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Monday, October 28, 2013

Challenges for Apparel Sourcing

Apparel sourcing is seeing turbulence in the near future, the current industry trends are quite in contrast to what was projected in the last couple of years.

McKinsey & Company had forecast in 2011 that ready-made garment exports would triple in a decade, leading to the countries to rise at the rate of 7-9% and export value of nearly $36-42billion by 2020. But their latest research suggests that Bangladesh seems to have lost much of its magic!

A recent survey of chief purchasing officers (CPOs) in European/ U.S. apparel companies cautions about the challenge of shifting production to countries with lower labor costs. In the survey, the recent Rana Plaza factory collapse came out to be the major reason for this downtrend. The Textile industry business profiles indicate that most investors are now more cautious about Bangladesh as a sourcing destination. While in 2011, Bangladesh was ranked by 70% industry players as a hotspot for apparel sourcing, recent data suggests that only one-third industry players rank the country in the top three places for apparel sourcing.
However, Bangladesh still seems to be the country with the greatest scope for apparel sourcing in the near future - which is well-evident with the U.S. data, where the country's shipments increased in 2013.

Continuous rise in sourcing costs:               

The recent McKinsey & Company survey also implies that buyers agree that sourcing costs will rise steadily in the nest one year, ending decades of deflation in apparel prices. Achim Berg, the author of the survey states: "We have now reached a tipping point and it will become even more difficult to keep consumer prices stable"

The up-market segment of large industry players is more affected by this as compared to the mid-market segment. Almost 76% of mid-segment respondents in the survey expect a rise of about 1.7% in costs, irrespective of the sourcing destination. In fact, some expect a rise of up to 4%. The large players said they foresee a rise in sourcing costs by 2-3.5%.

The main factor driving these increasing costs is undoubtedly, labor expenses. Next is the cost of raw material. The shift of purchasing power has worked against the mid-market players.

While the projected sourcing price rise is eventual, some CPOs are trying their best to lessen it - major players are moving greater parts of their sourcing from countries offering cheap labor expenses. This strategic move will pose challenges to value players who began apparel sourcing in such countries, earlier on.
Also, 69% of respondents in the survey stated that proximity was another important factor. Companies now are showing enhanced social responsibility and work on plans to meet any contingencies they could face in the sourcing destinations.

Globally, textile industry business profiles agree that challenges for apparel sourcing shall be immense in the times to come.

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