Last month I dealt with the question, Where is my
supplier located. I showed that there is an ongoing evolutionary change
from the past MY SUPPLIER IS LOCATED SOMEWHERE, to the present MY
SUPPLIER IS LOCATED EVERYWHERE, into the future, MY SUPPLIER IS
LOCATED NOWHERE.
WHO IS MY SUPPLIER?
The 'who' question follows a similar evolutionary track,
particularly with regard to the U.S. market. We tend to think of the manufacturer
as the guy who makes the garments. At a minimum we expect the
manufacturer to cut, sew and supply trim (CMT) and more frequently also to
supply the fabric or at least pay for it (FOB).
Actually, in the U.S. industry, the MANUFACTURER
performs very few of these operations. Traditionally the U.S. domestic industry was divided into two parts: the MANUFACTURER and his CONTRACTOR.
The MANUFACTURER designed the garment, undertook pre-production tasks
such as pattern and sample-making, bought the fabric and trim, and even cut the
fabric, and then of course marketed the goods. Other than cutting, the MANUFACTURER
played no role in the actual production process. On the other hand, the CONTRACTOR'S
role was limited only to sewing and finishing the garment. He played no
role in preproduction or postproduction and only a truncated role in production.
The contractor did not even do CMT. He did only M, which is why the CONTRACTOR
was called the MAKER.
In the 1950s when the U.S. MANUFACTURER- the guy who
did pre-production, bought the fabric and trim, and cut the fabric, etc.-went
offshore to Mexico and Latin America, he took his contracting system with him. That
resulted in the maquilas system where there are no real factories only makers
and which is one of the main reasons why the apparel industries of both Mexico and DR-CAFTA are failing. This crippled factory model continues even now when few maquilas
in the region have yet to feel the need to include in-house cutting. Even
fewer factories who have finally achieved CMT status are willing to move up to
what they define as FULL PACKAGE and the rest of us call FOB.
These atavisms notwithstanding, for the past 25 years, we
have defined the MANUFACTURER as the guy who delivers an FOB product. At
the very least, the MANUFACTURER bought the fabric and trim and carried
out the CMT process.
About 15 years ago, the definition of MANUFACTURER
changed as customers reexamined their supply chains and began to realize the
importance of logistics-that schlepping materials from one place to a factory
located someplace else created unnecessary cost, delays and opportunities for
error. The result was the customer then redefined the role of the MANUFACTURER
to include all the steps involved in the manufacturing process. This was the
era when we defined the MANUFACTURER in terms of BACKWARD LINKAGES
and VERTICAL INTEGRATION became the flavor of the month.
Unfortunately, as many of the larger companies have
discovered, the in-house vertical model has four serious impediments.
- THE COST OF EACH UPSTREAM MOVE INCREASES GEOMETRICALLY. You can build a large garment
factory for $3 to $5mn. A weaving mill would cost $12 to $25mn. Go another
step backwards and spinning mills start at $50 to $70mn, an investment
that few garment operations can afford.
- THE ECONOMIES OF SCALE FOR EACH UPSTREAM STEP INCREASES
GEOMETRICALLY.
The production of a spinning or weaving mill dedicated to a single garment
factory is too small to allow its output to be competitively manufactured.
The cost of each material is often at a 20%-30% premium above market
price. In-house vertical integration makes sense only for truly niche
products or where the factory is located in the middle of nowhere, without
access to fabric and yarn markets.
This article is reprinted with due permission from Fashiondex.com
Refer the newsletter of: The Birnbaum Report/Strategic Sourcing for Garment Importers
