NEW YORK — Don’t count Rick Helfenbein among the naysayers on sourcing in China.
This story first appeared in the June 12, 2012 issue of WWD. Subscribe Today.
While some in the apparel industry have begun to shy away from Chinese manufacturing because of rising labor costs, Helfenbein, president of Luen Thai USA, said companies should think twice before abandoning the world leader in apparel and textile production. He noted that China still holds a 38 percent share of U.S. apparel imports despite higher costs and strategic shifts by Chinese manufacturers to upgrade their product mix and produce more for domestic consumption, and in the face of Western brands diversifying their sourcing base.
Giving the keynote address at Geller & Co.’s “Standing Between Retail and Reality” seminar, Helfenbein said at Luen Thai he has turned to a “China Plus 2” plan of using the world’s most populous country as a base of manufacturing operations, and then choosing two other nations to round out the product portfolio. He said the three next largest apparel suppliers — Vietnam, Indonesia and Bangladesh — are logical choices, and also cited the Philippines, with which he is involved in lobbying for a trade preference pact called the Save Act that would provide duty-free treatment to apparel products imported into the U.S. that have been manufactured in the Philippines using U.S.-made fabrics.
The executive, whose company topped $1 billion in volume last year, urged the financial executives in the room to become more involved in their company’s supply chain because of the way it can impact profitability. He cited chains such as Uniqlo and Staples as examples of retailers that are successfully focused on that aspect of their businesses. He said both stores utilize the strategy of being “always in stock at the lowest possible price — that’s the world we’re living in today.
“When we say supply chain, it means design, planning and execution — control of product, building competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, measuring performance globally and a clear vision of what it takes to make money at retail,” he said.
According to Helfenbein, there are three cardinal rules of supply chain:
• “Hire really good sourcing people and then trust them and then get involved.”
• “All that glitters is not gold. Someone is going to walk into your office and say, ‘You know that the wage rate in China is $480 a month and the wage rate in Bangladesh is $120 a month? I think we should move everything from China to Bangladesh.’ Don’t do that — all that glitters is not gold.”
• “Understand the metrics and the basics of the business.” He explained the rule of thumb that two-thirds of the business is capital related and one-third is labor related.
Within these overriding factors are issues such as worker productivity and skill level, transit time and speed-to-market capability. He said studies have shown that the average worker in China makes 40 garments a day, while in Bangladesh they only make 10 a day. In addition, the supply chain from raw material to shipping the finished goods is longer in Bangladesh compared to China.
“So if someone comes into your office and says ‘Lets move everything to Bangladesh,’ what you are really saving is 4 cents a garment and it’s costing you 1.5 months longer in your supply chain,” he said. “It’s not a good decision.”
Helfenbein played down questions from the audience about China’s economic woes, rising costs and widespread problem of intellectual property rights violations and related counterfeiting by saying the government there is making strides in addressing these issues.
“China’s not going anywhere, China’s not dying as many people are saying,” he added. “Sourcing is global and the market is more fluid. The supply chain is key to your success. Protect your brand at all costs and only make in reliable places.”