Fabric Mills Important to Sourcing Decisions

The next three years for U.S. clothing manufacturers will be a challenge as they try to balance the pros and cons of producing in various countries around the world.

Will China be the best bet even though 34 apparel and textile categories are subject to quotas until the end of 2008?

Or will India be the hot spot because its goods aren’t subject to quota limitations but Indian workers aren’t as efficient as their counterparts in China?

Those were some of the questions posed at the Sourcing Summit 2006, an event held Feb. 9–10 at the Beverly Hilton hotel in Beverly Hills. It was organized and sponsored by Cotton Inc. and the Cotton Board, trade groups that promote the U.S. cotton industry.

U.S. apparel companies are using a host of sourcing theories to fit in with their product mix and goals.

The proximity of fabric mills played a major role in deciding where to produce as manufacturers look to shorten the time it takes to go from concept to finished product.

Some entrepreneurs sit down every six weeks with their colleagues and analyze trends to figure out what is happening politically and economically before placing their orders.

Others prefer to concentrate on just a few vendors and then search for niche manufacturers to add a bit of flair to the usual lineup of shirts, pants, skirts and sweaters.

Others are playing the sourcing game with a fair amount of flexibility. “We have many forecasting tools,” said Joseph McConnell, vice president of strategic sourcing at Kellwood Co., the $2.5 billion firm in St. Louis that has the Koret and Sag Harbor lines as well as the Gerber Childrenswear label, which it acquired in 2002.

McConnell, who was on a panel discussing how to prepare for 2008, pulled out a Magic 8 Ball to illustrate how sophisticated the company’s forecast tools have become.

All joking aside, McConnell noted that his crew just finished putting out a number of fires in 2005 and expected to do a lot of blocking and tackling until 2008. “We are sensitive about fill rates on quotas, new legislation and trade preference levels,” he explained. “We’re going to be doing the same tracking as we have done in the past.”

Speed to market is what drives Kellwood, the executive said. Kellwood prefers to use factories located close to the mills that supply the apparel giant with its fabric.

“Lead times are crucial to us, so we are sourcing closer to where the mills are,” he noted.

Size matters

It’s a little different at Gap Inc., another mammoth venture that is the largest specialty retailer in the world. Last year the company sourced about $7 billion of its $16.2 billion in clothing sold through its retail empire.

“Our focus has been to source and grow with key vendors,” said Sonia Syngal, vice president of sourcing strategy and services at Gap. “Eighty percent of our sourcing is done in 14 key countries.” The company is heavy in Asia with some sourcing in Europe and Latin America. Safeguard measures, or temporary quotas, did curtail the company’s sourcing in China, particularly in bottoms.

Being such a large corporation whose economy is equal to some countries’ gross domestic product, Gap realizes that it has to be careful when it adjusts its sourcing plans.

“We take a balanced approach because of our size. We don’t want to disrupt local economies,” Syngal said.

Because of the unpredictability of quotas and trade relations, Mark Heard, vice president of design and fabric sourcing at The Apparel Group Ltd., said the company has factories in nine countries, concentrated mostly in Asia. The Apparel Group is a division of TAL Apparel Ltd., a Hong Kong firm that is one of the largest manufacturing companies in Asia. It develops products for retailers such as Dillard’s, Marks & Spencer, Nordstrom and Banana Republic.

TAL is structured to weather the ups and downs of temporary quotas and economic upheaval. “Our facilities are clones of each other. If China is hit with safeguards, we can move to Vietnam, Malaysia or Indonesia so we can maneuver around whatever will happen,” Heard said.

Dealing with diplomacy

Sourcing directors like Walter Archie at Dick’s Sporting Goods Inc., based in Pittsburgh, worried about how politics will affect the company’sproduction plans.

The sporting goods executive recounted that the nationwide retailer, which has been trying to develop more of its own branded apparel made primarily in overseas factories, made a deal to produce goods with a manufacturer in Burma, a country with a spotted political past. Burma is now called Myanmar. The United States has embargoed all goods coming from that country.

“Two years ago, the United States called for the embargo on Burma. One of our vendor partners had made a decision, because we had short lead times on hunting apparel, to move their manufacturing there,” Archie said. “The U.S. called the embargo and the government gave us 30 days to get out of there. We had things in production. We had to take inventory out six months early and switch to another country.”

McConnell of Kellwood also was worried about politics. He noted that in 2009 a new president will take office. He also pointed out that in Washington, D.C., a number of second-tier trade representatives will be retiring soon, which will alter the trade landscape, for better or worse.

“These factors in the next three years are going to be important to where we trade,” McConnell said.

New club member

Vietnam was on the minds of many manufacturers. Washington, D.C., customs attorney Jonathan Fee noted that everyone was expecting Vietnam to join the World Trade Organization some time this year. Vietnam’s apparel and textiles are now subject to quotas. But being a member of the worldwide club allows Vietnam’s goods to enter the U.S. quota-free.

The big question was whether the United States, as a condition of WTO membership, would ask Vietnam to accept safeguard measures, or temporary quotas, if its apparel and textiles flooded the U.S. market.

Government officials in the European Union have said they probably won’t impose safeguard measures against Vietnamese-made apparel. But it is uncertain if that will influence the United States. “Don’t count out safeguards against Vietnam,” Fee warned. “Bilateral accession agreements have to be workedout.”