8 AUGUST 2011 • www.apparelmag.com As Kurt Salmon and Apparel magazine mark the fifth year This study is based on a survey of key sourcing topics affect- of producing the “Excellence in Global Sourcing” study, we ing the industry today, presented in aggregate. Apparel and look back over the landscape of the past five years and realize Kurt Salmon would like to thank the Apparel readers for their that both nothing and everything have changed. The themes participation. A more detailed analysis will be presented by such as diversification, control and visibility that were driving Kurt Salmon on Aug. 22, 2011, at Apparel’s Sourcing Summit sourcing executives to make key decisions in 2007 are the same at MAGIC in Las Vegas, Nev. To register, visit apparelmag.com. ones that are driving them still in 2011. However, the land- scape has changed significantly, the stakes are higher and Survey Methodology and Respondent Profile the need to have the technology in place to support the The sourcing survey was comprised of approximately 40 future organization is even more critical than it was five short questions covering sourcing activities from the post-product years ago. development stage to delivery at the final destination. Survey This year Kurt Salmon and Apparel magazine look at respondents profile as follows: these three main themes of diversification, control and visibil- 4 48% Retailers and 52% Manufacturers ity and compare how organizations have evolved over the past 4 75% of respondents work in corporate operations, five years, consider the current variables in the marketplace product development or sourcing/procurement that are driving many of the decisions and highlight key insights 4 28% of respondents have greater than $1 billion in gleaned from our survey respondents. annual sales volume The results of the 2011 survey focus on the challenges that 4 39% of respondents have less than $100 million in annual apparel brands, manufacturers and retailers are facing because sales volume of raw material inaccessibility. Additionally, the analysis focuses 4 Approximately 10% of respondents have more than 500 on the use of technology in product development, delving into stores the way in which organizations are utilizing product develop- 4 70% of respondents have sourcing based from their home ment management (PDM)/product lifecycle management (PLM) country and 50% of respondents have a centralized or sourcing systems and whether or not the businesses are obtain- sourcing group in the home country or corporate ing the expected results. The analysis investigates these themes headquarters as they relate to diversification, control and visibility; offers sound 4 More than 50% of respondents have a FOB$ per Sourcing suggestions; and identifies forward-looking opportunities for FTE under $2 million. apparel companies to consider as they navigate through the chal- lenges that are vastly different from past years.
FIGURE 1 – Trends Then and Now
TREND THEN NOW Diversification — Whether it’s sourcing China is all the rage. Will all apparel be Respondents are continuing to investigate regions or sourcing partners, having a sourced from a single country — China? new regions such as Cambodia, Vietnam well-defined diversified sourcing strategy 40% of survey respondents said the top and Latin America to diversify their access is the foundation for successful sourcing. 10% of vendors supply 80% of product. to raw materials and mitigate risk.
Control — Sourcing organizations are Direct sourcing is growing rapidly. Many Companies are controlling more of the continuously improving their skills and companies are establishing a global supply chain, managing supplier capacity capabilities with the expectation of physical presence and creating direct and developing direct relationships with achieving more influence over their relationships with suppliers. Dual mills. Dual Sourcing continues to gain sources of supply. sourcing and postponement are gaining ground. ground.
Visibility — Continued investment in Data sharing must increase. Companies Data sharing must increase. For process automation and tools that enable are pushing information to the vendors companies who have implemented visibility is in keeping with the theme of (Tech Packs, POs) and getting PDM/PLM or sourcing systems in the transparency that has gained momentum information back (ASN, Invoice). past 12-24 months, the primary business throughout numerous industries in the drivers were improved visibility, better global economy. collaboration with trading partners and improved efficiency of the organization.
www.apparelmag.com • AUGUST 2011 9 coverstory
FIGURE 2 – Most Significant Risks to Sourcing Strategy 50% <2010 <2011
40%
30%
20%
10%
0% Product Financial viability Stability of Potential trade Supplier capacity/ Depreciation of U.S. economy/ Increase in quality/recall risk of supply base countries/regions agreements capabilities U.S. Dollar domestic sourcing country consumption labor costs
Key Sourcing Trends businesses. Companies are increasingly concerned about their Figure 1 provides a quick look at how our view of the three ability to reserve capacity and the capabilities of suppliers in devel- major trends has changed in the past five years. oping source countries. As a result, a larger percentage of survey Clearly, companies have battled with cost reductions and, most respondents say they plan to dual source more than 20 percent of recently, the impact of fluctuations in commodity/raw material their sourced product than in previous years; 29 percent in 2011 prices. The most significant macro-level trends that apparel sourc- as compared to 13 percent in 2010. (See Figure 3.) ing executives identified as ones to watch include the price of cot- ton, the price of oil and employment/labor issues. The pricing Hot Spots for raw materials such as cotton has been on a steady rise over the The Americas, Eastern China, South Asia and Cambodia/South past three years; the good news is that recent U.S. Department Vietnam remain the most popular regions of the world for sourc- of Agriculture reports are beginning to show the stabilization of ing product, while sourcing executives have reported that Latin cotton pricing expected for the end of 2011/2012. America, Cambodia and Vietnam still remain high on their list of As seen in Figure 2, in the past year, increasing labor costs in new sourcing regions being explored. However, in light of the recent source countries has become the most significant risk to apparel natural disasters in Japan, Haiti and Chile and the political unrest in the Middle East, only 15 percent of respondents this year com- pared to last are more likely to take this into account when trying Figure 3: Dual Sourcing to mitigate risk. Sourcing executives should ensure they maintain Percent of Companies Dual Sourcing a well-constructed sourcing strategy and that contingency plans >20% of sourced products 30% are in place in anticipation of production disruptions. When selecting a sourcing region/partner, executives reported that they are most concerned with cost, lead time and quality, as 25% was similar to the 2010 study. (See Figure 4.) Cost and quality con- tinue to be the most important factors that executives evaluate 20% when selecting a sourcing partner or region. Lead time in prod- uct development is an important factor because of the economic 15% challenges that businesses are facing, as increased lead time reduces the likelihood that products offered to consumers will be most closely aligned with demand. 10% The survey results reported that companies are focusing more heavily on aspects of control within the supply chain. Not 5% surprisingly, the emphasis placed on quality when selecting a sourcing partner remains a top metric, as executives seek out
0% partners that deliver superior products requiring little re- 2007 2008 2009 2010 2011 work or cost of recall. The movement of accessibility of raw
10 AUGUST 2011 • www.apparelmag.com Lectra Fashion PLM coverstory
FIGURE 4 – Factors Considered When Choosing a Sourcing Region/Partner
Cost 29%
Quality 18%
Lead time 15%
Accessibility of raw materials 11%
PD/execution capabilities 8% Social compliance 6% Mature, established region/historical partner 5% Trade preferences 4% Financial terms 4%
materials up the rankings echoes the earlier sentiments that identified as a top priority related to a system implementation. raw material prices and lead times are of paramount impor- The anticipated benefits married well with the reported benefits tance. Cotton and oil prices have forced executives to make per survey respondents. For companies that have implemented tough decisions regarding raw material commitments. Accord- PDM/ PLM or sourcing solutions, the top types of information ingly, raw material knowledge has been identified as a top value- captured and managed by the system are: tech packs and prod- added service that sourcing partners can provide to businesses. uct development and spec management (tied for first), total cost Product development and design and quality management also and production tracking. were identified as important services that sourcing partners should provide to their clients. Lack of Integration However, survey results indicated that companies with a PDM/ Need for Visibility Increases PLM or sourcing solution are not fully integrating components The third trend that has been evidenced over the past five years of the system. Of respondents, 40 percent said, “Most tools is an increased need for visibility. This has continued to show can exchange and update each other’s data,” indicating a low through in the consistent year-over-year responses to questions degree of integration across sourcing and product develop- such as the percent of merchandise expedited, initial fill rates and ment processes and functions. Only five percent of respondents inventory turnover. This year, however, we delve a little deeper indicated that their tool automatically exchanges and updates into the use of product development, PLM and sourcing systems data from these functional areas. While many survey respon- to support the sourcing organization and improve visibility. dents indicated a need for greater collaboration with sourcing The availability of technology options to aide apparel manu- partners, more than 60 percent indicated that “sometimes” or facturers has not gone unnoticed in the past five years. However, “never” is their data linked/shared across various sourcing and survey responses found that Excel, Access or other home- product development processes. grown tools are the primary type of technology used by respon- System selection and implementation is a process that involves dents. Following closely behind are respondents that have a variety of functions within an organization. Survey respondents implemented a PDM/PLM or sourcing solution, but have yet to indicated that the top three functions/individuals involved in the fully realize the benefits of the solution. By not changing behav- process include: sourcing and IT (tied for first); merchandising; iors to realize the full potential of an implemented system, apparel and supply chain/logistics. When undertaking a system selection companies are forcing old processes to fit into a new tool, with- and implementation, companies should ensure that major func- out taking advantage of the inherent benefits designed into the tional areas (anticipated to include the greatest number of users technology solution. or need the greatest change management), are involved in the Companies that implemented PDM/PLM or sourcing solutions process from the requirements gathering stage through the selec- in the past 12 to 24 months reported that they did so to achieve tion. By anticipating change management issues, executives can improved visibility to internal and external data and to more quickly better increase system adoption buy-in by involving parties and easily collaborate with sourcing partners. Additionally, improved early in the process. efficiency of the organization, resulting in reduced cycle time, was
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FIGURE 5 – Technology Utilization by Company Size 80%
70% 50% 40% 30% 20% 10% 0% Excel, Access or other Implemented Implemented Utilize a PDM/PLM/ Utilize a PDM/PLM/ Identifying or home grown tools PDM/PLM/Sourcing PDM/PLM/Sourcing Sourcing system Sourcing system evaluating a system, but don’t use system, have yet to to collaborate to collaborate technology change processes internally externally solution Looking Forward Sourcing continues to be an important part of today’s apparel company and provides opportunity to gain efficiencies and improve financial performance. As seen especially in the macro-economic environment of the past few years, a strong sourcing strategy revolving around diversity in both vendors and region, control of internal capabilities and processes and improved visibility through sound technology systems and aligned processes can guide sourcing executives to excellence in global sourcing. Steps to achieving Excellence in Global Sourcing: 4 Concentrate on building a sourcing portfolio that is diverse and encompasses many regions; 4 Be cognizant of the possible need to take tough positions on material commitments and base those decisions on market trends and discussion with sourcing agents; 4 Focus on obtaining volume discounts where possible based on aggregation of company’s needs (i.e. similar fabrics used across Men’s/Women’s); 4 Integrate systems to improve efficiency of the organization, better collaborate with trading partners and improve visibility; and 4 Embrace systems’ processes. Sourcing executives should continue to focus on how to turn sourcing into a competitive advantage, and how to integrate with a supply chain strategy. The diversification of a sourcing strategy is paramount, as is visibility and control further into the supply chain. When looking at the factors of quality, speed, cost and risk, executives should not try to achieve all four, but should concentrate on the components that provide the great- est value add to delivering the products that consumers want, when they want them. n 14 AUGUST 2011 • www.apparelmag.com coverstory ABOUT THE AUTHORS AMY BURNS is a Manager of Kurt Salmon’s Research & Knowledge Center Services. With more than 15 years industry ABOUT KURT SALMON experience, she has worked with leading retail and consumer products manufacturers to conduct market analysis, Kurt Salmon is the leading global benchmarking and best practices in merchandise planning, management consulting firm specializing in product development, sourcing and supply chain strategy. Amy the retail and consumer products industry. was instrumental in the development of and actively manages Kurt Salmon’s We leverage our unparalleled industry product benchmarking database. She is a member of the Society of Competitive expertise to help business leaders make Intelligence Professionals (SCIP). A resident of Villa Rica, GA, Amy works from Kurt strategic, operational and technology Salmon’s Atlanta office. She may be reached at [email protected]. decisions that achieve tangible and meaningful results. For more information go MEGAN L. WEINER is a Senior Consultant in Kurt Salmon’s to www.kurtsalmon.com. Retail and Consumer Products Group. Megan has been working with Kurt Salmon clients to create world class strategies, improve their processes, and select the best technology platforms in product development, sourcing, merchandising and logistics. Megan obtained her MBA from the University of Chicago Booth School of Business in June 2010 and came to Kurt Salmon with five years of prior consulting experience focused within the retail and manufacturing industries. Megan is also actively involved in Kurt Salmon’s social media efforts, managing the Consumer Group’s Twitter account (@KurtSalmonCG_NA). 16 AUGUST 2011 • www.apparelmag.com