Which Apparel Sourcing Factors Matter?

Abstract

Today, fashion companies consider a long list of factors when deciding where to source their apparel products, ranging from cost, speed to market, flexibility to the risk of social and environmental compliance. While existing studies have identified these major sourcing factors, whether they are treated equally in companies’ apparel sourcing decisions remains mostly unknown. Neither is it clear how fashion companies make a trade-off among these sourcing factors, given no sourcing destination is perfect.

This study aims to quantitatively evaluate the influence of primary sourcing factors on fashion companies’ determination of apparel sourcing destinations. For the study, we collected the detailed evaluation of the world’s 27 largest sourcing destinations in 2019 against 15 specific performance indicators from GlobalData, one of the most popular sourcing analytics tools. The evaluation uses a 5-point rating scale for each performance indicator.

Because some of these 15 performance indicators measure similar items, we first conducted an exploratory factor analysis, which reduced these indicators to five principal sourcing factors based on their correlation matrix scores.  These five principal sourcing factors cover the following themes:

  • Capacity: It covers seven performance indicators that measure a sourcing destination’s capabilities (including flexibility and lead time) of providing apparel products and other value-added services.
  • Price & Tariff: It covers two performance indicators that measure the financial implications of sourcing from a particular destination, including eligibility for preferential import duties.
  • Stability: It covers two performance indicators that measure a sourcing destination’s macro-business environment, specifically sourcing-related political and economic climates.
  • Sustainability: It encompasses all social and environmental compliance issues related to apparel production and sourcing.
  • Quality: It covers two performance indicators that measure whether a sourcing destination obtains skilled workers and the overall quality of its products.

Next, we calculated the 27 apparel exporting countries’ average scores of these five principal sourcing factors. Based on the results, we further conducted a multiple regression analysis to evaluate the impact of the five principal sourcing factors on the value of these 27 countries’ apparel exports to the U.S., EU, and Asia in 2019, respectively. These three regions combined accounted for more than 80% of world apparel imports that year; however, fashion companies in each area are suggested to have unique sourcing preferences.

First, the result suggests that improving the performance in Stability and Quality can help a country enhance its attractiveness as an apparel sourcing base in the U.S. and Asia markets, but not so much in the EU market.

Second, a higher score for the factor Sustainability does not result in more sourcing orders at the country level in all three markets examined. It seems fashion companies’ current sourcing model does not provide substantial financial rewards encouraging better performance in sustainability. It is also likely that sustainability and compliance are treated more as pre-requisite criteria instead of determining the volume of the sourcing orders.

Third, the impact of Price & Tariff and Capacity on the value of apparel imports is not statistically significant in any of the three markets examined. This result does NOT necessarily mean price and production capacity is irrelevant. Instead, the result implies that fashion companies’ sourcing decision today is not merely about “chasing the lowest price.” Meanwhile, due to concerns about supply chain risks, even the most “economically competitive” sourcing destination won’t receive all the sourcing orders.

The findings of the study suggest that fashion companies’ sourcing decisions today appear to be more complicated and subtle than what is revealed by the existing literature and the public perception. Notably, the findings present different views from previous studies regarding how sourcing cost and sustainability affect fashion companies’ selection of sourcing destinations.

The findings also call our attention to the significant impact of non-economic factors on companies’ sourcing decisions, particularly the perceived political risks. This result explained why fashion companies had quickly reacted to the recent forced labor concerns in Xinjiang, China, and the military coup in Myanmar and halted sourcing from the regions.

By Dr. Sheng Lu and Emma Davis

The study was presented at the 2021 International Textile and Apparel Association (ITAA) annual conference.

Author: Sheng Lu

Professor @ University of Delaware

4 thoughts on “Which Apparel Sourcing Factors Matter?”

  1. I was very intrigued to read some interesting points in regards to different sourcing factors. First, sourcing capacity seems to be very important as it deals with lead time and flexibility. I think one of the major current sourcing issues is slow lead times. Sustainability and quality are definitely two other important factors, especially in today’s society. Consumers care more about the quality than they used to. We are shifting away from cheap labor and cheap products and moving toward higher quality and more sustainable apparel, so these two factors are very important when it comes to sourcing. Choosing sourcing destinations seem to be much more complicated and thought out than I previously realized.

    1. One interesting finding of the study is that fashion companies’ current sourcing model does not provide substantial financial rewards encouraging better performance in sustainability. In other words, better performance in sustainability does not result in more sourcing volumes when holding other factors constant. This result is also consistent with what we see in the real world. For example, we know “made in the USA”, in general, involves lower social and environmental compliance risk. However, less than 2% of clothing sold in the US is locally made. That’s why we feel fashion companies’ sourcing decisions today appear to be more complicated and subtle than what is revealed by the existing literature and the public perception.

  2. Before taking this class, I didn’t have much of a grasp on how sourcing products, especially textile and apparel, really operated. This article gave more of a clear understanding of what manufacturers take into consideration when entering the supply chain. As the article states, companies take into consideration a multitude of factors such as location, cost, speed, and flexibility. It was surprising and also upsetting to learn that fashion companies don’t provide a lot of rewards for encouraging sustainability within their current sourcing models. As we move forward within the industry, especially after COVID-19, I am hoping we see more and more companies pushing for sustainable efforts.

  3. The top apparel sourcing factors include capacity, price and tariff, stability, sustainability and quality. For me as a consumer I consider price, quality and sustainability as the most important aspects of sourcing but these would shift coming from an apparel brand’s perspective. The price needing to be in good range is essential but even most as customers become aware of current fashion industry issues sustainability will become a reoccurring issue if not addressed by a brand.

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