The full article is available HERE
To better understand companies’ latest sourcing practices, we recently examined the detailed sourcing portfolios of the 50 largest U.S.-based apparel companies ranked by the Apparel Magazine. Specifically, we conducted a content analysis of each company’s publicly released annual reports and their financial statements from 2014 to 2017 (the latest information available), with a focus on the following two research questions: 1) How have the sourcing strategies of U.S. apparel companies evolved? 2) How have the evolving sourcing strategies affected companies’ financial performance? Here are the key findings:
First, U.S. apparel companies overall adopt a diverse sourcing base. Among the 50 companies we examined, on average they sourced from over 20 different countries or regions using more than 200 vendors in 2017. These results echo the findings of the 2018 U.S. Fashion Industry Benchmarking Study released by the U.S. Fashion Industry Association (USFIA) in July. Based on a survey of nearly 30 executives from leading U.S. fashion brands and apparel retailers, the study also found companies with more than 1,000 employees typically source from more than ten different countries and regions. Also, larger companies, in general, adopt a more diverse sourcing base than smaller ones.
Second, while U.S. apparel companies are actively seeking new sourcing bases, many of them are reducing either the number of countries they source from or the number of vendors they work with. Specifically, among the top 50 U.S. apparel companies examined, around 28 percent increased the number of countries or regions they use as sourcing bases between 2014 and 2017. However, over the same period, 52 percent chose to consolidate their existing sources base, but on a small scale. Likewise, among the top 50 U.S. apparel companies examined, approximately half reduced the number of vendors they use between 2014 and 2017, compared with 33 percent that chose to source from more vendors.
Third, for risk control purposes, most U.S. apparel companies avoid relying too much on any single vendor; however, some companies have begun to allocate more sourcing orders to its largest vendors. The top 50 U.S. apparel companies we examined on average assigned no more than 10 percent of their total sourcing value or volumes to any single vendor in 2017. This practice suggests that minimizing supply chain risks is a critical consideration of U.S. apparel companies’ sourcing strategy. Nevertheless, between 2014 and 2017, around 45 percent of apparel companies we examined raised the cap slightly.
Fourth, regarding the financial implications of the adjustment of sourcing strategies, companies that diversified their sourcing bases between 2014 and 2017, in general, were able to reduce sourcing cost and improve gross margin. In comparison, U.S. apparel companies we examined that consolidated their sourcing base between 2014 and 2017 suffered a slight decline in their gross margin percentage.
On the other hand, however, there was no clear pattern between a company’s choice of sourcing strategy and their net profit margin. While multiple factors could come into play, one possible explanation for the results is that that either diversifying or considering the sourcing base would incur additional management cost for the company.
Recommended citation: Luetje, J., & Lu, S. (2018).How do apparel sourcing shifts impact the bottom line?. Just-Style. Retrieved from https://www.just-style.com/analysis/how-do-apparel-sourcing-shifts-impact-the-bottom-line_id134604.aspx
FASH455 Global Apparel & Textile Trade and Sourcing 
I found this article interesting to learn more about the diverse sourcing strategies that are carried within the United States. Even though many companies are succeeding with their current sourcing agents and vendors, they consistently are seeking new vendors and trying to decrease the number of vendors they work with overall. I also found it interesting that their was no direct pattern seen between a company’s sourcing strategy and their net profit margin.
this study was conducted in 2018. Given the current business environment, what do you think US fashion companies’ sourcing strategy may continue to evolve this year? Why?
From other readings we’ve had, I think that US apparel brands will try to source from countries other than China. Brands have already begun moving production from China to places like Cambodia and Bangladesh, where labor is cheaper and there are fewer import taxes going into the US.
Given the current retail environment and all of the macro factors that are impacting sourcing strategies, I think that U.S. retailers will continuing to evolve and prioritize diversification within their supply chains. It will be interesting to watch new sourcing tactics emerge in light of COVID-19 and see which countries are identified as key players in fulfilling orders. I do think that China will start to be phased out, but I cannot imagine that retailers will pull away entirely because of its production capabilities. However, smaller orders are being placed right now because many stores are closed and consumers do not have the disposable income available to spend on apparel, so the need for larger factories with high volume capacities is not as pressing. Conversely, I believe that consolidation will also come into play more so this year because companies will lean into their suppliers that are able to fulfill orders until the global retail industry is back up and running (buyers cannot be as selective). Right now, I would imagine that retailers are more concerned with staying afloat as we enter into a recession than developing competitive sourcing strategies, but this could change depending on how the next few months play out.
I also found it interesting that there was no direct pattern between a company’s sourcing strategy and net profit margin, but I suppose this proves that there is not just one “right” way for a company to operate and that companies all have their unique sourcing strategies. I’m sure these strategies are constantly evolving, so I am interested to know what this data looked like in previous years.
I think it may be beneficial for more US apparel brands to limit the number of countries and vendors they source from. We’ve seen that it’s quite difficult for retailers to make long-lasting, trustworthy relationships with their suppliers– perhaps a way to remedy this could be to reduce the amount of vendors and focus on strengthening the bonds with those whose practices align more with the brand’s mission and supply chain speed.
This is a good point you make regarding vendor relationships. It would be easier and make more sense to use less vendors in order to create longer lasting relationships within the supply chain, but at the same time I can see why having multiple vendors could help mitigate risk for companies. This would be a case for cost/benefit analysis for companies to determine which benefits are greater.
I agree with your comments about how difficult it is to make long lasting relationships with suppliers. If they were to reduce the amount of vendors, this could give off a big amount of stress and focus on things more important. As in, like you said, strengthening bonds that practice aligning more with other brand’s supply chains.
I agree that it is important for a retailer within the United States to source from multiple vendors, but not to source from too many so that they can easily oversee production methods, keep a good relationship with vendors, and ensure no unethical practices are occurring.
It is interesting, yet not surprising, to note that companies sourced from sometimes over 20 different countries in 2017. It makes sense that the larger the company, typically the more locations they source from as to get a wider variety of materials and resources. It is noted in the article that for risk mitigation reasons, most US apparel companies do not rely too heavily on a single vendor, not allowing a single vendor to have more than 10% of their volumes. This makes sense as not to put “all eggs in one basket” to protect the company in the event something was to happen, such as delayed delivery dates or lost shipments. I was a little surprised to learn that by diversifying their supply chain, these companies reduced costs and improved gross margins. I suppose this could have to do with the aforementioned issues that could potentially occur, but I am curious to learn more reasons why this was a result.
The overall idea that companies source from anywhere from 10 different countries is interesting. With sourcing from so many countries and factories within said countries, it would be a lot of organization and work. Companies do not always form relationships with the factories they source from but perhaps they should. If they reduced the number of countries they sourced from and found factories that they could build relationships with they could potentially be more successful. The better the relationship between the supplier and the company the easier it will be for them to source their materials for the best prices and quality.
After reading the post, I thought that it was interesting how the United States has no set path for sourcing and trading. While in the past, trade was very narrow and limited, the United States now sources from a wide range of countries overseas in order to find the best products at the lowest price. As we discussed previously in class, it is important to have a wide range of manufacturers to source from because if a company were to solely rely on just one country, if something happens to that factory the U.S. company will be out of business with no other vender relationships formed. It is important to have close relationships with overseas manufacturers so that you are doing reliable business.
This article was very interesting to read especially now connecting it to today’s times when apparel companies are focusing on manufacturing goods in places other than China. It is fascinating to me that retailers have such a diverse range of suppliers that they are trying to diversify even further. It makes sense for large companies to have a diverse range of suppliers in order to minimize risk and not rely so heavily on a single place/manufacturer.
This also connects heavily to our class lectures and most recent Case Study!
I view sourcing from over 20 different countries or regions using more than 200 vendors as a threat to the companies. A diverse sourcing base like this makes it harder for companies to track down and work closely with their supply chain, it is so overwhelming as companies lose track after tier 1. These 200 vendors can further end up subcontracting as they are not just working with one company but multiple companies at once and need to meet certain deadlines. Subcontracting makes the supply chain even more complicated than it already is, we have seen that during the Rana Plaza Collapse a lot of companies were unaware of where the supply chain ended, some of them were unaware that vendors were subcontracting. Sourcing from a smaller amount of countries and vendors will greatly help the companies, in recent years as more and more consumers want companies to be transparent, and keeping a small supply chain will make keeping track and providing information a lot easier.