creamoda: update sourcing

Creamoda: Update (Out) SourcingTon Wiedenhoff  27.11.2018

3‐12‐2018 1

Introducing Ton Wiedenhoff: 30+ years of purchasing and collaboration with foreign garment (and shoes) RMG and CMT suppliers:• Fashion Wholesaler and importer in Germany ( to mailorder houses, departments stores etc.)• Dutch fashion importer group: own brands, private labels, fashion and sports• American Sports Wear Brand : K.Swiss International• Own Dutch outdoor, ski, tennis, multi sport brands and private labelsSourcing countries: China, Bangladesh, Vietnam, Taiwan, Korea, Indonesia, Cambodia, Thailand, Myanmar, India, Pakistan, Turkey, North Africa’s , Greece, Portugal, Eastern Europe, Columbia.Past 3 years: ‐International Apparel Federation (IAF) : Freelance Project Manager• Conference on Sustainable Sourcing in The Garment Sector 2016 in Bangladesh: Dutch Ministry• Premier Vision Sourcing Connection 2016, 2019 collaboration• Morocco icw Amith, Tunisia icw FTTH,  Turkey icw IHKIB

‐AQM Market Development Northern Europe: NL, B, Sw, Dk, Gr: Quality management, Social & Environmental audits, labtests

‐Modint:  Freelance Consultant:• B2B’s and missions: examples:  Mauritius, Ukraine, Kosovo, Macedonia, Morocco etc.• CSR advise and implemenation Agreement on Sustainable Textiles ( SER Convenant)• Members projects / solutions related to development, sourcing, production, csr etc.

‐Consultancy:• Textile industry projects, circulair industry consortium MVO NL• Turkey EIB , Peru icw Fashion United etc. 

Contents Creamoda Update (Out) Sourcing

1) Situation:  T&C industry Europe at present Q3‐Q4 20182) Sourcing trends3) Sourcing market changes4) Production Cost Index: Cost Focus5) Zoom in to Sourcing countries: selection

Great part based on KSA‐study 2017

3‐12‐2018 3

1. Situation

3‐12‐2018 4

3‐12‐2018 5

2. Sourcing Trends

3‐12‐2018 6

2. Sourcing Trends

3‐12‐2018 7

2. Sourcing Trends

Pressure: overall on gross margins in classical sourcing marketsDemand:market price in relation to costs increase, reactivity, speedShift: from established countries to cost wise promissing countriesRisk on: flexibility, quality, CSR, operational performance etc.Shift from Cost focus into True Value Creation in supply chain:• Innovation• Sustainability• Timeliness• Responsiveness• Reliability and quality

3‐12‐2018 8

3‐12‐2018 9

2. Sourcing Trends

Source: KS 2017

3‐12‐2018 10

2.Sourcing Trends

Source: KS 2017

Changing Decision criteria for choosing sourcing location or new supplier (source: Kurt Salmon Nov.2017)

2.Sourcing trends

3‐12‐2018 12

2. Sourcing trends

3‐12‐2018 13

3. Sourcing market changes

3‐12‐2018 14

3. Sourcing Markets changes: EU buyers

3‐12‐2018 16

Source: KS2017

Sourcing market development: Expected winners and losers

3. Sourcing Priorities Change

Outlook Europe on future developments – simulation forecast 2020 in bn. € (source: Kurt Salmon Nov. 2017)

3. Sourcing Priorities Change

3‐12‐2018 18

US and EU Buyers Near Shoring markets: 2025 

3‐12‐2018 19

Decision criteria and country performance according KS Survey (source: Kurt Salmon Nov.2017)

3‐12‐2018 21

Production Cost Index explanation (Source: KS)

The calculation of the production cost assumes a model factory of 140 direct employees. The amount of capital employed varies between €250k (e.g. Belarus) and €1500K (e.g. USA) depending on the level of technology that can be expected in the respective country. 

The PCI also takes into account the cost of production per Standard Allowed Minute (SAM) and includes:

• Direct and indirect labour costs (including bonus and non‐wage costs)• Average working time per year• Industry specific productivity• Depreciation for machinery and buildings• Interest rates

The calculated cost per SAM is then converted into a production cost index. This index has been calculated separately for the major European and U.S. sourcing countries, with the UK and/or the U.S. being the basis and set at 100.

The calculation assumes that the material costs are the same in all countries. Duties and customs are not taken into consideration in this study, as they are very product specific and are likely to change significantly over time. Extraordinary conditions such as grants, tax concessions and export subsidies are also excluded.

4. Production Cost Index: comparison

4.Production Cost Index per Country: selection comparison(K.S. 2017)

3‐12‐2018 22

PRODUCTION COST INDEX 2017 (K.S. 2017)

Rank  Country  PCI 1 Myanmar 122 Bangladesh 163 Ethiopia 174 Vietnam 215 Tunisia 226 Cambodia 237 Morocco 318 North China 399 Ukraine 4010 Bulgaria 41

West China 41South China 41

11 East China 4212 Portugal 4413 Romania 4614 Macedonia 4715 Poland 55

Turkey 55

3‐12‐2018 23

4.Production Cost Index per Country: comparison

Source: KS 2017

4.Production Cost Index vs Sourcing Cost Index: 

SCI includes production and logistics costs (source K.S. 2017)As total landed costs is criteria!‐Logistic costs depends on volume‐Impact of logistics depends on value of product: thus SAM is includedGives: a nine option matrix per country 

3‐12‐2018 24

Pressure on KPI driving Gross Margin (source:KS 2017)

3‐12‐2018 25

Foreign Currency development( source: KS 2017)

3‐12‐2018 26

4. Production cost Index: cost focus

3‐12‐2018 27

Impact of material Costs on Overall Costs(Source: Motif, 2018 (Alvanon Online Training Courses))

3‐12‐2018 28

Other than cost focus: levers to answer thecurrent challenges

3‐12‐2018 29

Forecast: automation related to sewing (costs) 

3‐12‐2018 30

Forecast: automation related to sewing (costs) 

3‐12‐2018 31

5. Zoom in to Sourcing Countries

5. Zoom in to Sourcing Countries

3‐12‐2018 33

5. Zoom in to Sourcing Countries

3‐12‐2018 34

5. Zoom in to Sourcing Countries

3‐12‐2018 35

China (value in Euro’s, Eurostat 2018)

3‐12‐2018 36

China

3‐12‐2018 37

China

3‐12‐2018 38

China

3‐12‐2018 39

China 

China:Export decreasing, 32% , local retail competition; Production increasing

Opportunities:• Complex products: value adding• High Knowledge and efficiency• Clusters of industry• Verticalisation, however downsizing / spreading• Rail connection to Europe

Challenges:• Wages• Trade war• Reallocation: Tier 2 , Tier 3 etc. National Government enforcement• Local law enforcement in “country side” still vague• Province policy: attracting industry, “Go West”, “One belt, One Road”• Cambodia, Myanmar are growing subcontractors, low cost areas• Labour compliance: All‐China Federation of Trade Unions (ACFTU)

3‐12‐2018 40

China

3‐12‐2018 41

China: Trade wars, Brexit and Global Supply Chains in 2018 ( the AI Survey 2018, 100+ Multi and SME)

3‐12‐2018 42

China: Trade wars, Brexit and Global Supply Chains in 2018 ( the AI Survey 2018, 100+ Multi and SME)

3‐12‐2018 43

China: Trade wars, Brexit and Global Supply Chains in 2018 ( the AI Survey 2018, 100+ Multi and SME)

3‐12‐2018 44

Bangladesh (value in Euro’s, Eurostat 2018)

3‐12‐2018 45

BangladeshBangladesh:‐81% of exports is textiles and apparel‐4500+ factories, 50% woven, 50% knit‐GSP to EU‐Accord and Alliance since 2013‐Supplier of China increasingOpportunities:• CSR investments and collaboration with foreign governments• GSP• Workforce and stabilityChallenges:• Accord ban: BOB• Complex products / upgrading• Banking and investment climate• CSR concerns and Rohingya refugees

3‐12‐2018 46

Bangladesh

3‐12‐2018 47

Vietnam (value in Euro’s, Eurostat 2018)

3‐12‐2018 48

Vietnam

3‐12‐2018 49

Vietnam:65% of export is footwear and apparel, of which 53% to US and JapanOpportunities:

• Local ”wages” under control (unions strong position)• Relative local wages • Focus on more complex products• GSP on the way

Challenges:• Depends 80% still on import materials• Need for foreign knowledge and expertise

Cambodia 

3‐12‐2018 50

Cambodia

3‐12‐2018 51

Cambodia:80% of exports is garment and footwear550+ factories, of which 36% export Europe, 21% to USOpportunities:

• Minimum wagesChallenges:

• No upstream suppliers: depends on PRC and TWN: CMT• Corruption• Economy depends on Foreign Currency• EU investigation result for GSP

Myanmar

3‐12‐2018 52

Myanmar

3‐12‐2018 53

Myanmar:33% of export to Japan, 25% EU, 25% South Korea350+ factories, located near Yangon, harbourCMT/CMPOpportunities:

• Labour costs, for now GSP to EUChallenges:

• Cut, Make, Pack mostly (CMP)• Infrastructure• Strong Social concerns and CSR issues• EU investigation result for GSP?• Rohingya policy

Pakistan

3‐12‐2018 54

Pakistan:• 58% of exports is textiles/ apparel• Original cotton focussed• Exports declined after 2017 GSP+ uncertaintyOpportunities:• High investment level• Vertical integration level high• Local wagesChallenges:• Technology catch up• Safety issues / political unrest• Social issues / labour rights

Ethiopia:  (value’s in euro: Eurostat 2018)

3‐12‐2018 55

EthiopiaAgriculture 80+Growth motivating private sector investors: textile and leather: ChinaAverage age 19 yearsOpportunities:• Labour• Investment climate encouraging: vertical integration• Political stability• Manufacturing hubs: 8 industrial parks in development• Custom benefits to EU and US• Local cotton

Challenges:• Food insecurity• Infrastructure and lead times• Time to market / flexibility• Productivity far behind

3‐12‐2018 56

Ethiopia

3‐12‐2018 57

Ethiopia

3‐12‐2018 58

Turkey (value in Euro’s, Eurostat 2018)

3‐12‐2018 59

Turkey

3‐12‐2018 60

Turkey:Full package Supplier to EU brands : RMG, innovation etc.Cotton focussed originally: no 4 supplierOpportunities:• Strong vertical integration, collaboration neighbours• High productivity and high automation• Speed to EU marketChallenges:• Value of Lira: high inflation risk 1‐1‐2019+, interest rate• Syrian workers 2.8 mil., CSR concerns• Political stability

Tunisia:  (value’s in euro: Eurostat 2018)

3‐12‐2018 61

Tunisia

Exports T&C depends 70% on France, Italy, Germany80% production in Sahel area: east

Opportunities:• Experience / back ground: cmt and rmg• Labour force• Logistic proximity to Europe

Challenges:• National investments, innovations• Power of unions• Social stability• Rules of origin

3‐12‐2018 62

Tunisia

3‐12‐2018 63

Tunisia

3‐12‐2018 64

Morocco (value in Euro’s, Eurostat 2018)

3‐12‐2018 65

Morocco

3‐12‐2018 66

“Subcontractor of Portugal”, main exports to France, Italy, SpainGeographic benefit: proximity Europe: infrastructure investmentsReallocationOpportunities:• Government focus and investments: industrial strategy• Innovations, denim sector sustainable investments• Social stabilityChallenges:• Rules of origin• Mid management weak• Lack of raw materials

Morocco

3‐12‐2018 67

Local Fast response Morocco, Spain, Portugal

Near Offshore Turkey, Eastern EU

ASIAAir freight

ASIASea fright

Standard items, highly predictable

Low‐cost country sourcingAir shipment to reduce cycle 

timeSeasonable items requiring medium response time

Items with high‐fashion component requiring short 

cycles and flexible capacity     

Source : BCG

Required lead time

EU and North‐Africa based supply chains are used as a supplement to Asia‐based supply chains for more fashion‐oriented and time‐

sensitive items.

EU and North‐Africa based supply chains

Making garments is part of our DNA

It comprises morethan 1 600companies, with aproduction capacityexceeding 1 billionitems.

Industrial base04

The T&A industry is the1st industrial employerin the country,providing jobs for morethan 180 000 people

Employment01

It generates 15% of thecountry’s industrial GDP

GDP03

It accounts for ¼ ofMoroccan exports ofgoods> €3 Bn in 2016

Exports02

Fast Fashion€2bn

Knit€1.2bn

Denim€800M

Home textiles

Technical textiles

National brands

Target by 202067% of overall production 

=> €4 bn

We’ve designed a strategy to take it to the next level…

Portugal  (value in Euro’s, Eurostat 2018)

3‐12‐2018 72

Portugal Production Hub for Spanish multinationalsAfter recession managed to climb and growInnovationsRMG

Opportunities:• Knowledge • Innovation• Quality image and practice• Proximity to Europe

Challenges:• Labour• Vertical integration• Availability of woven materials• Workforce

3‐12‐2018 73

Portugal

3‐12‐2018 74

Eastern Europe

3‐12‐2018 75

Ukraine (value in Euro’s, Eurostat 2018)

3‐12‐2018 76

UkraineHigh density of “local” small factoriesLocal market focus, local brandsCollaboration with TurkeyCMT and RMG history

Opportunities:• Knowledge and collaboration with Turkey• Experience: woven and knitwear industry history• Workforce• Flexibility and vertical set up

Challenges:• Innovation• Sustainability / csr• Import and export regulations• Political unrest

3‐12‐2018 77

Ukraine (value in Euro’s, Eurostat 2018)

3‐12‐2018 78

Production 2015 2016Growth in 

2016Woollen yarn, ths t 3,1 2,5 ‐19,4%

Woven textiles, cotton textiles, textiles made of Synthetic and artificial thread, mln sq.m. 86,3 91

5,4%

Blanket and plaid, mln pcs 3,0 2,4 ‐20%Linens, mln pcs 9,8 9,8 ‐Nonwoven materials and articles thereof, ths t 19,5 21,6 10,8%Costumes, sets, dresses, skirts, pants, knitwear for women, ths pcs 103 165

59,2%

Coats, overcoats and short coats for men, ths pcs 318 329 3,5%

Woman's jackets and blazers, except knitted, mln pcs1,5 1,4

‐6,6%

Costumes and sets for men, ths pcs 347 437 25,9%Jackets and blazers for men, ths pcs 865 765 ‐11,6%Woman's coats and raincoats, etc., ths pcs 925 938 1,4%

Hooded jackets, ski jackets, windproof jackets and similar woman's products, ths pcs 170 192

12,9%

Woman's dresses, except knitted, mln pcs 1,2 1,5 25%

Garments, accessories for fur clothes (except headdresses), ths pcs 8,1 5,6

‐30,9%

Tights made of synthetic fibers, mln pairs 31,9 25,8 ‐19,1%Sweaters, knitted pullovers , mln pcs 1 1 ‐

Production trends

• EU as the biggest buyer of Ukrainian clothing and textile• Growing share of clothing industry in total exports• >50% of produced clothing is exported

Industry export trends

0,0%

1,0%

2,0%

2012 2013 2014 2015 2016

Other

Impregnated, coated, covered orlaminated textile fabrics

Wadding, felt and nonwovens,special yarns, twine, cordage,ropes and cablesOther made-up textile articles, sets

Knitted or crocheted articles ofapparel

Not knitted or crocheted articles ofapparel

34,6%

8,4%6,4%6,1%4,7%

4,2%3,8%3,4%

NL; 0,7%

27,5%

Germany

France

Russian Federation

Romania

Switzerland

Belgium

United States ofAmerica

Export share

Export markets

Macedonia (value in Euro’s, Eurostat 2018)

3‐12‐2018 81

MacedoniaGrey zone industryUnemployment rate 30% + Expertise leavingDownscaling T&CCMT focus

Opportunities:• Experience• Proximity to EU

Challenges:• Matching workforce• Political entity• Flexibility and availability of materials• Import and export regulations• Csr

3‐12‐2018 82

Macedonia 

3‐12‐2018 83

Bulgaria (value in Euro’s, Eurostat 2018)

3‐12‐2018 84

BulgariaNational bank lending scheme +Foreign investment climate +Domestic market development slow, exports slowCMt focus

Opportunities:• Proximity• Workforce

Challenges:• Csr• Availability of materials• Welfare population

3‐12‐2018 85

Bulgaria

3‐12‐2018 86

Romania (value in Euro’s, Eurostat 2018)

3‐12‐2018 87

RomaniaInbalances in national accountsIMF assistance packagesCMT focus

Opportunities:• Proximity• Workforce

Challenges:• Csr• Availability of materials• Social welfare / population welfare

3‐12‐2018 88

Romania

3‐12‐2018 89

Poland (value’s in euro: Eurostat 2018)

3‐12‐2018 90

PolandMissing national growthEU questionsHistory of production hub: CMT for Northern European brands ; Fashion

Opportunities:• Experience• Proximity

Challenges:• Workforce• Quality• Csr• Innovation , RMG, material availibility• Depending on externals

3‐12‐2018 91

Poland

3‐12‐2018 92

Recap changes import value Belgium for Country Selection: 2016‐2018

CNY : 0Bangladesh : 0Vietnam : +Cambodia : +Myanmar : +Ethiopia : 0Turkey : 0Tunisia : ‐/‐Morocco : ‐/‐Portugal : ‐Ukraine : 0Macedonia : +Bulgaria : 0Romania : 0Poland : ‐

3‐12‐2018 93

Thank you!Ton Wiedenhoff

Q&A

3‐12‐2018 94