Need of multi-sourcing strategy in sportswear industry - Lawson
A new report commissioned by Lawson Software exposes potential hidden costs and risks of outsourcing production of sportswear garments to manufacturers in low-cost countries. According to the findings, many companies fail to identify hidden costs when developing their outsourcing strategies.
Quality control, inefficiency, credit, the cost of establishing a supply source, and travel to resolve issues can add unexpected costs. Lengthy transportation and unplanned delays at ports of entry can also add significant costs, because companies may need to establish extra inventories as a precaution.
For example, shipping garments from Asia to Northern Europe can often take six to eight weeks. But shipping from Eastern Europe or North Africa to Northern Europe often takes six to 10 days. Added lead time, last-minute rush delivery charges and lost sales can add more costs.
“With the total cost of sourcing in China increasing compared to Eastern Europe or Central America and the Caribbean, multi-sourcing is taking over from outsourcing,” said Andrew Dalziel, Lawson marketing director for fashion. “Multi-sourcing recognizes the need to create different sourcing strategies based on product characteristics. So companies may look for shorter lead times for those fashion items that have uncertain demand – rather than using lower cost options that require much longer lead times. They need greater agility to deal with unexpected demand shifts – higher or lower – and information technology plays an important role in these global sourcing strategies.”
The traditional belief that low costs means lower service quality is shifting to the notion that low cost and high quality service can be attained through efficient and effective use of IT. Peter Bambridge, Research Director at Gartner Inc. comments, “The real synergies of outsourcing production can be found in IT systems and long-term partnership relationships within the supply chain that can lead to sustainable performance improvements. Harnessing the benefits of IT can help overcome difficulties of distant locations in the global apparel supply chain to ensure retailers' demands for speed and flexibility as well as total quality are met.”
The Lawson-commissioned report contains research data on key performance metrics for sportswear, providing a benchmark for companies in the industry. This analysis follows an Operational Excellence report that Lawson published in 2008. The latest report identifies some average key metrics for business performance among sportswear companies today:
• 6.7 percent net profit margin
• 34.8 percent gross profit margin
• 10.3 percent return on capital expenditure (ROCE)
• $1.23 earnings per share (EPS)
• 5.9 inventory turns per annum
The report recommends that those that are not achieving or exceeding the above metrics should review their business processes and identify potential improvement opportunities and potential hidden costs.