Wednesday, May 25, 2011


Once we are clear about the emergence of the readymade garment industry and its growth as well as India’s contribution to the global trade in garments, we now move forward to yet another important facet, which is of sourcing. At this juncture it is important that we first know what is it that we exactly mean when we say sourcing? Sourcing is basically procuring inventory required for the manufacturing process or it could also refer to procuring finished goods at the best price and of the utmost quality. Quality and Cost are the two major factors that determine most of our buying/sourcing decisions.

Global marketing directs goods into multiple foreign markets. The process of directing products into global markets must be approached with considerable care and planning. The aggressiveness, method and speed of the global marketing strategy depends on:
(1.) Whether the firm’s products are known among consumers in the foreign country;
(2.) The customs, laws, and regulations in the foreign country;
(3.) The political stability of the foreign country; and
(4.) The expertise among management of the apparel firm.

The wide variation in customs and trade practices among cultures must be explored before deciding to enter a foreign market.
Exporting means domestically produced goods are sold in foreign markets. Indirect exporting involves selling merchandise through a trading company that specializes in selling domestically produced goods in foreign markets. The primary advantage of indirect exporting is that the manufacturer gains the expertise of an exporting specialist. The greatest disadvantage of indirect exporting is that the manufacturer loses control of the promotion and distribution of the product in the foreign country.
If a manufacturer uses direct exporting, the goods are sold by the domestic
Objectives of international sourcing of garments:
 -Enumerate the sourcing criteria
 -Understand the sourcing process
 -Examine the sourcing operations and flow

manufacturer’s sales representatives to retail buyers from a foreign country. Direct exporting gives a firm more control over the distribution of a product, but it also requires more expertise among the firm’s management and sales representatives. Trade missions into foreign countries are sometimes organized by industry trade associations and local or state governments to establish exporting systems that many firms can then use. Sales might also be accomplished through export fairs or markets held within the country or abroad, where foreign buyers are invited to purchase goods.
Global sourcing determines where materials come from and/or where apparel is made that enters domestic markets. For the most part, global marketing results in exporting, while global sourcing results in importing. Global sourcing has become common practice for most apparel firms.

The buying operations are generally guided by the overall policies and philosophy of the companies and macro-environmental variables. The specific inputs, which influence these operations, are:
 -The fashion viewpoint of the stores,
 -Promotion methods,
 -Organizational structure,
 -Retailing mix, and
 -Geographical locations.

The import and sourcing policy and import decisions are taken, by and large, by the corporate office and the buying operations are delegated to buyers/merchandisers based on the overall budget, open-to-buy (the budget available for purchase), turnover ratios, lead time, retail square footage productivity, sales expectation, mark-up, margin and profitability.

In a typical retailer structure, for example, considering a department store, there are separate merchandise managers for different product groups and divisional merchandise managers for major groups of products and buyers for different items. The import decision and the policy implication are generally handled by the headquarters of the companies, where the open-to-buy budgets of various product groups are divided among different countries based on quota availability and other sourcing criteria. In some cases, the actual budget for buying from a region is given for instance, to the companies’ office in Hong Kong and then that office would decide whether to buy from India, Sri Lanka, Bangladesh etc., for example, and how much of quantity allocation to make. It is very clear, therefore, that knowing the distribution channels, understanding the type of retail outlets involved in marketing, sourcing systems of buyers and the practices and policies of the company become very critical in improving exports and unit value realization. The quality standards and the communication of the same are also linked to the type of sourcing systems and buying network available to the company in question, whether it is department stores, specialty chains or 'brand-manufacturer'. For instance, in the case of Liz Claiborne, as the company sources from 60 countries, the quality standards are centralized and communicated to each country representative, whose responsibility it then becomes to implement the quality standards. Even the computation of CMT, etc. is standardized. The retail sourcing decisions will depend on the type of retailer (department store, specialty chains, catalogue houses, etc.) and the type of consumers they represent.

The retailers have merchandisers and buyers who are generally in charge of the buying operations. The larger retailers have import departments for general import decisions and buying departments for merchandise development and selection. Certain companies develop specialized sourcing arms, as this activity is the key to successful retailing, by providing the right merchandise, in the right quality, at the right channel and at the right price. For instance, the Geoffrey Beene in the USA has 'Triburg' in New Delhi as the sourcing arm whereas C & A, Brussels has 'Mondial lnternational' as the sourcing arm in India. But there are companies like Hennes & Mauritiz (H&M) from Sweden and GAP from USA, which have set up full-fledged buying offices in India. Department stores like Macy has also set up their own buying office in other countries as in India. In another instance, Hertie, the import policy decisions are taken in Frankfurt but buying and merchandising decisions are taken at their Hong Kong office, which handles the sourcing from India and other South-Asian supplying countries. In Sri Lanka, many buyers like Mast Industries, USA have entered into three-way or two-way joint ventures with manufacturing factories. The exporters have to understand the difference in operations in order to develop competitive advantage. For instance, the ability required by an exporter to satisfy a mail order house is very different from the ability required to satisfy a department store or a brand-manufacturer.
Quick response, price performance ratio etc. are very important for the buyers, though again it is a function of the type of merchandise and the channels. The price quality-delivery-fashion performance expectations are guided by the nature of the retail operation. For instance, department stores and specialty stores have private label and national brands in their merchandise groups. A private label is a brand introduced by the stores in order to improve their profitability, fashion orientation and life-style positioning. Examples of these are Aeropostale and ThorntonBay by Macy's, Bloomies by Bloomingdale, St. Michael by Marks and Spencer and STOP! by Shoppers’ Stop. A national brand is one, which is marketed by brand manufacturers, like Levis, Seidensticker or Liz Claiborne. The private labels may work on more seasons and the national brands on fewer seasons. Likewise, importers and wholesalers also have their own wholesale brands. The specialty chains, department stores and importer-wholesalers have the option of getting fabrics from the Far-East, Pacific Rim, China, etc. and the manufacture of garments can be done again in the Far-East, Latin America, East Germany, C.I.S. countries, South-East Asia, South Asia and such other low-cost countries. This again involves backward pricing (determining the f.o.b. price based on the ultimate selling price at the retail level) based on the type of merchandise, level of labor cost involved, fabric availability, lead time requirements, possibility of fill-ins and replenishment and such other factors. Thus, the sources of competitive advantage exist in all the links of the value chain.

The basic requirements of a fashion retailer could be quick response, small quantities and flexibility in assortments. These characteristics when turned into specific sourcing criteria could mean price-performance ratio, fashion-price or quality-price-speed expectations. However, the objectives in most cases are:
1. Reduced inventory
2. Maximize profits/square footage sales
3. Optimize seasonal sales
4. Obtaining exclusivity for building customer loyalty.

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Wish you good luck......................................................

1 comment:

  1. If you are interested in sourcing in China, I recommend you traveling and see vendors before transferring your hard earned cash. An alternative is to use a china sourcing company to help and have you understand the process. They will reduce the risk of running into problems and do the local running around. The success in china sourcing is creating the relationships necessary to make your business thrive.