Home / Knowledge / News / Apparel/Garments / Apparel, footwear cos lag in commodity-related savings
Apparel, footwear cos lag in commodity-related savings
14
Apr '16
In the past year the prices of many commodities—including cotton and oil—have fallen 30 to 50 per cent. That should be good news for most apparel and footwear companies, since these are key raw materials for the production of yarns and the synthetic rubbers used in footwear. Companies are asking themselves how these price falls will translate into cost reductions from their suppliers, and how fast that will happen.

The basic estimates look promising. In a typical, mid-priced knit garment, raw cotton represents around 50 to 60 per cent of the total cost of cotton yarns, yarn accounts for about 60 per cent of fabric, and fabric for about 50 to 60 per cent of the cost of a finished garment. Therefore, given the 30 per cent drop in the price of raw cotton in the past year, a buyer might expect a 5 to 7 per cent drop in apparel cost, depending on the complexity of the garment. The picture is similar in synthetics, with the price of PET dropping around 25 per cent between March 2014 and February 2015, says global management consultancy firm McKinsey & Company.

Few apparel and footwear companies have captured significant commodity-related savings from their suppliers, however. Some companies don't have a structured process in place to ask for supplier cost reductions when commodity prices fall; others don't know what cost reduction to ask for when they do. Of those that do ask, many receive small reductions of 1 to 2 per cent from some suppliers, while others receive no savings at all, the report said.

When pressed to offer commodity-related cost reductions, suppliers may argue that the effects of raw material prices on their own costs have been smaller than estimated, have been diluted by other players in the value chain, or have yet to trickle through to them. Without a deep understanding of the whole value chain and such facts at their fingertips, companies find it very hard to counter these points.

To claw back the full savings potential offered by commodity price drops, companies need to develop a detailed picture of the end-to-end value chains of their products, and of the way input cost fluctuations percolate through that chain. That is a complex business, requiring an understanding of the underlying chemistry of key raw materials, the structure of the industries that produce those materials, and the evolution of supply and demand over time.

Companies that have taken such a fact-based and structured approach to supplier negotiations in the response to commodity price changes have been able to capture savings of 4 to 6 per cent from their suppliers in a wide range of categories. One large apparel retailer did this by building a “rapid response system” based on detailed analysis of the effect of commodity price changes on the costs of different yarn and fabric types. Significant swings triggered assertive communications with its suppliers, asking for price adjustments within 30 days. The company was able to support subsequent negotiations with the data from its analyses.

Must ReadView All

Courtesy: UPM Raflatac

Apparel/Garments | On 17th Jan 2017

New residue free textile label adhesive from UPM Raflatac

Producer of self adhesive label materials UPM Raflatac, has...

Courtesy: Authentic Brands Group

Apparel/Garments | On 17th Jan 2017

Teen retailer Aéropostale reopens 500 stores in US

Teen apparel retailer Aéropostale has reopened 500 stores in the US,...

Courtesy: Centric Software

Information Technology | On 17th Jan 2017

Centric releases version 6.0 of PLM solution

Centric Software, the leading PLM solution for fashion, retail,...

Interviews View All

Mukesh Agarwal & Rajesh Agarwal
Madhuram Fincap Pvt Ltd

Increasing prices and lack of demand main issues facing industry

Claudia Kersten
Global Organic Textile Standard

‘GOTS is a very efficient supply chain management tool, especially for...

Abhishek Ganguly
Puma India

‘As a brand, Puma is always looking for new and innovative ways to inspire ...

Giorgio Mantovani
Corman S.p.A

Giorgio Mantovani, MD of Corman, with a presence in both Milano and New...

Steve Cole
Xerium Technologies

Steve Cole of Xerium Technologies discusses the industry. Xerium is the...

Ashok Desai
Bombay Textile Research Association

Bombay Textile Research Association (BTRA) is a leading name in textile...

Rupa Sood and Sharan Apparao
Nayaab

Nayaab, an exhibition meant to celebrate Indian weaves, is in its second...

Igor Chapurin
Chapurin

"Now we can see the Russian trend in international fashion. And Russian...

Yash P. Kotak
Bombay Hemp Company

One of the directors of Bombay Hemp Company, Yash P. Kotak, speaks to...

Press Release

Press Release

Letter to Editor

Letter to Editor

RSS Feed

RSS Feed

Submit your press release on


editorial@fibre2fashion.com

Letter To Editor






(Max. 8000 char.)

Search Companies





SEARCH
January 2017

January 2017

Subscribe today and get the latest update on Textiles, Fashion, Apparel and so on.

SUBSCRIBE


Browse Our Archives

GO


eNEWS
Insights
Subscribe today and get the latest News update in your mail box.
Advanced Search