthen the U.S. economy because it helps balance the trade.
The benefit of localization or producing near consumers is an important piece of a supply chain these days. Today’s world of fast fashion demands supply chain optimization which is easily facilitated through reshoring and domestic sourcing.
Today many global brands are considering reshoring since it makes good economic sense, is a smart branding strategy and saves time.
Upcoming Sourcing Destinations in Apparel Manufacturing
To engage more with their suppliers, apparel companies are not only working on improving productivity but also on compliance. For instance, more than 150 companies from 20 different countries have signed the Bangladesh Accord on Fire and Building Safety. Hence, gradually apparel buyers are working towards developing industry standards that ensure transparency and compliance. This is making compliance a top criterion, along with costs, capacity and supplier’s proximity to US and European markets in the evaluation of sourcing markets.
(Source: What’s next in apparel sourcing? www.mckinsey.com)
The Future of Apparel Sourcing
Balancing cost and compliance with the other factors, and managing the rise in globalization in apparel market are making sourcing much more complex than it already is. To add to this, multiple retail channels and greater visibility demand more from sourcing managers than ever before. Digitization is a factor that can take sourcing into the desired directions, but along with that the way business is done has to be changed. Sourcing professionals and merchandisers need to develop new skills aligned to the changing requirements of the industry.
The future of apparel sourcing lies in instilling new skill set amongst sourcing professionals, who possess product knowledge, business acumen, consumer-centric focus, Omni-channel perspective and design and engineering capabilities. Empowerment of sourcing staff in companies, meaningful professional development opportunities, opportunities of cross-pollination among functional departments and better talent management can help in the development of a talent pool like that.
