retail global sourcing update - get ready for 2013

Global Sourcing Update Facts & Insights

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Q2 2013 - Global Sourcing Update CORESOLUTIONS

1 www.coresolutions.com [email protected]

Americas: +1.908.898.1880 Europe: +44.20.8133.0328 Asia: +852.2378.6300

FOREWORD

[GLOBAL SOURCING UPDATE]

Core Solutions’ Retail Global Sourcing Update provides research and

analysis aimed at informing global sourcing and buying decisions. Each

issue provides a snapshot of key information impacting global sourcing,

including container shipping prices, currency exchange rates, commodity

costs, PMI Indices and other data along with our own insight and analysis

from customers and analysts.

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Table of Contents

Purchasing Manager’s Index ...................................................................................................... 3

Wages ............................................................................................................................................ 4

China Minimum Wage Snapshot ............................................................................................ 4

Global Low Cost Sourcing Country Wage Snapshot ........................................................... 5

Container Freight Rates for Major Routes ................................................................................. 6

Currency Exchange Rates .......................................................................................................... 8

Global Commodity Rates............................................................................................................ 9

Crude Oil .................................................................................................................................... 9

Rubber ........................................................................................................................................ 9

Metals ....................................................................................................................................... 10

Wood ........................................................................................................................................ 11

Wool, Hides, Cotton ................................................................................................................ 11

Plastics and Fibers ................................................................................................................... 12

Apparel Sourcing Trends ........................................................................................................... 13

Topic Spotlight: Sustainability ................................................................................................ 16

About Core Solutions ................................................................................................................. 17

CBX Sourcing Solution ................................................................................................................ 17

Next Steps .................................................................................................................................... 18






Purchasing Manager’s Index

To help understand industry and economic conditions in a country, the PMI Index

tracks variables such as output, new orders, stock levels, employment and prices

across the manufacturing, construction, retail and service sectors.

A reading below 50 indicates contraction from the previous month, while a

reading above 50 indicates growth. Currently 22 countries and regions conduct

the PMI survey and compilation, based on an internationally standardized

methodology.

This update looks at a selection of emerging economies and key sourcing

countries, providing indicators for the past 3 months.

COUNTRY FEBRUARY

2013

MARCH

2013

APRIL

2013

INDICATORS

Brazil 52.5 51.8 50.8 Modest recovery, growth

higher in services

China 50.4 51.6 50.4 Manufacturing slowdown,

external pressures continue

Egypt 46.0 44.8 44.2 Declining output and new

orders, plus inflation

India 54.2 52.0 51.0 Continued slowdown in

manufacturing output

Indonesia 50.5 51.3 51.7 Increasing output, based on

domestic demand

Mexico 53.4 52.2 51.7 Loss of momentum in

manufacturing to continue

Poland 48.9 48.0 46.9 Ongoing decline in output

and new orders

Russia 52.0 50.8 50.6 Slow manufacturing growth,

limited new orders

South Korea 50.9 52.0 52.6 Strong new order growth

fueled by domestic demand

Turkey 53.5 52.3 51.3 Moderate growth in output,

new order and exports

Vietnam 48.3 50.8 51.0 Manufacturing expanding

on domestic demand

PMI Index Source: HSBC, Markit, CFLP






Wages For the past few decades wages have been a key variable in global sourcing. This is

changing as labor costs are increasing across most low cost sourcing countries.

China Minimum Wage Snapshot

Wages in China vary widely by province, but across the country have followed a trend

over the past decade of an annual rise of over 10%. This trend is continuing. Export

focused regions such as Zhejiang and Guangdong have raised the minimum wage by

12% and 19% respectively in 2013. The central government plans to continue pushing for

wage increases in the coming years to improve inequality.

A survey of more than 300 factories in the Pearl River Delta by Stephen Green, China

economist at Standard Chartered, found that wages for blue collar workers are set to

rise 9.2% in 2013, up from a 7.6% increase in 2012. The survey also found that additional

pressure is coming from stricter enforcement of social insurance contributions – which

can add substantially to the wage bill – and higher demands from workers’

representatives.






Global Low Cost Sourcing Country Wage Snapshot

Below is a snapshot of minimum wages in key Asia sourcing locations, with the addition

of Egypt and Ethiopia. This is updated with the most current available information.

Wages often vary by region or province and in some cases might include costs other

than the base wage. In some cases with a distinct variance, we provide an average.

With greater visibility into social conditions and increasing unrest and union pressure,

wages in traditional low cost sourcing countries are on the rise.

BANGLADESH CAMBODIA CHINA EGYPT ETHIOPIA

$38/month US$ 83/month US$ 188/month US$ 105/month US$ 23/month

In the garment industry

the minimum wage is

US$ 38 per month.

The minimum wage is

set nationally every five

years by the National

Minimum Wage Board.

Breakdown

US $ 55 – Regular

+ US $ 6 –living

+US$ 10 – Attendance

+US$ 5 – Health

+US$ 7 – Transport

Total = US$ 83

Unions are demanding

minimum wages to start

in 2013 at US$ 120

Set locally, ranges

from US$ 138 per

month in Jiangxi

Province to US$ 238

per month in

Shenzhen, Guangdon

g Province.

Currently there is only

one national

minimum wage; there

are no sectorial rates

or occupation-based

rates. Only one

national rate: EGP 700

Some government

institutions and public

enterprises set their

own minimum wages:

public sector

employees, the

largest group of wage

earners, earned a

monthly minimum

wage of US$ 23

INDIA INDONESIA LAOS MALAYSIA MYANMAR

US$ 60/month US$ 71-230/month US$ 79 per month US$ 297 per month US$ 75-120/month

With effect from April 1,

2011 the National Floor

Level of Minimum

Wage has been raised

to US$ 60 per day.

Wages vary by region.

US$ 2.18 per day in

Bihar

US$ 3.40 per day in

Haryana (with local

cost of living

allowance included).

Depends on region. 17

areas have different

minimum wage. E.g.

Jakarta: US$ 230

Solo: US$ 109

Central Java: US $ 71

Expecting US$ 120 at

end of June 2013 –

negotiating

Need to increase as

to reduce migration

to Thailand

US$ 79 per month;

employers were

required to pay US$ 1

meal allowance per

day.

70%-80% of textile

workers are foreigners

US$ 297 per month on

the Peninsula

Malaysia, and US$ 261

per month for the

states of Sabah,

Sarawak, and Labuan

Inclusive of taxes and

benefits

Skilled worker at

Yangon.

PHILLIPPINES SRI LANKA THAILAND VIETNAM

US$ 190- 220 /month US$ 63 US$ 300/ month US$ 89 - 125 /month

Garments are made in

3 regions and wages

rang from $6-8 per day.

In 2013 minimum

wages will be

dismantled replaced

with a two-tier system.

1st tier: Minimum floor

wage for new hires/

low skilled . 2nd tier:

productivity – based

system.

In the industrial sector,

minimum wages are

varied depending on the

worker category.

Semi-skilled: US$ 55 – US$

63

Skilled: US$ 59 – US$ 75

Last increase was in

April 2012 which was

40% up from the

previous minimum

wages

Automotive industry

expansion means

textile workers will

migrate

US$ 300 per month

applies from 1st Jan

2013

US$ 67 – US$ 96 is

previous minimum

wages

US$ 85 -95 per month

(urban), US$ 67-74 per

month (rural) for

unskilled laborers at

private enterprises

New minimum wages

to start in March 2013

could be postponed

to September 2013.

Sources: WageIndcator.org, SAFSA, Wikipedia






Container Freight Rates for Major Routes The rates below are supplied by The World Container Index - which reports actual

spot container freight rates for selected East-West trade routes – and Xeneta

which relies on data inputted by companies, allowing users to cross-reference

prices. All indices are reported in USD per Forty Foot Container. We report on

historical rates for key Asia-Europe and Asia-U.S. routes.

Analysis: After seeing sharp increases in late 2012, rates have seen a downward

trend since January 2013, falling 41 percent since the end of the first quarter and

are now in the same range as this time last year. Prices have been hurt by a

weakening global economy and a glut of freighters built before the global

financial crisis.

Source: www.worldcontainerindex.com

http://www.worldcontainerindex.com/





https://www.xeneta.com/why-xeneta










Source: www.xeneta.com



http://www.xeneta.com/




Currency Exchange Rates Following are 90 day exchange rates and one year indicators for major currencies

commonly factoring in global sourcing.

EURO to USD:

Euro to RMB:

USD to RMB:

EUR/USD - % change

2 years -8.38%

1 year 4.31%

6 months -0.66%

3 months 1.19%

30 days 1.50%

Source: Oanda

USD/RMB - % change

2 years 4.63%

1 year -2.20%

6 months -1.86%

3 months -1.60%

30 days -0.44%

Source: Oanda

EUR/RMB - % change

2 years -12.63%

1 year 2.01%

6 months -2.51%

3 months -0.43%

30 days 1.05%

Source: Oanda

The Euro has gained marginally

on the USD in the past 90 days

and is trending up.

The Euro has gained on the RMB

in recent months, on negative

signs in the Chinese economy.

The USD is following a continuing

trend of steady weakening

against the RMB.






Global Commodity Rates Commodity prices fell almost across the board through the first quarter and into the

second quarter of 2013. According to the IMF and other sources, the near-term outlook

as reflected in futures prices, shows broad declines across all main commodity groups.

Overall, prices are projected to decline by 2 percent in 2013 (year over year), with

improving supply prospects for all main commodity sectors.

Oil prices went below $100 a barrel for the first time since June 2012. Energy prices are

expected to fall by almost 3 percent on recovering oil supply from the past year's

outages and strong growth in non-OPEC supply. Copper fell to around $7000 per ton, a 3

year low. According to many analysts, weakness in commodity prices reflects slowing

global growth and less demand from China for raw materials.

Crude Oil

Rubber

Rubber

Rubber prices fell by

23% year-on-year.

Commodity Price Sources: IMF data,

Index Mundi, Plasticker






Metals






Wood

Wool, Hides, Cotton






Plastics and Fibers

A selection of plastic related prices is provided below. These are calculated from offer

prices in the Plasticker Material Exchange. These are not necessarily true transaction

prices. For Q1 into Q2 2013, prices have remained relatively flat and trended down over

the past 3 months, especially for polyester and PP regrind flakes.

Source: Plasticker






Apparel Sourcing Trends

Given that apparel is one of the key sectors we serve, we monitor the industry closely,

specifically from a sourcing and production perspective. We do this by talking to our

customers, attending industry events and monitoring media and analysts in the sector.

The apparel sector has seen a significant shake-up in the past few years, where rising

costs, primarily for labor have placed added pressure on retailers, brands and suppliers.

When you add the recent high profile incidents in Bangladesh, it’s clear that apparel

sourcing sector is ready for a change. This shift can be summed up in five key trends.

The comments below were made by sourcing executives in the apparel industry at the

2013 Prime Source Forum in Hong Kong.

Consolidation

The apparel industry has seen a lot of collaboration both among the buyers, whether

they are retailers or brands, and among the suppliers. “Sourcing companies need to be

much more integrated with their customers, to understand where their orders are and to

gain visibility,” said Kevin Burke, President and CEO of the American Apparel and

Footwear Association. What this also means is that the sourcing models which worked

before, with a strong focus on squeezing lower costs from suppliers, are no longer what

the market needs. “We have to learn to embrace change, many retailers were not able

to reinvent themselves,” said Mark Green, Executive Vice President of Global Supply

Chain for PVH which owns brands such as Calvin Klein and Tommy Hilfiger.

Collaboration

Both buyers and suppliers are calling for more collaboration, but the industry is not quite

there yet. “Our ability to offer visibility into planning and forecasting is limited due to a

shortage of information provided to the mills,” one representative from an apparel

supplier noted. Many of the bigger more successful players are already well down this

path, others are moving in that direction. “Your customer is your partner,” emphasized

Peter Kaminsky, Managing Director, Carter’s Global Sourcing. The future will most likely

“I think we will see a consolidation and a huge change in the marketplace

in the next 2-5 years.” - Ranjan Mahtani, Owner and CEO Epic Group, a

substantial Bangladesh supplier to a number of leading retailers and brands,






see a limited number of large buying houses and a selection of highly efficient suppliers

who make up the bulk of the market. There will still be a place for highly efficient niche

brands and suppliers. Collaborative technology plays a key role in this future.

Efficiency

With labor costs, a typical price lever, increasing in many low-cost sourcing countries by

up to 20%, greater attention is being placed on efficiency. The need for greater

efficiency is ultimately dictated by the consumer market demanding more variety of

high quality products across multiple channels at a lower price. This translates into

greater complexity through the supply chain. This is also evident in the reality of more

complex orders. “While overall volumes are not increasing, order sizes are getting

smaller, which means more small orders,” said Stephen Forte, Head of Global Sales for

Coats.

Consumer

In case anyone forgets, sitting at the end of the chain is the consumer, who is more

price, design and quality conscious than ever. Despite new buzzwords, like omni-

channel retail, it still seems that the opportunities from a sourcing and supply chain point

of view lie in looking at the fundamentals, including streamlining operations, reducing

inventory and building efficiency into the end-to-end supply chain. “If we can’t ship to

where the consumers are going to be at, we are going to have a problem. We need to

figure out how to be more nimble,” noted Edwin Keh, CEO, the Hong Kong Research

Institute of Textiles and Apparel (HKRITA).

“We have only really started to scratch the surface on efficiency. I am

trying to take the cost of the man out of the equation.” - Colin Browne,

Vice President, Footwear Sourcing, VF Asia Limited

“We have been able to offset wage increases with productivity, but this is

getting tougher. The consumer will not pay more.” - Duncan Scott, Vice

President External Products, New Balance.

“The average tenure of our suppliers is ten years, for some it’s 25 years, we

call them partners because we believe in partnership ” - Craig Dana,

Managing Director, Ann Taylor Far East.






Sustainability

Certainly the recent factory fires in Bangladesh have highlighted the corporate social

responsibility issues, but by all indicators, sustainability is no longer just a green check-

box, but a real imperative for many companies. “Ethical sourcing is a big issue that

won’t go away until we become better. We owe a lot to our suppliers. When they

become better, we become better,” said Jenny Sim, VP Global Sourcing, Foot Locker

Inc. Industry standards will enable improved communication between retailers, brands,

suppliers and other parties in the supply chain. The industry is moving towards

collaboration on an agreed set of standards. “There is a need for a common

understanding on the top issues, even 60% of what we can agree on. The industry needs

to drive change versus the NGO’s.” – Philip Poel, Managing Director, Under Armour

Other sourcing trends to look out for:

Additive Manufacturing – 3D printing.

As 3D printing matures and decreases in price, it could mean that retailer could promise

“No wait time” to bring products to market; more innovative products thanks to lower

R&D; smaller, more specific-content shops; and super-customized products. Wohlers

Associates predicts the additive manufacturing industry (3D printing) will be valued at

$3.1 billion worldwide by 2016 and $5.2 billion by 2020.

“We as an industry have a target on our back. The answer is improved

communication and collaboration.” – Peter Kaminsky, Managing Director,

Carter’s Global Sourcing






Topic Spotlight: Sustainability

With the recent factory fires and building collapse in Bangladesh, global apparel

sourcing and manufacturing is facing ongoing scrutiny. The issues extend beyond

Bangladesh to other low cost sourcing countries such as Cambodia where two factories

collapsed in May.

On the plus side retailers and brands are taking some action to improve worker

conditions and fire safety and raise the standards of safety.

Recent Agreements include the Accord on Fire and Building Safety in Bangladesh which

was signed by H&M, Indetex (Zara), Primark, Tesco, Marks & Spencer and PVH. The full

Accord on Fire and Building Safety in Bangladesh is available for download here.

At this point, retailers and brands are willing to pay to improve conditions, but the

bottom line is still cost. Bloomberg recently produced an interesting graphic (below)

which highlights how squeezed apparel suppliers really are and how a few cents on one

apparel item can make a difference.



http://www.uniglobalunion.org/Apps/UNINews.nsf/vwLkpById/EC90FA91A0DB11C0C1257B6B0028A4DE/$FILE/2013-05-13%20-%20Accord%20on%20Fire%20and%20Building%20Safety%20in%20Bangladesh.pdf




About Core Solutions Core Solutions (CORE) helps retailers, brands and suppliers streamline their supply chains,

from Concept to Delivery. CORE’s extended supply chain management platform (CBX)

enables organizations to drive greater speed, agility and efficiency and profit in bringing

private label and branded merchandise to market.

The CBX platform includes modules for Planning, Product Development, Buying,

Sourcing, Order Management, Logistics and Finance.

CBX Sourcing Solution Provides automated request for quotes for one or more products.

Vendors receive email notifications and reminders automatically.

Vendors complete quotes online or via Excel interface.

Side-by-side quote comparison, with configurable Estimated Landed Cost (ELC)

What-If analysis enables staff to adjust cost components to refresh ELC.

Facilitates quote review, shortlisting and confirmation between buyers, category

managers and sourcing team.

Vendor can upload photos/images and product documentation, such as

instructions, certifications and 3rd party test reports.

Helps Reduce overheads in issuing RFQs and processing quotes.






Next Steps

Are you a retailer or a brand interested in:

Streamlining your sourcing operations?

Scaling your direct sourcing?

Growing your private label program?

Driving greater visibility through your supply chain?

Increasing profitability for your company?

Click below to learn more about how Core Solutions can help:.

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Email: [email protected]

Or call us directly:

Americas: 1.908.898.1880

Europe: 44.20.8133.0328

Asia: 852.2378.6300



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retail global sourcing update - get ready for 2013

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