Evaluating suppliers' strategies

Suppliers to the garment trade – companies making fabric, fibre, components and trim – each have relatively few plants to support the hundreds of thousands of garment factories around the world that use their products. So as garment production can quickly move from country to country, it can be easy to find a supplier’s major plant is thousands of miles from the apparel factories that use the supplier’s products.

The Clothesource Knowledge Base can help. A typical problem involved a client’s concern in 2007 about establishing a second Chinese plant. With widespread forecasts of growing inflation in China, and received garment buyer wisdom that other garment production bases needed to be established, China seemed just the wrong place for further investment.

We used the Clothesource Knowledge Base to develop a cost model that evaluated:
- Where garments using this client’s components were being made
- The impact of likely changes in energy, labour and interest costs, and likely duty changes on the competitiveness of countries using this client’s components
- The real importance of the cost of the client’s products in the end cost of the garments that used it
- The effect on factories’ and retail buyers’ profitability of likely changes in the cost of the client’s product.

Our cost model showed fundamentally different results from those “labour costs 20% more in China than in Bangladesh” model that confuse most traders because it was based on the real prices component and garment makers charge, using our records of worldwide prices and sales over the past ten years. Our approach reflects how businesses actually set prices – not how consultants think they ought to.

In this case, the client decided that the scale and growth rate of the Chinese domestic apparel market would provide a robust sales base for his product, if made in China,  within all predictable income and exchange rate scenarios – however quickly Chinese garment manufacturers might lose share of US, European and Japanese markets.

As an additional benefit, the model threw up a wide range of insights helping the client’s pricing strategists understand what really influenced end user profitability.