While international clothing buyers today have a lot of sourcing choices, this multiplicity of options can bring its own management headaches, making it important that brands make subtle, complex and fluid purchasing decisions to keep ahead of the competition.

  • Sourcing in multiple countries is a reality for many brands
  • Navigating a plethora of sourcing choices requires subtle, complex and fluid purchasing decisions
  • Buyers must juggle multiple considerations, including currency exchange volatility, labour and raw materials costs as well as changes in trade agreements
  • Building and maintaining relationships along the supply chain is key to avoid costs and/or delays
  • Materials can take months to clear customs in less developed countries and low productivity can erode the benefit of low wages
  • Production in different countries as well as in the US can give retailers and brands more room to manage their products and finance
  • But there are certain categories – such as undergarments – where it's very hard for local suppliers to compete with overseas
  • Sourcing decisions and sourcing options always need to balance compliance, cost and capacity
Sourcing decisions always need to balance compliance, cost and capacity

Sourcing decisions always need to balance compliance, cost and capacity

The biannual sourcing survey of chief procurement officers (CPOs) at leading apparel companies produced by global research firm McKinsey – last published in 2015 – is an interesting window onto today's complex sourcing landscape.

The survey confirms that China's undisputed dominance of global apparel manufacturing is undergoing transformation, with 75% of CPOs agreeing that they had or would decrease orders to China in the next five years.

Buyers are juggling multifaceted considerations to relocate that sourcing, looking at currency exchange volatility, labour and raw materials costs as well as changes in trade agreements, with sourcing in multiple countries a reality for many brands.

Peter Lund, chief executive officer of Indonesia-based sourcing consultancy PT Pevali Group International says Asia offers many attractive options but "is not easy to work with unless you have the right channels: you often can't have a direct relationship with suppliers and have good quality control unless you are working through a sourcing office."

These may not be in the manufacturing country. Indonesia can be an attractive sourcing option for Americans, particularly when working through South Korean companies who have offices in the US but factories in Indonesia and Vietnam. Indonesia is also a viable alternative to China for European companies working through European-operated sourcing offices, he adds.

Cost considerations

Adila Cokar, a Toronto, Canada-based director of Source My Garment Consulting, says that avoiding such quality controls can involve risk. "I don't think buyers are spending the time getting to know suppliers and building a relationship; they aren't doing their due diligence and if they see something that is cheaper they look the other way.

"Large companies particularly are so driven by the bottom line that if they want something ten cents cheaper, they don't care how they get it," she says.

She likes companies that take care to check, such as US-based brand Eileen Fisher and British fair trade company People Tree, who lead the way in building and maintaining relationships along the supply chain.

Without this work, costs and/or delays can grow unexpectedly. Materials can take months to clear customs in less developed countries and low productivity can erode the benefit of low wages, Lund points out.

"We did a test of identical order placements (outerwear jackets) between China and Myanmar. The finish and the needlework was fine – quality wasn't an issue – but efficiency was so low that the landed cost price was higher from Myanmar than from China.

"The minimum wage in Myanmar was realistically US$100-120 a month, which is significantly higher than the official minimum wage, and they made two pieces a day whereas in China they made seven to eight pieces."

Boaz David, founder of New York-based apparel sourcing consultancy Human B, says his clients – mainly small-to-medium-sized US-based businesses, with a significant number of start-ups – were keen to keep production close to home but this was often dependent on the kind of garments being produced and varying price pressures.

"Companies do start to look into a combination of production in different countries as well as in the US, all in order to give them more room to manage their products and finance. However there are certain categories (eg undergarments), where it's very hard to compete with overseas," he says.

Sourcing locations

In the 2015 McKinsey survey, Bangladesh continued to top the list of countries viewed as up-and-coming sourcing locations, with Vietnam in second place, closely followed by India, Myanmar and Turkey, and Ethiopia making an appearance in the top-ten for the first time.

Survey author Saskia Hedrich told just-style that despite Bangladesh's uncertain safety record, efforts underway by the Alliance for Bangladesh Worker Safety and the Bangladesh Accord on Fire and Safety indicate there is a serious willingness to work together for change.

She also points to the fact that reversing out of Bangladesh for many companies could be as fraught as staying. "It wouldn't be responsible just to withdraw the volume; in the past this has happened and it undoubtedly has a negative impact on the workers. In taking sourcing decisions and considering sourcing options, there is always the need to balance compliance, cost and capacity."

Since the publication of the last survey 12 months ago, and in the wake of the renewal of the African Growth and Opportunity Act (AGOA) last June for a further ten years, Hedrich says investment has been flowing into the east African countries of Ethiopia and Kenya – not only in the garment manufacturing sector but also upstream in textile mills and training.

How this will translate in terms of market share remains to be seen she says, as "the country is still very young [in terms of apparel manufacturing]. Naturally, trying to imagine what's going to happen in ten years – given how quickly things change in today's world – is very difficult to do."

Lund says he is sceptical about the importance of sourcing from Ethiopia in the short-to-mid-term, saying it would be years before it could offer an alternative for more than basic items.

Click on the following links to read other reports in this management briefing:

Sourcing shifts – Why China makers are moving out or moving online

Sourcing shifts – The potential and pitfalls of local sourcing

Sourcing shifts – Manufacturing hubs vying for business