Merchandise Sourcing: Is There Life Beyond China?

Some in attendance at the recent New England Mail Order Association conference in Saratoga Springs, N.Y., were a little taken aback by the presence of Tom Haugen, an executive director with Li & Fung (Trading) Ltd., a $7.1 billion division of the global outsourcing giant Li & Fung Group. After all, this is a conference that’s historically been targeted primarily at small- to mid-size catalogers from the eastern U.S.

But Haugen, whose firm represents such catalogers as Blair, Haband and Restoration Hardware, offered some eye-opening trends on product sourcing around the world that can ultimately affect even the smallest cataloger.

For starters, he noted that prices aren’t going up on the producers’ end because competition is driving them down. “China doesn’t necessarily control pricing,” he said, “ because it’s Bangladesh, Cambodia and others. There’s no particular reason for prices to go up on products today; in the world of free trade, you have the whole world to choose from.”

He cited other key emerging trends:

* Sourcing in China continues to grow moderately, up about 2 percent in apparel this year compared to 1 percent in the U.S. despite fundamental problems, such as quote and inflationary cost pressures.

* South Asia growth is more than 40 percent, with Bangladesh, India, Pakistan and Sri Lanka all being the key drivers.

* Southeast Asia has had strong growth led by Cambodia, Indonesia and Vietnam. Cambodia, he pointed out, is the leading exporter of pajamas.

* Although China offers catalogers ways to save money, “the quota system is transparent,” he said. “You don’t know if the person who’s sold to you has met his quotas.”

Haugen offered attendees a little primer in the evolution of supply chain management. Supply chain management, he noted, starts with consumer needs and how to get product to them. That leads to product design, product development, raw material sourcing, factory sourcing, manufacturing control, shipping control, forwarder consolidation, customs clearance, local forwarding consolidation, wholesale/retail and finally on to the consumer.

Li & Fung Trading manages the supply chain of high-volume, time-sensitive consumer goods through its office network in nearly 40 countries.