SOURCING

Fashion Buying – Lecture 7

 SOURCING DEFINED

• The term ‘sourcing’ is used in a very specific way to mean, ‘the selection of a
supplier of either a product or the raw material components and services used
in the make up and delivery of the products’.
• Suppliers have to be reliable, efficient and effective to retain the business of
their retail customers, as much of a retailer’s success depends on the finished
products that suppliers are producing and delivering.
 WHAT NEEDS TO BE SOURCED?

Figure 7.1 identifies the different

components that buyers must potentially
source. It is true to say that one supplier
could be responsible for sourcing all the
components, however it maybe more
appropriate for some fashion buyers to
source everything separately.
 DIFFERENT WAYS OF BUYING A
GARMENT

Retailers source products differently according to the nature of the product. typically, products fall into
one of the three categories described in table 7.2.
 AN HISTORICAL PERSPECTIVE

• Historically, fashion retail buyers have selected suppliers with little input from other functions within their
business, with the possible exception of the merchandiser, who prefer suppliers to be reliable with deliveries
and flexible with production.
• Table 7.3 shows a list of some more obvious centres of fashion excellence, together with a brief rationale as
to why they have come about.
 THE BUYER/SUPPLIER
RELATIONSHIP

• Retaining a ‘businesslike’ relationship is often difficult, and there are many

examples of relationships becoming distorted as result of the emergence of
personal differences developing between the two parties.
• As one individual is often responsible for the possible purchasing of many
thousands of garments, it has not been unknown for either the unscrupulous
supplier or buyer to offer or demand a bribe in return for an order.
• The wider introduction of auto- mated supplier performance analysis will
ultimately make it even harder for buyers and suppliers to retain any form of
long-term business relation- ship.
 A MOVE TOWARDS
INTERNATIONAL SOURCING

• The advent of mass tourism, combined with the growth of affluence and mass
international media, now mean that few places on earth are more than 12–14
hours’ flying time away.
• Governments in developed countries have tried over time to protect their
home garment and textile industries against low-cost imports from developing
countries.
• Complete world free trade has obvious benefits, but uncontrolled trade could
lead to garment-industry disruption and collapse in developed countries.
 GENERAL AGREEMENT ON TARIFFS
AND TRADE (GATT)/MULTI-FIBRE
ARRANGEMENT (MFA)

• The two major international agreements covering world textile trading were
the GATT and the MFA. The MFA was agreed in 1974 between Western
‘developed countries’ and ‘developing countries’, which included many Asian
nations.
• The MFA was originally established to provide Western economies with an
opportunity to change and restructure their clothing and textile industries, in
response to the great volume of imports of cheaper clothing and textiles from
developing economies in Asia and the Far East.
 THE MFA EXPLAINED

Key issues The effects on trade

• The intention was to avoid ‘market disruption’ to • There is an upper limit beyond which imports will not
western economies through the decline of clothing be allowed
and textiles industries in the face of floods of cheap
• The upper limit is broken down for each product
clothing imports from low labour-cost countries
category
• Four separate MFAs were agreed, during 1974, 1978,
• The limits are calculated by volume rather than value
1982 and 1986
– generally by number of
• The MFA mainly involves man-made fibres and wool.
• pieces in the cases of apparel, by weight in the case of
yarns and by metres in
• the case of fabrics
• Quotas are set annually
• Quotas are ad
 GENERAL SOURCING ISSUES

Overseas sourcing
• The principal benefit to fashion retailers of overseas sourcing is generally to obtain a cheaper cost
price. However, although overseas buying appears cheaper, mainly as result of lower labour and
infrastructural costs
• The ‘Iceberg Theory of Cost Comparison’ and its implications for the UK clothing industry was first
proposed by Tony Hines in 1998.1 The theory suggests that many UK buyers are buying from abroad
on the simple justification that prices are cheaper as result of fundamentally lower labour costs.
• Figure 7.2 shows the range of hidden costs that would not be easily revealed in a normal
presentation of management accounts.
 FOREIGN BUYING

Stock transportation
• When stock is purchased from foreign sources,
there are four different ways in which the order
price can be constructed in relation to the
transportation method used, as listed and
explained in Table 7.5.
 FOREIGN PAYMENT TERMS

Letters of credit
• Usually, a letter of credit is an irrevocable agreement to pay for products
ordered once the documentation of the proven loading of the goods has been
presented to the relevant international banks. The documentation indicates
that the goods exist and are ready for transportation. This acts as some security
for both parties, but a letter of credit can be very inflexible and is a costly and
inflexible instrument.
Cash against documents
• This is a faster, more flexible and informal way of paying foreign suppliers.
Usually used mainly with those suppliers that have long-standing relationship
with the fashion retailer, the system is based upon proven and mutual trust and
is more conducive to the fast-moving modern fashion retailer.
 TRANSPORT LEAD-TIMES

• The term ‘lead-time’ has many interpretations. In this context, ‘lead-time’ is

defined as the transport delivery period from the supplier’s factory gate to the
designated retailer’s distribution centre or store.
The order lead-time can be very variable, depending upon:
• Supplier’s geographic location
• Fabric availability/lead-time
• Component availability/lead-time
• Manufacturing capacity and availability of spare production • Advanced booking
of manufacturing
• Transportation availability/lead-time
 THE CHANGING SUPPLIER BASE

• The need for rationalisation

 BENEFITS OF FOCUSED SUPPLIER BASE

The benefits of having a more focused supplier base, with fewer larger suppliers include:

• Economies of scale on all buying, leading to cheaper cost prices and higher margins
• Improved reliability in terms of quality and delivery
• More effective management communication between both parties
• Greater understanding of shared business risks
• Greater mutual interdependence
• More sophisticated supplier service and professionalism
• Increased competitive advantage as a result of faster response to demand.
 PROBLEMS

While supplier rationalisation has many benefits, there are dangers of being too dependent,
too focused and involved with a few suppliers. Problems of overfocus on too few suppliers
include:
• Failure to see and potentialise new and creative innovations
• Failure to trade with businesses supplying competitors
• Over-reliance on a few suppliers and lack of product development caused by complacent
existing suppliers
• Sameness of designs and products from existing suppliers
• Too few suppliers may be risky, if no alternative sources of supply are quickly
• available in the event of delivery failure.
 FACTORY VISITS

• Initial factory visits need to evaluate:

• Quality and consistency of production
• Maximum production levels
• How far local employment practices meet reasonable European ethical
• standards
• Evidence that local health and safety criteria are being achieved