By Leonie Barrie | 12 July 2018

A good sourcing strategy should be in a constant state of flux, shifting to take account of changing markets, competition, costs, risks and opportunities. Its foundations must fit in with a firm's overall corporate objectives and brand positioning – and never has it been more critical to build the top line too. Here are 10 key things you need to consider.

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

But advanced retailers 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.

And, perhaps surprisingly, better sourcing is not simply about buying at a lower price.

Listed below are the key considerations that should be built into a sourcing strategy.

1: Changes in the retail market – including market polarisation according to price and brands (for example, the growing value market), increased competition, falling margins, and consumer demand for newness.

2: Brand positioning – whether fashion, quality or cost focused or, as is most likely, a combination of all three. 

A fashion focus will be led by the need for innovation and R&D, fast turnaround, an effective design process with high hit rates, and a vendor relationship focused on innovation;

A quality focus will be driven by R&D, technical innovation, fabrics and quality control; and

A cost focus will require tight management of critical paths to avoid extra costs, manufacturing efficiencies, engineering designs to a tight budget, and visibility to all information across supply chain.

3: Cost factors – when deciding where to source, a proper cost model will help compare suppliers and countries. Costs to consider include the supplier search, sampling, production cost, cost of raw materials, logistics, customs duties, quality control, disposal and re-work, loss of sales (due to quality or delivery problems), and markdowns.

4: Non cost factors – a focus on cost should not be at the exclusion of non-cost elements. These include local knowledge on a specific product (such as lingerie), the availability of raw materials, sufficient production capacity, ethical and social standards, geo-political risks, and quality. Risk and non-cost factors should be scored against the cost benefit of switching to any region.

5: Sourcing channels – for many retailers and brands FOB, either through the retailer's own sourcing office or a local agency, is the main method for private-label sourcing. Other options include CMT (cut, make and trim) and importers. Most retailers use a range of different channels depending on their levels of expertise and volumes.

6: Sourcing countries – before choosing sourcing countries on cost alone look at other criteria too. These include lead times (order to delivery), delivery reliability, minimum order quantities, size and flexibility of production capacities, product quality, social conditions of production, buying price, duties, inbound logistics, product design, and technical skills. The supply base also needs to be managed well to get the best benefits.

7: Overseas sourcing offices – over the years retailers have shifted more responsibilities to overseas sourcing offices, driven by cost and the skills of the staff based there. But while retailers now have more capability (on product design, technical development and trends) closer to where the product is made, they still need to maintain control over the end product.

8: Selecting and optimising channels. It's important to ask if the chosen channel matches supply chain strategy? What are the advantages and disadvantages of sourcing through a specific channel such as an agent? What knowledge and capabilities are needed to set up a sourcing office overseas? Will systems integrate.

9: Balanced portfolio of suppliers. These include strategic partners who work collaboratively with the brand or retailer; core suppliers who may only work on certain product groups; and additional suppliers, who are often a back-up or new supplier. But all have important roles to play.

Retailers must constantly evaluate their supplier portfolios. Questions to ask include do I have the right number and size of vendors appropriate to the volume of business I'm doing? Do I have too many small suppliers or are my eggs all in one basket? Are there any points of exposure within my supply base?

10: Sourcing strategy in practice – The foundations of a sourcing strategy must fit in with a firm's overall corporate strategy and brand positioning, and its future goals. Questions to ask include what are the right regions/countries for sourcing from now, and in five years' time? What are our financial targets? What processes affect our financial performance? What is our target lead time from concept to shelf? How do we integrate product development and sourcing? Do we have the right headcount and skills in our sourcing business? And is the organisation ready to shift operations offshore?

Tagged in this post: Sourcing Strategy

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