SOURCING STRATEGY
Suppliers in low cost locations squeezed hardest on price
Countries with the lowest production costs – Bangladesh, Cambodia, Malaysia, Singapore, Thailand and Vietnam – are the ones whose garment suppliers are most commonly squeezed when it comes to pricing. Hannah Abdulla looks at the latest research
The figures are from the Better Buying Index 2019 report – the third annual update from the initiative designed to improve purchasing practices in apparel, footwear and household textile supply chains. And for the first time it focuses on sourcing strategies across geographical locations and the varied ways that suppliers are pressured by buyers.
Based on data submitted anonymously by 715 suppliers headquartered across 52 countries, it assesses the performance of 71 different retailers and brands in the apparel, footwear, and household textile sectors.
As well as revealing that locations with the lowest production costs experience the highest pressure from their customers to slash prices, the findings also show that the longer the relationship between retailers/brands and their suppliers, the more downward pressure there is in cost negotiations. In Bangladesh for instance, 38% of the suppliers reported that their buyers held them to last year's prices, despite inflation and rising wages.
Conversely, the length of the business relationship relates to higher scores in design and development, show that over time suppliers have a better understanding of what their customers are looking for. Yet buyers seem unwilling to reflect this in the prices they pay.
That said, geographical locations with poor reputations for workplace safety appear to be incentivised for compliant production (63% in Bangladesh), while those such as the United States are hardly given any incentives for being compliant with buyer codes of conduct (19%).
Country highlights
A higher percentage of suppliers in Bangladesh also receive forecasts further in advance, which contributes to better visibility. This is coupled with a more stable ordering pattern across the months. Yet, forecasting is inaccurate, and a negative outcome is that a high percentage of suppliers are left with unutilised capacity or empty production lines that can be difficult to fill at the last minute.
At the opposite end of the spectrum, suppliers from Turkey receive forecasts and capacity bookings less frequently and their retailer/brand customers provide forecasts late. Yet even so, the accuracy rates of these forecasts are low. One positive is that the fast fashion, short-run, business model supported by suppliers in Turkey cuts the frequency of unutilised capacity.
"Suppliers are surely feeling the inter-related strains of their customers' late and poor forecasting, low prices, and high order variability, which may make it difficult for them to address high-profile concerns about subcontracting and precarious labour," reads the report.
The worst retailer and brand practices are found in Southeast Asia, including on cost and cost negotiation, incentivisation for production compliance with codes of conduct, and in the management of purchasing process.
High-pressure strategies include comparing suppliers on price only rather than a full range of attributes, and demanding price levels are maintained from year to year with no consideration for inflation.
Necessary change
Better Buying believes that “the winners in the future will be the retailers/brands and their suppliers that come together in new, truly strategic partnerships that draw on the core competencies and strengths each brings to the table and where the benefits they achieve together are shared fairly.
“This scenario will likely involve sticking with suppliers for the long-term, rather than jumping from location to location in search of the best trade deal or lowest cost. Suppliers can be trusted to choose the best production location and will benefit by getting to keep their skilled workforce and treat them fairly.
"Working more strategically with suppliers will help retailers/brands decrease operating costs and helps maintain the product quality expected by their customers."
Headline image: The Better Buying Index report finds suppliers in low cost locations like Bangladesh and SE Asia are pushed hardest on price
BACK TO TOP
Share this article
