Overseas sourcing has always played a crucial role in enhancing value addition to any global supply chain. This importance has been elevated in recent years due to the escalation of local production costs and price pressure from competitors. The apparel business is no exception, relying on global sourcing for competitiveness. Retailers and back-end manufacturers of garments, textiles, and accessories are constantly searching for new global bases for competitive sourcing. This article is based on the author's experience in developing overseas sourcing from China.
Many apparel companies have set up their own liaison offices in China and Hong Kong to manage sourcing. Over the years, sourcing from China became attractive due to lower direct sourcing costs compared to similar items sourced elsewhere. However, managing the supply chain right from China posed various challenges.
Among the problems companies typically faced, long and unpredictable transit times slowed down inventory turnover. This made purchase and inventory managers uneasy about sourcing from the land of the dragon. Logistics managers had reasons to be cautious, as China sourcing involved nightmarish entanglements with ports, customs officers, and negotiations with shipping lines. Ensuring quality also became challenging, with most quality officers expressing concerns about sourcing fabric and trim from China.
In addition to these issues, difficulties in managing expected time of dispatch and arrival (ETD and ETA) and synchronizing them with in-house manufacturing schedules were nearly impossible when sourcing from China. Disruptions due to different time zones, disparate cultures, and language barriers added to the challenges faced by apparel companies. Commercial documentary intricacies, from not mentioning the country of origin clause in L/C to mistyping consignee names or ports of destination, led to L/C amendments and delays in releasing goods from ports. Quality and quantity assurance posed hurdles, with bureaucratic port and customs delays affecting parts of every consignment.
However, it is possible to overcome these challenges by formulating a logical and sustainable strategy to manage China sourcing. The first and foremost of these strategies is to develop the "Total Sourcing Cost (TSC)" concept to measure sourcing efficiency from China. TSC comprises the ex-factory price, freight cost, inventory cost, cost of rejected goods, duties, and the cost of after-sales service. Management can rightly focus on where to control costs while sourcing from China only after determining the TSC. Without calculating TSC, management might focus solely on the ex-factory cost from China and end up paying more due to other associated costs.
It is also necessary to create a Hybrid Sourcing Model based on direct involvement, third-party, and agent-based sourcing. All three can add significant value while addressing the challenges companies might encounter in their China sourcing.
In the direct involvement, company need to involve themselves directly in building infrastructures like streamlining quality inspection and control. They can also take initiative in understanding the customs rules and regulation, which play vital role in streamlining sourcing process. Developing oversees office including recruiting local staff should help companies in this regard, as local Chinese can add value to inspection and commercial management more quickly. It is also necessary to invite Third Party (3P) service providers to take care of port-management, to sort out intellectual property (IP) issues etc. Finally, companies should not hesitate to take help from local agents having vast and superior knowledge about China market. These agents provided significant clue in collaborating with key suppliers in China.
Putting together all these strategies, any company should find itself on firm footing as far as China-sourcing is concerned. It is mandatory now to look oversees sourcing from China not form singular objective of reducing FOB cost, but also form multiple objectives of reducing various costs associated with several factors mentioned in this article. Only when companies are able to take a holistic outlook in managing all these cost associated with their China-sourcing, they can make "Right sourcing strategy Right from China". This is certainly a challenge worth for sustainable improvement in any organizations bottom line, especially for those having oversees sourcing from China.
About the Author
The author holds more than 20 years of experience in managing Supply Chains of various multinationals. Having worked in different locations namely India, Hong Kong, Kenya, Mauritius, and Bangladesh, he has contributed in diversified fields like manufacturing, planning, customer services, marketing, logistics, finances and compliances. Textile, Apparel, Plastics, Packaging and Consumer Trading are some of the industries where he has spent his career. He has been associated with several international organizations like Council of Supply Chain Management Professionals, Supply Chain Asia etc. Currently he is the CEO- Global Supply Chain at KDS Group and is managing global business.
Comments