Global sourcing strategy has been one of the most debated management topics for over a decade now. An effective global sourcing strategy helps companies to harness the true potential of different sourcing markets across the globe – be it in the form of skilled or low cost labor, advantage in proximity or cost of raw material, or other economic factors, like tax breaks and low trade tariffs. In today’s business scenario, global sourcing has become multifaceted. Organizations are investing huge chunks of business money in building long term relationship with their suppliers or growing their own capabilities. It is interesting to note that competition no longer exist so much among organizations, but among their supply chains. This is one of the prime reasons for sourcing strategies to have become defining criteria for obtaining a sustainable competitive advantage in this globalized world. In an environment full of uncertainty, it is imperative for an organization to have a clear sense of direction to pursue strategic changes. As the external environment of firms have become unstable and volatile, internal resources and capabilities are viewed as more secure sources for pursuing long term strategies. Organizations create superior value for their customers by managing their core processes better than their competitors. These include product development and supplier management. These activities if performed well can bring in operational efficiency by unlocking the hidden value in the supply chain.
Eroding Profit Margins in RFA Industry
The textile industry is a mature and cost-sensitive industry operating on low margins. Consumers’ demands for more variety and lower prices usually pressurize organizations to search for newer sources or bring efficiency in their existing supply chain activities. We are operating in a highly volatile global market where supply side of markets is constantly on the move in terms of prices and availability. In the apparel industry, fabric constitutes up to 50-65% of the total cost of manufacturing. Hence, getting the lowest price from the best source is essential to keep the manufacturing cost under limits. However, the problems of garment manufacturing do not end up with the selection of right fabric and right vendor. Several times, sourcing offshore results in what can be classified as hidden costs. This is primarily because planning, sourcing and product development processes in an organization are not synchronized well enough. Though sourcing from various locations allows retailers to sell at competitive , giving them attractive margins, but these margins are substantially eroded once the hidden costs are quantified. The chart below shows the hidden costs of apparel sourcing in their order of importance:-
Route to Profitability via Material Aggregation
For apparel business, improving operational efficiency is the key to profitability. Therefore, PLM has become the first choice when product development investments are considered. As the fashion business is becoming more challenging, buyers are exploring ways and solutions to connect the entire value chain electronically, including sourcing of fabrics and accessories. The textile industry requires a material aggregation solution which can enhance efficiency and enable more transparency in the process of product development. Companies do not have a single platform where users can easily access the total material consumption in a particular season or even across the season. Material resource planning (MRP) is scattered in the system. Collating data requires a lot of effort and time, and that is why it is ignored most of the times. Organizations need a solution that seamlessly plugs in with the PLM or the ERP data and enables easy access to useful information on a dashboard.
ITC Infotech, has developed a solution – “Material aggregation on order commitment module”to address all the above stated problems and offer end to end process optimization. It is a technology enabled platform giving visibility across all the activities from initial material planning to line planning, design and development, and finally commitment to the supplier. The solution is aimed to unlock the hidden inefficiencies in material sourcing, providing benefits of scale by giving greater visibility and collaboration within the organization.