1. Selecting the Right Sourcing Strategy to
Sustain Competitive Advantage
June 23, 2015
(prepared by Inna Zubashko)
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2. Low-Cost Country Sourcing is one of the most critical success
factors in the modern-day Apparel Industry
 For many years, Buyers and
Consumers have benefitted from
moving production actives to
low-cost countries in the Asia-Pacific
 Apparel buyers have Five main
criteria for ideal sourcing locations:
price, quality, capacity, speed,
and risk
 Recently, a series of tragic events in
Bangladesh’s garment factories,
focused the world’s attention on the
sourcing strategy of larger players in
the industry
 The sector must now play a role in
developing economies in a
sustainable and socially
responsible manner
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3. A 2013 McKinsey apparel CPO survey¹ indicated a number of trends,
including expectations over increases in prices, sourcing
countries, and destination opportunities
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76% of survey respondents expect slight to very
strong cost increases (> +1 to > +4%)
72% of respondents expect sourcing share from
China to decrease in the next 5 years
86% ranked labor cost advantages among the three most
important reasons for sourcing in Bangladesh. Buyers plan
to increase sourcing share in Bangladesh through 2020,
even an ongoing debate over safety issues.
Despite recent events, Bangladesh remained at the top
of the list (top 3) for over 80% of respondents sourcing
countries and expected to grow over the next 5 years
1 The Global Sourcing Map – Balancing Cost, Compliance, and Capacity
McKinsey’s apparel CPO survey 2013

4. Today’s trends indicate continued rising sourcing costs, begging the
question of how companies should respond and adjust tomorrow.
Today’s Trends
 Three out of four leading apparel
buyers expect sourcing costs to
increase over the next 12 months, with
labor costs as the lead driver
 Sourcing at lower cost countries
continues to have major compliance
issues
 China is remaining the largest sourcing
market, but buyers are continue to seek
alternative destinations in Asia,
Africa, and South America
How do we adjust and respond to increasing sourcing costs?
Tomorrow Expectations
 Sourcing price increases are
seen as inevitable, making it
difficult to keep consumer prices
stable
 Consumers are not willing to
pay more
 Retailers are not able to afford
higher costs and are not able to
increase retail prices
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5. 5
The current “Asia League” table shows that no fundamental changes
are expected:
Other promising destinations should be able to guarantee that they can take on large volumes, be
able to deliver against expectations, and will provide the long term investments necessary to secure
success. It is unlikely that promising alternative sourcing destinations would be able to take on any
sizeable share of the export market within the next five years.

6. Sourcing strategy is not just about labor cost
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To address increasing cost pressures,
apparel players are seeking for paths to
new sourcing options.
But they need to intensify their drive for
sustainable, socially responsible
business models in order to meet new
industry demands.
Although cost still matters in
apparel sourcing, lower-cost can be
achieved through means other than
seeking cheap labor.
2 ”CNN - Bangladesh vs. the U.S.: How much does it cost to make a denim shirt”
http://www.cnn.com/2013/05/02/world/asia/bangladesh-us-tshirt/

7. Creating end-to end product making efficiency through managing
material for better end-to end supply chain
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Optimize fabric selection, which
accounts for as much as 60%- 70% of
the total cost of a finished garment
(vs. 30%-40% of labor cost).
Use fewer yarns and weight
classes to reduce fabric count
and lower sourcing cost.
Uniqlo’s
model
2 ”Apparel Industry is Not All About Labor Costs”
https://tmd433.wordpress.com/2014/12/14/apparel-industry-is-not-all-about-labor-cost/

8. Structure joint and integrated supply chain structure
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Build 15-20% of the season’s styles
and pre-position about 65% of the
raw materials before the season (both
in-house and from production
partners).
During the season, analyze sales by
staying in constant communication
with its stores and with the design
team. Designers then create new
styles by adapting the best sellers
using the pre-positioned material.
Zara
Model
2 ”Apparel Industry is Not All About Labor Costs”
https://tmd433.wordpress.com/2014/12/14/apparel-industry-is-not-all-about-labor-cost/

9. Sourcing best-practices
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Sourcing
Best
Practices

10. 10
Sourcing best-practices: Cost
Innovate in product, technology,
finishes – give customer more in
exchange to charge more.
Examine cost drivers. Challenge
the team on how can we
influence each cost component?
Segment sourcing team by regions
and challenge them to look at all
styles at other regions to create
friendly completion. Have dual
sourcing strategies with key
product
Push down total cost of
ownership. Look at smaller ports.
Look at sampling turn over. There
is a real premium on planning.
Leverage inventory investments
and plan more precisely against
fabrics
On Cost

11. 11
Sourcing best-practices: Technology
Enforce discipline on PLM process
to benefit you. Get right systems
and technologies to analyse and
manage your data.
Focus your human capital on things
that matter
Use technology to mitigate risk:
analyse data up front
Use technology to improve supply
chain visibility and collaboration
into vendor’s compliance.
Companies can take advantage of
the constant shifting trend
landscape
Avoid interfaces and legacies.
Think about who you want to be
in a next 5, 10, 15 years.
You want technology that you can
grow into
On
Technology

12. 12
Sourcing best-practices: China Sourcing
China won’t be the opening price
point country; Vietnam and
Bangladesh can be used for key
items. But China will not be going
away
Southeast Asia has been the big
beneficiary. But reasons why we
source in China remain valid and
China will be a huge part of
sourcing going forward.
Collaborate with suppliers in China to share the joy
of sewing in “lululemon way”. Work with suppliers to
help promote the idea to their employees that
sewing is cool
On China
Sourcing

13. 13
Sourcing best-practices: Sourcing
Build strong sourcing in Vietnam,
Indonesia and Cambodia. Pakistan
will straighten itself out and come
back. Consider vendors with vertical
locations for key items and
commodity business
The real question is “who is the
next best guy” – not “what is the
next best country”.
Stay loyal to your vendors.
Remain sourcing vested in Western Hemisphere. It
can help with replenishment and fast fashion. Access
duty-free trade benefits via CAFTA, NAFTA, and free
trade agreements with Colombia, Peru, and Chile.
On Sourcing
In general

14. Key takeaways and Lesson Learned
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Vendor reliability can be a tough problem. We all have had to scramble sometimes to find an alternative vendor. It's
important to keep close tabs on our vendor base, to include understanding of their financial positions and/or to have
back up. Also, understand that low cost does not always translate into the best product.
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We should challenge ourselves to ask - ‘Are we buying our product as efficient as we can?' and ‘What can we do to
improve that relationship that will eventually yield a lower price?’
Initiate at least once a year sit-down with the top 5 vendors. Have open discussions about best practices and major
mistakes. Be open for discussions and changes.
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In the aftermath of the tragic factory fire in Bangladesh, workers safety has emerged as a top supply chain issue. Supply
chain systems should provide instant access to vendor profiles, with critical information such as each supplier's current
compliance audits, quality and performance history, and factory safety records. Systems can help proactively notify
retailers, brands and factories of upcoming audit and re-certification dates and assign a corrective action plan if factories
don't pass the audit.
6
Have multiple factories around a product; you cannot be limited to one product in one country. Challenge your OS teams
to look at the region they are responsible for and think about the products you are making in other regions: ‘Can you
bring that other product into another region?’
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You must have continuity of supply. Historically we approached vendors according to our separate brands, but we
should learn how to approach sourcing more corporately. Cut out your vendor base to a reasonable amount of vendors.
Vendors are important to us, but we should be able to remain important to them from season to season.
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15. Questions?
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