Deconstructing Your Sourcing Strategy – 4 Key Elements to ConsiderFebruary 27, 2018
Apparel brands and retailers have experienced a steady increase in production costs over the past couple of years. That combined with bigger competition and slowed growth, has added to the pressure to improve margin performance. As a result, businesses must analyze their sourcing strategy to find the most effective ways to keep costs down.
The struggle to keep up has businesses focused on the wrong thing – cutting costs by squeezing out suppliers. Although you may get a few cents out of suppliers, in the grand scheme of things, this kind of cost-reduction won’t have a substantial impact on overall cost, especially when goods are being marked down at an all-time high.
Instead, retailers and brands need to evaluate their sourcing strategy – four elements in particular - to find ways to not only cut costs, but meet the demand for shorter lead times. In this blog, we’ll take a look at the four key elements shared by John Cheh, CEO of Esquel Group, in a recent Sourcing Journal article, and find out how they impact your overall supply chain program.
Some retailers are striving to be fast fashion companies like Zara, but the reality is, not everyone can, or wants to, become 100% fast fashion. What’s more important is delivering products consumers actually want to buy, and in a timely manner. Whether you’re producing core or fast fashion pieces, or a mix of both, the products need to be delivered on a better timeline to avoid markdowns or out-of-stocks. Cheh suggests striking a balance between core and fashion, and says “that balance should follow the 80-20 rule, where 80 percent of the product mix is core running items and the rest is fashion designed to ‘dazzle and attract the consumer.’” Regardless of whether you are producing core or fast fashion pieces, you need to have a pulse on what’s currently selling, by having access to real-time sell-through data, to ensure better sell-through rates.
Some apparel brands and retailers have put quality on the backburner as they race to create fast fashion items and shorten lead times, but this is the wrong idea. Quality should never be compromised, and companies should never be tempted to cut corners. Instead, you should work with suppliers to get quality right the first time by implementing programs to avoid any issues. For some, this means investing in Quality Control solutions that allow for better collaboration and methods to identify and resolve issues sooner.
The burden can’t all be on the suppliers to increase speed to market. As Cheh said, “The key on timing is collaboration.” The bulk of supply chain delays are typically related to inefficient internal processes, such as using manual processes like emails or spreadsheets and not having access to share real-time data. Delays can also be caused by internal hold ups from designers and merchandisers looking to make the right decision. For example, when figuring out what color to produce, designers would have an easier time knowing ‘what’s hot’ if they had access to real-time sales data to back up their decision-making. Furthermore, collaboration from all teams will ensure better lead times and less internal setbacks.
The future of sourcing will have companies considering unit labor cost, not just labor cost alone. For example, though China’s labor rates are rising, the country has a cheaper labor cost per unit than Bangladesh. The Sourcing Journal article states, “It’s only on low value-added products where labor is the highest component and fabric is a commodity, where China ends up pricier. As such, lean manufacturing will be vital going forward, and so will higher productivity and line balancing to reduce non-value-added work.”
Redefine Your Sourcing Strategy
To successfully improve margin performance and make sure you have the right product at the right time, brands and retailers need to embrace the ‘digital supply chain’. Doing so will improve collaboration, bringing all internal and external players together in one system, streamline and improve the speed of communications, provide insight into the real-time data needed to make better decisions, and more. Embracing the ‘digital supply chain’ will take your sourcing strategy to the next level. As Cheh says, “It’s about redefining the sourcing strategy. If we have data exchange, sell through, positioning, inventory management, (all in one system) then all of a sudden you have the product at the right time.”
NGC’s Andromeda Cloud Platform enables the digital supply chain and can help you achieve the margin improvements you need to stay competitive. To learn more about NGC’s Andromeda Cloud Platform, request a demo today.