Sourcing Today: Upsides, Downsides and No Surprises

Jessica Binns
Senior Editor
Education, preparation and a relentless view to the future are essential to successful apparel sourcing operations in today's shifting landscape, according to speakers at the American Apparel and Footwear Association's International Sourcing, Customs & Logistics Integration Conference.

Despite industry-wide ripples created by a spike in cotton prices and the strike at West Coast ports, PvH chief supply chain officer William McRaith says these events weren't unforeseeable. "Cotton wasn't a crisis," he explains. "That was 18 months in the works, and you could prepare for it." And though many companies were perhaps caught off-guard by the work stoppages and the logistical headaches they created, "no one can say they're surprised by it," he adds.

It's no surprise that the pace of change throughout the apparel industry has continued to accelerate dramatically in recent times, with the expectation that change is perhaps the only constant today. McRaith describes the past 20 years of his career as a "training exercise" compared to how the world has evolved just in the last 24 months. "How much of your day do you spend looking over the horizon and thinking about what's coming next?" he asks. Anticipating the future, he suggests, is the best way to ensure that businesses have safeguards and backup plans for the next strike or increase in raw material costs.

Apparel companies obsessed with first costs will do well to shift their focus instead to maximizing profitability, which may mean getting the best possible cost in some instances and in others, offering the best possible responsiveness to customers — as long as the end product is sold at some sort of profit, of course.

Trial and error
There's a lot of talk about the "next China," but Rocky Brands' Michael Walker, senior vice president and general manager of supply operations, believes there won't be one — and brands shouldn't be so overly invested in one area of their supply chain that they'd need one. By contrast, PvH is looking to "prospect" in Africa, which, as an underdeveloped market compared to Asia, is primed to be the next destination, says McRaith.

Although Walker notes that innovation often doesn't happen when companies try to do everything on their own in-house, supplier partnerships come with their share of ups and downs. "There are 11,000 footwear manufacturers in Mexico and we've tried half of them," he says, noting that theft and lengthy lead times were among the top challenges there. Meanwhile in India, moving manufactured product from inland factories to outlying ports results in a lot of goods getting lost or otherwise going missing, Walker says.

Brown Shoe Company is another brand with sourcing activities in Africa, following its Chinese manufacturing partner to Ethiopia, which has an abundant leather supply coupled with preferential duties. Jeff Kuhn, vice president of enterprise supply management, expressed indifference on India. "Their notion of on-time execution is different than ours," he says.

After revamping its supplier scorecard system and rating partners on cost, speed and quality, Brown Shoe Company slashed its factory base in half, and now many of those suppliers are dedicating half of their capacity solely to the footwear brand, a stark change from earlier days when many weren't even producing one full line of shoes, Kuhn says.

Chasing every last dollar and dime may not always be a winning strategy, especially for the largest apparel companies. "Five million dollars in savings doesn't move the needle for $50-billion retailers, but 21 days time savings makes a difference," observes Rick Horwitch, vice president, strategy, solutions business development and marketing for Bureau Veritas.

Near and far, or near and nearer
Domestic manufacturing and nearshoring are becoming top of mind for both Rocky Brands and BSC. While Walker's company reviewed a factory in Tennessee because salespeople are "always asking for Made in USA product," Rocky Brands has found that people simply don't want to pay the accompanying higher price, perhaps a sign of the still-sluggish economy. Even when the company manufactures products domestically in a Puerto Rican factory, consumers don't accept "Made in Puerto Rico" as "Made in America," Walker notes.

On the other hand, Kuhn says nearshoring is an attractive speed-to-market play, with BSC exploring options in Mexico. West Coast manufacturing offers advantages for fashion-forward brands looking for frequent, smaller runs, he adds.

Sometimes the risk of setting up shop in a new market doesn't pay off when the local government isn't a strong partner and the country is roiled by instability, as Hanesbrands discovered in Jamaica. The undergarments brand employed 5,000 workers in the Caribbean island, but pulled out when its security chief was murdered as a result of cartel violence (local gangs were piggybacking their drugs in the company's cargo containers) and the killer was arrested — but promptly paroled. "Half of my time has been spent learning how to fight the cartel," says Jerry Cook, Hanesbrands' vice president of government and trade relations. "You have to not trust the person loading your containers, but then that means you have bigger problems."

In the U.S. one textile mill can create approximately $250 million in economic productivity, which Cook believes is evidence that the industry needs new textile advocacy processes. Speaking to the U.S. regulatory environment, he revealed that Hanesbrands spent more than three years battling government stipulations requiring that clothing labels be "permanently attached" to the product. Screen printing labels wasn't an option but they could be thermally affixed. Still, says Cook, why can't consumers simply go online to look up care instructions? "It's time to take our future back," he says of the overabundance of compliance regulations.

"We've allowed regulations to grow and stifle [the industry] and increase complexity," Cook adds. "Hope is not a strategy. The industry must band together to solve this problem."

In Bangladesh, working toward a better future
The Alliance for Bangladesh Worker Safety and the Bangladesh Accord on Fire and Building Safety — the American and European counterparts dedicated to improving factory conditions in the Asian nation — represent 90 percent of exports to the U.S. and Europe, and Rick Darling, executive director of government and public affairs for LF USA reports a recent 15 percent in orders from Bangladeshi facilities.

In an effort to overhaul the factory safety environment, the Alliance wrote to the Bangladeshi government asking for duties — as much as 31 percent for sprinklers — to be eliminated on essential fire and building safety equipment. While the nation's building code is "pretty adequate," Darling notes, the problem lies with enforcement; just 40 of 3,500 factories maintain certificates of occupancy.

Bangladesh's infrastructure deficiencies also compound safety issues. With 2,500 people per square mile and a population of 160 million packed into a country the size of Wisconsin, getting more resources such as fire trucks is helpful only if they can actually get where they need to be.

Social compliance as business incentive
Many sourcing countries realize social compliance is a significant business incentive that can strongly affect not only how they're perceived by the world but also impact their ability to create jobs.

Myanmar has reopened to U.S. companies after a 10-year ban revolving around labor issues, but companies "aren't rushing back" due to lingering concerns over factory standards. "Can we get some things right going in instead of a race to the bottom or bungling things initially?" says Nancy Donaldson, director of the Washington office of the International Labor Organization.

It's unlikely that the industry will again have "another Bangladesh" simply because the world took notice of the massive tragedies that happened there, says Avedis Seferian, president and CEO of WRAP. "How do we get resource-poor emerging sourcing countries to be turnkey into compliance when the First World has grown into compliance?" he says.

Still, doing the right thing is in and of itself a compelling business case because it saves money for all stakeholders in the long run, Seferian adds. While it's tempting to generalize and stereotype each sourcing country, apparel companies must evaluate each factory individually to determine which manufacturers can meet your standards and requirements.

"A high- or low-risk country is just the starting point," he concludes.
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