Why Brands Are Still Slow to Source from Latin America

Why Brands Are Still Slow to Source from Latin America

There’s been a lot of talk in recent years about more and more American apparel brands sourcing closer to home to save time and money, but the fact of the matter is Asian suppliers still account for roughly three-quarters of U.S. garment and textile imports.

During a discussion at Sourcing Journal’s “The Year of Uncertainty” Summit in New York City on Tuesday, moderator Mike Todaro, managing director of Americas Apparel Producers’ Network (AAPN), asked his panelists why more brands aren’t taking advantage of near-sourcing.

“The recollection of [sourcing and supply chain] management is that our region way back when, was simply a cut-and-make region, where the customer was in the Carolinas and they would ship their goods down south for assembly and that was the extent of our apparel industry,” explained Juan Zighelboim, president of TexOps, an El Salvador-based producer of stretch performance apparel for the likes of Nike, Adidas and Reebok. “We’ve evolved quite a bit since then, I can assure you, but that perception remains.”

David Sasso, vice president of sales at Buhler Quality Yarns, pointed out that it also has a lot to do with apparel IQ and misinformation about fabric costs, so much so that when sourcing executives get a price from Central America and it’s double what they receive from Asia, it’s a “complete turnoff.”

“But I think it’s turning to the point where you really need to understand your textiles. We need to hire people that know textiles, to look at every segment of the supply chain and start really doing their own cost, because there’s a lot of misinformation,” Sasso said.

Chase your balance sheet, look for your margin

Philip Poel, vice president of global manufacturing and quality at Under Armour, suggested that brands are too focused on the FOB price (freight on board, or the cost of delivering the goods to the nearest port) or total landing costs and aren’t considering balance sheet manufacturing. For instance, the cost of doing business when there’s a quality issue and someone has to fly to Asia versus Latin America.

“It’s all of the other costs that are associated with driving our business that show up on the balance sheet that really erode away from the margin,” Poel said. “You have to consider what’s going on with true balance sheet manufacturing and really understand not just the cost of the textile, not just the cost of the units per labor hour, but what hits your balance sheet.”

He added, “Otherwise you’re just falsely looking at this FOB and saying that must be it, I’ll chase that dime. Chase your balance sheet, look for your margin.”

Quality, not quantity

Time and again, experts and analysts reference Zara as near-sourcing’s success story, producing products in Europe to supply its stores there, but it’s a business model that’s difficult for most brands and retailers to replicate.

“It’s not a learning curve—it’s a lobotomy,” Todaro said. “If you really want to study somebody who’s taking advantage of proximity—and by the way, just because something is close, doesn’t mean it’s best—if you’re looking at somebody that’s really taking advantage of proximity you should look at what Nike is doing in Central America.”

Last month, Nike announced a strategic partnership with Apollo Global Management regarding the apparel supply chain in the Americas, creating a new company in the process which then acquired existing apparel suppliers in North and Central America. The goal: to increase regional manufacturing capabilities, enable quicker delivery of more customized product to consumers and drive investment in sustainability by creating a more vertically-integrated apparel ecosystem, from materials suppliers and apparel manufacturers, to final embellishment, warehousing and logistics.

Not everyone is Nike, but that shouldn’t stop apparel brands from considering sourcing in the Americas. As Under Armour’s Poel put it, no one needs a lot of vendors—just really great ones.

“I need them to understand the DNA and the brand of Under Armour and how we work. That translates into better quality with regard to not only our units per labor hour but what we’re running. We’re not chasing the dime—that’s just not what we do—but we’re still looking for value,” he said.

His advice to manufacturers in the Americas: “Be the most efficient and most quality driven factories and you will draw the business. You will draw brands like Under Armour to work with you because that’s what we want.”

Source: Sourcing Journal