CSCMP's Supply Chain Quarterly
December 09, 2018
Forward Thinking

Report urges apparel companies to stop chasing low-cost-country sourcing

As costs rise in all sourcing markets, companies need to switch from a supply chain strategy focused on cost-cutting to one focused on value creation says a Kurt Salmon report.
Article Figure
[Figure 1] Selected Production Cost Index Developments, 2005 to 2017

[Figure 1] Selected Production Cost Index Developments, 2005 to 2017
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Low-cost-country sourcing is no longer a viable long-term strategy for apparel companies, warns the "2017 Global Sourcing Reference" report, which is produced by Kurt Salmon, a division of Accenture Strategy. The report, now in its 13th year, analyzes trends and developments in textile and clothing sourcing across 46 of the most important sourcing markets.

Rising sourcing and production costs are heavily impacting margins in the apparel industry, according to the report. However, the traditional response to higher costs—shifting manufacturing operations to another, lower-cost country or region—will only provide a temporary fix to the problem, the report says. That's because production costs are rising in almost all sourcing regions, including low-cost countries such as Bangladesh, Pakistan, and Cambodia, according to the consulting firm's research. (See Figure 1.)

Instead apparel and fashion companies need to radically change their supply chain strategy model from one focused on cost cutting to one focused on value creation. In particular, the report recommends:

1) increasing investment in product innovation
2) improving time to market and delivery reliability
3) better aligning buying and production volumes with actual consumer demand
4) paying attention to social and environmental responsibility in production
5) strengthening or maintaining product quality compliance and standards

For many companies, this will mean adopting digital technologies that can enable better collaboration, visibility, and control across the entire value chain. For example, advanced analytics will help retailers improve sell-through performance, stock turns, markdown, and gross margins, says the report. On the production side, cut-and-sew robots are improving production efficiency, and 3-D printing is enabling quicker product development.

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