In the new dynamics of global sourcing, partnerships are in and skipping around the globe is out.
But maintaining a real business relationship — one where brand and factory understand each other’s needs and problems and allow for give and take in timeworn practices — will require a bit of care and attention.
“When is the last time you guys took a box of chocolates to your vendor? Never,” Munir Mashooqullah, principal and founder of Synergies Worldwide, said at the WWD Forum, “Global Opportunities: Sourcing & Supply Chain.” “It’s an exception.”
Today, he said the business is a “price-point game” where cotton prices, currency fluctuations, tight credit, even natural disasters, can affect how much products cost, as well as how fast they arrive.
“We talk about partnership, but we really have not been partners,” Mashooqullah said. “We’ve treated vendors like a slave constituent and that time has gone.”
In order to build relationships, Mashooqullah said companies should research and understand their vendors’ businesses and avoid “low-balling” them. Given the continuing consolidation of global apparel production, brands are finding it’s not as easy to pack up shop and move to another factory or another country with lower costs, in part because there are fewer new producers opening up.
“High entry costs and thin margins will deter new entrepreneurs,” said A. Sukumaran, managing director and chief executive officer of Star Garments Group and chairman of Sri Lanka Apparel.
He identified four types of operating models: those that get government subsidies, those that operate based on low costs and low wages, groups that rely on free trade agreements and firms that have strong businesses through partnerships.
Sukumaran said the partnership model is the only one that is sustainable in the long term because it is focused on meeting customers’ needs.
“The past is no longer a guide to the future,” said Chris Koh Lian Chye, business director at SL Ponie Pte. Ltd.
The buyer needs to stop moving to countries where labor is just cheap, and instead should also consider countries where the political, economic and cultural climate is stable, he said.
“The gypsy has to stop moving,” Koh said. “We have to settle down. We need to get married and we have to find a partner first. We are in this business together and we want to develop this market together.”
Paula Zusi, executive vice president and chief supply chain officer of AnnTaylor Stores Corp., said, “We really think about our suppliers as part of our family.”
By way of example, she pointed to the Philippines, where the company’s largest supplier suffered back-to-back typhoons last year. Ann Taylor reacted quickly to get food, water, clothing and temporary shelter to its associates and the factory workers that make its goods. The immediate response was followed up with a fund that gave the workers no-interest loans, helping families buy homes for the first time.
“This act strengthened our partnership with our largest supplier,” she said.
Solid relationships help more than ever now, when companies are operating with leaner inventories and looking to suppliers to help turn goods quickly when a style sells out of stores.
“We chase [sales] today more than ever and when the client votes, we have to respond,” Zusi said.
Technology can be a key to getting on the same page with suppliers. Mark Burstein, president of sales, marketing and research and development at New Generation Computing, said using a product life-cycle management tool can help cut costs.
If the designers and the factory can communicate efficiently, Burnstein said, brands can cut sampling costs and streamline the production process by identifying “nonconforming styles earlier in the process.”
Thomas Glaser, vice president of global operations at VF International, said the industry needs to go back to the future, returning in a new way to some of the practices that defined the business of making apparel before globalization.
He agreed that partnerships would be key as the industry winds down “this gigantic game of musical chairs” that had companies constantly moving production around the globe chasing lower prices.
“We’ve all seen our prices come down,” Glaser said. “So far, the deflation is holding, but today is so yesterday and it feels like it’s really a big shift.”
For one, the cost of cotton is pressuring prices throughout the supply chain. Cotton prices rose 42 percent to $1.02 a pound in the year through Oct. 25.
Glaser said companies should focus more on what they can control within their own operations.
“I can’t control cotton prices,” he said. “I can’t control China so much. I don’t think that moving from country to country is going to get us to lower prices really.”
Instead, Glaser said production needs to be closer to the consumer, factories need to be quick and design needs to be integrated into the production process. Companies also have to have “skin in the game” and own some of their factories and consider how to make their operations more efficient.
That’s not to say that savvy brands won’t still move production to other countries as they refine and reinvent their supply chains to meet changing needs.
“Business as usual doesn’t work anymore,” said Jeff Streader, senior vice president of global sourcing at Guess Inc.
Guess is actively tweaking its production base, moving away from China. About 70 percent of Guess’ fashions are produced in Asia, with China making up more than half of its production on the continent.
“I am really concerned,” Streader said. “As a company, what we’re doing is to truly reduce our dependency on China. We will cut back China within 18 months to a third. We have to because of the currency, the labor. This is not a price play. I’m leaving China because of costs.”
One area Guess is eyeing is the ASEAN region, which includes Indonesia, Vietnam, Thailand and Cambodia. Another is South Asia, primarily Sri Lanka and India.
“Another big initiative is to own our upstream supply chain,” Streader said, explaining that he and Guess’ research and development teams work with textile mills to place commitments with them for fabric to protect Guess’ supply. It’s a change from the previous model where the firm would rely on factories to take fabric positions.