• July 10, 2018

Retail Challenges of Low-Cost Sourcing Countries

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Written by Mark Hudson, July, 10 2018

With manufacturing jobs leaving China in droves, new low-cost sourcing countries are being identified to fill the need. Respondents of a recent Global Sourcing Society Retail Survey Report identified Myanmar (36.5%), Cambodia (28%), and Ethiopia (17%) as the major new retail sourcing countries that today’s global retailers have utilized in the past two years that were not included in their 2017 sourcing strategy. However, using these low-cost sourcing countries for retail and private label manufacturing brings with it auxiliary issues of their own. From a list of five current challenges associated with sourcing from low cost countries: (Unskilled labor, Lack of Road and Port Infrastructure, Cultural differences, Lack of local raw materials, Technology disruption) 15% of respondents see lack of local raw materials to be the highest challenge they faced while another 38% marked it as a high challenge. Additionally, respondent’s ranked unskilled labor at 31% as a high challenge and 13% said it was their highest challenge. Lack of road and port infrastructure also ranked highly among the listed problems. This shows that there is a significant trade-off between the cost and benefits that come with using low-cost countries for retail and private label manufacturing. However, as the market research and retail survey, clearly indicates, sourcing professionals still heavily favor the low-cost model and plan to continue to do so for the foreseeable future.

Sourcing and Supply Chain Technology Disruption

Sourcing and supply chain technology disruption is at the forefront of every sourcing and supply chain professional’s mind. In today’s world, an entire industry can be disrupted overnight, and preparation for such an event is key for sustained survival. The market research indicates that the respondents had a clear understanding of the imminence of technology disruption with 65% using one of their two answers to respond that they are, “excited – can’t wait” to the question, “What are your thoughts about the technology disruption and revolution? Chose 2 answers”. However, the seriousness and inevitability were not lost upon them either, as 55% also stated that they were “anxious – must react fast” 13% claimed to be “fearful – can’t keep up” and 34% admitted to being “disoriented”.

One of the main tools respondents agreed upon as being important for organizations to stay relevant in today’s disruptive environment was supplier collaboration. Over 36% of those surveyed said that their organization has worked with between 100-400 suppliers in the past year alone. This is an enormous number that carries with it so much complicated logistical communication that it sends the mind spinning. The massive number of suppliers that organizations must work with also backs up the need for collaboration with, and among, these suppliers. Not all of the participants were as firm in their stance for collaboration when they were pressed further with a third of respondents responded that they “neither agreed nor disagreed” with the statement, We are willing to transfer technologies to the supplier.” To be fair, the remaining two-thirds affirmed this statement with either agreement or slight agreement. However, with the volatility and unpredictability of today’s global marketplace, it is    important for those organizations that are hesitant in supporting collaboration with suppliers to work on their relationships, or build new ones, because flexibility and agility are absolutely necessary traits to compete today.

To recap, low cost country sourcing strategies can produce benefits with the help of technology to link together retailers with the global supplier base. Deep reduction in product costs and material cost savings will result in achieved strategic business plans and private label growth goals. Retail sourcing software often drives improvements to gross margins, reduces cycle times, increases efficiency, has higher product quality and overall, enhances the product development process with low cost sourcing country suppliers. For more information about the benefits of retail sourcing and supply chain automation in low cost sourcing countries, read the full report: How to Improve Supply Chain Automation For Improved Retail Sourcing Decision Making. Or for more about today’s retail sourcing, product lifecycle management (retail PLM) and supply chain management (SCM) tools please Contact Us or visit CBX Software.

Written By Mark Hudson, July 10, 2018

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