creamoda: update sourcing
TRANSCRIPT
Creamoda: Update (Out) SourcingTon Wiedenhoff 27.11.2018
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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
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1. Situation
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2. Sourcing Trends
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2. Sourcing Trends
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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
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2. Sourcing Trends
Source: KS 2017
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2.Sourcing Trends
Source: KS 2017
Changing Decision criteria for choosing sourcing location or new supplier (source: Kurt Salmon Nov.2017)
2.Sourcing trends
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2. Sourcing trends
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3. Sourcing market changes
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3. Sourcing Markets changes: EU buyers
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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
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US and EU Buyers Near Shoring markets: 2025
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Decision criteria and country performance according KS Survey (source: Kurt Salmon Nov.2017)
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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)
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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
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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
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Pressure on KPI driving Gross Margin (source:KS 2017)
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Foreign Currency development( source: KS 2017)
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4. Production cost Index: cost focus
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Impact of material Costs on Overall Costs(Source: Motif, 2018 (Alvanon Online Training Courses))
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Other than cost focus: levers to answer thecurrent challenges
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Forecast: automation related to sewing (costs)
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Forecast: automation related to sewing (costs)
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5. Zoom in to Sourcing Countries
5. Zoom in to Sourcing Countries
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5. Zoom in to Sourcing Countries
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5. Zoom in to Sourcing Countries
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China (value in Euro’s, Eurostat 2018)
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China
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China
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China
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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)
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China
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China: Trade wars, Brexit and Global Supply Chains in 2018 ( the AI Survey 2018, 100+ Multi and SME)
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China: Trade wars, Brexit and Global Supply Chains in 2018 ( the AI Survey 2018, 100+ Multi and SME)
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China: Trade wars, Brexit and Global Supply Chains in 2018 ( the AI Survey 2018, 100+ Multi and SME)
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Bangladesh (value in Euro’s, Eurostat 2018)
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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
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Bangladesh
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Vietnam (value in Euro’s, Eurostat 2018)
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Vietnam
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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
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Cambodia
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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
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Myanmar
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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
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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)
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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
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Ethiopia
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Ethiopia
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Turkey (value in Euro’s, Eurostat 2018)
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Turkey
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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)
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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
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Tunisia
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Tunisia
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Morocco (value in Euro’s, Eurostat 2018)
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Morocco
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“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
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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)
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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
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Portugal
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Eastern Europe
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Ukraine (value in Euro’s, Eurostat 2018)
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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
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Ukraine (value in Euro’s, Eurostat 2018)
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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)
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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
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Macedonia
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Bulgaria (value in Euro’s, Eurostat 2018)
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BulgariaNational bank lending scheme +Foreign investment climate +Domestic market development slow, exports slowCMt focus
Opportunities:• Proximity• Workforce
Challenges:• Csr• Availability of materials• Welfare population
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Bulgaria
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Romania (value in Euro’s, Eurostat 2018)
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RomaniaInbalances in national accountsIMF assistance packagesCMT focus
Opportunities:• Proximity• Workforce
Challenges:• Csr• Availability of materials• Social welfare / population welfare
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Romania
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Poland (value’s in euro: Eurostat 2018)
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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
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Poland
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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 : ‐
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Thank you!Ton Wiedenhoff
Q&A
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