Role of Intermediaries
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Transcript of Role of Intermediaries
Merchandisers’ Role as Intermediaries in Apparel Supply Chains;
Multinational Retailers’ owned vs. Independent Buying Offices
Sunil Sharma, Professor, Faculty of Management Studies,
University of Delhi, DELHI-110007
Archana Gandhi, Associate Professot,
National Institute of Fashion Technology (NIFT),
Hauz Khas, New Delhi-110016.
___________________________________________________________________________
1.The Global Transition of Apparel Manufacturing
Clothing manufacture is labor-intensive and can be found in almost all developing countries,
particularly least-developed countries (Kerry McNamara 2008). Since the 1950s, the industry
has seen several migrations, all involving Asia and at each stage involving a shift to a country
where labor costs were initially lower. In the 1950s and early 1960s, the move was from
North America and Western Europe to Japan, as western textile and clothing production was
largely displaced by Japanese imports. The second shift was from Japan to Hong Kong,
Taiwan and South Korea, which together dominated global clothing exports in the 1970s and
early 1980s. By the late 1980s and the 1990s, a third migration set in, away from Hong Kong,
Taiwan and South Korea to other lower-cost, developing countries. This included a big shift
of production to mainland China, where economic reforms prompted an up-surge in export-
oriented industrial growth. A number of South-east Asian countries including India,
Indonesia, Thailand, Malaysia and the Philippines, as well as Sri Lanka, also benefited from
the migration. In 1990s, other new suppliers emerged in South Asia and Latin America. The
impact of these dramatic geographic shifts on importing countries was severe. In 1992, about
49% of all retail apparel sold in the US was made domestically; by 1999 that proportion had
fallen to 12%. The reasons for the migrations were various. In Hong Kong, Taiwan and South
Korea, the industry was forced to adjust to rising wages, labor shortages, and higher land
prices as well as external factors such as stronger currencies and, as always, tariffs and
quotas. By the end of eighties, manufacturers in these countries needed to find lower-cost
production bases and ways around quota restrictions. In this division of labor, skill-intensive
activities, which provided relatively high gross margins such as product design, sample
making, quality control, packing, warehousing, transport, quota transactions and local
financing in the apparel industry, stayed in East Asia and labor-intensive activities were
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relocated. Thus countries in Africa, such as Mauritius and Lesotho, enjoyed a surge in inward
investment for garment manufacturing, but usually only took over the lower-margin parts of
the supply chain. While lower wage costs were often the initial reason for shifting location,
other factor also played a significant part. The goal of shorter lead-times could be achieved
by situating production nearer the final markets. Mexico, the Caribbean Basin (Dominican
Republic, Guatemala, Honduras, etc) and Central America are particularly attractive because
of their proximity to the US. Most of this production has traditionally been basic assembly
work—called “outward processing” or “production sharing”—the sewing together of cut
pieces and trim provided by US companies. Turkey, North Africa (Tunisia and Morocco) and
various former Eastern European countries (Romania, Poland and Hungary) offer quicker
access to the EU markets.
Each country has it’s own strength and garment producing nations could source several items
from other countries to meet the buyers price, quality and lead time requirements.
2. A Typical Apparel Supply Chain
Supply Chain Management is a seen as a critical factor in managing contemporary fashion
businesses (Hines 2001).Traditional supply chains view flow of goods/services from upstream
raw material suppliers though manufacturing processes and on to the customers. In contrast
the modern supply chain concepts begin and end with customer. Modern supply chains are
described as flexible, responsive, agile, lean, value adding networks and value streams.
Supply chains are more than what the term suggests. They are value creation mechanisms for
customers. They are not simply ‘supply’ focussed nor are they necessarily ‘chains’. Supply
chains are dynamic, efficient, effective response networks delivering customer requirements
flexibly and on time. These high performance networks consist of customers, suppliers and
information travelling through organizational ‘arterial systems’. These arterial systems cut
across functional, organisations and geographical boundaries.
Most product categories can be segmented under two different types of international
economic network (Singhal et. al 2004)-
_ producer-driven supply chains; and
_ buyer-driven supply chains.
Producer-driven: In producer-driven supply chains, large transnational manufacturers play
the central roles in coordinating production networks. Industries characterised by producer-
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driven supply chains are typically capital- and technology-intensive sectors such as
automobiles, aircraft, and computers.
Buyer-driven: In buyer-driven supply chains, large retailers, marketers and manufacturers of
branded goods play a pivotal role in setting up decentralised production units in various
exporting countries. Consumer goods industries such as garments, footwear, toys, consumer
electronics and handicrafts follow this pattern. Retailers such as Wal-Mart and Sears,
footwear companies such as Nike and Reebok, and brands such as GAP and Liz Claiborne
source their products from labour intensive factories in developing countries.
The characteristics of buyer-driven supply chains are as follows.
i.Buyer-driven supply chains tend to be labour intensive. Thus manufacturing
tends to shift to countries with a lower cost base.
ii.Buyer-driven supply chains are global in nature and in most countries
decentralised.
iii,The decentralised nature of buyer-driven supply chains makes them highly
competitive.
Most buyer-driven supply chains have low entry barriers. Unlike producer-driven supply
chains—which have large manufacturers such as IBM, Airbus Industries, General Motors,
and Intel controlling the chain—the main leverage in buyer-driven supply chains is exercised
by marketers and merchandisers.
The textile and apparel supply chain is a classic example of a buyer driven supply chain.
Although the chain spans several stages, the “clout” is entirely in the hands of the “front end”
i.e. the stage of the supply chain which is closest to the consumer.
Two management skills are critical in today’s marketplace: managing the product cost and
speed to market. In the apparel industry, speed and flexibility are required to satisfy customers
who expect increasingly good value and more fashion content. There are a number of critical
issues apparel companies need to address when it comes to applying the marketing concepts
towards fashion:
i.Fragmented markets hence difficulty in targeting and segmentation
ii.Increasingly more demanding customers make it difficult to spot a sustainable
winning formula
iii.Individualism is breaking down traditional fashion trend prediction influences
iv.Fashion cycles are shorter , leading to a more volatile marketplace
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Apart from the final customer ,the three key entities of the apparel supply chain are:
The Apparel Importer/Buyer-The apparel export industry is a buyer driven industry, hence
comprehending the expectations of the buyers is of utmost importance. The buyer could be a
retailer, a brand owner or a wholesaler based in the country of selling.
The Buying House-Being a mediator between the buyer and the seller, the buying house plays
a vital role in offering the kind of service levels which their principal(s) expect and ensuring
that they upgrade the vendors.
The Apparel Manufacturer/Exporter-Also referred to as vendor/seller/exporter, it is the most
important link in the supply chain. The merchandiser here is a kind of pointer which balances
tasks between buyer/buying house on one side and the factory on the other.
Sustained revenue growth in any industry requires a steady stream of innovative products.
This is particularly true for short-life products, like apparel or computers, where product
lifecycles have shrunk dramatically, driving the need for more and more innovative products.
However, developing and bringing new products to market is becoming increasingly
complex. With the driving forces of outsourcing and globalization, apparel supply chains have
been rapidly disintegrating. Product designers, marketers, and manufacturers are no longer in
the same organization. More likely, they are spread over several continents in organizations
with different cultures, languages, and business objectives. For example, brands like Levi’s
used ‘do it all’ - operating their own US production plants along with their core design and
marketing activities. Now, Levi Strauss & Company have shuttered the production plants in
US and outsourced much of their production including design. Under pressure from buyers,
the international garment industry is now moving towards as a service industry, and what
buyer/retail companies used to do till now, the garment manufacturers are doing it today.
While such outsourcing has had many positive effects on product cost structure and asset
management, it has dramatically increased supply chain complexity. Most apparel makers’
supply chains now span the globe with many hands touching the garment before it reaches the
consumer. Coupled with shrinking product lifecycles, the resulting increased supply chain
complexity has strained every player in the industry. When this happens, products fail to meet
customer expectations or arrive too late for the intended season, requiring deep markdowns to
liquidate the inventory before the next season of products arrives.
The apparel supply chain is indeed complex (Figure 1). Even simple garments like T-shirts
undergo many hands in several countries before ending up in the target markets of Europe or
the US. A more complex product, like a winter parka, often sports components from all over
the world: snaps from Germany, zippers from Japan, insulation from China and Thailand, and
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the outer shell from Taiwan. Getting the right information to the right people at the right time
is the biggest challenge. Equally important is visibility to the entire product and sourcing team
with a documented history of product changes. All too often, a change made by one member
of the design team would be unseen by others creating confusion and finger pointing .
Figure 1-The Structure of Apparel Supply Chain
(Source- Action Research on Garment Industry Supply Chains- Women Working Worldwide,
www.cleanclothes.org/ftp/03-www-action_Research.pdf)
In another situation, design may take place in London or New York, fabric is sourced from
China, trim and other inputs are made in India, and assembly takes place in Mauritius. In
some cases, even the assembly of the same or related items can take place in several
countries. For example, large buyers often contract producers in different countries to make
identical shirts. It is also not unusual to find a matching skirt and blouse where the blouse was
made in one country and the skirt in another. Obviously such globally dispersed production
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requires very careful planning and coordination. The various activities undertaken in an
apparel production and distribution company are as indicated in Table 1.
PRE -PRODUCTION
Product Development &
Sampling
Costing & Negotiation
Fits & Pre-Production
Approvals
Color / Fabric approval
Fit approval
Plan Factory Capacity &
Allocations
PRODUCTION
Production & Line Planning
Fabric & Trim Sourcing
Maintaining Records
Fabric Booking
Trim Confirmations
Testing
Product Safety
Production Follow up
Quality Audits
POST -PRODUCTION
Shipment Status
Vessel / Flight
Planning
Documentation
Payment Follow up
Table 1- Jobs of a Merchandiser in an apparel manufacturing company
(Source: Quality Improvement for Merchandisers, Paper Presented by co-author at ICAHT Sept 2008)
In a study done by IBM Institute of Business Values, following were the problems
highlighted in apparel sourcing:
(i) Non-tailored customer offering
(ii) Poor new product development processes
(iii) Ineffective global and local sourcing
(iv) Out of stocks and sub optimal inventory levels
The study suggested that merchandising and supply chain operations can become a strategic
lever for growth and differentiation, by ensuring well coordinated activities between buyer
and supplier, goods could reach the final consumer on time, in the ratio required. Schmitz
(2005) researched on value chain analysis for policy makers and practitioners .Women
Working Worldwide , based in UK, carried out an action research on garment industry supply
chains (2003).
While, being first to market is important, the real returns go to companies that are able to
exploit their products by being first to spread the product round the globe (Hines 2001). The
primary goal is therefore to drive a new product or marketing concept around the globe as
quickly as possible, the critical success factors being ‘access to channels of distribution’ and
to have developed ‘an internal capacity to propagate new product innovation’. Hence the core
capability lies in competence in managing global supply chains. Managing relationships is an
important competence too.
Three critical lead times identified in the supply chain are:
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i. Time to market i.e. the time taken by a company to translate a market opportunity into
a product or service
ii. Time to serve i.e. the time taken to capture a customer order and deliver goods to the
satisfaction of customers
iii. Time to react i.e. the time it takes to respond to demand volatility by turning on or off
the production.
Paradoxically in the fashion industry, lead-times have if anything but lengthened over the last
two decades or so. This is primarily the result of global sourcing as retailers have sought out
low cost sources of supply. The risk that is incurred through lengthened lead-times can be
quite considerable.
Meeting a buyer’s priorities is crucial for any developing country garment manufacturer
seeking new business (Kerry McNamara 2008). These requirements will depend on the
specific product in question, but will include quality, price, reliability, ‘speed-to-market’ and
the ability of the supplier to extend its capabilities beyond the actual making of the garments
(the so called ‘full-package’ service). The demands of the modern retailer imply that any
garment production line increasingly needs to be well-integrated into the value chain as a
whole. In an effort to boost sales, producers and retailers have done away with the traditional
spring, summer, fall, and winter seasons with six or eight distinct selling periods.
3. Intermediaries in Apparel Supply Chain
Intermediaries are not a new phenomenon. In nineteenth century, cotton textile mills of
Lancashire used a dense network of merchants, brokers and distributors to ensure their reach
to the markets of the world (Popp, 2000). In many instances since then, intermediaries have
been blamed for decreasing transparency and adding an additional step in the complex supply
chain and hence increasing costs.
With globalization of industries and fragmentation of production worldwide, trading service
operators take on more sophisticated organizational forms to include international buying
offices owned by multinational manufacturing and retailing groups, as well as independent
buying agents who perform sourcing and logistics management functions for their customers.
The apparel intermediary is a domestic apparel service firm that links domestic
wholesalers/retailers and foreign distributors/manufacturers to facilitate import transactions in
the global apparel supply chain. Typical international trade intermediaries (ITIs) are buying
offices/sourcing offices/agents/liaison offices serving large retailers or brand-name
merchandisers in developed countries through sourcing of products in developing countries.
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The contemporary apparel business would thus encompass a wide range of market
intermediaries involved in indirect export of products between suppliers and buyers located in
separate countries.
Making sourcing decisions in the global apparel market is no less than a daunting task. Due to
factors including language and custom barriers, cultural and communications barriers, and the
sheer number of producers scattered across the world, U.S. retailers have had to change the
way they approach the world market. Some large retailers have established their own buying
offices overseas to administer the outsourcing of their private label products. Others work
with large and sophisticated independent sourcing agents to handle this intricate task
(Abernathy, 2005).
In a global business environment of apparel industry characterized by product
proliferation, cycle time compression and mass customization, intermediaries play a
significant role in effecting a competitive global supply chain that meets end customers’
needs. Their role and tasks, however, are constantly adjusted according to the supply chain
environments as well as the functions performed by their upstream and downstream supply
chain members. Any individual intermediary has to enhance its value-adding services to
customers in order to sustain its competitive position in the industry. Intermediaries in the
apparel supply chain include international buying offices fully owned by multinational
corporations, buying agents with contractual or alliance relationships with principals overseas,
as well as independent importers or exporters serving retailers and manufacturers in different
countries.
The intermediaries are expected to effectively manage its operational tasks and strategic
relationships with upstream suppliers and downstream customers simultaneously. Their
performance is determined by the customer value it can create by enabling win-win
transactions between various parties in the supply chain. To be customer focused, the trade
intermediaries have to perform a wide range of operational and managerial functions to finally
add value to end customers.
Different trade intermediaries may take on different roles and business scopes along the
supply chain, adjusted to those of their upstream and downstream members. This includes, for
example, procurement of raw materials and other forms of technical and financial support to
manufacturers / suppliers. The companies must manage the competing claims of a multiplicity
of customers and suppliers. Further, they have to strategically evaluate internal structure and
operations to decide how to keep their organizations lean, and to allocate and balance scarce
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resources and investment in different supplier-customer portfolios in order to achieve
maximum effectiveness and profitability.
International apparel buyers base their sourcing decisions on the capabilities of their
suppliers to offer ‘full package services’. Buyers today demand a flexible mix of value-adding
services which either the intermediaries can directly offer themselves or indirectly through
their alliances with further upstream suppliers. Capabilities of intermediaries in providing
such value-adding services determine their being preferred by customers and hence their
competitive position in the industry.
3.1 The Competitive Advantage of Using a Sourcing Agent in Apparel Industry
Beyond bridging barriers and responding to consumer and retailer demands, sourcing agents
provide a competitive advantage because they negotiate contracts and identify the factory
with the best cost and appropriate equipment capabilities (Cook, 2004). Sourcing agents,
through their close relationships with factories, can better ensure efficiency in production.
Sourcing agents are critical to the success of complex designs in off -shore production
facilities. The sourcing agent’s technical knowledge and network of contacts allow them to
identify the best factories for specific designs and production volume requests of the
manufacturers and retailers.
Cook’s research has shown that the added cost of royalty fees for sourcing agents was
indicated to be less expensive than identifying factories and working directly with those
factories independently. On time delivery and communication with factories is more effective
when a sourcing agent is utilized.When apparel retailers use factories that are off- shore, they
rely on sourcing agents to solve geographic and cultural barriers.
The intermediary agents then become the ‘eyes and ears’ of the retailers by communicating
with the factories directly and monitoring the quality and timing of apparel orders placed by
the retailers.
Sourcing agents also solve the problem of limited resources for smaller apparel firms.
Sourcing agents can identify factories that are willing to produce smaller volumes, and can
ensure quality for an apparel firm that might not have the funding to research production
options and/or visit the factory often enough to monitor quality when production is off -shore.
If the apparel design is complex, finding a factory with the appropriate equipment becomes
more difficult because fewer factories have the ability to produce complex designs. They help
to solve problems within the global apparel supply chain, through their ability to
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communicate and network with local factories and their awareness of factory capabilities for
the regions they represent around the world.
Sourcing agents play a critical role in supporting the global apparel supply chain. They
organize the various partners within the supply chain that would otherwise be difficult to
connect due to geographic and cultural barriers. The sourcing agent’s role in the global
apparel supply chain is to facilitate the relationships among key players who seek to produce
apparel goods efficiently, meeting quality and timing standards.As mentioned earlier, there
are primarily two models of buying agents, the first which are fully owned subsidiaries of the
retailers abroad or liaison office of the international retailer and the second are independent
buying offices.
The liaison office is an extended sourcing arm of the retailer’s parent office. This office works
in sync with the retailer’s policies and is also guided by the overall management philosophy
of the retailer. In many cases the top positions in the sourcing office could be headed by some
one from the parent company abroad especially when the office is newly setup or when the
work is expanding time and again. For example H&M’s office in India was headed for a long
time by a Swede from H&M’s parent office in Sweden. Even now some of the key positions
like head of quality assurance is from their office in Sweden. Needless to say that these
sourcing offices are associated only with only one retailer. The responsibility of training and
development of the human resource in the sourcing office rests with the retailer. The sourcing
office is normally structured on lines of the principal office. The divisions and teams are
similar to what the retailer has in their head office.
There are many examples of retailers sourcing offices now in India e.g. GAP Inc, H&M, JC
Penney, Carrefour, ZARA, The Children’s Place and Nike.
Lets discuss a few caselets.
3.1.A. H&M -It has 21 production offices: 10 in Europe, 10 in Asia and 1 in Africa. Around
700 people work at the production offices, by far the majority of whom are drawn from the
local population. They are responsible for contacts with the approximately 750 suppliers
(primarily in Bangladesh, China, Turkey) that manufacture H&M’s products. The production
offices ensure that the buyer places his order with the right supplier, that the goods are
produced at the right price and are of good quality, and controls that production takes place
under good working conditions. Ensuring the safety and quality of the goods largely takes
place at the production offices and is the result of extensive testing, including checking for
shrinkage, twisting, colourfastness and dry rubbing.
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3.2.B. GAP –It has world headquarters in the San Francisco Bay Area, product development
offices in New York City and distribution operations and offices coordinating sourcing
activities around the globe. Design and merchandising teams are working more closely right
from the beginning of the product development cycle, resulting in a more efficient process
and, over time, faster speed to market. GAP would be building more strategic relationships
with vendors, including sharing more planning and forecasting information, to further
leverage sourcing capabilities.
Located around the globe, employees in GAP’s sourcing and logistics group, along with
buying agents, draw up production schedules and place orders with approved third-party
factories in the more than 50 countries that produce goods. Third-party manufacturers ship
merchandise to GAP distribution centers (DCs) which sort and redistribute it to the stores.
Strategically placed throughout the United States and in Canada, the UK, Netherlands and
Japan, distribution centers are the backbone of GAP’s worldwide operations. Gap has a list of
countries approved for product sourcing, located in five main areas namely,
Africa/MiddleEast, Europe/Mediterranean, Southeast Asia, East Asia and the Americas.
GAP has a sourcing office in Delhi, India alongwith local sourcing offices in other apparel
manufacturing centres of the country. The Delhi office not only manages India sourcing but
also sourcing of apparel from Middle East and a few other South East Asian countries. India
being a large apparel sourcing base, it is used a hub from where sourcing from other
countries in the region (spokes) could also be managed.
The other model which exists is independent buying agency model. Here, an
independent company helps international apparel retailer(s) source .The buying agency is
based in country where apparel is manufactured. The agency could be privately owned or be a
partnership firm. The buying agency has the freedom to work with multiple retailers at the
same time. Some retailers ensure that the buying agency they work for does not work with
their closest or most fierce competitor. Working with many retailers at the same time, gives
buying agency a huge advantage in terms of supplier network, experience of working with
various kinds of retailers and hence overall a better understanding and more exposure of
buyer as well as supplier side of business. In terms of organisation structure, depending on the
size of the buying agency, each retailer/buyer has a dedicated team of people who service the
needs of the retailer from the word ‘go’. Working with different buyers also introduces the
buying agencies to various best practices of international retailers which are then adopted by
the company to enhance its service to all its customers.
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There are many buying agencies in India like Triburg, Impulse, Li& Fung, Francis
Wacziarg etc. To extend their realm of sourcing, the buying agencies have their own offices in
other countries. For example, Li & Fung is based in Hong Kong but has an office in India as
well. While Triburg is based in India but till a few years ago also had offices in Sri Lanka and
Dubai. Within India Triburg has offices in Delhi, Bangalore, Chennai and even USA.
Retailer’s Liaison Office Independent Buying Agency
Owned/Controlled by Retailer Owned independently by individual(s)
Works only for one apparel buyer Works for various apparel buyers
Training and development of staff
taken care of by principal company.
Training and development of staff taken care
of by buying agency.
Services offered:
-Fashion forecasting
-Design influencing service
-Vendor identification
-Pre production management
-Production planning
-Bulk production
-Quality assurance
-Shipping and logistics
Table 2 Formats of Apparel Intermediary organisations
3.2.C. Li & Fung Ltd-
Founded in Guangzhou, China in 1906 and with headquarters in Hong Kong, Li & Fung is an
international company for high-volume, time-sensitive consumer goods that include garments
and fashion accessories, gifts, toys, handcrafts, etc. (Fung & Chen). Throughout the years, Li
& Fung has successfully transformed itself from a regional sourcing agent to a worldwide
supply chain management enabler. It now coordinates supply chains for their customers
through a network of 65 buying offices in 38 countries across the globe. The supply chain
coordination tasks of Li & Fung can be illustrated as follows:
Li & Fung receives orders from individual European clothing retailers who need a few
thousand garments within six months. Using its expertise, the yarn which is made in South
Korea is dyed and woven in Taiwan. The zipper in each product is made in a factory in China
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owned by a Japanese firm. Since China’s textile quota has already been used up under some
country’s import rules, all work-in-progress is shipped to Thailand for final assembly. As no
single factory can handle all work-in-progress for this single order, several factories in
Thailand share this order. What Li & Fung does is to assure the quality of the whole garment
and manage the whole process starting from supplier selection, sourcing, manufacturing
selection and assessment, logistics and documentation arrangement etc. Six months later, that
European retailer would receive the whole order at the specified time, specified place with
conformance to specified quality and specified quantity. Manufacturers simply must have an
optimal value-adding supply chain. The supply chain management tasks and capabilities
described earlier can be customer-focused, supplier-focused, and business process-focused.
Stabilizing and broadening customer base, sometimes through investment with venture capital
is an essential feature of customer relationship management (CRM) of the company. The
company, in general, can provide tailor-made service to customers in sourcing, logistics and
financing. In short, the value chain integration between Li & Fung with its customers is
flexible yet effective.
Suppliers of the company have a wide geographical spread. Rather than taking complete
control over about 7500 suppliers in more than 26 countries, Li & Fung leaves the
management challenge to its contractors in order to gain flexibility in coordination and quality
control.
Further, it takes up between 30% - 70% of the production of each factory to make certain
that it gets substantial leverage and induces suppliers’ dependence on them. The company
provides regular feedback to suppliers to improve their performance. It rewards performing
suppliers with more substantial and steady business. As a back-office hub of Li & Fung, an
Operations Support Group (OSG) is backed by an IT system that keeps a database of 6000
factories around the world. It contains not just the profiles of each factory in terms of products
and capacity; it is also a hub where customers can easily check the progress of their orders,
from production to shipping. Aside from IT, the group also acts as an in-house human
resource provider, offering recruitment services, internal matching of staff and training. All
divisions of Li & Fung could take loans from the OSG as all divisional revenues finally go to
the OSG .
Intermediary (like Li & Fung), must provide customer value based on its supply chain
management capabilities. The capabilities serve to perform complex coordinated tasks that
meet customers’ changing needs, utilizing company-based and supplier-based resources for
the results. In order to qualify as sources of sustainable competitive advantages, resources and
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capabilities have to be distinctive and costly and time-consuming if replicated by competitors
or new entrants. For this reason, ITIs must protect these capabilities and stay ahead by
endlessly improving their performance.
4. Merchandisers as Intermediaries
To co ordinate various activities of the buyer, buying house and apparel exporter, each one of
them has merchandisers. A merchandiser in each organization then ensures that the
succeeding /preceding supply chain entity is linked with all other functions/departments in
their organization through them.
Merchandising is defined as activities undertaken to ensure that the right product reaches at
the right price in right quantity and at the right time to the final destination. (Gowrek, 2004).
While merchandisers are individuals who work and belong to an organisation, their role
however is not very different from that of theoretical ‘trade intermediary’. It is also worth to
mention here that the three types of organisation involved in buying/supplying/sourcing
garments i.e. apparel buyers, apparel buying agencies and apparel manufacturers have
merchandisers to co ordinate various internal and external functions of the organisation.
Merchandisers of each organisation co ordinate with each other to achieve the objective of
reaching the right product at the right place at the right time at the right price.
Apparel Retailer Apparel Buying /Liaison office Apparel Manufacturer
Buyer
Designer
Merchandiser
Quality Assurance
Designer
Merchandiser
Quality Assurance
Designer
Merchandiser
Production
Quality Assurance
Figure 2- Merchandiser- linking entities of apparel supply chain
The merchandiser in each organisation mirrors the expectations of the buying organisation to
the supplying organisation and implements and controls functions to ‘make it happen’.While
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the role of a merchandisers is often described as the ‘link’, it must also be understood that this
link can have varied and vast functions to perform depending on the type of organisation.
For example in small manufacturing organizations, the role of the merchandiser could that be
of a receiver of information who ensures right information reaches the right person at the right
time. In other larger organisation the responsibilities could be right from the inception of the
product till the product reaches the customer.
4.1 Responsibilities of the Merchandiser
The following are the key responsibilities of merchandisers in apparel firms-
a. Market Knowledge-A merchandiser must have an intimate and comprehensive
knowledge of his or her company’s target market (Roseneau & Wilson,2006).
b. Planning and Control-These actions encompass all departments of an apparel
company and a schedule is made for all activities by a merchandiser.
c. Product Development-Many apparel and retail companies offer new styles
every month. The number of increased offerings creates an almost continuous styling
mode in most design departments. Merchandising must provide rigorous controls
of the product development process.
d. Costing-Developing accurate cost estimates for new products is a critical
merchandising function. This cannot be done without a thorough understanding of
manufacturing process and a command over computational and measurement skills.
e. Interfacing with Sales and Marketing-Line planning, style selection and line
presentation require a close working relationship among merchandising, sales and
marketing. Throughout the product development process, merchandising should be
obtaining valuable inputs from sales and marketing as to how current styles are selling
at retail and trend projections for retail buyers.
f. Production Authorization-Many apparel companies commit to production before
meaningful sales have been generated. In many companies merchandiser is directly
responsible for production authorization with the help of tools like-past sales histories,
current market research, advance sales advice and sales forecasting models.
g. Interfacing with Manufacturing-Since in many companies the merchandiser authorizes
production, it is important for the merchandiser to maintain close links with
manufacturing.
h. Materials Management-Raw materials including fabrics, trims etc can represent from
one third to one half the total cost of a garment. The purchasing and scheduling of
these raw materials must be programmed for delivery as close to their required usage
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as possible. In many organizations, merchandisers select all raw materials. The
planning, ordering, and follow up of delivery and utilization of material enables
merchandisers to gain valuable knowledge of the operations of merchandising
department.
i. Sourcing-Depending upon the size and departmentalized structure of the organization,
sourcing may be the sole responsibility of merchandising; it may be an independent,
senior level management function; or it may be a shared responsibility. Whichever the
case, the merchandiser must understand the complexities of domestic and international
sourcing.
In today’s high tech, competitive, global apparel industry, a merchandiser must possess a rare
blend of traits, skills and experience (Roseneau & Wilson, 2006). A successful merchandiser
is expected to be :
o An independent thinker with the ability to maintain a steady course toward long
term company objectives while under pressure from various departments
o An entrepreneur by being assertive in leading the company in new directions while
taking risks based on an innate feel for market.
o Flexible with the ability to adjust to the changing demands and timetables of the
marketplace
o A leader demonstrating the ability to gain respect and cooperation of other
members of the management team while making critical decisions needed to keep
the company ahead of the competition.
o A communicator with the ability to express new ideas and concepts clearly and
persuasively. Ensuring effective communication with own staff as well as that of
vendors and suppliers all over the world.
o Organized, exhibiting the ability to maintain a disciplined business atmosphere
while managing many functions simultaneously and meeting critical deadlines.
o Have an understanding of production methods, quality assurance, styling and
design functions, costing criteria and also be a meticulous planner.
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Figure 3-Capabilities required in Apparel Intermediaries
(Source-Adapted from Patrick Fung and Chen Ivy, ‘Value-adding service capabilities- A
study of supply chain management of international trade intermediaries’)
5. A Critique of Success of Apparel Intermediaries
In an research carried out by Dyer and Brookshire on apparel import intermediaries (Dyer and
Brookshire, 2006), the following were established as the reasons of success of apparel
intermediaries:
a. Immersion knowledge management- Knowledge of the marketplace is unique to the hyper-
dynamic apparel market environment. Moreover, the knowledge needed is acquired through
years of personal experience and immersion on the floor, either on retailers’ store floors or
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manufacturers’ production floors. This led to the understanding that success of apparel
intermediaries appeared is tied to personnel management. Literally, your firm personnel ‘can
make you or break you.’
b. Simultaneous dual relationship management- Intermediaries have two equally critical
business channel members, retailers and manufacturers, both of whom have the power to
impact their very existence.
And hence, they have faced a distinctive challenge to establish and maintain two equally
important types of business-to-business (B2B) relationships simultaneously. That is why they
must have capability to manage a B2B relationship with their domestic clients/people within
their organisation and a B2B relationship with foreign suppliers, exercising a multiple
personality approach of being both buyer and seller at the same time while managing two
vastly unequal power positions.
c. Flexibility saturation- The flexibility was expressed as free movement from country to
country to meet demands –or what might be called ‘market choices without boundaries’. This
flexibility may well be associated with the apparel industry having become one of the most
globally dispersed industries. The intermediary’s flexibility is described as proactive, i.e.
taking full initiative to convert market uncertainties into market opportunities, rather than
reactive, i.e. adapting to environmental uncertainty. Secondly as versatility, suggesting that
these firms leveraged a wide range of resources to carry out firm actions – to the extent that
“if you can imagine it, you can make it happen”
None of the above factors would be possible without the integration and co- ordination of
merchandisers in the key three types of intermediary organizations in apparel industry. In
fact , the three success factors of knowledge management, dual relationship management and
flexibility saturation are first practiced and implemented by the merchandisers and then
slowly permeate into each of the organisation’s overall philosophy.
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