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Why This Sourcing Expert Says ‘Intermediaries’ Are Out

Despite Sourcing Journal founder and president Edward Hertzman’s assertion that “intermediaries are having a moment,” other industry insiders believe that the sector’s most current—and potentially lasting—buzzword is “disintermediation.”

Sourcing expert Steve Feniger, a veteran executive of clothing company Warnaco Group and sourcing agency Linmark, believes that the era of the buying agency has passed. Instead, modern brands and retailers are rolling up their sleeves and taking a hands-on approach to sourcing in the interest of protecting margins, enhancing efficiency and promoting transparency in their supply chains, he said.

“I think the biggest challenge for buying agencies is that they’re just not aligned with their customers,” Feniger said. As manifold challenges continue to pummel the apparel sourcing sector, from strained trade relations to factory ethics concerns and a global pandemic, brands are becoming increasingly wary of third parties managing their relationships with overseas manufacturers.

Feniger’s personal experience taught him that sourcing agencies’ interests can actually be diametrically opposed to those of their clients. These groups have little incentive to present customers with low-priced manufacturing deals because doing so would cut into their commissions, he said.

According to Feniger, sourcing agents can earn between 5 and 7 percent of the value of a deal they’ve brokered between a brand and a manufacturer. And while their customers are undoubtedly gunning for the best value, buying agencies sometimes seek to increase their earning advantage by not pushing for the lowest price. “We’re talking $10 for a pair of jeans instead of $9,” Feniger said. “If the customer is willing to pay that, then that will earn [the agency] that little bit of extra money—and as you can imagine, when you’re doing a billion dollars in shipments, 1 percent extra can make an awful lot of difference.”

Buying agencies also have a history of brokering deals that upcharge clients for services they may not need from manufacturers—from design to insurance and sampling—driving up the value of their contracts, and ultimately, the agency’s commission, he said.

The downsides aren’t just margin-related, Feniger added—though cutting out the middle man does have its benefits to a brand’s bottom line. In today’s modern sourcing landscape, he believes that brands should maintain their own relationships with “a roster of factories” that are specifically aligned to their production needs—and committed to protecting their designs. “If you look at some of the larger buying agencies, they might be working with brands that are very similar to each other, so there could be some potential leakage of IP,” he said, not just across brands, but across factories.

In lieu of dealing with middle men, Feniger said brands should work to establish direct partnerships with their suppliers—a prospect he insisted is much less intimidating than it might have been in years past. While brands once leaned on buying agents to help them navigate the customs, cultures and dialects of overseas sourcing locales, many second-generation manufacturing execs have studied in the West and are well-versed in English and other languages, he said, making the need for a translator less pressing.

“The factories have become more sophisticated,” Feniger added. “They market better, they do their own product development and design, and they interface with the buying offices much better.” And as the fashion industry moves toward an atypical buying calendar where quick turns and reorders are frequent and high MOQs have fallen out of favor, it’s all the more imperative that companies and their suppliers be aligned and in direct communication for the sake of efficiency, he said.

Feniger’s current venture, 55Consulting, helps brands install seasoned sourcing operatives internally who can interface with manufacturers and sourcing offices across Asia. “Typically, when we’re starting up, I just provide the umbrella coverage,” he said, “and then make sure we get a general manager who understands the nuances” of sourcing throughout these regions, including fluctuations in trade relationships, differences in expertise and capacity, and Covid’s impact on local workforces. Dedicated sourcing offices are set up in Hong Kong or Shanghai, depending on the location of the factories a client decides to work with, he said.

The issue of social compliance has come into sharper focus in recent years as concerns about human rights abuses and poor working conditions proliferate across sourcing locales, underscoring another reason for brands to bring sourcing in-house. “The first principle of traceability starts with needing to know which factories are making your goods,” Feniger said. While the concept seems simple, “very little is made where it’s purported to be made,” he added.

“People will take an order and show you a gleaming factory, but in reality, it may be being made down the road in a shack,” he said. The apparel manufacturing sector has become notorious for practices like subcontracting, where work is shared between factories on an unauthorized basis, perhaps in an effort to skirt labor laws.

The only way for a brand to ensure that its factories are compliant, according to Feniger, is to have “boots on the ground” to monitor performance after a contract has been signed. Quality control agents managed by a sourcing office act as a brand’s eyes and ears at the factory level. “If you’re going to make 10,000 shirts and it requires 2,000 sewing machines and approximately 2,500 workers, they will want to know, ‘Where are those workers?’”

By contrast, sourcing agencies may not have the bandwidth or the motivation to engage with factories to ensure that best practices—and laws—are followed. While Feniger said that labor laws in China, for example, are “beautifully proscribed” with “world-class protections” for workers that limit work hours and mandate overtime pay, “how well the law is implemented is a different question.” Workers and factory owners can sometimes be complicit in circumventing the rules in the interest of making more money quickly, he said, and facilities that operate this way need to be rooted out by someone with a vested interest in protecting a brand’s integrity as well as the health of a factory’s workforce.

A sourcing office acts as “the guardian of a brand’s name,” he said. “Its job is to make sure they’re following both letter of the law and the spirit of the law.” That’s especially important in the world of 21st-century sourcing, as shoppers become more values-driven and willing to vote with their dollars. The concept of the ethical, transparent supply chain has now morphed, for consumers, “from a ‘nice-to-have’ to a ‘need-to-have,’” he said.

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