The document discusses the top concerns of apparel companies regarding global sourcing. It finds that the top three concerns are (1) the price of raw materials, (2) wage rates, and (3) customs logistics issues. To address these concerns and remain competitive, companies need to pursue more cost-saving opportunities such as exploring new sourcing countries and partners, increasing value-added services from suppliers, and improving supply chain efficiency. New technologies also need to be leveraged to gain better visibility and control over increasingly complex global supply chains.

1. Winners Will Improve
While
PRODUCED BY
TITLE SPONSOR
GOLD SPONSORS
Seventh Annual Apparel Research Study & Analysis: Excellence in Global Sourcing

2. An Apparel Exclusive Report
A
lthough mounting consumer expectations, omnichan-
nel pressure and heightened competition are driving
discussions around revaluating production locations,
supplier relationships and even overall sourcing strategy, cost is
still king.
In fact, in this year’s Seventh Annual Excellence in Global
Sourcing Survey, produced by Kurt Salmon and Apparel,
respondents still chose cost drivers as their top macro-econom-
ic concerns, with their top three being the price of raw materi-
als (occupying the top spot for the third year running), wage
rates and customs logistics issues.
And for good reason. Although they have come down
since their peak in early 2011, raw material costs remain an
area of significant concern. This is especially true for cotton,
which is now showing signs of ticking up again.The result can
be a serious impact to margins. For example, Hanesbrands
plans to exit its unbranded apparel business in the United
States and focus on its Outer Banks sportswear label in an
effort to prop up falling margins, which have decreased more
than nine percentage points over the last two quarters as a
result of raw materials costs, according to Thomson Reuters
StarMine data.
Wage rates are an area of even greater potential margin
erosion. According to national statistics, the growth rate for
the hourly wage rate in China grew at more than 83 percent
between 2007 and 2012. Compare this to other major Asian
locations such as South Korea at 17.9 percent growth, Hong
Kong at 12.3 percent and Japan at -4.2 percent and it
becomes apparent that the trend is driving a shift in sourcing.
Although China still produces the lion’s share of U.S. appar-
el, footwear and furniture, annual double-digit wage increas-
es have enticed many companies to shift production to lower-
wage countries in Southeast Asia and Latin America and
continue to look elsewhere.
By Joanna Shapiro, Manager & Courtnay Thomas, Senior Consultant, Kurt Salmon
26 EXCELLENCE IN GLOBAL SOURCING
In today’s highly complex global sourcing environment, apparel companies must aggressively
explore more opportunities, including the pursuit of new sourcing countries and partners,
increasing value-added services and upping supply chain efficiency.
FIGURE 2: Percent Hourly Wage Rate Growth 2007-2012 - Select CountriesFIGURE 1: Trend of Top 3
Macro-Economic Concerns
2010
• Wage rates/issues
• Price of oil
• Price of raw materials
2011
• Price of raw materials
• Price of oil
• Wage rages/issues
2012
• Price of raw materials
• Increasing internal/domestic
demand in China
• Price of oil
2013
• Price of raw materials
• Wage rates/issues
• Port/customs or logistics issues
China
83.7
Hong Kong
12.3
Philippines
26.2
South Korea
17.9Japan
-4.2
Brazil
57.2
Colombia
10.2
Mexico
16.1
Nicaragua
41.3

4. An Apparel Exclusive Report
28 EXCELLENCE IN GLOBAL SOURCING
Finally, new to the top concerns list is a focus on port and
customs logistics issues. Within a year, the importance of this
topic jumped more than 10 percent as the complexity of retail-
ers’ and wholesalers’ supply chains grows — along with the
mounting stakes of delayed shipments. Issues such as last
year’s narrowly averted port strike, which would have shut
down 14 container ports from Maine to Texas, weigh heavily on
the minds of many sourcing executives.
These three concerns combine to create considerable pres-
sure on retailers and wholesalers to rethink their existing sourc-
ing and supply chain strategies. No one company has found the
answer. Our research shows that companies sourcing more
heavily from China and other Asia Pacific countries are more
concerned about oil prices, wage rates and customs issues than
other respondents. On the other hand, companies that are cur-
rently sourcing in Sub-Saharan Africa list raw material prices as
their biggest macro concern.
Clearly, in the midst of all these issues, establishing a cost-
stable value chain while also balancing quality and risk requires
a shift from the way retailers and manufacturers have tradition-
ally managed sourcing and supply chains. Sourcing organiza-
tions have an opportunity to both cut costs and improve
responsiveness, supporting overall business goals around cus-
tomer experience and omnichannel fulfillment.
In this new environment, traditional cost-saving measures
will no longer be enough to remain competitive. Companies can
only negotiate material and labor costs so low — they must also
explore more creative approaches to cost saving. Three of these
opportunities include pursuing new sourcing countries and
partners, increasing value-added services and upping efficiency.
Pursing New Sourcing Countries and Partners
As discussed, rising labor rates in China are driving many
companies to look elsewhere for sourcing. Our survey shows
that the top three regions from which respondents are current-
ly sourcing include Western China, Eastern China and the
Americas. They are most interested in expanding into
Bangladesh,Vietnam and Cambodia, with India and Indonesia
rounding out the top five.
In addition to cost concerns, favorable regulations and
efforts to increase speed-to-market can also make new sourc-
ing countries attractive.
For example, Cabela’s is looking into moving some produc-
tion into Central or South America to take advantage of DR-
CAFTA regulations and shorten lead times to increase respon-
siveness to customer demand. And retailers including H&M,
Tesco and Primark are sourcing from Ethiopia to take advan-
tage of the attractive fabric provision, which allows most AGOA
countries to ship apparel made from fabric outside the region to
the United States duty free.
When pondering the jump to another sourcing region,
respondents weigh four primary risk factors: labor costs in the
sourcing country (24 percent of respondents), the U.S. econo-
my and domestic consumption levels (23 percent), the stability
of the sourcing region (12 percent) and capabilities of the sup-
pliers in that region (12 percent).
FIGURE 3: What Value Adding Services do you consider the most important expectation from your
agents/importers/vendors?
Cost
Lead time
Quality program
Social compliance
Product development/execution
capabilities
Mature, established region/historical
partner relationship
Accessibility of raw materials (i.e.,
fabrics, trim, etc.)
Financial terms
Trade preferences
2007
2008
2009
2010
2011
2012
2013

6. When it comes to assessing capabilities, it can be difficult to
balance the desire to cut costs with other concerns, including
lead time, quality and social compliance. This year, the impor-
tance of cost in that equation rose to a seven-year high, with 35
percent of respondents choosing it as the most important factor.
Increasing Value-Added Services
Companies are also looking for sourcing partners that can
provide key value-added services, including QA management,
product development and design and deep raw material
knowledge. QA management in particular is becoming increas-
ingly important as companies look to manage their brand per-
ception to avoid negative press and potential recalls. Product
quality and safety as well as social compliance are rapidly occu-
pying the minds of sourcing executives as QA management
topped this year’s list, and experienced 10 percent growth in
importance from last year.
By outsourcing these activities to overseas agents or sourc-
ing agents, companies are then freed up to focus on more valu-
able areas of the product development process.
Upping Efficiency
Finally, it is well known that efficiency can drive cost sav-
ings.This may sound obvious, but the survey reveals that many
companies have significant room for improvement here —
especially larger companies. For example, 40 percent of mid-
sized companies report sourcing more than $3.5 million per
FTE but only 28 percent of large companies source at that level.
Of course, enabling these key strategic shifts will also
require new organizational capabilities, processes and support-
ing technology. Evaluating capabilities to ensure strategic use of
the sourcing organization and transitioning other tasks to a
more shared service model can begin to evolve the organization
toward more efficient sourcing operations. Additionally, leaders
are cultivating more strategic relationships and tiering their
supply base as a means to simplify sourcing, where possible.
Technology is even more important as the classic definition
of “supply chain” grows to encompass even more elements in
need of something to tie them all together. For many respon-
dents, a truly world class supply chain is cost competitive, differ-
entiated and structured to facilitate continuous improvement.
These measures all support a top-notch customer experi-
ence. In fact, 29 percent of respondents said customer fulfill-
ment effectiveness was the most important measure of supply
chain success.
Achieving this will require multiple technology solutions —
each targeting a separate component of the supply chain —
and seamless integration between them. But the benefits are
well worth it: streamlined communication, improved collabora-
tion, increased speed of activity completion and increased con-
trol and visibility.
In addition to these initial benefits, technology can unlock
additional value if it is supported by organizational and
process changes. For example, very few retailers and whole-
salers (only 29 percent) are thinking about using technology
to drive better decision making, but we see this as a key com-
petitive imperative in the very near term.
An Apparel Exclusive Report
30 EXCELLENCE IN GLOBAL SOURCING
>$5M per FTE
$3.5M-$5M per FTE
$2M-$3.5 M per FTE
$1-$2M per FTE
<$1 million per FTE
FIGURE 5: 2013 Sourcing Efficiency by Revenue Band
More than $1 billion $101 million to
$1 billion
Less than $100
million
20%
8%
24%
24%
24%
33%
7%
10%
30%
20%
8%
11%
10%
7%
64%
FIGURE 4: Value Added Services - 2012-2013% Change
Transportation/customs management
1%
Niche regional or product knowledge
-1%
Inventory ownership
1%
Financing or extended payment terms
1%
Raw material knowledge or vendor base
-2%
QA management
9%
Product development and design
-3%

8. An Apparel Exclusive Report
32 EXCELLENCE IN GLOBAL SOURCING
FIGURE 6: A World Class Supply Chain Is . . . FIGURE 7: The most important metric to measure
Supply Chain success for my organization is . . .
40%
All of the above
37%
Cost savings
33%
Competitive differentiation
29%
Structured continuous improvement
28%
Structured supplier relationship management
27%
End customer service
22%
Customer Fulfillment
Effectiveness
29%
Agility and
Responsiveness
25%
Operational
Effectiveness
18%
Financial
Effectiveness
14%
Efficiency
13%
Velocity
1%
Cross-functional metrics
21%
Managing trade-offs
20%
Supplier segmentation
14%
Segmented supply chains
FIGURE 8: Expected Results of Supply Chain
Technology Implementations
56%
Improved communication & collaboration
56%
Increased speed of activities
48%
Increased control and visibility
41%
Increased ability to perform activities
30%
Increased standardization
29%
Improved/new decision making
26%
Improved risk management
24%
Advanced ability to do new activities
5%
Other
7%
Stockless initiatives
Yes, the myriad challenges facing today’s sourcing execu-
tives can seem daunting. But they also represent a consider-
able opportunity to improve efficiency and cut costs while
bolstering the sourcing organization’s strategic role in sup-
porting business objectives. Realizing that opportunity will
require a clear roadmap that prioritizes future changes,
including organizational, process and technology changes,
based on overall supply chain goals.
ABOUT
Kurt Salmon is the leading global management consulting firm specializing in the retail and consumer products industry. The firm leverages its
unparalleled industry expertise to help business leaders make strategic, operational and technology decisions that achieve tangible and meaningful
results. For more information go to www.kurtsalmon.com.
ABOUT THE AUTHORS
JOANNA SHAPIRO and COURTNAY THOMAS advise the world’s
leading retailers and consumer products companies on their sourcing
and supply chain strategies. They can be reached at
joanna.shapiro@kurtsalmon.com and
courtnay.thomas@kurtsalmon.com.