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Five Trends That Will Revolutionize the Sourcing Business

We are on the cusp a new era in global sourcing.

A wave of technology has made it easier for consumers to shop all channels, at all times, and has eroded brand loyalty. Major retailers have responded by increasing their private offerings and taking more control of their sourcing. Low-cost labor is being replaced with true unit costing, dead-ending the traditional strategy of chasing the cheapest country. Countries that have poured capital into global markets, including the United States, have started to turn off the tap as the global economy has stabilized, reducing the supply of cheap credit. Fast fashion and better demand response is turning long supply chains into a liability.

Here are five big trends that are changing the sourcing landscape:

1. Retailers don’t need you anymore

Experts have been saying for years that collaborative processes are the key to real, low-cost sourcing. Consumers are more price sensitive than ever, and big retailers are increasingly aware that they can source their own goods, factory direct. This can cut lead times, streamline product development, and lead to lower costs. It also threatens business for sourcing firms that can’t figure out a new value-add. PLM technology and collaborative design software are taking aim at the niche traditionally filled by medium sized sourcing firms. The trick today is to leverage your expertise and your relationships with back-end suppliers to become indispensable, before retailers figure out that they can make their clothes without you.

2. Wall Street is watching your every move

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When Rana Plaza collapsed, retail stocks took a big hit. Wall Street, which has traditionally paid more attention to comp store sales than to origin labels, has started to understand that where clothes are made can be just as important to stock prices as how well the clothes are selling. There is more scrutiny, and retailers know it. Companies that ignore illegal sub-contracting and replace real ethical sourcing with legalistic compliance have already taken big hits, and the situation will only get worse.

3. Consumers are smarter and more fickle

Smart phones and omni-channel retailing, pioneered by firms like Macy’s and Bao Si Deng in China, are making it easier for consumers to shop across a variety of different brands from the same platform. In the omni-channel sphere, the advantages of traditional retailers, such as service and in-store experience, have been eroded by the need to match costs with e-tailers. Consumers can share reviews, and it’s easier than ever for them to drop a brand completely after a bad experience. This makes the stakes higher, and makes retailers less tolerant of mistakes and delays. Their bottom line is riding on their supply chain.

4. Private label will rule the next ten years

To differentiate themselves, major retailers are focusing on products designed in-house for private label. Store brands are a rising category for most retailers. The only way for them to maintain consumer loyalty is to offer products that people want, but can’t find anywhere else. At the same time, individual product launches are more and more important, because even a truly innovative design will be knocked off and discounted in a matter of months. For a sourcing company, building strong relationships with the design departments at retailers can help insure that product is delivered on spec, on time, and can guarantee that the retailer keeps coming back with their private label business.

5. Capital costs are going up

When Ben Bernanke announced a gradual elimination of the U.S. quantitative easing program, stocks in China plummeted and the credit supply dried up. This was a market reaction, but it foreshadows what will happen when the program actually ends. With less ‘hot money’ in circulation, getting LC’s and lines of credit to finance big purchase orders will become more difficult. The cost of carrying capital for 90 days versus 180 days will become even more significant in final margins. Sourcing firms with capital reserves will be able to self-finance when credit gets tight, making this a critical time to build up cash. When the next credit crunch comes, some firms will have to tell their retail customers that they couldn’t get the goods on time because they couldn’t cover the costs. Other firms will look like heroes.