Week 6

Chapter 5: Global SourcingNouf AlkharashiShradha Arora

Rose ChangRicky Prasad

Kunz, G., & Garner, M. (2007). Going Global: The Textile and Apparel Industry, 2nd ed.

New York, NY: Fairchild Publications.

Since the founding of the United States textiles and apparel products have been brought into the country from Europe.

Apparel imported into the United States has grown from 5 % to 95% in the last 50 years.

History

determining the most cost efficient vendors of services, material, production, or finished goods, or a combination of these at a specified quality and service level for delivery within an identified time frame. (p.135)

researching and obtaining materials,trimmings, and finished garments. (p. 135)

Sourcing:

- Customer- in the sourcing world, the company that contracts for delivery of services, materials, product development, or finished goods. (p.135)

- Vendor- a company that supplies services or products to other companies commonly known as customers. (p.135)

Roles in Global Sourcing

• a timeline related to to the sequence of design, product development, production, and delivery to the retail sales floor. (p.135)

Sourcing Calendar:

In order to decide how to go about withproduction of apparel… one must….●identify all the product development tasksthat must be accomplished and who should do them●evaluate vendors of materials, product services●know who will be responsible for sourcing tasks

Sourcing Options for Apparel

2 “factory direct” models used for managing production of finished garments:CMT: Cut-Make-Trim vs. Full-Package Sourcing

CMT: Cut-Make-Trim vs. Full-Package Sourcing allows “customer” [retailer, wholesaler, brand manager] to control the bulk of the product development, merchandise planning, designing, and sourcing of materials

Product line concept from the “customer” [retailer, wholesaler, brand manager].....then finds a Full-Package sourcer

CMT Vendor is then contracted & paid for the garment production; provides equipment for production

The Vendor finances most of the manufacturing process [including product development & material sourcing.

CMT Vendor= $ < CMT Customer=$ Full-Pack Vendor=$ > CMT Customer = $

●pricier due to more responsibility tied to Full-Package:●Vendor handles most of the manufacturing [product development & material sourcing]●Vendor must comply to Vendor Compliance: where the “customer” stresses the

performance standards in the process of development and production of the merchandise order.

●Questions must be asked of the Vendor to achieve the ideal full-package cost of the product:

● Does the vendor have the knowledge & skills to write the material specs needed to source the fabrics the customer prefers?

● Does the vendor have the technology, equipment, quality level to assure product quantity?● etc… refer to page 137.

●Why China?○ efficient supply chain strategies○ production capacity is high○ availability of labor force & variety in materials

Full-Package Sourcing terms

Private Brand: where a retail company or brand manager owns the rights to an exclusive label

Private Brand Importer: where a retail company who owns the exclusive label contracts its production from offshore facilities.

Types of BRANDS

Branded Importer: when traditional manufacturers conduct their production in offshore facilities in which they own or operate as joint ventures and import their own goods to the U.S.

● Why outsourcing occurs?• products can be manufactured more

easily in other distant locations

• materials readily available in offshore places

• costs associated with production is cheaper

TRADE FAIRS/SHOWSADDITIONAL SOURCING VENUES

OFFSHORE FACILITIES/JOINT VENTURES• can lower labor costs & taxes• however it can be risky in terms of cost of facilities &

equipment maintenance• other nations’ political/business climate uncertainty• Joint ownership of a facility may be beneficial

ADDITIONAL SOURCING VENUES

Licensing: when the value of a brand is extended through a contractual agreement between partners involved, allowing a brand name or celebrity icon to be placed on the product of another firm...

• type and quantity of products needed• monetary costs of acquisition• time required to produce and deliver the

products• custom requirements in different countries• manufacturing philosophies• sourcing calendars• product development systems-

Factors Impacting Sourcing Decisions

1.Quick Response business systems2.Agile Manufacturing• an operational strategy focused on inducing velocity

and flexibility in a make-to-order production process with minimal changeover time and interruption.

1.Lean Manufacturing• a philosophy of production that emphasizes

efficiency and strives to eliminate waste throughout the process, while improving quality.

Manufacturing Philosophies

Established set of rules ( material, shipping, quality assurance) Vendor Compliance Contract ( areas controlled by customer ) Communication ( Electronic Data Interchange )

Customs Customer, vendor and shipping countries agencies consulted. Duty paid before possession by importer. Merchandise held offshore if packaging regulations not met. Novice importers hire custom brokers.

Manufacturing Control & Vendor Compliance

Concept of error prevention - making right quality product in the first time is more cost effective than deciding what to do with defective garments.

Standards Characteristics used to determine acceptability,

performance, appearance, quality, etc. Parameters for business decisions & product consistency. Ensure profitability by providing customer desired

specifications as well as comply with govt. regulations.

Quality and Safety Standards

Used to establish tariff rate for duties on imported prod. Socially responsible customers use in clothing selection. USA considers COO as the country where the assembly

occurs and also the product is “substantially transformed”

WTO rules also determine that the COO label needs to be permanently attached like sewn in.

ASTM has made pictograms similar to those developed by ISO and has them on care labels on all clothes. This rules out the need for instructions in different languges.

COO Labeling and Care Labeling

Initially fabrics were produced then selected designers, this caused alot of waste now only samples are made, and if selected production quantities produced.

Contracts with suppliers for exclusivity. Shipping, cost, experience to be considered. Factory conditions, ethical practices ensured. Necessary equipment, available capacity, trained operators

available. Sourcing agent may be used.

Materials & Production Source Options

The basic purpose of a business is to make money for the firm.Acquire goods at low price and minimize expenses while paying for them.Macro-cost categories are inherent to all apparel production but the actual cost will significantly vary by the type of garment, number of garments ordered, materials and the methods used for the production.Contractual and sourcing also involves costing processes during the supply chain management.Shipment and payment scenarios should be at hand within the vendor and the customer.

COSTING

Fabric costs-Is the single largest cost of apparel production which is between 40-50% of the total cost of goods.

Macro-cost factors for Costing process.

Production costs- involves  full-package costs of product development and fabric costs plus CMT (Cut Make Trim) costs.

Logistics and Transportation costs-costs incurred for moving products through the manufacturing and distribution system to their final destinations in a timely manner.

Tariff costs- Are rates of duty charged on products gain entry into a country.

Factors Included in the Cost of Apparel Goods

Fabric 40% - 50%

Cut-make-trim (CMT) 20% - 30%

Labor portion of CMT (15% - 20%)

Trim percentage of CMT (5% - 10%)

Logistics and transportation 18% - 31,5%

Tariffs Average, 9%

Total cost 100%

—Sourcing forms includes CMT and full package

manufacturers, private importers and branded importers.

—Contractual choices process is involved when a

vendor and the customer are in terms. They agree on the price of the garments or items being purchased. Shipment of goods from the source to the destination.

SOURCING FORMS AND CONTRACTUAL CHOICES

—Vendor selection and payment of goods process.

—Clearing Customs are always into paperwork. It involves receipts and acknowledgement of goods. Customs declaration are done by the vendors.

Contractual process cont.

How can we relate what we have learned from this chapter “Global Sourcing” to the previously discussed chapters? Does it affect us as Consumers, our consumption & our

overall well-being? How?

Where is global sourcing in the supply chain & how can we make sourcing more sustainable?

Discussion Question