Everything today is about speed.
Bruce Philip Rockowitz, Group President and Chief Operating Officer of Li & Fung since 2011, talks about the changing trends in textile supply chain and importance of transparency in sustainable textile production, in an exclusive interview with Fibre2Fashion Correspondent Ilin Mathew.
Synopsis:
Li & Fung Limited is a Hong Kong-based multinational group which provides sophisticated, one-stop-shop supply chain solutions to the consumer goods industry, including the textile and apparel sector worldwide. Its spectrum of services covers the entire supply chain end-to-end from product design, raw material sourcing, and production management to quality control, logistics and other important functions.
Rockowitz, who in 1981 co-founded Colby International Limited, a large Hong Kong buying agent, served as its Chief Executive Officer until 2000, when Colby was acquired by Li & Fung. In 2008, he was ranked as the Asia’s Best CEO in the consumer category by ‘Institutional Investor’. In the years 2010 and 2011, he was ranked as one of the world’s 30 best CEOs by ‘Barron’s’. In 2012 and 2013, he was presented with an Asian Corporate Director Recognition Award by Corporate Governance Asia.
Excerpts:
Can we start the conversation with the changing sourcing trends in the textile and apparel sector?
Everything today is about speed. It’s the "Zara effect" of bringing fashion to the consumer very quickly by using a lot of analytics and being able to move quickly on development and sourcing. You give the consumer what they want at the moment they want it and you minimise mark-downs sales. The past was about longer lead times. It was more "push" type of manufacturing as opposed to the "pull" type of manufacturing we see today, the “pull” being what the customer wants. That's the major change.
We're also seeing the "Bangladesh effect", which is a change in mindset of retailers and, to some extent, consumers, after the tragedies in apparel factories there during the past year. Instead of being concerned about only price and quality, people are also concerned about the process of how their goods are made, including the safety and treatment of workers.
We have also come across a news that Li & Fung is planning to shift its focus from countries like Bangladesh and China to South America and Sub-Saharan Africa. What are the reasons for this?
What we’ve actually said is that China, Vietnam and Bangladesh are unlikely to be displaced as apparel sourcing markets any time soon. China is more than half of our business and Bangladesh is our second-largest sourcing country. We're very committed to our present sourcing structure for many reasons, ranging from critical mass of available workers, to adequacy of supporting infrastructure, local government policies and overall competitiveness. However, we remain watchful about the potential of countries in South America and Africa. In the belief that trade is better than aid, we encourage importing countries to give preferential market access, such as it happens for sub-Saharan African exporters under the African Growth and Opportunity Act of the United States.
Apart from recession, production cost and safety, which are the other factors affecting sourcing of textiles and clothing?
Number one is speed to market and, in particular, the efficiency of factories.
While the US is still recovering from the greatest recession of 2008, the EU economy is still going through the crisis. Did it make any change in the supply pattern of global textile and clothing sector?
It certainly did. The consumer has been impaired over the past five years. When you focus on the US, no previous recession had such an impact on the consumer. The American consumer all but died and stopped spending. People wondered, after 2008, if this was the new normal. It caused retailers to be much more focused - limiting inventory, buying later, buying smaller, buying right. So, on the one hand the 2008 recession was catastrophic – with huge unemployment and loss of wealth – on the other hand it has made the supply chain and retailers more efficient.
Now, we're seeing signs that the US consumer is not dead. While things haven't recovered to where they were, there is dramatic improvement. Old spending habits are coming back. Europe got hurt a little later than the US and will recover later. What is permanent is the emphasis on speed to market, smaller orders and minimising mark-down sales. There's less margin for error and less wastage in the whole supply chain.
Which are the new markets the textile and garment suppliers worldwide are currently focusing on?
I would say that it's still Asia focused. The key markets include China, Indonesia, Vietnam, India, Bangladesh, Turkey and Central America. The focus is not just on price, it's on the total cost which now includes compliance. And while that is becoming a bigger piece of the total cost, compliance doesn’t necessarily have to cost more. If you do things properly from the beginning – getting the “hardware” of infrastructure and factory buildings right – it costs the same. It’s retro-fitting that is difficult and costly. Newer sourcing markets such as Cambodia and Myanmar have a chance to get their industry hardware right from scratch and to leapfrog other countries, just as China did 30 years ago.
Moving on to sustainability and technological advancements, how are technological changes shaping the sourcing sector? To what extent do these changes help textile and apparel industries to practice sustainability in their production?
Technology is a major driver of change in manufacturing everywhere, including the textile and apparel industries. It could be from simple things like automated machinery for cutting and better sewing, to more sophisticated systems for monitoring a factory's energy and utility usage.
A factory's sustainability initiatives may touch on traditional environmental management, to developing human resource management systems to calculate proper wage payments, to lean manufacturing techniques which reduce wastage of materials. All of this should make good business sense to factory owners because it ultimately increases the profitability of their business. It's good for everyone involved - workers, retailers, us – when a factory's business is truly sustainable and grows as a result.
Li & Fung is considered as Walmart of purchasing. What do you think is the role of the company in connecting factories of poor countries with the affluent countries' vendors?
We don’t just connect factories in developing countries with customers in affluent markets; we also play a very important role in the economic development of the countries we produce in. We bring a lot to the table because we have customers ranging from low end, to middle, to upper. As we develop each factory we are able to give them better, higher-priced customers, so they can rise up the value chain. We did that in China. Factories we work with there were once all about cost. Now they are about quality, speed to market and higher value.
We also influence governments in sourcing countries to improve infrastructure, and the factories we work with to improve workers' conditions. So there's a lot that we have done to help society and there is a lot more that we will do in the future.
Besides economic crisis, increasing production cost and the recent incidents in Bangladesh have also played a vital role in the changing patterns of sourcing. Do you agree? Could you kindly elaborate the reasons?
No, I don’t agree, because Bangladesh remains vitally important to the global apparel industry. The tragedies have, in fact, led to concerted international efforts to help Bangladesh upgrade and transform its apparel industry which supports millions of workers and is lifting economic prospects for the whole country. To do anything less would be unconscionable and Li & Fung is proud to be playing a significant role in this effort.
You have once said 'We make our best effort to weed out bad factories, but we do not always succeed’. What is the role of sourcing firms in ensuring safety in textile and clothing units?
What I always say is that we inspect the factories we work with but still things can happen, regardless of our diligence, especially in less-developed countries. We probably have the longest history of any sourcing company and with a very big focus on compliance for the past 20 years. When we do recognise a bad factory that is unwilling to address issues over safety and treatment of workers, our response is immediate – we won’t continue to work with them. That is to preserve our integrity as well as that of customers.
I believe that a sourcing firm’s role is to find the best factories and work with them over time to improve their compliance and their quality so they are much better suited for marketing and selling to the Western world.
According to you, what are the biggest challenges faced by the sourcing firms of textiles and garments?
Most sourcing firms operate in developing countries where we face tremendous challenges every day, ranging from supply chain disruption because of flooding and other natural disasters, to civil unrest. While we are used to dealing with these, our biggest challenge is one we can do little to overcome - the recovery of the Western economies.
Can you talk about how you see bricks and mortar stores competing with e-commerce and m-commerce companies coming in? Is it viable in textile and garment sector?
Everything today is omni-channel - getting goods to consumers any way they want, whether through bricks and mortar, e-commerce or mobile apps. Bricks and mortar stores have an advantage over strictly e-commerce stores in that they can, and do, add on e-commerce as a component. People like to have both options – shopping in a physical store and pricing over the internet. E-commerce platforms are growing dramatically but omni-channel pressure will probably force them, eventually, into opening stores so they can compete.
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