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Sourcing Execs Talk Margins, Markets and Manufacturing Strategies

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It’s no secret that sourcing is a complex business, and in a constantly changing landscape brands not only need to keep up, they need to manage margin-making manufacturing, diversify their production bases, curb inevitable supply chain crises and all the while maintain transparency and compliance.

So how are they doing it?

Speaking at FIT’s “New Era of Global Sourcing” seminar Thursday, co-hosted by Sourcing Journal, three sourcing executives spanning the spectrum from mass retail to luxury, discussed their company strategies, shedding light on things that have worked and those that haven’t.

Pete Hagen, senior product manager for Target Sourcing Services, Karen Smith, VP of supply chain for VF Corp.’s Sportswear Coalition and Trent Janik, Kate Spade VP of sourcing and manufacturing had this to say on a panel moderated by Sourcing Journal founder and publisher Edward Hertzman.

What is your current sourcing strategy? How are increasing costs in China playing into your plans?

PH: We’re in China, Vietnam, India, Bangladesh, Cambodia, and we have people in offices throughout the world. In terms of a strategy, my No. 1 strategy is find great partners that I can have a marriage with. Every country has its advantages and disadvantages, but it’s all about the long-term relationship.

TJ: The majority of handbags are made in China, it’s not as easy to move around like apparel is. We actually support going from China to Vietnam, we want to grow with them. Our business is getting bigger and we need to grow in different places, it’s important for us. We want to stay with them, trust them, take good care of them, but we do need to move to other countries to make sure we have a well-rounded sourcing business.

KS: There are so many variables in the sourcing equation. I think that for us it’s about balance. Eastern hemisphere to Western hemisphere, duty free to fully dutiable, we do business in so many countries internationally that what might be a good vendor to manufacture for China might not be the same for the U.S. for a variety of reasons.

We don’t work in any of the ‘Stans [Afghanistan, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkmenistan, Uzbekistan] and I think we’ve been reluctant in Haiti, but it’s just, again, about balancing risk mitigation.

How has the business changed over the last 10 years?

PH: Clearly there’s a lot more focus on social compliance and sustainability that we’ve seen rising. I think our customers are much more concerned about how we’re producing product, which makes us much more concerned about how we’re producing, both impacting the environment as well as impacting people.

When I started at Abercrombie, we made in Georgia and we made in California. That then moved to Mexico, and then of course moved to China and now it’s in Vietnam and other places.

We’ve really seen it [the business] evolve in many different ways, not just countries where product is sourced but also how it’s sourced and how we look it.

This month marks the two year anniversary of the Rana Plaza building collapse, how are you maintaining compliance in an increasingly scrutinized sector?

TJ: We’re very conservative—in a good way—about our compliance and it’s incredibly important for us to make sure all of our vendors are going through the compliance process, that we keep up with it, that we have a corrective action plan.

I was in one of our factories about a year and a half ago and it’s a handbag factory so they use a lot of glue to adhere all the interior components and linings, and the smell was quite strong. We flagged it to the vendor and we continued to follow up with them to make sure that they had air systems and ventilation systems that are non-toxic.

It’s not building structure like what happened at Rana Plaza, but its other things, and so our goal is to be the eyes and ears and to be alert when we’re in the factory to make sure that we’re looking out for these people. It’s really important to look out for them and make it sustainable.

KS: Our primary responsibility in sourcing at VF is responsible sourcing so, above anything else, we have a robust responsible sourcing program.

In our partner factories—and we have thousands of them—we do thermo scanning. Fires are actually a big issue. We have hundreds of auditors around the world that go into the factories and audit for structural, they thermo scan, they make sure there’s not electrical issues for fire, they do a chem IQ looking at all the chemicals to make sure they are properly stored and handled.

You have to do the right things. And it’s not doing the right things because you want to say you’re doing the right things, you want to do the right things because you care.

How do you manage social compliance?

PH: In my earlier days it was easier when you identified something to say ‘We shouldn’t be in there. We should get out. We should get out as quick as we can,’ but then you realize that’s not helpful. That’s not helpful to the people in the factories its not helpful for the supply chain and building it. You stay back and it can really help improve conditions. And then there’s the follow up, constantly going back and checking on that work to make sure it’s been done. And that’s our goal, a strong partnership.

We’ve got our own audit teams as well as third party teams to do the work. We have to be as smart or smarter than they are. Again, if you’re in with the right people, you should be fine, but that’s not enough assurance.

We don’t want to react when something happens, we want to know it’s coming. We want to understand what the implications to the supply are going to be, lobby if necessary or change the supply chain and really educate the supply chain about what’s going to happen by using our global teams that have offices around the world.

KS: What keeps me awake at night is the plan B. What risk mitigation and contingency plans do we have in place for all of our vendors and raw materials suppliers, finished goods makers? It’s about political risk, it’s about natural disasters, it’s about labor hikes, commodity pricing, port closures on the West Coast. And so every day it’s a discussion about strategy and balance.

You don’t want to be too big in one single vendor that they sneeze and we catch a cold.

How has technology changed this business?

KS: Data mining these days is a whole lot easier than it used to be. With the planning tools and forecasting tools and capacity plans, we can get a solid look at our demand signals and bounce that up against what our factory capacity plans are and create a really good supply/demand plan.

PS: Last week I was in Shanghai and the week before that I was on factory tours in Vietnam and we were at one of our more technologically advanced factories where every table had automatic spreaders, they’re running two laser cutting machines, which 20 years ago it was almost unheard of to even have a laser cutting machine it was so cost prohibitive. It’s really changed the game in terms of efficiency.

You walk the lines and you can see the efficiency on the lines because they’ve got it up on flat screens and everybody in that line knows what’s going on. Every bundle that’s going through the lines is RFID [radio-frequency identification] tagged so they know exactly where every bundle is, where it’s coming in, where it’s going out—and that’s the kind of technology that we’re looking for when we go into these factories. I know that even though labor rates in Vietnam are going up, I know my cost is not because we’re investing in the infrastructure of the facility and we’re seeing huge efficiency coming out of that and it’s allowing us to maintain pricing.

TJ: When I was in consulting I learned how to do implementations for PLM [product lifecycle management] systems.

It makes you much closer to the factory and in some cases it puts people out of jobs because it doesn’t always require you to have an agent, middle man because you can just live-time with the factory and work with them every step of the way through development, manufacturing, shipping, tech design, the whole thing.

Technology today is making it much more efficient to get the information from one source that’s true and accurate and its almost self-serve.

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