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Undiscovered Gold: Value Through Proximity

The Magazine Apparel Sourcing Article

July 27, 2010

Undiscovered Gold

Walter Wilhelm, Gabrielle Sampietro
Walter Wilhelm Associates, LLC

http://themagazineapparelsourcing.com/magazine

Everyone knows that the three most important elements for success in retail are: Location, Location and Location. Well, the three most important elements for success in sourcing are often the same but this generally translates into Cost, Cost and Lower Cost when, in fact, Proximity, Proximity and Proximity can be even more important. Unfortunately, the regions that enjoy a proximity advantage have never learned to promote it successfully. Part of the difficulty has been in identifying who plays what role in this promotion and then getting the various stakeholders to commit to their part in the marketing plan.

Obviously, proximity is only an advantage if you are “close”. Zara, the phenomenally successful Spanish retailer, raised the bar significantly and clearly established the importance of being close as they built their business exponentially by having flexible manufacturing sites within 100km or less from their key retail locations. They could react quickly to market changes and everything was surface shipped, no air or sea freight. They had quick response and low logistics costs. Of course, being clever merchandisers had a lot to do with their success but it wouldn’t have happened (at least not the earnings and rate of growth they achieved) without the advantage of Proximity.

US retailers and brands have a similar opportunity with high quality manufacturing operations practically at our doorstep. There are even trade regulations that provide additional incentives for manufacturing in Mexico, CAFTA-DR and Haiti, yet most of the major US buyers continue to chase the low FOB costs in Asia, ignoring the disadvantages of large minimums and long lead times. Why? We feel a key reason is ineffective and often non-existent regional marketing.

From an “outsiders” perspective, it seems that the regional stakeholders have not come to grips with who is responsible for what elements when it comes to regional marketing. We feel there is joint responsibility and like a stool with three legs, if one of the legs is missing or weak, it won’t be strong enough to support the weight required.

What are the “legs” required to have an effective regional marketing program?

Private Enterprise (the companies, their owners and management), the Workers (union and non-union staff) and the Government (in-country). The roles of each of these three entities must be clearly defined, accepted and embraced (including the necessary investment to achieve specific targets) so it is imperative that these three entities work TOGETHER. Briefly, looking at each of these entities:

* Private Enterprise – individual companies will be judged by global and not regional, standards, so they must be competitive in terms of quality, delivery performance, and total cost. This means they must refine their manufacturing processes and keep their technologies modern and competitive, and manage their responsibility for direct marketing and sales. Better, Faster, Cheaper is just the price of admission today, and if you don’t offer these elements as “standards” you can’t begin to compete. Some companies will not have the funds to stay competitive in manufacturing and will disappear, or only survive as a subcontractor to larger local companies.
* Workers – the historic disparity of goals between management and workers has diminished but we still hear companies complain that they cannot compete with other regions because their own labor costs are too high, or we hear workers complain that the owners are driving around in the latest Mercedes while the workers can’t make enough to feed their families. Owners need to understand that “doing what is right” is “good business”. Workers need to understand their contribution to the company’s success and longevity, that they too are part of the “sales organization”. Communication is definitely the key ingredient.
* Government – it is impossible for a single company or even a group of companies to effectively carry out a regional marketing campaign. This is the role of government but regional marketing is normally underfunded and/or poorly executed. Government is, of course, responsible for the basic infrastructure: power (reliable electricity and water at a reasonable cost), communication, roads, ports and academia, but marketing cannot be ignored. Yet when we look at the number of people employed in the apparel industry, the related suppliers, and the percentage of export dollars that come from these industries, we are amazed at the reluctance of governments to fund marketing programs to facilitate success in this fast changing industry.


Summary

Mexico and the countries that are represented in the CAFTA-DR agreement, have a superior advantage in doing business with the United States that no other region of the world can possibly enjoy, yet this advantage of Proximity has not yet been commercially realized. And, it won’t be realized until all three stakeholders: Private Enterprise, the Workers and Government, understand their roles and responsibilities and together commit to execute them flawlessly.


Addendum

We recently noted some excellent factories in the region single handedly embracing the urgent need to “change” in order to survive and grow, by making high quality, no minimum, very fast turn products (some even offer one calendar week from PO to delivery to customer) including swimwear, lingerie, high performance athletic-wear to high-end denim with state-of-the-art finishing techniques. With skilled operators of highly efficient modular manufacturing, some facilities have brought in-house their own digital printing, from wet to sublimation, all with no minimums. Most importantly they are in proximity to suppliers knitting piece goods practically next door, with major US and Brazilian mills currently setting up new facilities for this mutual benefit. An important fact is that on average 60% of the FOB cost is piece goods, 60% of the cost of piece goods is yarn, and 60 % of the cost of yarn is power. So in order to achieve critical speed-to-market, by also keeping the sequential events of the entire manufacturing process within close Proximity, gives this critical region a serious competitive edge. This is undiscovered gold.

This article was published in The Magazine Apparel Sourcing and can also be found at http://themagazineapparelsourcing.com/magazine/undiscovered-gold/