Speakers at ASBCI's annual conference 2005

Speakers at this year's ASBCI conference defined the changing landscape of global sourcing and spelt out sourcing options in new world of open trading. They agreed that branding, product differentiation, specialisation, direct sourcing, vertical integration and consolidation hold the keys to global success.

Over 200 delegates attended the Association of Suppliers to the British Clothing Industry's (ASBCI) annual industry conference and dinner to hear speakers from across the international clothing sector define and explore the emerging landscape of global trading.

Speakers from the UK, Sri Lanka, India and Turkey unanimously agreed that the lifting of quotas with China at the beginning of the year marked "a turning point for the global clothing industry."

In the UK alone £7.3 billion worth of garments will come off-quota in 2005. The common response was one of acceptance and the advice to adopt "the right supply partners in the right countries."

Delegates were shown that dominant brands and retailers will increasingly rationalise their offshore supply partners and go direct to larger, vertically integrated offshore sources. The resulting surge in imports will have serious implications for the UK's already congested ports, road and rail networks.

They were also told that price deflation trends set by the value retailers will continue to fuel price wars and erode margins on the high street. Good news for the consumer; not so for suppliers as it is predicted they will be asked to "pay the cost" for the lower price points.

On an optimistic note delegates were shown that UK suppliers can reinvent themselves to play a critical and highly competitive role in delivering fast-fashion to the UK high street.

Scene setting
Julie King, head of department fashion & textiles at Leicester's DeMontfort University and former assistant professor of textiles and clothing at Hong Kong Polytechnic University, opened the conference with a salient reminder of what happened in 2002 when quotas were lifted in the US on baby clothes and Chinese imports rose by 800 per cent.

The knock on effect she explained was both global and enormous: "Garment producing countries like Thailand, Indonesia and the Philippines experienced over a 50 per cent reduction in their exports. For countries whose Gross Domestic Product (GDP) is largely dependent on the garment industry the results can be catastrophic. This is a truly global issue."

New landscape of global trading
In her keynote presentation Hana Ben-Shabat, principal consumer goods and retail practice UK for leading management consultancy and analyst group AT Kearney, advised delegates that in the UK alone some £7.3 billion of garments would come off-quota during 2005, representing 51 per cent of apparel imports.

She went on to show that in the first three months of the quota lift UK clothing imports from China had jumped by 30 per cent and, if this trend continues, by the end of the year such imports would account for around 25 per cent of the UK's total imports.

The implications for other countries she explained were even more serious. Spain for example had seen its Chinese imports leap by 558.2 per cent in January, Morocco saw its textile exports drop by 33 per cent, Nepal by 48 per cent in the first quarter while the US and EU saw apparel exports from China rise by $1.6 billion in just 60 days.

She observed that countries had taken either decisive or non-decisive action to counteract the import wave from China. Argentina and Turkey for example had both imposed new quota restrictions on imports in readiness for 1 January 2005, while at the other extreme Canada has adopted: "a let's see what happens response." The US and EU are attempting to instate trading restrictions now.

The implications for retailers are about cost reduction, price deflation, defining a new sourcing map and applying new sourcing models.

By sourcing from China it is estimated retailers can reduce costs by between five and 25 per cent. Many have said they will keep margins stable and reinvest in products.

However, Hana Ben-Shabat says in practice: "Retailers will find it very difficult to increase or even stabilise their margins when they are continually battling against price deflation on the high street."

She went onto illustrate that established brands and the high end of the couture market will be able to keep some of the cost advantages to themselves but that the value and middle market retailers are going to lose any cost advantage in the continuing high street trend towards price deflation.

As the US footwear industry has demonstrated, price deflation may be offset to some degree by increased volume sales. Quota restrictions were lifted in the US footwear market in the 1980s and whilst the cost of shoes have plummeted, unit sales have increased from three to nine pairs per head of population, giving retailers some recompense.

In the quest for ever greater cost-efficiencies retailers will increasingly reduce the number of countries they deal with and source from a new breed of large, vertically integrated companies. Nike, for example, used to produce its footwear in 68 overseas factories. This has now been reduced to just four, but much larger, factories.

The implications for suppliers is clear says Hana Ben-Shabat: "Buyers are looking for specialised, one-stop-shop, expert and vertically integrated suppliers, of which an excellent example is Luen Thai in China, otherwise known as supply chain city."

Retailers can site an office there and select the services they want from a local supply chain "menu." It is, she concluded, a vision of the new trading landscape.

Christine Cross, retail consultant expanded on the supply chain "menu" theme in her presentation 'Global sourcing strategies - capitalising on opportunity, minimising risk.'

Against a backdrop of increasingly sophisticated and demanding consumers, retailers have to constantly review their operating and sourcing models to retain their competitive edge.

Christine, one of the UK's foremost experts on retail practices, explained that knowing where to source for what product and for what level of service is critical in achieving a successful sourcing strategy.

In a bid to stay competitive and maximise their profit within the context of a rapidly changing marketplace retailers have to "buy for less". This means sourcing from the right supplier in the right country which she claims "…can yield an average 5.8 per cent saving on cost of goods. But a detailed evaluation of cost, quality and value for money of the finished product must take into account all of the associated costs from raw materials and cost of manufacturing through to transport, duty and tariffs."

The route to the "Holy Grail of global sourcing" is about understanding the context in which trade operates. She urged delegates to look for suppliers in countries where mutually beneficial trade agreements are already in place.

Her detailed analysis highlighted the 'service' strengths of particular countries, with France, Italy and Ireland for example scoring well on range design; the UK, Turkey and Portugal on pattern and design; Morocco, Thailand, Romania and Slovakia on prototyping; and China, Bangladesh, Sri Lanka and Indonesia on production.

However, build in a "lead time balance." It can take 21 days to ship a "best cost" volume shipment of jeans to the UK. So Turkey with a delivery time of four days would be the better option for short order lead times and repeats. There is already a trend she noted for retailers to forge supply relationships with strategic suppliers and in so doing significantly increase the volume of business.

Christine Cross also identified the benefits of economies of scale in choosing a supplier including cost savings of between one and three per cent: "Bigger means better if volumes can be spread across the year, if componentry supply is verticalised and if tag ons are possible on larger customer orders."

Made in Turkey
Dr Gungor Kesci, associate professor of international finance, one of Turkey's most authoritative industrial figures, focused on the enormous investment programmes currently shaping the Turkish textile and clothing industry.

Dr Kesci described a "two-pole manufacturing world post 2005" of mass production versus fast fashion and flexible manufacturing. Mass production will be colonised by such low-cost wage countries as China, Pakistan and India who can offer 'local' access to raw materials and large manufacturing infrastructures with huge capacities. The limitation of these countries is the longer delivery times.

Turkey however is aligning itself with the fast fashion and flexible manufacturing pole. To this end it is building a sophisticated and vertically integrated industry characterised by innovation, skill sets and a commitment to advanced flexible manufacturing processes.

Already one of the world's largest cotton producers, Turkey is exploiting its position within the European customs union, and positioning itself as a vertical producer of apparel with a "full package solution."

Technology parks have been built that are dedicated to developing new products and processes for the textile industry including new yarn treatments, knitting designs, technical textiles, weaving, dyeing and finishing techniques.

He explained: "We are competing by developing a skilled base, innovative product and efficient processes. Specialism will differentiate our full package not price."

A sourcing hot spot - India's answer to global competition
Sanjeev Saran, managing director of REAL in Mumbai, fast tracked delegates through India's rich textile past to its current status as a stable and growing economy.

India, he said, "…is enjoying a boom time" within which the textile industry is playing a key role. Indeed in recent years India's textile and apparel exports have been growing at an annual rate of around 20 per cent.

Employing some 30 million people, textiles is the second largest employer after agriculture, and is the biggest net foreign exchange earner. It accounts for four per cent of India's GDP, 14 per cent of industrial production and 21 per cent of gross export earning.

Self-reliant on all raw materials except wool, India produces 21 per cent of the world's spinning capacity and 33 per cent of the world's weaving capacity. In the past five years its spinning mills have increased from 2,444 to 2,699 and its powerloom units from 0.35 million to 0.41 million.

India has adopted a proactive response to the China challenge, and put in place a five-year industrial management and development plan called "Vision 2010." The aim is to grow its textile economy from its current $37 billion to $90 billion by 2010 and create a further 12 million new jobs.

This will represent a 15 per cent annual increase in textile and apparel exports from the present $14.57 billion to $50 billion by 2010 and increase its world market share from four to eight per cent.

"This is a more cautious and realistic growth than we have experienced in recent years as it takes into account the whole China, quota issue," explained Sanjeev Saran.

Critical to the success of Vision 2010 is attracting new foreign investment. Indeed it needs $13 billion by 2010 to realise its growth objectives. To attract interest from overseas India has put in place several preferential trading incentives, such as new duty regimes and subsidies for new processing facilities, and launched a programme of industry initiatives.

For example, a new cotton technology mission to improve the quality and availability of cotton, an infrastructure project that will improve access and deliveries, new hi-tech weaving parks to integrate its fragmented production sector and dedicated professional manpower courses in India's universities.

It is also seeking to address some of its trading limitations such as inflexible labour laws that do not take account of spring/summer production peaks.

"Textiles still is and will be a sunshine industry in India. More and more US and EU companies have a presence and sourcing hub here and are increasingly using it as a textiles provider for other manufacturing locations. India also offers access to a huge, one billion strong consumer population and of course, unlike China, English is our second language. And meaningful communication is the foundation of successful sourcing."

Focus on Sri Lanka - What is, what was and what is to come…
David Rose, CEO, Garment Services Group, Sri Lanka has spent over 20 years of his clothing career in Sri Lanka.

He said that as a smaller emerging economy Sri Lanka is particularly vulnerable to increased exports from China. An estimated 32 per cent of Sri Lankan exports currently go to Europe and this is under threat.

In Sri Lanka around one million people work in the apparel and related trades, out of a total population of some seven million. To protect these jobs and secure the future of the industry Sri Lanka's industry groups united to form a cohesive policy board, the Joint Apparel Association Forum, JAAF.

To date JAAF has driven the upgrade of flagship factories implementing world class standards that can be emulated countrywide, it has removed budget constraints and implemented VAT incentives, it is negotiating tariff concessions with the EEC, has set up technical training colleges to nurture a new breed of middle management and is developing raw materials factories to improve its backward vertical integration capability.

Significantly new industry investment is being targeted at the South Eastern areas of Sri Lanka, those hardest hit by the tsunami. New roads, power supplies, homes, schools and factories are underway with the aim of creating a further one million jobs in the region.

The challenge is to turn Sri Lanka from a manufacturer into a full service provider and shift dependence on discount merchandise to top-end speciality markets where business is not just price driven. Sri Lanka already produces quality garments and has worked with partners like Gap and M&S to implement extremely high operating standards.

What Sri Lanka does not need is handouts but "aid through trade." He urged delegates to take advantage of Sri Lanka's high performing GSP and imminent enhancement of duty relief, of its excellent goods in/out logistics capabilities, of its established communication and IT coverage and its free trade agreements with India.

Mike Carrington and Dr Gordon Carwood of Stevensons Dyers

From source to store
Dr Gordon Cawood, technical director and Mike Carrington, sales and operations director of Stevenson's Dyers, showed how adjustments to sourcing practices could save retailers and brands money and increase the success of fashion ranges in-store.

Historically a dyer, Stevenson's has reinvented itself as a 'full service' garment finisher in order to attract a new 'breed' of quick response business.

First, urged Dr Cawood, UK garment buyers should "work smarter." Research has shown that 12-30 per cent of a typical buy is not sold at full price: "So instead of focusing on the 10p saving yielded by cheaper fingers, focus on the £10 loss if a garment has to be sold at a 50 per cent markdown."

While UK suppliers cannot compete with offshore sources on labour costs, they do have distinct advantages. It is closer to the point of sale, UK suppliers understand retailers' quality standards, and are good at designing new product.

To maximise these advantages Stevenson's has devised a new low-cost balanced sourcing method called the Quick Response Model that yields a better net margin.

On behalf of such clients as Arcadia Group, C&A, Debenhams, Ghost, Next, M&S and Monsoon it receives made-up garments in ecru from all of the major sourcing destinations including China, Sri Lanka, Mauritius and Madagascar.

The garments arrive vacuum-packed so therefore more goods can fit into less space in the cargo container and as they are unfinished and of reduced value there is less duty to pay.

The ecru garments are held in the UK until early sales indicate which colours are selling. Stevensons dye the garments accordingly and then labels, presses, packs and distributes garments direct to store or a distribution hub. The immediate benefit to retailers is a reduction of in-store markdowns, the savings on importing ecru rather than finished goods, right product, right time in store and satisfied customers.

What retailers really need now
Paul Wright, head of technical services fashion and homeware for Matalan Retail gave an honest and sometimes disturbing account of working with offshore companies.

Matalan currently works with around 200 suppliers and as Paul Wright said: "We are only as good as our supply base…so we work together to develop efficient and safe processes and practices."

Matalan is prepared to support the change process but only with suppliers who demonstrate the right "passion, motivation and attitude." He said: "We like companies that get the basics right and who are willing to engage in meaningful communication."

Poor communication leads to excessive working hours, late deliveries or costly airfreight, poor quality and order cancellation. He observed: "Bangladesh and Sri Lanka both have the advantage of communication over China."

Paul Wright's presentation showed in graphic detail how some factories' existing practices ran counter to both basic health and safety practices and efficient manufacturing. Newly sewn underwear left in enormous heaps on factory floors, unprotected hands feeding interlining into cutting machines, unchecked boilers and exposed electric cables are still commonly found.

Matalan has instigated a number of initiatives to help its suppliers implement the changes. "Communication is usually done top-down. Matalan turned this on its head because top management is usually too far removed from the shop floor. So we provide technical training and workshops and get onto first names terms with supervisors and machinists."

It also displays instructive and highly visible 'best needle for the job' posters around the factory floor. These have helped reduce needle damage and therefore improve productivity. Giving machine engineers paint brushes rather than air guns to clean machines has halved the number of spot cleaners needed, improved efficiency and reduced overcuts to allow for rejects from eight to four per cent.

To conclude his presentation Paul Wright addressed the ethical sourcing question. He questioned the wisdom of applying western style standards to some offshore situations.

"If a child of 14, who has left school, is not permitted to work in our factories because we have applied an 18 year ruling, then they will find alternative employment like breaking bricks for aggregate or prostitution. The factories we deal with don't want to upset us, so they would never employ a person under 18 or indeed who 'looks' younger than 18. I am not sure we are helping in such situations."

How the £4 pair of jeans changed retail in the UK
Peder Winther, senior manager, the Maersk Company, advised delegates seeking "best bargain for buyers" that they must offset savings made on production costs against the logistics costs associated with a particular country.

For example, in the case of a man's suit, the highest logistics costs (compared with Germany at €0.17 per garment) are associated with Pakistan (€1.24) followed by Vietnam (€1.18), India (€1.08), China and Hong Kong (€1.04), the Ukraine (€0.57), Bulgaria (€0.53), Romania (€0.5) and Turkey (€0.48). Factor in logistics costs or any advantages in production costs may be lost.

In logistics terms the net result of seeking lower priced goods offshore is increased imports into the UK. In the last 12 months, high growth retailers alone have increased their volume of containers by 50 per cent.

This enormous increase is having an impact on UK infrastructure, especially on the three major ports. Of these, Southampton is already utilising 100 per cent of its handling capability, Felixstowe 90 per cent and Thames Port 60 per cent. With imports on the increase, congestion and delays are expected to rise both in the ports and the surrounding road networks.

Peder Winther, the Maersk Company

Around 64 per cent of containers arriving in the UK are travelling to and from destinations north of Birmingham. Rail is playing a vital role but is also becoming congested. Solutions to the bottlenecks are new, larger and more productive ports, a more flexible working dictate for drivers from the EU, improved motorway networks from the ports, increased investment in the rail infrastructure and properly managed export distribution centres at origin countries.

He explored the "dark art" of direct sourcing for retailers as a means of maximising offshore sourcing cost benefits, but recognised that for many who have historically depended on importers, this was a steep change.

The route to direct sourcing is to develop a clear sourcing strategy and implementation plan with pilots to test the water. He advised: "Employ experienced buying and logistics or transport staff and keep a close track of cost benefits through the accounting function."

A lower risk option, and ".probably a good starting point for most," is to use sourcing agents but at the cost of exclusivity, control and margin.

He concluded there is no "one size fits all" solution to offshore sourcing logistics solutions. Companies contemplating the direct sourcing challenge should ask whether they can handle the change, afford the learning curve and the people to support it. In fact those most likely to reap the benefits are the major retailers with the scope, scale and cash flow to manage a global supply chain.