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Reshoring: The zeros and ones of Proximity Sourcing

December 05, 2018 Harsh Kumar
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Apparel Sourcing continues to be a significant operation in the supply chain of any apparel brand.  A highly human dependent exercise, sourcing in the past has time and again moved from one cheap destination to the other. From the US and the UK to Japan, China to South East Asia and now expanding to Africa.

 

However, the caravan journey of apparel manufacturing and sourcing seems to slow down. This can be attributed to a multitude of factors, most of them stemming from the advent of e-commerce and the subsequent rise in fast fashion For ex. lower lead times, need for decision postponement, more responsibility sharing with vendors, more agility and flexibility.

 

The distance makes the above requirements hard to achieve, thus, apparel brands “Going Local”. This is where the concept of reshoring / proximity sourcing comes.

 

According to the McKinsey Apparel CPO survey 2017 to check the increasing trend and importance of proximity sourcing amongst the sourcing executives across the globe.

 

54 percent of sourcing executives said that proximity sourcing was becoming more important (Exhibit 5). Among Europe-based sourcing executives,39 percent said they planned to increase the value of their sourcing from Eastern Europe, and nearly one-third wanted to increase sourcing from Turkey. An equal number planned to keep their Turkish sourcing stable, however, and 23 percent planned to reduce it.

 

 

But again, we should take into account the fact that despite the rising interest for proximity sourcing among the sourcing heads and executive, low-cost countries like Vietnam, Indonesia and Ethiopia still have the complete attention of the western buyers since these geographies are neatly cheap and give more room while costing in form of “Cents” when compared to the case of proximity or local sourcing.

 

In the US, the value of imports is very close to that of the EU ($ 81.5 billion), but shows a decline of 5.4% over 2015.
Imports from China and Hong Kong decreased by 8.7% in value and 3% in volume. Results were up for clothing imports from Vietnam, which is the US order-writers' second largest supplier (up 2% in value and 4.3% in volume). In a more general sense, imports from Asian countries remain high because they are anchored in the American culture.

 

It is the time to call the elephant in the room so what exactly is Reshoring/proximity sourcing?

According to Reshoring Institute “The term reshoring is simply used to explain the process of returning domestic product manufacturing from a foreign country back to the home country of where the business’s products are sold”.
 

Why go “Local”?


In the apparel industry, shorter lead time and flexible production system are the major factors why re-shoring is catching the eye. Also because it gives the merchandiser an absolute upper hand over supply chain handling.
 

There are other factors as well that explain the return to proximity production like local production provides a better guarantee of compliance with environmental and social standards during manufacturing processes.

 

Based on a study conducted by the IFM, the conference presented by Gildas Manville (Director of the IFM Economic Observatory) closely examined issues involved in proximity sourcing, which, given international economic and political instabilities tends to be strengthening in the countries that create fashion.

 

Karim Tazi, President of AMITH (Moroccan Textile and Apparel Manufacturers Association) also presented a special report on Moroccan sourcing which mentions the following

 

“Countries in the Mediterranean zone (Morocco, Tunisia, Turkey) accounted for 18% of the EU's apparel imports in 2016, up 2.4% in value over 2015. Asian countries show a decline of 0.9%, notwithstanding positive results in Bangladesh, the EU's second supplier ahead of Turkey, and Cambodia, the EU's fifth leading supplier.

Consumers buy according to the weather and make up their minds at the last minute. As a result, distributors avoid engaging in long-term orders that are too big, and favour proximity sourcing".

 

THE MOROCCAN EXAMPLE

 

Exports to the EU rose 10% over 2015, and on the heels of this rise, Morocco is making no secret of its goal to become Africa's leading player in textiles.

Mainly comprised of medium and small companies (1,600), the Moroccan textile-apparel sector produced a billion pieces in 2016 and exported 3,066 million euros. It plans to create 100,000 jobs by 2020 (there are currently 190,000) as part of its government-supported development project.

 

"We noted the rising prices at our main competitor, China, and realized that Morocco's know-how could once again become very competitive, especially in fast fashion. For example, we are now the leading suppliers to Zara worldwide" said Karim Tazi, president of Amith, the association grouping the country's leading textile-apparel manufacturers.

 

US-based sportswear company Under Armour opened its UA Lighthouse in 2016 – a digitally enabled facility that places designers and manufacturers under the same roof. The company is already able to make locally customized products in a fraction of the time needed in global sourcing processes.

 

Colin Browne the Chief Supply Chain Officer of Under Armour mentions “The old sourcing model is dead. The days of merchants “shopping” products from vendor to vendor is quickly disappearing. Sourcing is now about product supply, a true supply team, and integrated partnerships with suppliers. Thinking about how we unlock data and connect with

our suppliers and how that helps evolve those relationships is going to be increasingly important. Having the processes and systems for managing that data along with having suppliers that can cope within this new interconnected VUCA world (volatile, uncertain, complex, and ambiguous) is going to be critical”.

 

Let’s take a look at the latest Mckinsey Apparel CPO’s Survey results.

 

 

Survey results indicate that the trend toward proximity sourcing from North Africa and Turkey for Europe, and Mexico and Latin America for the US, might be looked at in a very differentiated way. It is becoming “more important” for value players (53%) and even more so for mid-market players (81%). Respondents indicated that proximity sourcing was mainly relevant for selected product categories and short lead time applications.

 

Conclusion

 

Apparel purchasing officers see the costs rising. Executives suggest that this may reflect a more structural shift in the industry, while the traditional apparel company’s “caravan journey” becomes more complex. As apparel players seek pathways to new sourcing options to address increasing cost pressures, they need to intensify their drive for sustainable, socially responsible business models in order to meet new industry demands.

 

While we digress from the topic in search of the answer to the question that whether we are going to see increased reshoring in coming time.

Because it has its own set of limitations pertaining to the technological advancements, Quality control, and innovation in the products offered.

 

Now Sourcing guys have a real challenge to weigh the pros and cons of the fact of sourcing globally or reshoring, and taking baby steps towards sourcing locally ,While we can not draw the conclusion in the midway of the changing paradigm, we should wait and see the changing trend and its effect over the sourcing practices in apparel business.

 

 


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