Global Sourcing Final 12 08 2013 CM 1 Cut Make A factory that does not supply fabric or trim Since 2005 is phasing out because risks to buyer are too great 70 of FOB price is materials 2 Factories do not supply fabric or trim which puts the buyer at a huge risk If the factory produces an order that is poor quality or delivered late the buyer cannot do anything about it If they cancel their order the factory only loses 30 profit and the buyer loses 70 3 Factories know that their way to profit is in full package production where they pay for raw materials 3 levels of material purchase Different levels of services for customer Different responsibility put on factory o The greater the level of service the more important the factory is to customer 4 Two sacred rules Customer is responsible for paying The factory is responsible for everything else Before you commit to any expenditure know the customer Material Sourcing 1 64 steps in the material sourcing process Step 1 Designer selects sample fabric to Step 62 Final mftg order issues Steps 63 64 relate to in house calculations The type of material purchase chosen will determine what step in the material sourcing process you will enter in at 2 Three methods of material purchase Each brings the factory into the process at a diff point and has diff responsibilities Each has advantages and disadvantages o 1 Ordering Paying Simplest form buyers order fabric from mill and the factory pays the mill Buyer does all the work o 2 Sourcing against buyers request o 3 Sourcing independently 3 Buyers Responsibility Notify the factory of late arrival fabric delivery and must make the decision to either cancel the order or to extend garment delivery to allow for the delay In the event of damaged fabric the buyer is responsible of instructing the factory to produce garments using the damaged fabric or to not cut the damaged fabric The buyer must negotiate with the mill 4 Factory Responsibility Inspecting and testing all fabric for potential damages If the factory cuts the fabric without notifying the customer of problems they are responsible You cut it you own it 5 Adv To Buyer Disadvantage To Factory Adv Buyer is no longer held hostage to the factory In the event of poor quality or late delivery o Factory suffers the loss Dis Factory paying for fabric isn t much of a service o Customers can go elsewhere to look for much better factory services and facilities Value Added Service 1 Each value added service adds cost to the product Qualified by nature of the product and value it provides o Less value is less added cost 2 Costs can be Direct salaries and other overheads or financial expenses Payments to cover risks when offering services leads to cost savings the factory is entitles to a share of those savings as a profit Value Added Costs 1 Factory that buys fabric is entitled to cost of finance Incudes LC charge of 5 interest charges for period between payment of fabric and shipment of garments Total finance charges shouldn t exceed 3 5 of total LC Factory is not permitted any profit on transaction Conclusion 1 Necessary step in companies wanting to compete post 2005 era 2 In the past with traditional Standard Garment Sourcing Model SGSM Total focus was on low FOB costs Factory purchases were limited to ordering paying method Buyers preferred to source stock fabric to avoid increase to direct material costs 3 Only exceptions to the scenario would be special products such as made in china silk garments where the factory has overwhelmingly more knowledge and experience Full Value Sourcing Model FVSM 1 Buyers have moved from SGSM to FVSM 2 Realized factories are better suited to source fabric than the customer Provided factory has proven fabric sourcing capabilities 3 Two major factors contributed to the change Cost of sourcing is lower at the factory than the buyers location o Salaries and other sources are lower at the factory Factories and source fabric cheaper o Provides lower priced garments and allows the buyer to reduce their bloated preproduction overheads Sourcing Against Buyers Request 1 Much more advanced form of material purchasing 2 Buyer locates interesting fabric and sends it to the factory to source Factory gives swatch to the mill and the mill makes closest alternative 3 Factory must have established relationships with qualified mills and employ qualified fabric sourcing specialist 4 Most important the factory must understand what the buyer wants and be in constant communication 5 The ability source fabric against buyers requests is a tremendous asset Buyers will be more loyal and pay higher FOB prices 6 Buyers Responsibility 1 To provide original fabric swatch colors and other technical specifications on a timely basis 2 Duplicating fabrics is a difficult task o If the buyer is late the entire process will be late o Buyers can expect mills to produce things they are incapable 3 To be reasonable of 7 Factory s Responsibility 1 Must carry out all stages in the material sourcing process within the time frame given 2 Duplicate fabric must be very close to the original o Defined by the buyer o Must have the hand a feel of original 3 Factory is responsible for the entire stock garment process o Must ship correct quality garments on time o There are no acceptable excuses anymore 8 Advantages to the Buyer Buyer took first major step to removing themselves from the production process Buyer is able to reduce overhead 9 Advantages to Factory Beginning strategic relationship with the buyer o Buyer no longer looks at only FOB price when selecting a factory Created a service that is marketable to other buyers 10 Disadvantages to Buyer Factory Buyer o If factory promises more than it can deliver the buyer has wasted valuable reproduction time o The buyer runs the risk that the duplicate will not be close enough to the original Factory o Sourcing fabric is costly and time consuming 11 Value Added Cost Adds real value to process Factory is entitled to 3 5 finance charge and a similar sum as 12 Conclusion profit buyer Normal total added costs 6 9 over original FOB prices Ability to source fabric is crucial to the success of the factory and Factories must have experienced staff and communicate honestly with the buyer Buyers success depends on the ability to be reasonable Sourcing Independently 1 Finding fabric is most important part of process 2 Sampling of fabric will require mill to have special facilities Understanding of the fashion in the customer s