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

23 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.

    1. Yes, you asked a good question. Maybe sourcing is similar to graduate college admission. Companies may not pick up a candidate with the highest GPA. Instead, all qualified candidates must have a minimum 3.0 GPA, and then, companies will check the candidate’s previous working experiences, demonstrated skills, personalities, etc.. Maybe this is how sustainability works in sourcing at this point.

  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.

  4. This study was super interesting and gave much more insight into how brands and retailers choose their sourcing bases, which was a very abstract concept to me as a consumer. It is interesting that the factors of price & tariff and capacity on the value of apparel imports are not as significant in the markets that the study examined. As a consumer, we are made to believe that brands and retailers source in countries where they can get the lowest prices possible for products. However, this study says otherwise, as it implies that fashion companies sourcing decisions are not solely about getting the lowest price. I think other consumers would benefit from the information found in this study, as it helps to better understand why companies do what they do, as the study suggests that sourcing decisions are much more complicated and subtle than we perceive.

    1. Great comments! Two things to add: 1) Indeed, sourcing is no longer just about price. Instead, fashion companies consider many factors when deciding where to source their products. From this graph, you can also see that countries with the lowest wage level are not always the top suppliers: https://shenglufashion.com/2020/12/04/minimum-wage-level-for-garment-workers-in-the-world-updated-in-december-2020/
      2) Still, we find it very interesting that there is no positive relationship between a country’s sustainability performance and its apparel export volume. How to reward sustainability remains an interesting question to explore.

  5. I really enjoyed reading this post and learning about the factors of sourcing. I agree that stability and quality would be the highest rated factors since as it was stated that these factors enhance its attractiveness as an apparel sourcing base. I am disappointed to see that “it seems fashion companies’ current sourcing model does not provide substantial financial rewards encouraging better performance in sustainability,” because this is not acceptable. We need to be working towards a more sustainable sourcing industry. If companies do not start bettering their sustainable practices who knows where the industry will end up. Overall we need to better our sustainable practices in the textile and apparel industry because as of right now we are subject to greenwashing and brands not being 100% transparent and there needs to be a change.

  6. This article gave an interesting point of view as to how apparel sourcing factors such as price, tariffs and sustainability have such a great and large impact on the industry. It was interesting that this study showed not a ton of impact in terms of price because I would have predicted there to be significant impact under that factor in particular. Even though I believe we are on the right track with our efforts, We still have a long way to go.

  7. Apparel sourcing factors are important for fashion brand companies to consider due to the fact that they ultimately affect the quality of the brand and how consumers view them. Personally, I believe that sustainability is one of the most important sourcing factors. Sustainability encompasses all social and environmental compliance issues related to apparel production and sourcing. Environmental and human rights concerns and challenges within the fashion industry have only been increasing recently, and it is the responsibility of fashion brand companies to be held accountable for propelling and fueling these unfortunate activities. My question is, how can we increase the transparency of the supply chain in order to hold fashion brand companies accountable and continue to encourage focusing on sustainability as an important sourcing factor?

  8. In determining where to source their clothing, fashion businesses think about a wide range of criteria, including price, time to market, flexibility, and even ethical and environmental compliance risks. Even though previous research has highlighted four primary sourcing determinants, it is not clear if they are given equal consideration in firms’ garment purchasing selections. In light of the reality that no sourcing location is flawless, it is also unclear how fashion firms balance these sourcing concerns. In this study, I learnt about the importance of key sourcing criteria in determining where to source garments. The study found that the existing sourcing strategy of fashion firms does not give significant financial incentives to encourage greater sustainability performance. As a consequence, higher sustainability performance does not lead to an increase in sourcing volumes while other aspects remain constant. It’s no longer enough to focus just on pricing when it comes to sourcing. Instead, when fashion businesses are trying to figure out where to get their materials, they take a variety of criteria into consideration. A country’s sustainability performance and its garment export volume, however, does not appear to have a positive correlation. The subject of how to encourage environmental stewardship is one that merits more investigation.

  9. This article showcased the effect sourcing factors have on fashion companies when it comes to deciding where to source apparel from. It was interesting to learn that fashion companies’ current sourcing models do not seem to provide much of a financial benefit, so this leads companies to perform better in regards to sustainability. On top of that, there seems to be concerns about supply chain risks. These risks are causing even the most economically competitive sourcing destinations to not receive all sourcing orders, so companies are hesitant at this point in time. Fashion companies’ sourcing decisions are more complicated and subtle right now than ever. The article also highlighted the impact of non-economic factors, like perceived political risks, on companies’ sourcing decisions. I didn’t know there was so much that went into making decisions like these ones, so it was valuable to read into a topic such as this one.

  10. Before this class, I had never really thought about or considered different sourcing factors. After this article and many like it, I have learned a lot more about what goes into sourcing and trading between countries. Factors such as sustainability, quality, and stability all go into a company’s decision on where they should source their products from. These factors are important for company’s to consider as these are all important factors to consumers in deciding where to shop. Consumers look for good quality products, typically made from sustainable practices. There are also risks that the company takes when sourcing, as poor decisions could lead to less success overall. I did not realize how much went into making sourcing decisions like these, and how important all aspects of sourcing are.

  11. As we have seen throughout this article, top factors companies take into consideration include cost, speed, flexibility, and location. Something they do not put enough focus toward is sustainability efforts. As a consumer, sustainability is something I have been looking for more often within my purchased products after learning more about the importance of it. If companies were able to push for more sustainable efforts within their company, not only would they be making a positive impact within the industry, but also attracting the group of consumers who value these efforts. This study provided great insights on how brands and retailers choose their sourcing bases. This gives background knowledge to the consumer of what goes into the decision process for these brands.

    1. After reading this article on which sourcing factors matter, I am intrigued by the results that were found regarding which sourcing factors are most effective. Capacity, price & tariff, sustainability, stability and quality were all found to be the top five categories for sourcing factors. Stability and quality were found to enhance the attractiveness of a country’s ability to be a sourcing base. Unlike stability and quality, sustainability was found to not have more sourcing orders. Fashion companies current sourcing model does not provide financial reward to encourage more sustainable performance. In my opinion, I think sustainability should be more important and effective as a sourcing factor. As a consumer myself, I sometimes take the time to look into just how sustainable and eco-friendly a company is before I purchase from them. Knowing a company puts in the effort to be more sustainable during the sourcing process, I believe I would consider purchasing from them more rather than if I had no information on their sourcing process.

  12. I was definitely surprised by the findings of this research. Due to our previous readings about sourcing from China, I always assumed that Capacity would be one of the most important aspects of sourcing for US fashion retailers and brands. During the pandemic, brands wanted sourcing bases that would be able to handle all of the ever-changing regulations and guidelines and would still be able to get the product to them in a timely fashion. However, I was surprised by the lack of impact of Capacity on the value of apparel imports. However, I do find it interesting that Price & Tariff do not have more of an impact due to the fact that many trade deals are focused on reducing or eliminating tariffs in order to make trading easier for the countries involved. I think that an interview with a trading representative from a major company would be very insightful. The interviewer (perhaps Dr. Sheng Lu?!) could pick their brain on the values that are most important to their brand and why.

  13. The article reminds me of what we learned in class. Fashion brands and retailers have to consider many factors when deciding who to use for their products. they want to think about how fast the product will get back to them with the less amount of money they need to pay for tariffs. Depending on how high the tariffs are is what fashion brands and retailers will determine the price of the products. Fashion brands and retailers have to make sure their sources are sustainable. Their sources should treat their workers right by paying them well, providing health coverage, and having a safe environment for them to work. When brands and retailers think of sustainability they also think of quality materials. When they have quality materials it will reduce environmental damage.

  14. When sourcing apparel, there are many factors that companies emphasize. Although cost is extremely important, there are other factors that matter as well such as speed to market, flexibility, the risk of social and environmental compliance, and last but not least, the risk of risk of political instability. One factor that I was surprised to learn about was the risk of political instability. At first, I was surprised to hear this was an essential factor to consider when sourcing but after I finished the case study, the importance of it was shown. The findings of this case study showed the impact of the perceived political risks (ex. labor concerns) which is a non-economic factor and sourcing decision that many consumers might not realize. I think this study was extremely important because I believe many consumers including myself believe that all companies care about are low costs although from this we can clearly see that there are other decisions and steps to take that we are not aware of. My question for discussion is what are ways companies can increase their transparency regarding their decisions so consumers can be involved as well?

  15. Sustainability factors are becoming more and more important today. Clothing companies are beginning to consider sustainability-related to procurement when purchasing clothing. For example, compliance with labor issues has become a consideration for apparel companies when considering purchasing bases. For example, the unfair labor practices in Bangladesh, where poor working conditions once led to factory collapse, resulted in death and injury of workers. Clothing companies give priority to sourcing locations that meet environmental and social requirements in order to develop in a sustainable direction.

  16. After reading this article, I was very surprised to see that sustainability and price were not as significant in determining where brands source their apparel from. A lot of the recent literature I have read has pointed to cost as a major sourcing factor. However, it makes sense, as a I feel like many brands have matured enough financially to be able to prioritize factors other than cost. Many brands are focused on the quality of their products and the lead time, due to increased demand from fast fashion.

  17. There are many factors to consider when it comes to fashion industry. Most of the the fashion brands and retailers would care about the cost, tariff, stability, sustainability, quality, etc. Recently, there is another factor that gets a lot of attentions is political risk, an example is the labor concerns in Xinjiang, China. Today, customers are more educated about materials, the quality of fabrics, working conditions in developing countries and where their products actually come from. Things in Xinjiang has attracted the attentions from media and customers. But this is an easy problem to solve when the Chinese government doesn’t want to corporate and claim the Western medias are telling the lie. This also can affect the relationship between the US-China. Therefore, the global fashion industry could be impacted from this.

  18. I think this article provided me with a clear understanding of what sourcing factors companies take into consideration. For example, some of these factors include capacity, price & tariff, stability, sustainability, and quality. In my opinion, I hold sustainability toward the top of my priorities. Therefore, I wasn’t pleased to see that fashion companies’ current sourcing models do not provide financial reward encouraging better sustainability performance. I believe that in order for fashion companies to move toward sustainability, everyone needs to be encouraging the move. This includes the sourcing model, consumers, governments, and more.

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