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Agents Are Here to Stay

As the ability to communicate and travel improves, the agent’s role in the supply chain is often questioned.

I recently returned from what I like to call my end of the year South Asian World Tour, a three-week no holds barred, 16-flight trip across South Asia. I spent time visiting factories, local NGOs and government agencies, as well as buying houses and various suppliers in India, Bangladesh, Vietnam and Pakistan to understand from the ground what is happening in each of these markets.

One of the topics I was most curious to explore was today’s role of the sourcing company or agent in brands’ and retailers’ supply chains.

In full transparency, I have worked for both agents and factory direct manufacturing groups in the past. I understand the pros and cons and how to position the two different models against each other from a sales perspective.

In my experience, from working with large global brands to the fast fashion powerhouses and small wholesalers in New York, there is not a single supply chain model that seems to be the “perfect” solution for all companies.

The insight I am sharing in regard to sourcing companies isn’t to be viewed as pro or con any single sourcing strategy, this is just my collection of experiences and findings regarding the modern-day buying house and how they are working themselves into today’s sourcing strategy.

I think the need to replicate models without understanding the business decisions behind them is a flawed strategy in itself. It is better to understand why a company has created a certain supply chain, rather than simply trying to recreate it.

Below are a few interesting takeaways from my time overseas.

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Most of the sourcing companies I spoke with have seen an increase in inquiries and demand over the past few years. I cannot verify this data, I cannot say it represents all agencies globally, but from what I can see, agents aren’t going anywhere anytime soon.

Whether it’s more brands being represented in their offices, more manpower or opening new offices, for example, I believe there is in fact a surge of new business for many sourcing companies. The need to diversify outside of China and work in new sourcing locales has made running local offices difficult. New hubs require local staffing and market knowledge that, unless you have the proper time and money to invest, could be a significant barrier to entry.

We also need to dive into this a little closer. Europe granted Pakistan GSP+ status last year. Of course, E.U. retailers wanted to take advantage of these duty savings. As many companies do not have local offices there, agents represent the path of least resistance. And as Vietnam ramps up its local resources in preparation for and hopes of the Trans-Pacific Partnership (TPP) passing, brands are also now building relationships with agents in hopes that their supply chains are robust and in place for if and when this trade agreement passes.

The idea that agents are an additional expense that can be avoided by working directly also seems to be questionable. I found it very interesting that the majority of times I visited a factory and saw a fast fashion brand or large discount retailer (especially brands from the E.U.) most often they were being managed through an agent.

But if these are the largest and most successful brands in the world, with all of their infrastructure and money, why are they relying on agents to source? What are they achieving that these companies can’t do themselves? To me, the answer seems rather clear.

For starters, these brands look at the bottom line FOB price. Whether that includes a 3 to 7 percent agency fee is irrelevant. They have a price they want to pay, and whether an agent or their office can achieve it, the bottom line is it’s achieved.

They don’t look at an order being handled by a buying house and question its margins. In many cases, these companies need to leverage the large volume these sourcing companies manage in order to achieve their desired costing. Sourcing companies (at least the successful ones) have economies of scale on their side and can negotiate and persuade factories in a way very few can, especially if the sourcing company is responsible for bringing through the vast majority of a factory’s turnover.

Local offices, sourcing direct and sourcing companies are best used in conjunction.

Partnerships are key in forming and managing a successful supply chain so buyers who are transactional and changing factories every season for a few cents are short-sighted in their strategies.

However, creating healthy competition between your own office and your sourcing company may be prudent. Unless you own your business, no one is as invested as you are. Not your country manager, not your local merchandisers or your agent. Today’s economy requires everyone to prove their value, and orders should not be expected, but earned based on merit and performance.

When your local office starts seeing orders being shifted to a sourcing company working in the very same market, they start to worry about their future. Does a company need to absorb all that overhead if their country heads can’t manage the business as effectively and efficiently as agents? You will see a different sense of urgency and performance.

One piece of advice: do not have your local offices manage the agents. They will also find a reason to not do business with them. Remember, it is not in their best interest, but it is in yours!

The role of the sourcing company continues to evolve. Today’s successful firms are not waiting for tech packs and relying on private label programs and in-line inspections to pay their bills. As speed to market becomes increasingly more important, fashion changes even quicker, companies have become leaner after the recession and sourcing companies have found new value-added services such as a product development and R&D hubs.

Their intimate knowledge of their clients as well as their factory’s abilities and overall market trends allows certain firms to be able to create trend right product at their clients target price points, allowing them to buy it as they see it. This reduces design costs, development costs and removes the questions as to whether a concept is executable at a factory level. They are seeing their SMS sample from day one. Again, the companies who are nimble and empower their merchants have found great success in their sourcing company’s R&D incentives, especially the fast fashion players. They find something they like and they buy it on the spot and move on to the next SKU.

Sourcing companies also provide an element of “insurance.” They are in the middle, the punching bag or buffer between the brand and the factory. Both sides use the sourcing company as scapegoats and put tremendous pressure on the agents to realize their internal issues. Whether fair, justified or bad business, the agents need to strengthen their position in the marketplace and not feel obligated to just give in as their importance seems to be justified and should not be taken for granted by either side.

The bottom line is: empowering your back-end, working with agents and taking advantage of their skill sets and market knowledge may be a whole new advantage and strategy you have not yet tapped into.

Remember, agents need to develop new fabrics, techniques and finishes each season that work into your collections, as well as place and manage the production of these items to remain relevant. Agents have increased their value proposition, they have increased their overhead and responsibilities, but they have not raised their costing structure. If anything, razor thin margins have brought down their commissions. Sourcing companies have to perform at a very high level today to keep their clients happy and their factory base satisfied and intrigued.

Instead of looking at a commission just as an expense eating into your margins, look at the complete value agents provide.

Buying cheaper is not the best strategy, buying the right product at the right price at the right time is the right strategy. And being able to get out of product that is not working quickly and back into product that is working even quicker, is even more critical. I wouldn’t discount any sourcing model today and I certainty would not overlook agents. Too many of your successful competitors are using them. There must be a valid reason why…