Super suppliers with access to production capacity in countries around the globe are being tipped as the winners when it comes to helping buyers improve stock turns and speed-to-market while preserving net margin. But surprisingly, while speed is critical, proximity is not. 

Super suppliers are likely to be in high demand as retailers look to reduce the risk of sourcing from new suppliers as they create a more nimble supply chain that can react faster to consumer demand, says Kurt Salmon Associates (KSA), the global consultancy specialising in retail and consumer goods.

"Every week saved in the production cycle is typically worth 0.25% of final achieved margin, which is why retailers are looking to work with experienced and globally represented suppliers," says Helen Mountney, UK managing partner, KSA.

"Until recently, the primary focus of sourcing has been on increasing the mix of direct imported products to enhance margins.

"Advanced retailers, however, are now concentrating on the next level of costs: cutting spending on buying offices, optimising the mix of source countries and standardising processes and fabrics/materials."

According to KSA, which has just launched its latest global sourcing reference guide, this requires a shift towards a more holistic supply chain-orientated approach.

However, to achieve this requires a greater exchange of information between retailers, brands and manufacturers, as well as appropriate technologies, a shift in mindset and an incentive system that can influence the behaviour of all the supply chain partners.

"While this is a complex task the payback is more than worthwhile in terms of the cost savings that can be expected from lower markdowns, less out of stocks, reduced inventories and smoother capacity utilisation," adds Mountney.

Sourcing survey
The 9th Guide global sourcing guide includes results of a survey of 100 sourcing managers, a detailed analysis of China and India, specific details on hard-goods sourcing and in-depth interviews with three global sourcing experts.

One of the key factors to emerge from the survey was that respondents said while speed is critical, proximity is not.

They ranked optimised processes such as a higher synchronisation of activities in the supply chain and the avoidance of redundant activities as more important than mere physical proximity. 

From this perspective the competitive advantages of Eastern Europe and Northern Africa lose importance, except for high fashion items where demand cannot be forecast well but needs to be fulfilled within a very short time-frame.

"Buyers are also juggling the demand from stores to provide frequent deliveries to enable high service, with those of the logistics team looking to reduce costs and the CSR department wanting to see a reduction in carbon footprint," adds Mountney.

"This further adds to the complexity of sourcing.

"While this situation could provide new opportunities, the task of weighing up all the factors and trying to compare one supply source with another is an even more daunting task these days.

"Super suppliers, who are in daily contact with a broad range of factories across the globe, will be able to provide valuable insight and remove some of the unknowns to help make better sourcing decisions."

Shift from CMT to FOB
From its research in compiling the guide, KSA also sees a greater acceleration in the trend of shifting from CMT to FOB sourcing as Western retailers and brands are forced to reduce their own complexity to keep costs down and to increase demand-driven flexibility.

Countries without sufficient FOB capabilities like Romania, Bulgaria and the Ukraine will lose out to countries with more vertical capabilities such as Turkey, North Africa and increasingly the Middle East.

While China will remain a strong supply source for many UK retailers, over-capacity in the area means that suppliers are very open to negotiation and price reductions.

However, KSA says that it is important for buyers to be fair to suppliers and not push prices too low or they could be responsible for their producers going out of business and having to find a new source of supply.

When comparing sourcing from China, with that of India, one of its biggest competitors, KSA found that China scored higher for quality, competency and reliability, while India did better on costs, flexibility and speed.

However, while cost and quality remain important factors in the decision-making process for relocating or choosing new sourcing destinations, speed and flexibility continue to be high on the list. Social standards is a factor that has gained in importance too. 

"Regardless of where retailers are sourcing from, the importance of developing strong relationships with a few key strategic suppliers will remain a business imperative," adds Mountney.
KSA's guide to global sourcing includes both the fashion sector and, for the first time, hard goods too. As well as detailed information on 61 countries, insight on future developments in sourcing is provided from a survey of more than 120 sourcing managers from European fashion retailers and manufacturers.