Sourcing Strategy

What is sourcing?

• In business, the term sourcing refers to a number of

procurement practices, aimed at finding, evaluating
and engaging suppliers of goods and services.

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 What is sourcing?
• Sourcing is the set of business processes required
to purchase goods and services.
• Sourcing processes include:
– Supplier scoring and assessment
– Supplier selection and contract negotiation
– Design collaboration
– Procurement
– Sourcing planning and analysis

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 What is sourcing?
• Sourcing is the proactive management of a supply market (suppliers) to
ensure access to adequate resources required for the long term needs of
the firm: understand market characteristics, identify relevant potential
suppliers, define a strategy for the firm, and set the objectives for any
market shaping effort.

• Sourcing frames the agreement with the suppliers involved in the strategy,
without necessarily going into the details of the contract.

• Sourcing teams include elements internal and external to the firm to reach
their objectives, to include the eventual optimization of specifications in
coordination with engineering, marketing, and / or research. Sourcing is
the strategic management of external resources.

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 Types of sourcing?
1. Direct sourcing,
2. Indirect sourcing,
3. Exclusive sourcing.

❖ Direct sourcing: Sourcing is carried out directly in the

supplying country where the company has set up a sourcing
office and employs a local team of buyers.

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 Types of sourcing?
❖ Indirect Sourcing: Sourcing is carried out through an export
agents, which are intermediaries between the supplier and the
customer. The supplier is totally cut off from the market
information and has no direct contact with the customer.

• Exclusive Sourcing: A local sourcing agent carries out

sourcing for the customer on an exclusive basis, but is still an
independent entity. The supplier is again cut off from the
market information and has no direct contact with the
customer.

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 Traits/skills of Sourcing Manager
The remarkable traits or skills you must have to succeed as a
sourcing manager include-

✓ Excellent communication skills

✓ Negotiation skills
✓ Ability to prioritize
✓ Integrity
✓ A positive attitude
✓ Networking capabilities
✓ Able to respond quickly

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 Benefits of Effective Sourcing Decisions

• Better economies of scale can be achieved if orders are

aggregated,
• More efficient procurement transactions can significantly
reduce the overall cost of purchasing,
• Design collaboration can result in products that are easier to
manufacture and distribute, resulting in lower overall costs,
• Good procurement processes can facilitate coordination with
suppliers,
• Appropriate supplier contracts can allow for the sharing of risk,
• Firms can achieve a lower purchase price by increasing
competition through the use of auctions.

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 Supplier Assessment Factors

• Supplier performance should be compared on the basis of the

supplier’s impact on total cost
• There are several other factors besides purchase price that
influence total cost

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 Supplier Assessment Factors
• Replenishment Lead Time • Pricing Terms
• On-Time Performance • Information Coordination
• Supply Flexibility Capability
• Delivery Frequency • Design Collaboration
• Supply Quality Capability
• Inbound Transportation Cost • Exchange Rates, Taxes,
Duties
• Supplier Viability

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Which factors are considered most when buyers
choose a sourcing region or partner ?
• Costs
• Lead time
• Quality program
• Social compliance
• Product development capability
• Established region
• Accessibility of raw materials and integrated suppliers
• Specialist suppliers for niche markets
• Flexible suppliers: Smaller quantity higher quality
• Additional services (logistics, warehousing)
• Reduction of geographic destinations
• Reduction of suppliers

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 How to reach the buyer?
Depends on your product range, your specialty.
– Choose your trade fair
– Network
– Direct Marketing: Newsletter, samples, phone, mail
– Get publicity on a fashion community, or fashion journal
– Advertising
– Sales office/agent
– Personal visits: 2nd phase
– Free publicity: Certifications-articles
– Internet forum
– Approach online stores that offer special collections

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 Sourcing strategies in some international
clothing retailers
Marks and Spencer (M&S)
(United Kingdom)
Main features:
• Marks & Spencer is one of the UK's leading retailers of
clothing, foods, homeware and financial services, serving 10
million customers a week in over 350 UK stores.
• The company also trades in 30 countries worldwide and has a
group turnover in excess of £8 billion. In total M&S has 544
stores around the world.

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 Marks and Spencer
(United Kingdom)
• Sourcing strategies:
• In 1999 M&S changed part of its policies in order to transform and adapt
itself to the evolutions, affecting the entire textile apparel industry.
• Rationalized its supplier base, with efforts for sourcing and the acceleration
of the design to store lead time.
• M&S now manages a complex international supply chain involving 650
factories worldwide. Their priority is to maintain the quality of fabrics and
clothes wherever they are manufactured.
• To support this objective, M&S has established ‘quality‘ audit teams in
Morocco and Sri Lanka, and will introduce them over the coming year in
China and Turkey, and all their main centers of manufacturing.

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 Sourcing strategies in some international
clothing retailers
Hennes and Maurizt (H&M)
(Sweden)
Main features:
• H&M is an expansive Swedish company. Over the past three
years, H&M has increased the number of stores by nearly 40
per cent, turnover by nearly 60 per cent and profit after tax by
150 per cent. Turnover SEK 57 billion.
• At the end of the year 2003 there were 945 stores in 18
countries (number of stores in Sweden 123; number of stores
outside Sweden 822)
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 Hennes and Maurizt
(Sweden)
• Sourcing strategies:
• H&M has 21 production offices: ten in Europe, ten in Asia and one in
Africa.
• Around 700 people work at the production offices, by far the majority of
whom are drawn from the local population. They are responsible for
contacts with the approximately 750 suppliers (primarily Bangladesh,
China, Turkey) that manufacture H&M’s products.
• The production offices ensure that the buyer places his order with the right
supplier, that the goods are produced at the right price and are of good
quality, and controls that production takes place under good working
conditions.
• Ensuring the safety and quality of the goods largely takes place at the
production offices and is the result of extensive testing, including checking
for shrinkage, twisting, colorfastness and dry rubbing.
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 Sourcing strategies in some international
clothing retailers
GAP
(USA)
Main features:
• GAP is a leading international specialty retailer offering clothing,
accessories and personal care products for men, women, children
and babies under the GAP, Banana Republic and Old Navy brand
names.
• GAP operates with more than 4,200 stores worldwide. Customers
can shop at GAP stores in five countries outside of the United
States: Canada, France, Japan, Germany and the United Kingdom.
• Banana Republic and Old Navy stores are located in the United
States and Canada. In 2003, net sales grew to $15.9 billion,
increasing 10 percent—double the prior year’s growth rate.
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 GAP
(USA)
• Sourcing strategies:
• GAP has world headquarters in the San Francisco Bay Area, product
development offices in New York City and distribution operations
and offices coordinating sourcing activities around the globe.

• Design and merchandising teams are working more closely from the
beginning of the product development cycle, resulting in a more
efficient process and, over time, faster speed to market.

• GAP will be building more strategic relationships with vendors,

including sharing more planning and forecasting information, to
further leverage sourcing capabilities. 18
 GAP
(USA)
• Located around the globe, employees in GAP’s sourcing and logistics
group, along with buying agents, draw up production schedules and place
orders with approved third-party factories in the more than 50 countries
that produce goods.

• Third-party manufacturers ship merchandise to GAP distribution centers,

which sort and redistribute it to the stores. Strategically placed throughout
the United States and in Canada, the United Kingdom, the Netherlands and
Japan, distribution centers are the backbone of GAP’s worldwide
operations.

• GAP has a list of countries approved for product sourcing, located in five
main area: Africa/Middle East, Europe/Mediterranean, Southeast Asia, East
Asia, Americas.
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 Sourcing strategies in some international
clothing retailers
C&A
(Holland)
Main features:
• C&A was founded in 1841. Under the C&A brand there are 10
exclusive sub-brands such as Clock-house, Westbury and Your Sixth
Sense.

• C&A has 498 branches, 82 Kids Stores, 19 Clock-house shops,

Women Stores in 12 European countries with a total number of
30.000 employees.

• C&A had 5 billion euros turnover in Europe in 2000. Over 100

Stylists work together with 360 buyers. The European head office is
located in the north of Brussels.
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 C&A
(Holland)
• Sourcing strategies:
• It has 1.200 suppliers, monitored by Socam. The name Socam reflects the
concept “Service Organization for Compliance Audit Management” and its
purpose is to oversee and monitor responsible business standards in
merchandise buying on behalf of the C&A retail companies, which operate
in Europe.
• In 2003 auditing was carried out in a total of 40 countries. Visits were made
to 1.572 production units: 67% of audits were conducted in the Far East
and India – the remainder in Europe and North Africa.
• Because the Far East is a significant supply market and because many of
the key issues tend to be more prevalent in that part of the world, Socam
also operates through a subsidiary company - Socam Services Pte. Ltd -
located in Singapore.
• Socam has full and independent authority to monitor the standards which
are defined by the C&A Code of Conduct for the Supply Merchandise.
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Outsourcing

Outsourcing: moving some of the firms internal activities

and decisions to outside providers

Firm

Supplier

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Why do firms outsource?
• Organizational reasons
- Focus on service
- Focus on core capabilities
- Transform the organization
- Increase flexibility

• Operational reasons
- Improve performance (quality, productivity, etc.)
- Obtain expertise, skill, and technology
- Risk management

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Why do firms outsource?
• Financial reasons
- Transfer assets to the outsourcing partner.
- Free up resources for investment in other purposes.

• Cost driven reasons

- Transform fixed costs into variable costs.
- Reduce costs through outsourcing partner efficiencies.

• Revenue driven reasons

- Expand and grow with the help of another organization.
- Obtain access to outsourcing partner’s network.

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Critical Path Method???
• The Critical Path Method, abbreviated CPM, or Critical
Path Analysis, is a mathematically based algorithm for
scheduling a set of project activities. It is an important tool
for effective project management.

• The essential technique for using CPM is to construct a

model of the project that includes the following:

1. A list of all activities required to complete the project

(also known as Work breakdown structure),
2. The time (duration) that each activity will take to
completion, and
3. The dependencies between the activities. 25
Critical Path Method and Garmenting
• Time consumed in product development (PD) is the biggest issue.
Approvals and bulk fabric in house consumes approx. 75% of the
total pre production activity time and as far the most time
consuming task. Whole supply chain needs a system which
-Reduces time spent in PD.
-Co-ordinates internally for all pre -production activity.
-Producing a high quality clear cut specifications for manufacturing and
quality purposes
• About 60% of the delays are at Pre production stage and remaining
at the production stage and reduction of such time can help the
company in meeting the delivery dates on time.
• Controlling the delay would enable the company to reduce the
deviation from the schedules lead time and honor the delivery date.

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 Out put of CPM???
✓ The shortest time possible to complete the project.
✓ The longest path of planned activities to the end
of the project.
✓ The earliest and latest that each activity can start
and finish without making the project longer.
✓ Which activities are "critical" (i.e., on the longest
path) and which have "total float" (i.e., can be
delayed without making the project longer.
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Activity Sequencing

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Activity Sequencing Chart

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