Sourcing Chapter 5

Strategic Sourcing Decision

Strategic sourcing

refers to finding the most cost-effective way to manufacture one’s product, either locally or in a foreign country. International sourcing is used to provide mass volume to retailer needs

Local sourcing provides a shorter lead-time.

Manufacturer is an entity that makes goods through a process involving raw materials, components, or assemblies, usually on a large scale, with different operations divided among different workers.

Cut-make-trim (CMT)

  • Product developer provides the designs, patterns, and fabrics, while the vendor cuts, assembles, and finishes garments
  • Requires close supervision and considerable technical skills on the part of the product development team
  • Almost obsolete, except in less-developed nations such as Cambodia and sub-Saharan Africa

Full package program (FPP)

  • Vendors take over all steps involved:
  • Technical design
  • Materials sourcing
  • Patternmaking
  • Cutting
  • Sewing
  • Quality assurance
  • Packaging
  • Distribution

Full Package Suppliers

  • Common within the EU, Turkey, India, and China due to a well-trained workforce

Contractor

Original Equipment Manufacturing (OEM)/Package Contractors

Vendor takes over the sourcing and financing of materials (fabric and trim) in addition to providing CMT production services, finishing, and packaging for delivery to the customer

A more common model, especially in Bangladesh, Indonesia, Sri Lanka, and Mexico

The primary objectives of domestic outsourcing are:

  • Quality
  • Shorter lead times
  • Smaller quantities
  • Design protection
  • Positive brand image
  • Reducing tariff and duty burdens
Where Goods are Sourced:

Top 5 nations:

China: 39%

CAFTA–DR region: 9%

Vietnam: 7%

Indonesia: 6%

Mexico: 5%

Rationale for Offshore Sourcing

  • Labor-intensive industries require many workers to complete each finished product
  • Cost: The median hourly wage for apparel production workers in 2008:
  • United States: $11.03
  • China: $1.44 to $1.88
  • Indonesia: $0.44

Sourcing Methods

  • Direct sourcing
  • Sourcing agents
  • Trade fairs
  • Offshore facilities and joint ventures
  • Licensing

Strategic Sourcing Decision

  • Criteria that one should look for in a manufacturer are experience and past performance with similar products, types of systems and machinery in place, financial stability, technical support, capacity requirements, location, and the company’s sourcing philosophy.
  • A manufacturer should be able to offer
  • Prototypes to your specifications

Production Labor

  • On an industrial basis there are certain areas or sequences through which products are manufactured.
  • The entrepreneur or the manufacturer provides the initial sketch.
  • For apparel, flat drawing helps the patternmakers understand the construction and assists in developing the first pattern for the design.
  • The first pattern is sent to the contractor to create a sample.

Samples vs. Production

  • It is important to first have a prototype created and then a production sample.
  • A prototype is an initial sample that is created to test a concept.
  • A production sample is a product that is given to the buyer to view before committing to a purchase.
  • Manufacturers require production minimums—the lowest quantities that one can order from a supplier

Global Sourcing

Advantages:

  • Lower cost
  • More specialized workforce

Disadvantages:

  • Increased risk of loss of intellectual property
  • Monitoring the process and quality can be difficult
  • Cultural and language barriers
  • Lead times have been increasing
  • When sourcing internationally, it is important that the entrepreneur have an understanding of the political and economic climate, natural resources and specialties of the country, labor cost and practices, proximity to markets, and legal structures of the country in question.
  • The United States has agreements and laws in place with other countries to facilitate the importing and exporting of products.

INTERNATIONAL TRADE POLICY

  • Tariff : Tax on imported goods that is assessed by the country of import
  • Quota: Annual limit on the volume of a designated product category that may be shipped
  • Embargo: Prohibition from importing products from an exporting nation

Production Capabilities

  • Growing season of raw good
  • Weather or natural disasters
  • Size of factory/workforce
  • Military issues

Particular Capabilities

  • South Korea, Hong Kong, Taiwan –High quality goods
  • Latin America(overall) – Quick response time
  • Peru –sweater manufacturing
  • United Sates –short runs & reorders
  • Pakistan & Bangladesh –lower costs

The Americas

  • Pros
  • Close proximity to the U.S., permitting quick response times
  • Competitive labor costs
  • Recent free trade agreements liberalizing quotas and tariffs
  • Cons
  • Not as skilled as the Asian workforce
  • Patternmaking and cutting capacity not as advanced
  • Have not yet developed capacity for:
  • Large quantities of full-package sourcing
  • The financing of piece goods

North American Free Trade Agreement (NAFTA)

  • Originated as the Canada–U. S. Free Trade Agreement (CFTA) in 1989
  • Extended to include Mexico in 1994
  • Much business in recent years has moved from Mexico to Asia and Central America

Central America Free Trade Agreement – Dominican Republic (CAFTA–DR)

  • Includes Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic
  • High volume of CMT with preferential tariff status given to U.S. fabrics

Asia

  • Offers textile innovation, workable minimum yardage requirements, and a workforce with excellent sewing skills

Role of China

  • The largest national exporter of apparel in the world
  • Has a highly skilled workforce and significant overall production capacity
  • One risk is the lack of respect for intellectual property protection
  • Production wages have gone up so quickly that Chinese firms have begun contracting production to nations such as Bangladesh and Cambodia

New Areas to focus for sourcing agents

World currency

Handling geographic& economic dynamics-oversupply of manufacturing capabilities& falling consumer prices

Accepting social responsibility

Managing risks in war-torn or “hot spots” countries

Environmental issues

Infrastructure

  • Transportation and communications systems
  • Telephone, electricity, and water utilities
  • Resources for labor and management

Worksheets are used for

  • Meeting market demands & production deadline
  • Producing quality garments
  • Minimizing transfers of goods from plant to plant
  • Maximizing in-plant efficiencies, using minimum equipment purchases
  • Ensuring plants are loaded to their operating capacities

Production Sample

  • The right versus the wrong side of the fabric
  • Where to place topstitching details
  • What trims to use
  • Size-spec verification
  • Overall quality

Quality Standards

  • Quality depends on:
  • Skill of the workforce with a range of categories and fabrics
  • Caliber of management personnel
  • Accuracy of written instructions

Production Vendor Capabilities

  • Throughput volume
  • Amount of work that can be accomplished in a given time; used to measure production capacity
  • Throughput time
  • Time required to produce a single unit from beginning to shipment; used to determine schedules, delivery dates, and costs
  • Work in process
  • Number of garments under construction at a given time; used to determine flexibility and responsiveness

Workforce Capabilities

  • Depends on expertise and technical capabilities
  • Sourcing offshore may make hand processes affordable

Response Time

  • Pulling together materials and assembly processes from many countries is complex, and mistakes can be expensive
  • “Speed-to-market” strategies, or fast fashion, cut their sourcing time down to 10 to 21 days

Sustainability

Involves making responsible choices related to ethical standards, working conditions, and environmental conditions

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