It’s that time of year again when Top 10 “Best Of” lists for every superlative around are released both for the year that’s just ended and the new one that’s starting. With that mindset, I set out six months ago to research and write what initially seemed like a straightforward piece on the top 10 sourcing companies.
Months of phone calls, emails and Google searches later I am no closer to being able to offer you a definitive list today than I was at the beginning.
The simple truth is that apparel sourcing, as both an activity and an industry, has substantially evolved in the last two decades. Gone is the historical model in which retailers relied solely on relationships with buying firms. In its place, a dynamic and rapidly changing multitude of sourcing strategies has bloomed. Retailers that source, manufacturers that sell, corporate sourcing firms that retail, and hybrids of all three coexist now, with companies in each channel proving to be highly efficient and successful sourcing firms in their own right.
Many retailers have developed supply chain structures so evolved they can do more in-house now than they could previously do through partnerships. Other companies continue to rely very successfully on outside buyers or agents. Some have developed a hybrid strategy. Some large conglomerates with dozens of brands continue to provide a lifeline for the retailers that have not wanted to or succeeded at developing their own supply chain.
Creating a meaningful Top 10 list in this fractured sourcing landscape is nearly impossible. How do you compare a retail behemoth like Wal-Mart with a perennially well-run, brand-focused apparel company like VF or PVH? How do you measure the health of a company’s sourcing operation? Sales? Volume? Market penetration? Efficiency? Those are all important elements of a successful model.
“There is a fly in the ointment,” said one long-time industry veteran who has worked for buying firms. “How do you define a sourcing company?” In the past, a sourcing company was an agent for a retailer, and a firm like Li & Fung thrived by being the biggest and best agent. But factory direct sourcing is enabling sophisticated retailers to bypass those middlemen. “There is an emergence of a new type of sourcing company: one who is a full service supply chain provider without a middle man, without an agent.”
Another industry expert on the financial side of the business pointed out that thirty years ago Limited was on the cutting edge of sourcing because they’d cut their delivery time by flying merchandise into the U.S. instead of using ships. Today, it’s still about getting the right product in stores at the right time for many retailers, but the drive to innovate the delivery methods dates back decades, he noted.
What makes a good sourcing firm great–regardless of the business DNA of a specific company–still comes down to some common best-in-breed characteristics, industry watchers and experts agree.
In interview after interview, industry experts said that the sourcing companies worthy of being emulated have a mix of the following traits:
2. Business dexterity
3. An understanding of “old school” retail concepts (like keeping strong sourcing relationships)
4. Savvy use of the newly available data and analytics
5. Compliance awareness
6. Financial strength and stability
When experts are asked to name the best companies, their answers range from mass marketers with strong general merchandise offerings like Wal-Mart, Target, Sears and Macy’s to perennial brands like PVH, Limited and VF. Newer companies, notably Inditex and Uniqlo, are also cited for creating entirely new sourcing playbooks. Uniqlo, for example, has had a great deal of success by working very closely with a very small group of manufacturers. In contrast, Wal-Mart can benefit from its sheer size and order volume. Because of its scale, Wal-Mart is able to take more risks and play a longer game in squeezing cost out of the supply chain. J.C. Penney, Nike, Gap, Kohl’s and Under Armour were also cited as companies with notable sourcing strategies.
Many of top contenders for the sourcing crown are older companies that have been able to adapt to the changing landscape. For many years, said one industry expert, sourcing functions were fundamentally about relationships. Somebody knew a guy in China, or they knew a guy who knew a guy in China who could arrange your sourcing for you, and you were up and running.
“Careers were built around that, and a surprising number of companies’ sourcing strategies were built around that,” he said. The next version of that approach developed over the last couple decades when companies started building their own manufacturing armies on the ground in places like China. Those people built relationships, monitored factories and oversaw other business functions.
However, he added, there has been a fundamental shift in the last five to 10 years as more data has emerged about every aspect of the apparel business.
“Data allows people who don’t have the relationships to figure out where to start. In that sense, it’s a bit threatening to people who built their career on knowing about a factory no one else knew about. Those days are past. Simultaneous to the explosion of data was an increasing awareness that there were so many options available to you,” he said. “If you don’t take advantage of those options, your competitor will.”
What the best companies have been able to do is hybridize the relationship model and the data model to create a highly informed and tight knit sourcing apparatus. An intelligent hybrid is the most effective approach because neither model alone can provide you with all the information available, industry sources stressed.
“The best organizations I know are the ones intelligently combining those very different assets, and building the capabilities to take advantage of those two different aspects. It often means two very different types of people–data people and relationship people–and it also means defining a process where they can interact and build on strengths, not work at cross purposes.”
This approach requires a lot of self-awareness, industry sources noted, and the top sourcing firms have that. Top companies know their strengths and weaknesses, where their best resources are located, and how to deploy those strategically. They also know not to get distracted by trying to emulate another firm’s sourcing chain.
Not every company should be chasing the lowest cost of needle into a developing sourcing country. For some apparel firms, simply keeping up with their competition on the sourcing front can give cover for a winning battle elsewhere. That can be a more effective long-term brand strategy. For example, there are retailers whose greatest strength lies in quickly meeting the demand for new styles, but at a slightly higher price than slower firms. Not every company wins by shaving pennies off their sourcing costs.
In many ways apparel sourcing in 2013 is a brave new world – one in which a Top 10 list means little to firms. As technology and business models continue to evolve, the most successful companies are likely to continue to be the ones that know their own strengths and weaknesses and are able to develop a strategy that plays to those. The companies to emulate have such varied approaches that finding a prime example to model your sourcing structure after will likely be a tricky business.