In an increasingly complex global marketplace, fashion retailers and brands face the challenge of balancing profitability with ethical sourcing practices.
During the July 2024 edition of Source Fashion, Berry and Allbright shared their insights on how to successfully source fashion in new regions and optimise an sourcing strategy that ticks the boxes when it comes to social responsibility and sustainability.
Building a “profitable sourcing strategy”
The foundation of a successful sourcing strategy lies in understanding the factors that influence profitability. Berry explained there are multiple considerations, especially if a fashion company wants to make more ethical and sustainable business decisions.
The first step Berry touched on is blended margins which she said combines the higher margins typically achieved with high-volume, farshore sourcing and the lower margins associated with smaller, quicker-to-access nearshore production.
Cross-costing between factories is another essential practice. To get comparable pricing, companies must provide clear, structured briefs to multiple suppliers, detailing product specifications, order volumes, and any additional requirements such as packaging or audits.
Optimising container fills can significantly impact shipping costs, which Berry warned are rising at an alarming rate. While it’s not always necessary to fill an entire container yourself, understanding how your order volumes align with container capacities can lead to more efficient packing and shipping, which ultimately reduces costs.
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Exchange rates play a vital role in global sourcing profitability and Berry suggests it’s generally best to pay in the traded currency of the region you’re working with, which is usually US dollars. Having a solid understanding of currency markets and considering hedging strategies can help protect your profits from market fluctuations.
Quality control is paramount for ensuring profitability. Implementing rigorous quality control measures, including a sample sealing process, production checks, and final inspections before shipping, can prevent costly issues down the line. As Berry emphasised: “If in doubt, do not ship, no matter the urgency.”
She added effective communication is the last step to having successful sourcing relationships.
Berry also advises fashion companies to ensure all design specifications, critical paths, and contacts are accurately recorded and easily accessible, especially when dealing with long distances and different time zones.
Nearshore versus farshore sourcing
Within a global sourcing strategy businesses often grapple with the decision between nearshoring and farshoring, two distinct approaches to outsourcing production. Near sourcing or nearshoring involves partnering with neighbouring countries with pools of talent that are likely to share a lot in common with your own. Nearshoring countries that are typically used for manufacturing apparel offer benefits such as:
- Shorter lead times
- Easier communication due to similar time zones
- Lower shipping costs
- Potentially easier quality control.
Farshore sourcing or offshoring is the act of hiring from distant countries, an example would be looking to India or China to manufacture your goods despite your end consumer being based in the US and this offers benefits such as:
- Often lower production costs
- Access to specialised skills or resources
- Potential for higher volumes
- Longer lead times with a focus on sea freight.
The key is to find the right balance. As the experts suggest, a blended approach can often yield the best results, allowing for both cost efficiencies and flexibility.
Tips for working with manufacturers in new regions
Allbright shared her essential tips for fashion companies exploring new fashion sourcing territories:
Understand regional nuances: Many sourcing countries are vast, and practices will vary from area to area so never make assumptions based on previous experiences.
National or religious holidays: One of these nuances can be around national or regional holidays that might be observed and therefore impact production timelines.
Cultural variations: Just because you, your business, country or culture behave in a certain way doesn’t mean those elsewhere will do the same – be respectful of different cultures and get to know and understand how your new partner business operates.
Language barriers: While English is widely spoken, never assume it will be universally understood. Be prepared to address potential miscommunications.
Freight forwarders: Working out who you are going to ship your products with is an important consideration and understanding the different freight forwarders you can use and the different incoterms for shipping goods that are relevant is a critical part of your research.
Stay informed on trade agreements: Keep an eye out for any political changes that mean new deals with new countries might come into place. The experts explained there were some changes that needed to be taken into account in the UK post-Brexit for example. New agreements and the renewal of previous agreements can often stall around election time and with so many countries going to the vote this year, she admitted it could slow things down. This is also relevant if you are looking to export goods into different countries where you will need to understand their duty implications.
Comply with legal and regulatory requirements: Don’t fall foul of the law – always take time to understand the regulations that relate to your product categories of choice and how they are produced, this is especially important when dealing with children and baby products for instance.
Critical path: It is always worth agreeing and managing a critical path document when sourcing – whether it’s handwritten or a detailed spreadsheet to check in on progress and make deadlines.
Plan for travel: It’s great to visit your production facilities and meet with your suppliers. However, always ensure your trips are well planned so that you get the most from them and you are aware of what travel visas you might need to have applied for to do business in countries such as China and India.
Sustainability: Have you explored or considered the sustainability elements of your production choices, is the factory well run making the best energy choices such as having solar panels on the roof? Are raw materials sourced responsibly and not affecting the environment or wildlife?
Audits: What audits or testing might you require or have mandated in your organisation? Make sure you are clear about what you need from the start of the process as it might have a cost implication or delay if you raise these late in the production process.
Agents: If managing all the different elements of sourcing from quality control to shipping is not viable for you due to time, resource or knowledge then it can be worth using an agent to help support you. For a percentage of the order cost or set fees, they will manage this all for you and often be on the ground in the country of origin to keep a closer eye on things.
De-risking and diversifying fashion sourcing
To build resilience into your global sourcing strategy, consider these approaches:
First and foremost, exit planning is essential. As Allbright aptly points out: “Have you thought about the end of the product’s lifecycle or even worse if it doesn’t prove to be a good seller?” Always having a contingency plan in place can help mitigate potential losses and provide a clear path forward in case of unexpected challenges.
Margin management is another critical aspect of de-risking your sourcing strategy. Allbright advises: “If you can mark down your products by between 30% to 50% and still have a profitable margin then that is a great way to manage the risk in sourcing your own products.” This approach ensures that your intake margin can support potential markdowns, providing a buffer against market fluctuations.
When engaging with suppliers, it’s important to discuss cancellation policies upfront. Understanding the implications for stock already produced or raw materials purchased can help avoid costly surprises down the line. Additionally, knowing your options for reordering popular items, particularly through nearshore options, can help you capitalise on bestsellers quickly and efficiently.
According to Allbright diversifying the supplier base is a key strategy for spreading risk. Rather than relying on a single source, businesses should aim to work with multiple suppliers across different regions. This approach not only reduces dependency but also provides alternatives in case of disruptions in specific areas.
Allbright was keen to add that investing in long-term relationships with suppliers can yield significant benefits. Strong partnerships often lead to greater flexibility and support during challenging times, which can be invaluable for maintaining business continuity.
Lastly, for businesses lacking in-house expertise, working with sourcing agents can provide valuable on-the-ground support and management. These professionals can offer local insights, navigate cultural nuances, and provide additional oversight to ensure smooth operations.
A successful global sourcing strategy requires an approach that balances cost considerations with ethical practices and risk management. By implementing these strategies and remaining adaptable to changing market conditions, brands and retailers can build robust, profitable sourcing partnerships that stand the test of time.
