How is the sourcing landscape likely to shift in 2015, and what strategies can help apparel firms and their suppliers to stay ahead? China is seen moving higher up the value chain, and near-shoring is likely to make small inroads, but improving productivity and building long-term vendor relationships are seen as key. 

Marc Compagnon, executive director of Li & Fung Limited and president of LF Sourcing:
On the whole, we don't typically see any drastic changes in sourcing trends over a single year period, so a number of trends we saw in 2014 will continue.

For example, the steady, mild erosion of mass, lower-end products that were made in China moving to other markets in the ASEAN region, and China moving higher up the value chain and taking on even more higher-value production.

There has been a small incremental increase of near-shoring which we're already seeing in some of our production markets in Central America, including Guatemala and Nicaragua, where brands and retailers look to manufacture closer to their end consumer.

The importance of speed to market will continue to accelerate a change in our sourcing and procurement practices. We'll have a greater use for certain tools and practices, like fabric platforming or near-shoring, to mitigate the complex inventory challenges that many in the industry face.

In terms of what companies like ours can do to help suppliers stay ahead, it's all about capability building. To enhance supplier productivity for example, requires investments in IT (software systems can help measure efficiency) as well as people (training, capacity-building, etc) to help upgrade knowledge and skill sets. Productivity goes hand in hand with sustainability. If we enhance the productivity and capabilities of our supplier base, we build a more sustainable, robust supply chain that benefits everyone. It just makes good business sense.

Tom Nelson, VP global product procurement, VF Corporation:
As we mentioned in previous Prime Source Forum and AmCham meetings, China is more focused on China for China. Many brands and retailers are looking to Vietnam, Cambodia, Indonesia, Bangladesh, India, Myanmar and AGOA (African Growth and Opportunity Act) beneficiaries. Several are even looking more at the West. China volumes may not shrink, but may be more and more focused on Chinese consumers. It is becoming less and less about wages per month and more and more about efficiency gains, factory safety and compliance, and vendor relationships.

Roger Lee, CEO at TAL Apparel Limited:
Sourcing is a complex formula of location, logistics, lead-time, price, compliance and reliability. Sourcing will never stay the same as retailers continue to try to find the right balance of all these factors. In 2014 costs continued to rise in many of the large export countries like China, Bangladesh and Cambodia. The increase in manufacturing costs will not likely stop in 2015. There has been a lot of talk about onshoring in the US, but the labour intensive nature of apparel manufacturing has made it hard to move any substantial amount of manufacturing back to its shores. Other industries will see more success in onshoring than apparel.

Reliability will play a bigger role in decision-making as retailers strive for shorter lead-time, increased fashion cycles and consumers report product failure through social media. For example, many years ago a one-week delay was not significant. Nowadays, a one-week delay for a product that has a 4-6 week shelf life is much more critical than when shelf life span was measured in months.

Paul Forman, group chief executive, Coats Plc:
The pressure to reduce costs and remain competitive previously led to the 'pursuit of the cheap needle' but this is evolving to the search for the 'smarter needle'. This involves keeping production in its existing location and looking at how processes can be improved and what value can be added; whether through investing in machinery or innovative digital methodologies.

Integral to this evolution towards the smarter needle is corporate brand reputation and responsible behaviour. The sensitivity to reputational, ethical and compliance issues has increased markedly and is not only driven by consumers. It is also a key focus for investors, as it can be critical to the growth and success of a global brand.

Looking at the global sourcing landscape, Asia will remain the major player, although increasingly for large and growing local consumer markets. Central China, Myanmar and Pakistan are emerging locations. Near-shoring for the North American and European markets is set to increase with Central America, Turkey and Eastern Europe likely to be among the beneficiaries. Sub-Saharan Africa has potential and Latin America is an important sourcing supply base for its own domestic markets, which could have stronger growth in line with economic performance.

Edwin Keh, CEO of the Hong Kong Research Institute of Textiles and Apparel (HKRITA) and lecturer at the Wharton School at the University of Pennsylvania:
Sourcing offices in the last few years have shifted focus and function. They are no longer price negotiators, and QC inspectors. Since the end of quota in 2005, sourcing offices have to work on long-term vendor relationships, supply chain transparency, market risk management, and technical innovation. Sourcing today is much more integrative, quantitative, and tactical.

For many organisations they will find that there are current skill mismatches in their sourcing team.

Rick Helfenbein, president of Luen Thai (USA), and chairman of the American Apparel & Footwear Association (AAFA):
Short of some additional exploratory movement towards Africa, the 2015 sourcing paradigm will mirror 2014.

The top five sourcing countries still control 65% of the US market: China, Vietnam, India, Indonesia, and Bangladesh. Expect #8 country Cambodia to move up in the ranks, and Bangladesh may slide back. Between China and Vietnam, they will control about 48% of the US market share, with Vietnam notching up and China notching down.

Sue Butler, director at Kurt Salmon:
Businesses need to look at the total cost of bringing the product to market alongside the most efficient way of doing this - do you have the right people in the right place? Should there be more activity taking place closer to the source markets and less in head office? Will this speed up and improve decision-making at the same time as reducing costs?

Businesses need to look strategically at their supply base: does it make sense to be sourcing all products directly or through your sourcing offices? Can agents add more value with better expertise in some product categories?

As range sizes are increasing and the average style volume is decreasing, this provides some real challenges to the sourcing teams in finding factories that are willing to produce smaller quantities - and this can also impact negotiation power. The "elastic" walls of a website have led to large increases in SKUs, so is it time to start instilling some of the 'range optimisation' techniques back into the buying and merchandise teams to reduce this proliferation?

Tim Armstrong, apparel origin and value chain consultant:
The traditional model of forecasting demand and fashion and then stocking and selling while pushing costs on to the manufacturer and dumping up to a third of a range end-of-season, will increasingly wither. Instead, retailers will only showcase new styles, while supplying remotely from logistics hubs which consumers buy from online (since everyone is now connected). This may also allow for an increase in stocking of lay-away out-of-season/fashion goods, since retailers won't find their discounted slow-moving items 'cannibalising' the current range at the expensive retail window.

To keep their x3 margins alive, retailers will look for new markets. For example, developing countries are increasingly building supermarket hubs away from the smaller retailers. One town in the North Philippines, which historically had no malls or supermarkets, now has four hyper-malls arriving in the space of 2 years. This trend is likely to be seen on the Indian subcontinent, where retail has historically been small and inefficient.

Dr Achim Berg, a partner at McKinsey & Company and co-leader of McKinsey's Apparel, Fashion & Luxury Group:
We will most likely see price pressure continuing. However, this will come less from raw materials and more from the cost of the workmanship required to deliver quality. Many companies will seek to better balance their sourcing country portfolios, which includes reducing their exposure in China. Other sourcing markets are having capacity issues and this will continue. Therefore, at least in the mid-term, new 'watering holes' will be required to fill the sourcing needs of apparel companies. In this context, I think we're going to be hearing more about Vietnam, Myanmar, and especially, Africa, including sub-Saharan Africa.

Mike Flanagan, CEO of apparel industry consultancy Clothesource:

  • However much we hear about onshoring or Africa, China is still increasing its share of US and European markets.
  • None of the great trade agreements are showing any sign of being delivered on time (or ever), including TPP, TTIP, the Chinese plan for a Free Trade Area of the Asia Pacific (FTAAP), ASEAN Integration, or any of the minor renewals of trade agreements needed by suppliers to the US.
  • But GSP+ has transformed Pakistan; will it do the same for the Philippines?
  • India's growth in Western market share went into reverse in 2014. But Prime Minister Modi believes he's making changes central to his plans for modernising. There's a real possibility he may do it - but the jury is still out.
  • Africa. I'm interested in the countries not currently supplying the West (like Mozambique, Angola, Nigeria and Tanzania) tapping local entrepreneurs to link their cotton growing, via ginning, spinning and weaving, to regional manufacturers to serve local needs.
  • Developing country protectionism. Retail markets like Russia and Brazil are already doing it.
  • Western buyers are becoming increasingly accountable in Western courts for human rights abuses in their supply chains, including actions by the State of California, the UK Modern Slavery Bill, the US 9th District (California and Alaska) Federal Court of Appeals, and activists in France, Germany and Italy. This is all subject to detail and appeals. But there's a real possibility buyers will become more interested in avoiding courts than getting the best value for customers.
  • Other public-sector interventions, such as the World Bank and finance; the US government and child labour; German intervention in cotton.
  • Private sector compliance initiatives.
  • Chinese capital. There's a lot of it about - and it's getting bigger.
  • There are also some strategies that have worked but not been copied. Can this go on forever? The Inditex model of 50% of production coming from proximity countries; Primark's drive to wipe out store operations costs; the pre-2000 M&S model of exceptionally close supplier relationships; fully integrated manufacture in one country that isn't China.

Rick Horwitch, vice president, Strategy and Solutions Business Development for Bureau Veritas, and chairman of the Americas Apparel Producers Network (AAPN):
Strategies need to be built around the big issues of speed/time, cost/efficiency, transparency/accountability and country balance. The days of "chasing the cheapest needle" or over.

Reliable relationships between individuals and companies are absolutely critical. A perfect example of the value of supply chain relationships and partnerships has evolved in El Salvador where a 'cluster' of manufacturers (yarn, knitting, dying, printing and cut/sew) all within a few miles of each other have been collaborating, successfully and profitably, to meet the needs of their retail and brand customers.

The other key strategy is innovation and investment in new materials, processes, machinery, and systems (especially sustainable systems/processes). Digital printing, 3D and virtual/collaborative design and fit systems are having a significant impact in time and cost. Advanced material and green chemistry developments are starting to take hold, especially in the area of activewear and wearable technology. 3D printing in 2015 will continue to make significant strides forward. All of these innovations will challenge traditional processes throughout the entire supply chain.

Someone once wrote: "Price is not a strategy, it's a tactic." I see 2015 as the year of innovation as the strategy.

Julia Hughes, president, United States Fashion Industry Association (USFIA):
It's no surprise that Asia remains incredibly important for the industry - especially China. Whether you're looking at apparel, home furnishings, or even yarns and fabrics, China is the top supplier, and we don't expect this to change anytime soon. Last year, in conjunction with the University of Rhode Island, the United States Fashion Industry Association (USFIA) released our first benchmarking study, a survey of executives from 29 of the largest textile, apparel, and fashion brands, retailers, importers, and wholesalers. We will be conducting the survey again this year but, looking at the numbers as well as recent, one-on-one conversations with some of the respondents, we expect China to remain at the top of the list.

However, there are other countries in Asia that will likely continue to increase their market share, as well as some countries that will become important new suppliers in coming years. We've seen strong growth in Vietnam - as one executive at an apparel company explained, we won't necessarily see any decrease in sourcing from China, but we will continue to see growth in Vietnam. If the Trans-Pacific Partnership (TPP) goes into effect, with rules that work for the industry, this growth will continue - but given the political challenges in the United States, we'll be lucky if the agreement is concluded this year.

There is also a lot of talk about the future of Myanmar. While the country won't overtake China, Vietnam or Bangladesh, Myanmar presents an exciting opportunity to build an apparel manufacturing industry from the ground up. Given the commitment by the brands and retailers to ethical sourcing following the tragedies in Bangladesh, I think we'll see companies invest in top-of-the-line factories, worker training, and sustainability initiatives before they even start shipping products to the US. This is great news for the people of Myanmar, and also for American consumers, who will have access to even more affordable, quality products.

Going back to trade agreements, our 2014 survey found that free trade agreements and other preference programmes are vastly underutilised - and based on our conversations with respondents, we don't expect to see companies rushing to use them more this year. Companies' reasons for not using trade agreements vary, from the fact that the US does not have agreements with the top countries for sourcing (China, Vietnam, Bangladesh), to the fact that the complex rules and requirements to use an agreement make the savings "not worth it." Hopefully, TPP and TTIP will recognise the 21st-century global value chains and business realities and, in a few years, we will find that more companies are sourcing from our FTA partners.

There were a few surprises in our survey - such as the fact that a majority of respondents said they expect to increase sourcing from the United States next year. It remains to be seen whether this will be true, but we certainly welcome all fashion and apparel brands, retailers, and importers to let us know when we launch the survey in February.

Josh Green, co-founder and CEO of Panjiva, which provides data to the global trade community:
For years now, the world has been the sourcing executive's oyster. The short-sighted executive has spent her time looking for the pearl - that next factory that will save her money. The far-sighted executive has focused on building her team's capabilities, so that her team can consistently find pearls - and, more importantly, keep a lid on costs even once all the pearls have been found.

It's too soon to say that all the pearls have been found. But it's increasingly clear that they're in short supply. Wages have been going up in China for some time now. Some argue that Africa will provide the world with cheap manufacturing over the next several years. Perhaps, but weak infrastructure will limit cost savings in the short run. And in the long run wages will go up there, as they have everywhere else.

Now is the time to think about how to keep a lid on costs once the era of cheap labour comes to an end. The shockingly low price of oil will likely keep a lid on inflationary pressure for a little while, and emerging sourcing hotspots like Africa may keep a lid on inflationary pressure for a little while beyond that, but the end (of cheap labour) is near.

Matthijs Crietee, secretary general at the International Apparel Federation (IAF):
2015 will have to be about improving production rather than moving production. The 'travelling circus' sourcing model cannot deal with the demands for speed, flexibility, transparency and sustainability that the market demands.

Improving production is about improving productivity on the factory floor and especially improving the effectiveness of the supply chain. Investments in PLM need to deliver in 2015. In particular, longer-term collaboration between brands/retailers and manufacturers - where they share details and processes on such things as product launches, trade promotions, inventory management and supply chain operation - needs to demonstrate its value for all involved. Policy makers will be more interested in a more qualitative development of the industry.

Interesting to watch will be the important role of large manufacturing conglomerates in connecting the complex demands and systems of large brands and retailers to relatively small-scale factories.

This is not to say there will be no sourcing shifts among countries and regions, but their effect on the bigger picture will be less. Myanmar, Ethiopia will grow. Some Eastern European countries will perform strongly. Domestic market opportunities will help further growth and modernisation of the Colombian, Brazilian and Indian industries, among others. Indonesia has 'spare potential' and it will be interesting to watch the sourcing and investment strategies of the large Chinese manufacturing groups.