“Made in America”: A New Reality?

Panelists

  • Pete Bauman, Senior VP, Burlington Worldwide / ITG
  • Joann Kim, Director, Johnny’s Fashion Studio
  • Tricia Carey, Business Development Manager, Lenzing USA
  • Michael Penner, CEO, Peds Legwear
  • Moderator: Arthur Friedman, Senior Editor, Textiles and Trade, WWD 

Video Discussion Questions 

  • How does “Made in the USA” fit into US textile and apparel companies’ overall business strategy today?
  • What measures have been taken by US textile and apparel companies to bring more production back to the US? Can any measures be linked to the restructuring strategies we discussed in the class?
  • What are the significant obstacles to bringing textile and apparel manufacturing back to the US?
  • Any other exciting points/buzzwords did you learn from the panel discussion?
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Rana Plaza Case Study: Discussion Questions from FASH455

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#1 How shall we describe the relationship between the Alliance and the Accord? Are they collaborators or competitors? Do you think the Alliance and the Accord can join forces?

#2 How many inspectors are “enough” for Bangladesh? The case study mentions that the Alliance and the Accord are observing around 2,000 factories, but how about the other 3,000 in Bangladesh? And how about those unknown and “undocumented” factories, where the working conditions could be even worse?

#3 Do Western fashion brands genuinely care about what is happening in the Bangladeshi garment factories? Or do they actually care about their own interests—profit, public image and reputation among consumers?

#4 What has made Western fashion brands stay in Bangladesh after the Rana Plaza tragedy instead of moving their sourcing orders to other Asian countries in the area such as Cambodia and Vietnam?

#5 How transparent should be companies’ supply chain? Should fashion brands be required to disclose more supply chain information—such as where their products were made and who made them? What could be the difficulty of enforcing a more transparent apparel supply chain?

#6 In addition to more frequent inspections, what other measures can be taken to improve social responsibility practices in the garment industry?  

#7 Four years after the Rana Plaza, are you satisfied with the changes that have happened in Bangladesh? What major social responsibility problems in the Bangladeshi garment industry remain unsolved?

[Please feel free to join our online discussion. For the purpose of convenience, please mention the question # in your reply/comment.]

Trade Issues Facing the U.S. Apparel and Retail Industry

Panel:

  • Steve Lamar, Executive VP at the American and Apparel Footwear Association (AAFA)
  • Jon Gold, VP of Supply Chain and Customs Policy at the National Retail Federation (NRF)
  • Robert Antoshak (Host), Managing Director at Olah Inc.

Topic discussed

  • Renegotiation of the North American Free Trade Agreement (NAFTA)
  • Trump’s trade policy agenda
  • What’s going on in the retail market?
  • Technology and the future of apparel supply chain
  • US labeling requirements and a return of Made-in-USA

VF Sourcing Strategy Case Study Updates (May 2017)

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(Slide above: VF Corporation European Headquarter; Photo Credits: Hannah Wilson)

VF Business Operation General

V.F. Corporation (VF) designs, manufactures, distribute and market branded lifestyle apparel, footwear and accessories. The company offers Jeanswear, outdoor and action sports, image wear, sportswear and contemporary brands. The company markets its products under brands namely, the North Face, Wrangler, Timberland, Vans, Lee and Nautica, among others. It sells its products to specialty stores, department stores, national chains and mass merchants, as well as through direct-to-consumer channel consisting of VF operated stores and internet sites.

VF reported revenue of $12 billion in 2016, up 1% over fiscal year 2015. Gross margin% of the company improved 20 basis points to 48.4% as benefits from pricing, lower product costs, and a mix-shift toward higher margin businesses. However, gross margin% was partially offset by changes in foreign currency and the impact of restructuring charges. VF’s adjusted operating income was down 6 percent to $1.7 billion. Adjusted operating margin decreased 90 basis points to 14.0%.

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VF Sourcing Strategy

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VF’s centralized global supply chain organization is responsible for producing, procuring and delivering products to its customers. On an annual basis, VF sources or produces approximately 523 million units spread across more than 30 brands. VF’s products are obtained from its 27 self-operated manufacturing facilities and approximately 1,600 contractor manufacturing facilities in over 50 countries. No single supplier represents more than 10% of VF’s total cost of goods sold. In 2016, 22% of VF’s units were manufactured in VF-owned facilities and 78% were obtained from independent contractors.

VF operates manufacturing facilities in the U.S., Mexico, Central and South America, the Caribbean and Europe. A significant percentage of denim bottoms and occupational apparel is manufactured in these plants, as well as a smaller percentage of footwear and other products.

For VF’s self-owned production facilities, VF purchases raw materials from numerous U.S. and international suppliers to meet their production needs. Raw materials include products made from cotton, leather, rubber, wool, synthetics and blends of cotton and synthetic yarn, as well as thread and trim (product identification, buttons, zippers, snaps, eyelets and laces). Products manufactured in VF facilities generally have a lower cost and shorter lead times than products procured from independent contractors.

Independent contractors generally own the raw materials and ship finished, ready-for-sale products to VF. These contractors are engaged through VF sourcing hubs in Hong Kong (with satellite offices across Asia) and Panama. These hubs are responsible for managing the manufacturing and procurement of product, supplier oversight, product quality assurance, sustainability within the supply chain, responsible sourcing and transportation and shipping functions. In addition, VF’s hubs leverage proprietary knowledge and technology to enable certain contractors to more effectively control costs and improve labor efficiency. Substantially all products in the Outdoor & Action Sports and Sportswear coalitions, as well as a portion of products for VF Jeanswear and Imagewear coalitions, are obtained through these sourcing hubs.

Products obtained from contractors in the Western Hemisphere generally have a higher cost than products obtained from contractors in Asia. However, contracting in the Western Hemisphere gives VF greater flexibility, shorter lead times and allows for lower inventory levels.

This combination of VF-owned and contracted production, along with different geographic regions and cost structures, provides a well-balanced, flexible approach to product sourcing. VF intends to continue to manage its supply chain from a global perspective and adjust as needed to changes in the global production environment (VF Annual Report, 2015, 2016).

“Third-Way” Sourcing Update

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VF has the goal of 40/40/20 for factory ownership. They want to own 40% of the factories they use, utilize the third-way approach in 40% of the factories, and use transactional sourcing for the other 20% (Glaser, 2014).

VF has expanded its Third-Way manufacturing program to sub-Sahara Africa, in addition to the third way factories VF works within Bangladesh, Cambodia, the Dominic Republic and Nicaragua. VF is looking into Africa because, while Africa may not be as efficient as Asia currently, there is potential to get it to 80% efficiency in the coming years. It could also be cheaper to source from Africa given the African Growth and Opportunity Act (AGOA) with the United States

Since its creation VF has split its “Third-Way” factories into three different categories: light, medium, and heavy. Light Third-Way is having engineers consult with the factories and visit each week. The medium Third-Way involves having an engineer on site and a long-term commitment to the supplier from VF. Lastly, the heavy Third-Way involves profit-share and open book costing as well as sharing of research and development (R&D) (Barrie, 2015). 

Trust continues to be a central theme in Third-Way sourcing, as does having the right people on board with the initiative. VF also believes that any positive changes made to the factories because of the Third-Way program will ultimately help the whole industry and drive positive change, even if the changes are used for other companies that source from the same vendor (Barrie, 2015).

Sourcing Trends of U.S. Fashion Companies: Discussion Questions from FASH455

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The following questions are proposed by students in FASH455 (Spring 2017) based on the 2016 U.S. Fashion Industry Benchmarking Study. Please feel free to join the online discussion (please mention the question # in your comment).

#1 With many bricks and mortar stores closing and profits decreasing in many of these stores, why do you think that 92% of respondents are optimistic or somewhat optimistic about the fashion industry over the next five years? Do you believe that there is a technological advance or a change in organizational structure that is coming in the future that is keeping them hopeful?

#2 U.S. fashion companies today have a very diversified sourcing base. For example, overall 52% of respondents report sourcing from more than ten different countries. However, it seems quite challenging to ensure all the factories they are sourcing from are up to the company’s standards. Do you think with increased pressure to become more sustainable as well as have ethical working conditions across their supply chain, U.S. fashion companies will source from fewer countries in the future?

#3 According to the survey, controlling sourcing and production cost remains one of the top business challenges for U.S. fashion companies. Does it imply that it is unrealistic to expect companies to make commitments to sustainability and social responsibility at the sacrifice of their profit?

#4 U.S. apparel imports from Vietnam has been growing rapidly in recent years. Why do you think Vietnam has been able to expand as a garment exporter so quickly, outperforming most of its Asian competitors?

#5 As optimism continues to create new demand for human talent, more specifically for fashion designers, buyers and merchandisers, sourcing specialists, and social compliance specialists how can the fashion department at the University of Delaware further prepare us to excel at these positions? Any specific suggestions?

#6 What other sourcing and trade topics do you think the benchmarking study could include?

The 2 Euro T-shirt

 

This video is a great reminder of the impact of our fashion apparel industry, in particular through trade and sourcing. One key learning objective of FASH455 is to help students get aware of those critical global agendas that are highly relevant to the textile and apparel sector.

Discussion Question: After watching the video, do you have any new thoughts about how you can contribute to the building of a better world as a FASH major?

Apparel Sourcing in 2017: Results from the Just-Style State of Sourcing Survey

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The latest Just-Style State of Sourcing Survey conducted in December 2016 suggests a few trends of apparel sourcing in 2017:

  • Exchange rate volatility and rising raw material and labor costs are among the top concerns for apparel sourcing in 2017. Around 69% of survey respondents expect overall sourcing costs to rise in 2017, compared with 54.5% in last year’s survey. The fluctuating exchange rate, buyer’s expectation for higher quality of products and complex compliance requirements are among the major factors driving up the sourcing cost.
  • Apparel companies expect more uncertainties regarding the political and policy environment in 2017. Specific concerns for apparel companies include trade policy under Trump’s Administration, possible renegotiation of trade agreements such as the North American Free Trade Agreement (NAFTA) and Trump’s threats to impose a 45% punitive tariff on US textile and apparel imports from China. Respondents say the uncertainties make it challenging for companies to do strategic planning in advance
  • Sourcing will play an increasingly important role helping companies achieve strategic goals. It is highly expected that sourcing can contribute to meeting the fast-evolving demands of omni-channel retailing, consumers’ expectations for a more convenient shopping experience, as well as greater product innovation across all sales channels. A few respondents say they will use process and productivity improvement and closer collaboration with key suppliers to try to achieve these goals and mitigate any sourcing cost increases.   
  • Sourcing destinations may continue to slightly adjust in 2017. Specifically, 72.1% of respondents say they are looking for alternative source of supply in 2017 compared with 69.2% last year. Popular emerging sourcing destinations include Central America and the United States, EU, UK, Vietnam, Bangladesh, Indonesia and Kenya. However, the survey also confirms that China‘s dominance as the top apparel supplier is unlikely to change anytime soon – with a rise in the number of respondents looking to increase orders from the country in the upcoming year.

Respondents of the survey include manufacturers (29%), importers, agents or sourcing office executives (23%), retailers (12%), fiber, yarn, or fabric suppliers (11%), consulting, research, government, trade institute, NGO and university fields (14%) and software suppliers (2.6%).

Full report of the survey is available HERE.