Cost reduction, margin pressure and compliance may be among the top concerns for sourcing executives, but the more pressing issue is how quickly—or not quickly enough—companies are able to respond to consumer demands.
Building on the notion that super vendors will be the way forward for sourcing success, panelists that were part of a Sourcing at Magic talk on what the sector will look like in 2020, Ed Gribbin, president of Alvanon, said it’s not all about margin.
“I think that the one thing that we always attribute to sourcing as a key issue for retailers and brands is margin maintenance, but I would argue that margins are not the only issue,” Gribbin said. “When you think about the percentage of FOB that is labor and you think about how most brands and retailers operate, they start with IMU [initial markup unit] and they focus on IMU…I think the real issue is the old idea of an 18-month product development cycle.”
With the way consumers want today, retailers can’t afford the overlong development time that nowadays often means missed sales and inevitable markdowns. Product can’t just be sitting on a boat for as much as 12 weeks when it could have, or should have, been on the shelf.
“Time has brought huge complexity into the decision,” Gerardo Castagnet, vice president of global sourcing at LAT Apparel, said. “And the rate of change is accelerating.”
Sourcing has come to a crossroad of sorts: chasing low cost can no longer be a sole strategy, estranged relations between supplier and buyer aren’t sustainable and margin maintenance isn’t just going to be about the FOB cost.
“Asking vendors for FOB reduction is only going to get you small cents discounts,” Praveen Kishorepuria, a partner at Kurt Salmon, said. “You’re going to have to start looking at your vendor base.”
A study Kurt Salmon conducted in conjunction with Apparel magazine found that for retailers to truly sustain success, they’d have to start working with super vendors, or those that are at the forefront of technology, have a global manufacturing footprint, and have maybe even started their own apparel line, furthering their close connection with, and knowledge of, the sector.
Part of the reason retailers and brands haven’t tapped into to these new age vendors’ strengths is a lack of education.
“We don’t train our people, we don’t tell them this is best practice today, this is what it’s going to be tomorrow,” Gribbin said. “If we educate our people with even the basics…it will help us make better decisions going forward.”
And education extends beyond teaching suppliers and vendors how best to serve your business—it also means sourcing executives (and even designers) have to really have their hands in the process and not just fall into the too easy, out-of-touch ivory tower managing that leaves them removed from what’s really happening in the supply chain.
“There is a sort of loss of touch to the product we make,” said Josh Cherin, VP of supply chain at full-service private label manufacturer GMPC. “People haven’t spent the time in the factories to know and understand how to change the product and get what they want for the right price,” something that, in itself, would help with margin pressure.
Part of the enlightening of the supply chain will also be understanding why chasing cheap won’t really work the way it once may have.
“It’s a false promise to say ‘I’m going to save 80 cents on my labor if I move to Bangladesh,’” Gribbin said. “If you spend that extra money in the FOB on the compliance side and on the logistics side if you’re going for the lower labor, you’ve got to make up for it somewhere.”
Value, after all, is transparent, according to Cherin. Saving 80 cents in labor just means you may be paying for it at another point along the supply chain. What’s most important, he said, is choosing strategic relationships.
“Once in a while you have to rattle the cage and look beyond your normal suppliers and see what’s out in the market, checking on deliveries and capabilities and offerings from other suppliers,” Castagnet said.