Guatemala's proximity to the United States is being hailed as a key to the survival of the region's apparel industry. But its ability to deliver on the speed-to-market promise depends on more than location. Reducing cycle time in product development, manufacturing, logistics and distribution, along with vertical integration with mill and trim suppliers are all part of the mix, executives were told earlier this month.

What types of products will retailers and brand owners continue to source from Central America?

That was one of several questions put to delegates at this month's Apparel Sourcing Show in Guatemala City, and their response showed an overwhelming conviction that the requirements for 'fast fashion' will be a key driver for business over the coming years - ahead of the production of knit, jeans and denim items and replenishment products.  

But it's not a straightforward guarantee that just by being in the region - and a 2-6 day shipping time to the US compared with China's 10 days - will be enough to generate orders and fill capacity.

As Mike Todaro, executive director of trade association AAPN, points out: "Proximity and speed-to-market aren't necessarily the same thing."

On paper, speed-to-market might be the major advantage the Central American region has over China and parts of the Far East, but it means a lot more than being physically closer to the US. Manufacturers who are capable of delivering, in a hurry, innovative fabrics, competitive prices, superior quality and superior service will have a competitive advantage. Those who cannot will not survive.

Dan DeYoe, vice president of sourcing and quality assurance at Toys'R'Us Inc, with direct control over all children's apparel, home décor and related hard goods for the Toys'R'Us and Babies'R'Us divisions, makes the point that the most important ingredient for sourcing managers is predictability.

"We can handle being a little bit higher priced than Target and Wal-Mart; we can handle quality issues once in a while; but what we can't handle is having empty shelves; when we purchase product it absolutely, positively has to be there," he said during a panel discussion at the Apparel Sourcing Show.

"There is absolutely no advantage in placing production in the region that is delivered late or incomplete," confirms Tony Ronayne, Liz Claiborne's vice president of western hemisphere operations.

Shifting sourcing dynamics
In particular, the lifting of quotas at the beginning of this year has had a major impact on sourcing dynamics, with low-cost countries like China now taking the lion's share of the vast US market.

US trade data showing a dramatic 79.4 per cent increase in apparel shipments from China to US$3.26 billion in the first three months of 2005, for example, provides real proof of the changes that are already happening.

By comparison, Guatemala's exports to the US - its main market, taking 94 per cent of the industry's output - rose just 10.7 per cent in the same period to US$505.07 million versus the same three months last year.

Liz Claiborne, one of the largest fashion apparel companies in the world with 2004 net sales of $4.6 billion and a portfolio of 37 brands, epitomises the complex sourcing strategies that retailers have developed to produce a wide range of diversified product around the world.

This includes procuring over 240 million units of fashion apparel and non-apparel products annually for sale in virtually every retail format, including upscale and mainstream department stores, specialty stores, promotional chains, e-commerce websites, outlet stores and mass merchandisers, and at popular to premium price points.

According to Tony Ronayne, up to 40 per cent of sourcing decisions in the past were directly influenced by quota factors.

"Complicated trade and quota regulations forced us into manufacturing situations we would not otherwise have chosen," he said.

But with quotas gone, the company's sourcing strategy is already being simplified. "We now place work only where it makes business sense to do so," Tony explains.

"Currently we source in 35 countries with approximately 25 vendors, with suppliers in the Americas based in Peru, Colombia, El Salvador, Honduras, Guatemala, Mexico, the Dominican Republic, the US and Canada."

Typical of many apparel makers, Liz Claiborne has already started the process of reducing the number of vendors with whom it works and will eventually source in 10-15 countries instead of the current 35.

Industry consultant David Birnbaum paints a stark picture: "There are companies now who are delivering in 28 days from the first sketch. The problem is that shipping time from Shanghai to the west coast of the US is ten days; shipping time from here is two days; so your window is 8 days."

Demand for production
So how can factories in Guatemala and the rest of Central America ensure they still find demand for their production space?

"We believe that constant demand for new and innovative products, speed-to-market, and lower inventories will still provide opportunities for sophisticated, well-run, market-responsive suppliers across the region," Tony Ronayne says.

But he cautions that in the coming years there will be a significant consolidation of the industry, particularly into China, and a substantial shift to lower cost countries in commodity, large-run type products.

"The fact is that retail prices in the US continue to decline and all manufacturers around the world have to compete in that environment."

"Prices at retail reflect prices throughout the supply chain," confirms Mark Messura, VP strategic planning, Cotton Inc. "For the past 10 years the average price of clothing in the US market has been falling."

As an example, he cites Cotton Inc's research that shows women's knit shirts have fallen in price from $13.20 in 2001 to $11.75 in 2004.

There is no question that, on price alone, the entire Central American region will have great difficulty competing head-to-head with China and the Far East. But it's not just about price.

Ralph Iannazzone, managing director, RBG Associates, a consulting firm focusing on supply chain solutions, puts it simply: "The million-dollar question is how do we reduce the supply chain cycle time?"

"Making style and colour decisions closer to market gives us the chance of having better product.

Ralph calculates that 78 per cent of time is currently spent in design and product development, sampling and material procurement - and that "all the decisions are being made in one location while all the work is being performed in another.

"This results in additional time and additional cost and we're compromising the product."

To simplify the process, he believes suppliers should "know your customer requirements better than they do. The mills are doing all the colour/tensile testing and then we send it on to the wholesaler or retailer who does it all again. Why can't we just do it once?

"You have to create your customer's culture in your building. The vendor selection process is going on now…and you want to be one of those who are selected. If the retailer or vendor can't be inspired by you they'll go some place where they can be inspired."

Design and product development
More and more, companies like Liz Claiborne are pushing the design and product development function onto the manufacturers, so successful suppliers will have fabric development and garment design capabilities and will constantly bring new ideas to the table to interest their customers.

Another significant opportunity for improvement is investment in systems, procedures, workstations and scanning equipment including CAD, EDI, Scan Pack and RFID.

"More and more, we will be shipping direct from the factory to our customers so the ability to guarantee the accuracy of packing and shipping information is as important as the garments themselves when we need to move goods quickly and efficiently through the supply chain," notes Tony Ronayne.

He also believes there is a need to take full advantage of local textiles. "Fabric will control sourcing in the future as the elimination of quota will reduce the need to ship fabric from one country to another. Sourcing will consolidate around countries with a vibrant indigenous textile industry such as China and in this [Central America] region."

Significant investment in recent years in world class spinning, knitting, dyeing and finishing facilities in Guatemala - where there are around 44 textile companies employing 18,500 - and Honduras therefore provides both countries and the region as a whole with a new strength he says.

David Birnbaum believes the issues facing the industry here cannot be solved by any factory or country: "These are regional problems. If you're going to have a strategy let it be a regional strategy. The countries and industries in the region here have to get together and plan what they want."

And on a positive note, Tony Ronayne adds: "Latin America, and Guatemala in particular, has been a very important component of Liz Claiborne's supply chain for many years - and will continue to be, provided it responds to the many challenges the new quota-free world presents."

Tony Ronayne, Liz Claiborne's vice president of western hemisphere operations, believes speed-to-market requires all of the following and then some:
Relentless planning and execution of time and action calendars, including doing everything possible to reduce overall lead times.
• Development and approval of fabric and colours locally, without the need to send to the US for approval. Never send any lab dips etc to your customer you believe will be rejected. Reduce the number of locally failed lab dips and samples.
• 24-hour a day sample making where necessary.
• The development and use of local trims.
• The use of modular lines dedicated to quick turn production allows us to react quickly and offer trend right product to our customers and eliminate excess inventory.
• Holding inventory, or having quick access to basic fabrics, to enable the rapid replenishment of orders.
• Holding inventory of unwashed garments, ready to be processed to the latest wash standards and that are shipped within days.
• Government regulations that are totally export friendly - for example, the operation of customs on a 24/7 basis to facilitate the rapid import and export of products.
• Successful suppliers will implement the most updated technology in order to communicate with us and our customers.

By Leonie Barrie.