Strategic Sourcing Methods in the Apparel Industry

Achieving success in the apparel industry doesn’t come down to luck — in the globalized world we inhabit today, the steps and planning it takes to get there could scarcely be more complicated. Fast fashion has taken hold of the industry, making the clothing life cycles shorter than ever and leading to complex supply chains spanning multiple countries. Now, more than ever, apparel companies need to choose the right strategies early on, especially when it comes to their sourcing decisions.

Photo by Maarten van den Heuvel on Unsplash

To examine how this is possible, let’s look at how firms can evaluate their comparative advantage and analyze some of the most effective sourcing strategies for today’s globalized world, considering the benefits and limitations of each one.

Porter’s Generic Strategies

Michael Porter’s theory of generic strategies says that companies establish their position based on a mixture of cost (offering the lowest prices) and differentiation (offering customers something different from the competition). They can also take either a focused approach (honing in on one market segment) or a differentiated approach (spreading out across many segments).

They can therefore choose one of the following strategies:

• Cost leadership — offering the lowest cost possible.

• Cost focus — offering low costs within a specific niche.

• Differentiation leadership — offering the most unique products possible.

• Differentiation focus — offering unique products in a niche marketplace.

The choice a company makes will partly come down to their brand, such as whether they produce luxury or budget garments.

However, these generic strategies don’t paint the full picture. Once a business knows the approach it will take regarding costs and differentiation, it still has to make important decisions about where it will source its raw materials, fabrics, and finished products. Will they come from the same country, a country close by, or from the other side of the world?

With this in mind, let’s look at some of the most relevant strategies in the industry.

1. Considering Comparative Advantage

An apparel company’s sourcing strategy should partly depend on which vendor has a comparative advantage, meaning they can produce an item at the lowest cost available. After all, the competitiveness of the apparel industry today means that low-price goods are readily available to consumers, so failing to keep costs down can harm a business.

Also, since importing and exporting are now a vital part of the supply chain, companies can expect to face these choices. Remaining competitive includes aspects like weighing up import duties and tariffs, infrastructure quality, and government export and import policies.

2. Outsourcing

Outsourcing involves importing apparel goods from other countries instead of producing them internally.  Developing countries like India and Bangladesh are known for making clothing and apparel at extremely low costs, so many companies from developed countries like the US outsource the production process to these areas.

This can take the form of:

• Fabrics made using raw materials from abroad.

• Fabric manufactured abroad.

• Raw materials that are exported to create fabric abroad, then imported back to the original country.

The biggest advantage of outsourcing is the increased profit margins that come from taking advantage of low costs in one country. However, it creates a more complex supply chain, which can leave a company more vulnerable to problems related to logistics. It also results in additional considerations such as import tariffs.

Fashion companies like Forever 21 and H&M have made headlines for their outsourcing strategies, which allows them to sell low-price clothing.

Outsourcing can also take the form of either nearshoring or onshoring, both of which have slightly different considerations.

3. Near-sourcing

Near-sourcing is about placing a portion of the operations close to the target market of the goods. This usually means opting for apparel factories in countries close to wherever an apparel company is based. Near-sourcing has become more popular over the pandemic due to the supply chain issues it caused, and a McKinsey report suggests that 71% of fashion companies are now considering it as a strategy.

It’s a strategy that can make production processes smoother and more efficient than outsourcing further away due to greater cultural compatibility, easier communication, and more collaboration. Yet it may not offer quite the same cost advantages.

4. Onshoring

While outsourcing is associated chiefly with placing business processes in a different country, onshoring offers a twist by putting production processes in the same country, but in another city. Think of it as domestic offshoring.

In many countries, there’s often a lot of divergence between costs in different regions. For example, in the US, a New York-based company could outsource production to a lower-cost state in the Midwest. US brands trying to source more within their country include True Religion, American Trench, and Nieman Marcus.

This might not save quite as much money as outsourcing to an entirely different country, but it means there are no language or cultural barriers. It’s also quicker to ship items inside the same country, which can mean more efficient supply chains and less that can go wrong.

5. Few-supplier

A few-supplier strategy involves establishing relationships with a select number of suppliers rather than many different suppliers. As a result, they can create secure, long-term relationships. It can be easier to get discounts and more favorable pricing when buying in volume if only using one or a few suppliers. However, it also means that material shortages become a bigger potential problem.

A solo-supplier strategy is also possible, which means only sourcing goods from one supplier. This can be risky, but can also be highly efficient and profitable when handled properly.

6. Many-supplier

In contrast, a many-supplier strategy involves sourcing goods from many different vendors. Because a company has lots of options regarding where they buy products from, they may have more chances of sourcing items for a low cost — they can effectively create competition between all these suppliers.

It also means less reliance on a single company, so sudden price increases or shortages from one company wouldn’t have such a significant impact.

But it also means that suppliers will be less dependent on the apparel business doing the sourcing, potentially meaning less bargaining power and chance of securing discounts.

A 2008 study of 71 Swedish clothing firms revealed that 79% of respondents used a multiple sourcing strategy.

7. Joint Venture

A joint venture strategy involves sharing ownership, governance, or returns and risks between two parties. This could be between different companies involved in different stages of the production process, such as a fabric producer and a garment manufacturer creating a venture together. For instance, US company Adient formed a joint venture with Mumbai textile manufacture Arvind in 2018, which allowed them to gain a stronger foothold in India. Because this gives both parties stakes in what’s happening, it can increase the security of the supply and result in greater cooperation (and therefore better quality). However, if a company isn’t careful, this kind of arrangement can harm its brand.

Toward a more strategic industry

All the approaches mentioned above can be a part of a successful sourcing strategy for a textile and apparel venture, but companies must weigh up their unique circumstances to determine which direction is right for them.

Making the right sourcing decision can be the deciding factor in whether a business model is viable. However, it should also be noted that a company doesn’t have to only opt for one strategy — they could apply aspects from different systems. It also helps to keep things agile and be open to change along the way as a brand develops.