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SJ Insight Report: It All Starts With Fabric

At the beginning of the apparel supply chain is a basic question: where should the fabric come from? As executives come to depend on an increasingly complex sourcing matrix, deciding the best source for the textiles that make up their garments is a crucial decision. The cost/value matrix companies use to make decisions all the way down the supply chain starts with fabrics.

Like most decisions facing apparel executives today, the best source for fabrics is not the same for every company. Sourcing textiles across the street from the apparel factory might work for one company, but for their competitor bringing fabric in from a third country provider might make better business sense. The same factors that impact apparel prices–rising labor and raw material costs, competition in the market, complicated duty free systems, economic trends, quality and turnaround time–also come into play when making textile decisions.

“The consistent macro trend here is that it isn’t necessarily that the largest fabric suppliers are keeping it all and using it internally. It’s a truly global market,” said Julia Hughes, president of the U.S. Association of Importers of Textiles and Apparel. “There’s no one supply chain.”

Firms look at the core competency a textile firm has, said Munir Mashooqullah, founder and president of Synergies Worldwide. Sophisticated mills that can deliver consistent quality, not just a cheap price, may be the most important factor for one firm. Another firm might be looking for a different core competency.

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“Most people are focusing on what they need,” Mashooqullah said.

Successful apparel company models in the current environment seem to rest on a strong sense of how to meet their unique needs. Uniqlo is consistently held up as a sourcing model for the new generation of apparel manufacturers. The company solidified its place in the market by offering a pared down, targeted offering of goods that consumers want. The company is very receptive to consumer demand and established a supply chain with a quick turnaround and replenishment model.

Uniqlo has also always worked closely with its suppliers to emphasize high quality fabric, said Rick Helfenbein, president of Luen Thai USA. “They have the highest acceptable quality level in the industry; its extraordinarily high,” he said.

Uniqlo controls its own supply chain, but for companies that use outside sourcing firms to help them produce goods, knowing what they need is also helpful. Helfenbein said his firm’s clients typically dictate where they want to get fabric from based on whatever their specific priorities are.

“There is a lot of fabric out of China still – good quality fabric. Prices in china tend to be a little bit higher because they are hoarding their cotton reserve, artificially raising textile prices,” Helfenbein said.

China’s cotton practices have created some challenges in the fabric supply chain. China’s “peculiar reserve procurement policy,” wherein the government buys cotton from farmers and sets it aside for months or years before putting it back into play, is having an unpredictable effect on the cotton fabric market, said Gary Raines, chief economist with FC Stone Fibers and Textiles.

Raines pointed out that, in theory, China’s practice isn’t much different from price supports in other countries, but the volume they set aside last year was unprecedented. Approximately 6.5 million tons of Chinese cotton was pulled aside through the government’s reserve procurement policy.

The big textile players have remained the same for several years and look likely to continue to do so, sources said, with China still at the apex of the sourcing system in terms of volume. Despite some upward price pressure in early 2013, China is the still the largest source of fabrics for many apparel companies, although ironically it is also a major fabric and yarn importer itself. It is still the largest apparel manufacturer by far, but a noteworthy portion of the textiles it produces find their way to its neighbors. Rising apparel powerhouses like Vietnam, Bangladesh and Cambodia absorb a portion of textiles produced in China, Mashooqullah said.

However, sources said, just as apparel companies have diversified their sourcing model for apparel to meet whatever specific needs they have, they have also applied a similar approach to fabric sourcing decisions. Companies are increasingly deciding that despite its growth from “800 pound gorilla to 1200 pound gorilla…that maybe China isn’t the end-all be-all,” Raines noted.

Individual countries all have particular strengths that can recommend them for specific apparel company needs. Pakistan, for example, is seen as a reliably inexpensive fabric source. South Korea is a popular source for high tech, performance fabrics. China and Pakistan are major sources for fleece. Turkey is a high-quality denim manufacturer.

A great deal of investment further up the supply chain from the apparel factories is going into Bangladesh, a trend which is likely to continue for the next several years. Spinning, weaving and denim production are increasing in an effort to meet the growing demand of the local apparel manufacturing industry, Mashooqullah said.

Currently, most of the fabric produced in Bangladesh is used to make apparel items bound for Canada and European countries that enjoy duty free benefits. Without the duty free benefits, the cost of fabric manufactured in Bangladesh can be higher than textiles imported from other countries, particularly for more expensive fabrics. More local knitted fabric is used than other types of fabric, for example, because of a lower cost of entry, he said.

For goods bound for duty free countries, Mashooqullah said, the shorter lead time created by using local Bangladeshi fabric is beneficial and the duty free access the final product has makes that proposition more profitable.

“For American companies it’s not practical because there’s no duty free advantage. They want to concentrate on third country fabrics for now.”

The good news for American companies without the duty free access is that fabric mills and traders from China and Pakistan are increasingly moving and setting up operations in Bangladesh to meet the growing apparel industry’s appetite for textiles.