It was a marriage of the minds as Robert Sinclair, COO of global sourcing firm Li & Fung, Munir Mashooqullah, principal and founder of Synergies Worldwide, Jeff Streader, operating partner of retail at Marlin Equity Partners and Mark Messura, senior vice president of global supply chain marketing at Cotton, Inc., shared their insight on what’s happening with sourcing.
Edward Hertzman, Sourcing Journal’s founder and publisher opened the panel by posing a question to both Sinclair and Mashooqullah about more companies going factory direct, asking whether they are concerned about demand for intermediaries diminishing and what plans they have to stay competitive.
Mashooqullah noted an increase in customer acquisitions over the past year adding that with recent factory safety failures in countries like Bangladesh and India and the urgent need for increased security measures and compliance, business for middlemen like Synergies is improving because they provide very good visibility, he said.
Sinclair agreed, saying that the number of companies coming to Li & Fung has increased a lot and he sees more business using intermediaries and he is not concerned about companies who feel they can source a product on their own. Going factory direct is not without costs either, he said. There’s a cost for building, staffing and managing a company-owned regional sourcing office and businesses should consider whether their own office can perform more efficiently and effectively than a third party office.
Mashooqullah followed, saying to the audience, “Your company’s regional offices are staffed with excellent and very hard working professionals, but at the end of the day, they are company men. We are entrepreneurs.” He went on to explain that sourcing agents add a competitive mix to the supply chain that going factory direct lacks. Agents are forced to find the best factories, ensure quality and deliver product in order to get paid and the only way to stay competitive is to work extremely hard on very low margins, ultimately benefitting the buyer, Mashooqullah said.
Jeff Streader, who has managed supply chains for companies like VF, Kellwood and Guess added that in today’s sourcing market, he suggests a hybrid model. If companies have already built successful self-owned regional offices and can manage them correctly, they should continue to use them. But, he said, in product areas or regions where a company may not be as strong, using an agent with the expertise is the way to go.
The panelists touched on manufacturing in China, discussing how things have changed with America’s largest source for ready-made garments and what businesses can expect as far as production in the country.
Sinclair said, first and foremost, in the face rising costs, brands must be realistic about negotiating prices with factories, expecting to get product at 50 percent of FOB just isn’t sustainable. He noted that the number of consumers in China, for example, is growing and the middle class alone is almost the size of the entire US population and the need to support these growing consumers is putting pressure on factory capacity
“That growing consumer market is going to absolutely dynamically change the supply chain,” he said, adding that it will drive supply chain costs up and brands and retailers will have to work to keep up.
With that in mind, Hertzman directed the panel to talk about the ever-pressing question of price escalation and how things like wage increases and rising energy costs and land costs will increase FOB costs.
With the prolonged wage-hike battle in Bangladesh and