Sourcing in Adaptations of Reactions and crisismadeinasia.hk/sites/default/files/files/Sourcing in...
Transcript of Sourcing in Adaptations of Reactions and crisismadeinasia.hk/sites/default/files/files/Sourcing in...
Marc Compagnon
Sourcing in Reactions and
Adaptations of Companies
in the 21st
Century crisis?
LF Sourcing | Marc Compagnon
Positioning for the Next 3 Years: Our Organizational Structure
LF Sourcing | Marc Compagnon
Fung Group StructureFung Holdings(1937) Limited
A privately held entity and major shareholder of the Fung Group
*Joint venture with Toys “R” Us Inc.
Logistics RETAILINGDISTRIBUTIONTrading
LI & Fung Limited
Listed on SEHK
Global Brands Group
Listed on SEHK
Fung Retailing Limited
Privately Held Entity
Convenience Retail Asia LimitedTrinity Limited
Listed on SEHK
Branded Lifestyle Holdings LimitedLiFung Kids (Holdings) Limited
Toys “R” Us (Asia) *Suhyang Networks
UCCAL Fashion Group
Privately Held Entity
LF Sourcing | Marc CompagnonFUTURE SOURCING LANDSCAPE
Trading Office
OnShore Office
Logistics Office
Distribution Centres
About 300 offices and DCs in more than 40 economies with 28,000 employees and a sourcing network of over 15,000 suppliers
Li & Fung’s Global Network
LF Sourcing | Marc CompagnonFUTURE SOURCING LANDSCAPE
LF Sourcing | Marc Compagnon
PART ONE
CRISIS or OPPORTUNITY?FUTURE SOURCING LANDSCAPE
LF Sourcing | Marc Compagnon
Is the Sourcing Industry really in crisis?
NO.
LF Sourcing | Marc Compagnon
However, we are sourcing from an
increasingly fragile & interdependent
environment, influenced by a multitude of factors
LF Sourcing | Marc Compagnon
RAW MATERIAL
PRICES
WAGES
$£¥€TRADE/ LABOUR
RELATIONS
POLITICAL/ SOCIAL
SPEED TO MARKET
CHANGING FACE OF RETAIL
DEMOGRAPHICS of consumers
DEMOGRAPHICS of production
countries
ECONOMIC STABILITY
GLOBAL SOURCING
ARENA
LF Sourcing | Marc CompagnonCURRENT SOURCING LANDSCAPE
KEY SOURCING INDICATORSSource: CPI - International Monetary Fund, World Economic Outlook Database, April 2014 | Primary Commodity Prices - IMF (http://www.imf.org/external/np/res/commod/index.aspx) | Currency Data - http://www.forecasts.org ; http://www.economist.com/blogs/graphicdetail/2014/08/chinese-and-american-gdp-forecasts Brent oil price: EIU Economic and Commodity Forecast, February 2015
2013 2014 2015 2016 20171.4 1.5 1.6 1.8 1.9
5.8 5.5 5.2 5.44.9 CPI r% (Emerging market
and developing economies)
CPI r% (Advanced Economies)
90.4
80.2
68.872.2
63.8
104.1 102.899.4 97.3 95.4
104.198.9
54.4
71.4
86.1
‘A’ Cotton Index (cts/ lb)
Spot Crude (US$/bbl)(Dotted: Previous predictions, prior to recent drop)
6.236.13
5.9515.778
5.61
6.236.13 6.22 6.315 6.41
RMB/ USD (predictions)
GLOBAL SOURCING
KPIs FOR THE NEXT 3 YEARS
LF Sourcing | Marc Compagnon
But let’s put some context to the key indicators! - Wages - Currency - Combined effect!
LF Sourcing | Marc CompagnonCURRENT SOURCING LANDSCAPE
MINIMUM WAGE TRENDS 2010 - 2014
0
31.25
62.5
93.75
125
2010 2011 2012 2013 2014
% increase relative to 2010
VIETNAM +112%BANGLADESH +61%CAMBODIA +60%THAILAND +51%PAKISTAN +47%
CHINA +33%
INDIA +26%
PHILIPPINES +9%
C.AMERICA +22%
TURKEY +0.5%
INDONESIA +26%
**All minimum wages are averages of all provinces within the country**Data source: LF Vendor Compliance
MINIMUM WAGE MOVEMENT IN LOCAL CURRENCY
LF Sourcing | Marc CompagnonCURRENT SOURCING LANDSCAPE
CURRENCY TRENDS 2010 - 2014
% increase relative to 2010
-35.0
-22.5
-10.0
2.5
15.0
2010 2011 2012 2013 2014
C.AMERICA -4.5%BANGLASDESH -11%VIETNAM -13.3%PAKISTAN -17.1%INDONESIA -21.9%INDIA -24.7%TURKEY-31.9%
THAILAND +1.75%PHILIPPINES +3.4%CHINA +11.6%APPRECIATION
DEVALUATION
PLUS: CURRENCY FACTOR
LF Sourcing | Marc CompagnonCURRENT SOURCING LANDSCAPE
US$/Month
0
150
300
450
600
2010 2011 2012 2013 2014
TURKEY $338 -32%
THAILAND $238 +54%
CHINA $209 +49%
C.AMERICA $174 +17%PHILIPPINES $165 +13%
INDONESIA $106 +15%
CAMBODIA $94 +54%VIETNAM $93 +84%
PAKISTAN $ 100 +22%
INDIA $72 -5%BANGLADESH $61 +43%
**All minimum wages are averages of all provinces within the country**Data source: LF Vendor Compliance
EQUALS: WAGE MOVEMENT IN ABSOLUTE USD TERMS: Adjusted for Currency Fluctuations
MINIMUM WAGE TRENDS 2010 - 2014
LF Sourcing | Marc Compagnon
Other factors to consider:- Economic & Social- Top Sourcing Country Trends
LF Sourcing | Marc CompagnonCURRENT SOURCING LANDSCAPE
Bangladesh
Pakistan
Vietnam
Who’s next?
ECONOMIC/ SOCIAL STABILITY
LF Sourcing | Marc CompagnonCURRENT SOURCING LANDSCAPE
64th in Labour Cost Index
Ranked
Social Security contribution20%
ECONOMIC/ SOCIAL STABILITY**Data source:http://maplecroft.com/portfolio/new-analysis/2015/02/04/ “Low labour cost countries linked to highest risks”
LOW WAGED COUNTRIES v.s. HIGHER RISKS
LABOUR COST
BOTTOM 03Rated as ‘extreme risk’ - health and safety- poor working conditions- child labour and human trafficking- no social security contributions
Cambodia
Bangladesh
Myanmar
169170171
Rankings on Labour Cost Index out of 172 Countries
Italy FranceBelgiumSpainFinlandSloveniaLuxembourgAustriaIcelandGreece
01
TOP 05
LABOUR COST
ECONOMIC/ SOCIAL STABILITY
“The true cost of business in the emerging economies is more than the direct expenses associated with the labour force ...
It is essential for companies to understand and price in risks, such as strikes, disruptions and poor worker health, when making market entry or strategic sourcing decisions.”
**Data source:http://maplecroft.com/portfolio/new-analysis/2015/02/04/ “Low labour cost countries linked to highest risks”
Countries with low levels of socioeconomic development and inadequate environmental protections present a host of additional risks and indirect costs to business – including brand damage, investor alienation, and potential lawsuits.
LF Sourcing | Marc CompagnonCURRENT SOURCING LANDSCAPE
SOURCING MARKET: DEVELOPMENTS
Top 10 Apparel Exporters to the US:
TOP SOURCING COUNTRIES For the US & EU
Source: European Commission
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*+12+.3*,#
*+1*,#
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(,0521*,#
)6789::8;# ,<<67=>#Source: U.S Department of Commerce and the U.S International Trade Commission
US$ Million
China
Vietnam
Indonesia
Bangladesh
Mexico
India
Honduras
Cambodia
El Salvador
Sri Lanka
0 10,000 20,000 30,000 40,000
1,581
1,591
2,513
2,648
3,176
3,869
4,325
5,036
7,051
31,685
1,725
1,583
2,534
2,522
3,375
3,842
4,795
5,084
8,085
32,385
2013 2012
Top 5 Apparel Exporters to the EU:
EU
China
Bangladesh
Turkey
India
0 15,000 30,000 45,000 60,000
4,020
8,398
8,397
27,408
55,061
2,979
7,190
7,999
22,627
47,098
2013 2012 Euro€ Million
3.7% 17.5%
LF Sourcing | Marc Compagnon
PART TWO
REACTIONS & ADAPTATIONSTHE NEW REALITY
LF Sourcing | Marc CompagnonFUTURE SOURCING LANDSCAPE
World Population
7billion
Developed World Population
1billionEmerging Market Population
6billion
Global National Disposable Income
$40 trillion
LF Sourcing | Marc CompagnonFUTURE SOURCING LANDSCAPE
SIZE OF APPAREL MARKET GROWTH OF APPAREL MARKET
Source from: Datamonitor, publication date in Dec, 2010
•Traditional Markets Growth 0-2% (EU, UK, USA)•BRIC Countries Growth 4-10% (Brazil, Russia, India, China)•50% of world apparel growth is driven by China
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LF Sourcing | Marc CompagnonFUTURE SOURCING LANDSCAPE
SHIFTING DEMOGRAPHICS
The New Juniors!The Graying of Economies
Source from: United Nations, Department of Economic and Social Affairs, Population Division (2013). World Population Prospects: The 2012 Revision, DVD Edition.
Swing (69+)10.5%
Baby Boomers (50-68)23.6%
Gen X (38-49)15.4%
millennials (20-37)24.5%
Gen Z (<19)25.9%
There is a population tsunami approaching
361,000Approximate number of babies born in
the world each day.
More than a quarter of
America’s population belongs to
Gen Z, and with each birth, the
segment is growing.
50.4% COMBINED
LF Sourcing | Marc CompagnonFUTURE SOURCING LANDSCAPE
Then &
Now
Image courtesy of The Robin Report (http://therobinreport.com)
1. “Retail-tainment” 2. We really know you…Predictive Analytics3. Mobile Everything4. Do Retailers have the right management for the 21st century?5. Re-rationalisation of distribution channels and buying behaviour6. Speed-to-Market and the impact on supply chains7. Bricks , TECH & Clicks8. Start-ups: Small but disruptive in the Aggregate
CHANGING FACE OF RETAIL
Opposing
FORCES inhibit
collaborative solutions
SuppliersSuppliers RetailersRetailers
LF Sourcing | Marc CompagnonTHE NEW REALITY
Supplier’s side Retailer’s side
• Increasing Compliance/sustainability demands
• Shorter lead times • Smaller order quantity
• Higher SKU counts
• Operating cost increases
• China++ • Wage inflation
• Fewer basics more fashion styles
• Higher frequency of style change
• Buyer resistances to price increase
• More demand on PD• Increasing tests requirements
• Multi-port delivery
• Fragmented and financially fragile vendor base
• Changing consumer buying pattern
• Boomers to millennials (The new juniors)
• Margin pressures
• Deflationary pricing structures
• Mark-down model
• Omni-channel demands
• More informed consumers (Bloggers/Watchdogs)
• Real estate burden • Foot traffic challenge
• Fast-fashion war • Online-To-Offline (O2O)
Pain Points!
LF Sourcing | Marc CompagnonTHE NEW REALITY
Supplier’s side Retailer’s side
• Increasing Compliance/sustainability demands
• Shorter lead times • Smaller order quantity
• Higher SKU counts
• Operating cost increases
• China++ • Wage inflation
• Fewer basics more fashion styles
• Higher frequency of style change
• Buyer resistances to price increase
• More demand on PD• Increasing tests requirements
• Multi-port delivery
• Fragmented and financially fragile vendor base
• Changing consumer buying pattern
• Boomers to millennials (The new juniors)
• Margin pressures
• Deflationary pricing structures
• Mark-down model
• Omni-channel demands
• More informed consumers (Bloggers/Watchdogs)
• Real estate burden • Foot traffic challenge
• Fast-fashion war • Online-To-Offline (O2O)
Pain Points!
What is LFS doing about it?
LF Sourcing | Marc CompagnonTHE NEW REALITY
Customer Customer Customer Customer Customer
Vendor Vendor Vendor Vendor Vendor
VSS Vendor Support Services
CSI Customer Service Initiatives
LFAgency Services
LF Credit
Vendor Supply Chain
Vendor Compliance & Sustainability
Design Support Services
Data Analytics (Consumer Focused)
Market Intelligence/Trend
forecasting
Other Consulting Services
LF Sourcing | Marc CompagnonTHE NEW REALITY
S-Lab TM
(Sourcing Laboratory) Experimentation and Exploration of a new way
of doing old things!
SUSTAINABLE ENTERPRISE - LF ZB - Technology as Competitive Advantage
Acceleration of the use and application of technology into the sourcing and procurement
service and value proposition we offer, coupled with a new image, culture and attitude
LF Sourcing | Marc CompagnonTHE NEW REALITY
Incubate and foster the use of technology in aggregate. Simultaneously deploy , explore and experiment to understand the benefits obtained through synergies
acheived through the use of multiple forms of technology.
World Class Technology / Operating Platform
Competitive Advantage
PLM – CentricDrive down operating costs for LFZB as well as for new customers who will be able to tap into technologies otherwise too prohibitive to launch
Fast Fit 360 Drive down operating costs for LFZB as well as for new customers who will be able to tap into technologies otherwise too prohibitive to launch
Shoe Master Software
Drive down operating costs for LFZB as well as for new customers who will be able to tap into technologies otherwise too prohibitive to launch
3D Sampling - Optitex
Drive down operating costs for LFZB as well as for new customers who will be able to tap into technologies otherwise too prohibitive to launch
RFID – Sample/Prototype Tracking
Drive down operating costs for LFZB as well as for new customers who will be able to tap into technologies otherwise too prohibitive to launch
RFID – Production & Supply Chain Connectivity
Drive down operating costs for LFZB as well as for new customers who will be able to tap into technologies otherwise too prohibitive to launch
Mobile IP Phone – JabberMobile devices – iPad
LF ZB - Technology as Competitive Advantage
LF Sourcing | Marc CompagnonTHE NEW REALITY
TECHNOLOGY AS ENABLER + BUSINESS FACILITATOR!
LF Sourcing | Marc CompagnonTHE NEW REALITY
• Inspections
• Purchase memoranda
• Finance • Shipping and Billing Notices
• Debit Notes• Payments & Invoice Handing
• Vendor Profiles and Catalogues
• Factory Compliance and Evaluations
• Alert and Notification• 24/7 real-time engagement with customers
• Cloud Provisioning
• Easy case management and tracking
• Drill-down Capability
• Accessible by Mobile Devices
• Interactive charts and graphs
VENDOR PORTALVENDOR PORTAL CUSTOMER PORTALCUSTOMER PORTAL
LF Sourcing | Marc Compagnon
ThankYou