Industry aims to overcome challenges
The global supply chain for apparel and footwear continues to explore growth opportunities through strategic partnerships, enhanced efficiency and a well-balanced sourcing mix. This is amid such challenges as industry consolidation and the erosion of China's competitiveness, say prominent industry players.
The annual Prime Source Forum (PSF) is the established platform for leaders in the apparel and footwear industries to exchange innovative solutions to the most pressing issues in the supply chain. This year's forum, which has been extended to include the footwear industry, will be held at the Hong Kong Convention and Exhibition Centre from March 28 to 30. The organiser is APLF, a joint venture between UBM Asia and its French partner SIC Group.
Besides China and alternative production centres, speakers at the forum will share their thoughts on global labour issues, advancement of eco-solutions in the supply chain, ways to ride out the financial crisis, retail globalisation and human capital development.
Despite the yuan's appreciation and escalating labour costs, China's supply chain will continue to help the country sustain its competitive edge over alternative centres in Asia, particularly in the production of higher value-added clothing. 'Production of clothes that are made in quick response to the market will remain in China,' says Henry Tan, CEO and president of Luen Thai Holdings. 'Production of basic apparel with relatively longer lead times, such as dress shirts and underwear, will be moved to other Asian centres.' Tan, one of the keynote speakers at PSF 2012, is also the managing director and president of Luen Thai International Group, a major garment manufacturer.
The global footwear sector, meanwhile, faces rising labour and materials costs, says Ron Fromm, chairman of the board and CEO of Brown Shoe Company in the United States, and another keynote speaker at this year's PSF. 'Also, exchange rates are putting pressure on landed product costs at a faster rate than American consumers are ready to absorb.'
In the footwear sector, some uncertainty emerged from the European Union's removal of the 16.5 per cent anti-dumping tariff on leather shoe exports from China in April last year. PSF speaker David Hampson says some buyers have responded by diversifying sourcing to maintain a geopolitical balance.
'Many European retailers continue to place significant orders in India and many American brands maintain alternative sources to China as part of their sourcing mix,' he says. 'As prices have increased in China, alternative countries have become more 'price acceptable' which has probably countered to a certain extent the retreat back to China that we saw immediately after the end of the EU's anti-dumping duties.' Hampson is the country manager of The Jones Group, Nine West Footwear, a leading footwear and fashion brand retailer in the US.
Sharing his decades of experience in production of consumer goods in Asia, Peter Hevicon, general manager of Debenhams Hong Kong, says the company has mitigated the impact of price inflation in China through 'parallel sourcing' and the use of yuan for payment settlement. 'When labour costs shot up in southern China, I diversified sourcing to areas north of Shanghai, through parallel sourcing [which gives buyers options by sourcing new suppliers with lower freight-on-board prices in addition to existing ones],' says Hevicon, who will discuss the outlook for the fashion industry at the forum.
Debenhams is a leading branded retail chain in Britain, which sources more than 60 per cent of its goods, including apparel and footwear in China. 'In 2010, I initiated negotiations with Chinese suppliers so that they would make quotations and receive payment in yuan,' Hevicon adds. 'Since November 2011, Debenhams has been paying Chinese suppliers, who are agreeable, in yuan. This helps us reduce the cost and risk in free-on-board costs and lessen the impact of yuan appreciation.'
Although rising labour costs in China are an irreversible trend, productivity of the country's workforce has improved. Buyers are more willing to consolidate their supply base as bigger factories have become more efficient, while some smaller ones have been forced out of business. 'Well-established companies are trying to source products from fewer suppliers and build more strategic partnerships with them,' Tan says. 'As a result, larger factories have secured more stable business. For example, our company is gaining in market share, but it does not mean we are expanding [our operation].'
Hevicon echoes Tan's view on closer partnerships in the chain. He suggests companies pursue parallel sourcing with existing suppliers. 'Companies can encourage their existing suppliers to explore relocating sourcing further inland in China or even to the members of the Association of Southeast Asian Nations because they know your business well,' Hevicon says.
Increasingly stringent product-safety standards are among the challenges for footwear companies. Companies should be fully aware that they need to work with a better class of factories to fulfil the requirements, Hampson believes.
'The suppliers should be able to carry out the appropriate testing and know how to take action when failures occur. Also, nothing comes free and in an increasingly price-sensitive market, someone has to pay for the testing. Customers need to understand the price implications of testing and the cost implications of specifying materials that meet the standards.'
The 'green' trend and ethical issues in shoe manufacturing will also be on the agenda at the forum. More material suppliers have offered green materials and many brands have incorporated them as part of their brand statement, Hampson says. 'Factories are being encouraged to think green and there are exciting developments, particularly in the tanning sector.'
Fromm thinks when green programmes and ethical production are embodied in new laws, regulations or in the mandates from retailers, they add cost and complexity to the sourcing operations.
'Done in a reasonable way, requirements and mandates can provide end-user benefits and enhance marketing opportunities for those consumers who endorse these initiatives,' he notes.
A key to growth for all companies in the chain is the investment in 'product handwriting', Hevicon says. Product handwriting refers to the holistic approach of clear definition and differentiation of brands and implementation of consistent quality control.
Held concurrently with PSF 2012 are the Fashion Access and Materials, Manufacturing & Technology (MM&T) events. Fashion Access features exhibitors from around the world, showcasing new designs in bags, footwear and small leather goods. MM&T is a premier leather sourcing platform, displaying natural and man-made materials, components, manufacturing equipment and technologies, and leather industry-related services.