NEW YORK — Global sourcing has probably never been more dynamic — as in complex, controversial and vital to a company’s success.
Speakers at the WWD Global Sourcing forum, at the Asia Society here, said shifts in the landscape have led to a more balanced production strategy that isn’t as focused on Asia and now encompasses the Western Hemisphere, including the U.S. At the same time, issues of corporate social responsibility and sustainability remain at the forefront.
Randy Price, vice president and managing director, product supply, Americas, for VF Corp., charted the complexity. VF produces more than 500 million units of apparel and footwear a year, managing 760,000 combinations of style and color, and “all our brands want it on time, at the lowest possible cost and the best quality — it’s a challenge to the supply chain.”
VF has about 29,500 people involved in its supply chain, from operations at each brand to sourcing and at the factory level.
“Our growth trajectory at VF is pretty steep, so how do we keep up and deliver to the brands what their expectations are? It’s about having the right people in the right jobs,” said Price, who has been with the company 30 years. “I spend a lot of my time working on succession planning, working on training and making sure we have the right people…in the ranks that are going to be doing a better job than we’re doing. I want to retire and be happy and hopefully continue to see the stock price go up.”
VF makes about 30 percent of its products in owned-and-operated manufacturing facilities, all in the Western Hemisphere, except for one plant in Egypt “that’s small and growing.”
“We source about 70 percent, operating in about 40 countries and using about 2,000 contractors, about $3 billion FOB,” said Price, who is based in Panama City. “So it’s pretty big, pretty complex, a lot of moving parts. We’re the world’s largest producer of jeans when you add all our brands together, the largest producer in Mexico and Central America. We have over 15,000 employees in Mexico working in our owned-and-operated factories. We’re the largest footwear producer in the Caribbean and growing.”
In the U.S., VF has four facilities: one in Easton, Pa., making Major League Baseball on-field uniforms; another producing Seven For All Mankind denim lifestyle products in California, and two decoration facilities in Tampa, Fla., and Appleton, Wisc.
Describing VF’s supply chain “Playbook” that he helps run, Price said it has as its tenets “global balance, manufacturing hard skills, ‘third way,’ acquisition integration and planning and operations.”
In achieving global, he said, “We don’t put all our eggs in one basket. Mexico and China are big parts of that. We’re moving product out of China as a lot of people are, but China is a big market for us from a retail standpoint. China will never go away for VF. Long term, what makes sense for VF is China for China. We have a lot of footwear still in China, but we are working with vendors to move footwear out of China. Egypt is 2 percent, but we also have Nicaragua, Honduras, Bangladesh, Vietnam, so we’re pretty diversified across our portfolio.”
He said there’s a big difference between direct manufacturing and a sourced model.
“It’s more complex, but you get a better product in the end,” he said. “Seven For All Mankind had been done in contracting in the Los Angeles area. We put a plan together to pull back inside. We have our own cutting room, our own sewing room in L.A., and we have a contract laundry right next door that we use and we do our own finishing. So we do 95 percent of our cutting, 40 percent of our embroidery, 30 percent of our sewing and 60 percent of our finishing, which saved us $11 million since 2009. Probably the biggest thing it did for us is get us better quality and fit because that brand demands fit and quality and consistency, while using a lot of really high-stretch fabrics, and we can get product to the stores a lot faster.”
Price then described what he called the “Third Way,” which he said can be “as shallow or deep as you want it to be, kind of like a marriage, or a relationship or significant other, because you have to have a willing participant to have a third way relationship.
“We have very shallow, where the only thing we do is help the factory plan production,” he said. “Deep interaction can be boots on the ground where we have engineers in the plant,” helping design workflow and production planning.
An example of a “heavy third way” is Bangladesh, where he showed an artist’s rendering of a state-of-the-art facility being built that’s “going to start up very soon.
“VF is in Bangladesh and we plan to stay there,” Price said of the beleaguered country that has been the site of several major factory disasters and the target of international scrutiny to improve safety conditions. “We want to make it better,” noting the new building will be fully dedicated to VF production. “It’s being built to OSHA standards. We can get LEAD certified if we choose to do that. We’re partners with the vendor on building design, workflow, methods, equipment, engineering, the whole nine yards, and we’re going to have people on the ground there to make sure it’s successful.”
As for other countries and regions, Price said VF has found it difficult to do business in India, where performance, value and transparency are inadequate, while it has had more success in Vietnam and Cambodia. He said Africa is a region of growth and he has made several exploratory trips there and the company is forming a strategy for the continent.
“It’s probably the next place,” he said. “We think we’re probably going to do something in Africa fairly soon. It could actually be [company] owned.”
While U.S. manufacturing only plays a small role in VF’s sourcing, the Made in America movement has gained traction over the last several years as global costs have shifted, fast turn has become more vital and country of origin seems to have taken on more importance.
Designer Nanette Lepore said, “I definitely see the momentum building for Made in America products. I think it’s a great opportunity to brand your company as one that is working in America. People are very excited about locally made products. There is a shift in consumerism from conspicuous consumerism to conscious consumerism, and that all goes back to local manufacturing.”
Lepore said she manufactures in the U.S. because it gives her “great quality control, greater control over the fit; I have great inventory control because I don’t have to be guessing three months or six months in advance…I can actually manufacture to the piece or can react to reorders in 10 days to two weeks.”
One such example is Manufacture New York, a hybrid fashion incubator and factory for independent designers that recently received a $50,000 grant as part of an Obama administration Growth Accelerator Fund competition. The grant will aid efforts to launch a 160,000-square-foot manufacturing innovation center for apparel, textiles and wearable technology in Sunset Park, Brooklyn.
Bob Bland, chief executive officer of Manufacture New York, said, “We have a critical mass of Millennials who are starting their first lines, who have been in business five years or less, and they’re coming to our door with sustainability already embedded into their culture and into what they want their brand to be.”
Bland said these firms have found a solid base of stores and consumers willing to pay a little more for a product because they know where it was made.
“We work with dozens of different manufacturers in all five boroughs in New York City for all kinds of minimums,” she said. “Made in USA and Made in New York are integral to our brands, particularly their urban sensibility. If it says Brooklyn or New York on the product, it should be made there.”
Bland said she sees “a great opportunity to do infrastructure building in the industry for the first time in 30 years…that’s what we’re doing.”
Brad Miller, general manager of enduring purpose and domestic manufacturing at New Balance Athletic Shoe Inc., said, “We’ve been making shoes in the U.S. for 75 years. We’ve never wavered in our commitment. What we’ve seen is a huge demand globally for American-made products….There’s definitely a premium in making products here, but if you have a robust supply chain, good relationships with your partners, your lead time tends to be less then half of what you need to get something in from the Far East, so there’s benefits there. Obviously there are also benefits as it pertains to shipping and transportation costs.”
New Balance owns five factories in the U.S. — three in Maine, one in Lawrence, Mass., and one in Boston, accounting for 5 percent of global production.
“While we all have chased the lower-cost countries, that model is running out of gas,” Miller said. “When we talk about on-shoring, we know that the competition is coming and that local for local is becoming a norm. The supply chain here is going to improve and the infrastructure is going to improve.”
He said that is already happening in some places — “Look at the textile industry in the Carolinas. They’ve literally reinvented themselves overnight.”
While it’s not likely to ever return to it’s heyday of manufacturing of a generation ago, the revival of Made in America has in part come on the back of problems in places such as Bangladesh.
Mara M. Burr, senior counselor for the Alliance for Bangladesh Worker Safety, noted the garment industry there employs four million people, 80 percent of them women. The sector drives the Bangladeshi economy, accounting for 80 percent of the nation’s export earnings.
The Alliance has inspected 100 percent of the 587 factories from which its members source, recommending 19 for full or partial closure. She said, “All factories will need to undergo some form of remediation, including installing fire doors, lighting equipment and industrial fire sprinkler systems.”
Going forward, she said, “Workers must also be empowered to speak up and take action when they feel a factory is unsafe….Workers must have the right to refuse to work in conditions they feel are unsafe.”
The Alliance has committed to provide 50 percent of wages lost to remediation up to four months.
“Continued reforms of labor laws are needed, including recognition and establishment of unions in factories,” Burr added. “Garment workers and labor activists must be safe from harassment and violence as they exercise their rights. The hardest work is still ahead of us. We’re one year into a five-year commitment. The goal remains to help the Bangladesh garment industry safely serve its purpose to be a central driver of the Bangladeshi economy and be a critical pathway out of poverty for millions of Bangladeshi women.”
Jeannette Ferran Astorga, vice president of corporate responsibility at Ann Inc., and Racheal Meiers, director, partnership development and research — inclusive economy, at BSR, described initiatives to empower women in factories by promoting women’s health, finance and literacy.
“I’ve come into contact with the fact that women are disproportionately affected by issues related to violence, sexual harassment,” Meiers said. “Women lack access to a lot of critical health information and services in many developing countries.”
Ann Inc. launched a program in March called Responsibly Ann, committing to provide health and literacy training to more than 100,000 women in their global supply chain over the next five years.
“Healthy and financially empowered women in our contract factories are inextricably linked to higher productivity and a more sustainable supply chain,” said Astorga.
To date, Ann Inc. has directly impacted 27,000 women in their global supply chain. Astorga said the company has worked in countries such as Pakistan, Bangladesh, Egypt and Kenya — some of the highest-ranking on the list of treating women badly.
Colombia has benefitted from its free trade agreement with the U.S. and the moving of apparel manufacturing to the Western Hemisphere. Sylvia Reyes, director of textiles and apparel for the U.S. at Proexport Colombia, said in the second year of the U.S.-Colombia Free Trade Agreement, there’s been a major shift.
“In the beginning, imports were growing faster, but now in the second year of the trade agreement, exports are recuperating what we lost in 2003 to 2007 in the region,” she said.
Reyes noted that the majority of the investment is from the private sector.
“We are very strong in jeanswear, basic denim, and now we’re going into premium denim, with all the washes and finishes and innovation,” she said.
While the Obama administration is currently negotiating two major trade agreements and has several trade preference programs up for renewal, Juanita Duggan, president and ceo of the American Apparel & Footwear Association, said don’t except action any time soon.
She said the midterm Congressional elections should result in the House remaining in Republican control, while the Senate is up for grabs. It will be followed by a lame duck session in November and December that could see limited legislative action.
“A lot of people…think there’s going to be a secret trade package,” Duggan said. “I don’t believe it.”
Duggan and Nate Herman, vice president of international trade at AAFA, both referred to a “chicken and egg” situation in reference to which will come first — renewal of presidential Trade Promotion Authority or a vote on the Trans-Pacific Partnership agreement.
“You know from past experience that every trade agreement requires the president to be on this 24/7 and forcing the Congress to do it,” Duggan said. “That hasn’t happened so far. Maybe it will happen when some of these trade agreements are closed, but there’s disagreement of when TPA should be presented.…You can be sure, though, that we’re going to be in there fighting like dogs to do something as soon as possible.”