Global Supply Chain News: Western Apparel Companies Increasingly Look to Africa for Sourcing, but Many Challenges Remain for the Continent

Monthly Wages Average Just $21 in Ethiopia Versus a Whopping $67 in Bangladesh; Plus, You Can Grow Your Own Cotton SCDigest Editorial Staff It seems almost inevitable, but as wages rise in China and to a lesser extent elsewhere in Asia, Western apparel retailers and brand companies will do what they have always done - look for new sourcing locations that can deliver even lower costs. SCDigest Says: If conflict broke out in a relatively peaceful country like Ethiopia, it could set back progress on the continent for many years. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback Now, that search is taking many of those companies to perhaps the last undeveloped region: sub-Saharan Africa. The Wall Street Journal reports that several clothing giants are beginning to source in Africa, including PVH Corp., Walmart, J.C. Penney, Levi Strauss, H&M, Tesco and more. VF expects to start getting some of its pants sewn in Ethiopia later this year. The allure? Still lower labor costs is certainly a big factor. Average monthly apparel factory wages in Ethiopia are said to be just $21, versus a whopping $67 in Bangladesh, and $150-300 in China, depending on the region, meaning China labor is 7 to 15 time more costly right now. But it's more than just even lower wages in Africa than in Asia inside or outside of China. First, most African nations have free trade agreements with the US, reducing net landed costs even further. Electricity rates are on the low side on many countries as well. Second, many African nations can grow their own cotton, simplifying supply chain operations versus manufacturing in the many Asian countries where cotton does not grow. Ethiopia was recently identified as a top sourcing destination by apparel companies, according to a survey by McKinsey, making it the first time an African country was mentioned alongside more well-known low cost countries such as Bangladesh, Vietnam and Myanmar. Egypt also made the top 10 list. (See graphic below). VF, in fact, has taken some unconventional steps to open sourcing from Africa, teaming with its biggest rival, PVH to invite some 20 existing suppliers from countries such as China, India and Sri Lanka on a 10-day trip in 2014, hoping to convince then to open factories in Africa. The suppliers were promised orders if they made such investments. But it will take time. Despite much higher wages than other low cost countries, China was by far the globe's top apparel exporter, shipping some $177 billion of clothes in 2013, according to the World Trade Organization, nearly eight times more than No. 3 Bangladesh. Perhaps surprisingly, Italy held the number 2 spot in 2013, the last year for which WTO data is available.
But African has many hurdles. Logistics is still primitive in many areas. Ethiopia, the most advanced source for apparel production in many ways, is land locked with no ports to handle export shipping. But these issues are relatively minor compared to some other challenges, of which violence and corruption lead the way. When SCDigest editor Dan Gilmore attended the SAPICS conference in South Africa a few years ago, attendees overwhelming cited corruption as the largest barrier to economic growth on the continent. Armed conflict and long-running civic wars are also an ever present threat in many countries. If conflict broke out in a relatively peaceful country like Ethiopia, it could set back progress on the continent for many years. And while the Ebola crisis seems to have subsided in Western Africa, risks on that front can't be said to have been permanently contained. All those caveats aside, William McRaith, PVH's chief supply chain officer, spoke about Africa's potential at an industry conference last year, saying that "The dynamics of that region are far more interesting than China was” at a similar point in its development." That sounds maybe a bit exaggerated, but we know how fast apparel companies can move sourcing locations to chase still lower costs.

Hackett Group Report on Procurement Trends: Part II

The Hackett Group’s research identified an array of procurement strategies and capabilities most strongly correlated with high performance and success of the procurement organization.

By Patrick Burnson, Executive Editor

July 29, 2015

World-class procurement organizations excel at cost reduction and deliver services at 17 percent lower cost than typical companies, while requiring 26 percent fewer staff, The Hackett Group’s research found. At the same time, they operate at dramatically higher levels of effectiveness, delivering superior stakeholder satisfaction, in part because they have successfully transformed into truly customer-centric organizations.

The Hackett Group’s research identified an array of procurement strategies and capabilities most strongly correlated with high performance and success of the procurement organization. World-class procurement organizations continue to invest in activities that elevate their role to that of a trusted advisor, moving beyond the traditional role of procurement as a gatekeeper. Delivering greater value is key, and procurement organizations that are viewed as a true business partner report 68 percent higher savings than those viewed as gatekeepers, reflecting higher effectiveness at both cost reduction and cost avoidance.

Patrick Connaughton, Senior Research Director, The Hackett Group, told SCMR in an interview that it was a surprise to learn how many procurement organizations have in place a very structured approach for segmenting their internal stakeholder community to make sure the most influential ones receive the right level of service.

“We have seen very sophisticated supplier segmentation models, but applying the same concept to procurement’s internal stakeholders is not something that has gotten a lot of attention previously,” he said. “We do plan to explore these stakeholder (or customer) segmentation models in a lot more detail in future research.”

World-class procurement organizations become deeply embedded in their stakeholders’ teams, the research found. Procurement organizations that have improved stakeholder alignment report 28 percent higher savings than those that don’t. World-class procurement organizations also commit dedicated resources to act as a liaison between procurement and the business nearly twice as often as typical organizations, and are better prepared to adjust alignment between procurement’s goals and stakeholders objectives as requirements change.

To achieve world-class performance, The Hackett Group recommends that procurement organizations take a structured approach to improving the customer experience, focusing in four areas. First they should identify and understand key stakeholders, and segment their internal customers based on attributes such as importance and level of influence within the organization. In addition to seniority, issues such as language, culture, and even personality should be taken into account. Next, procurement organizations can develop formal customer satisfaction surveys tailored to key stakeholders, taking care to use a variety of ad-hoc and structured approaches to gain deeper insights.

Procurement organizations should also analyze the results of customer satisfaction surveys, and ensure that stakeholders understand their feedback is being valued and utilized. Finally, procurement can improve their level of customer service by taking a holistic view, and by implementing self-service tools to answer common inquiries and provide real-time visibility into order status.

Food Warehouse Lightens the Load to Attract Workers

Dot Foods is allowing workers to handle smaller loads in an effort to expand its hiring pool, as an improving economy drives up demand for the company’s food distribution business.

ENLARGE

Workers at a Dot Foods warehouse in Mt. Sterling, Ill. pick light-weight cases of food to fill orders. PHOTO: DOT FOODS

By 

ERICA E. PHILLIPS

July 27, 2015 4:44 p.m. ET

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The warehouse network that feeds restaurants, hospitals and schools is becoming increasingly automated. But in one corner of the food supply chain, a company is redesigning its warehouses to accommodate more workers, not less.

Privately held Dot Foods recently lowered the maximum weight some workers in its Mt. Sterling, Ill. warehouse are required to lift. The new rules – 35 pounds, instead of 65 pounds – allowed the company to quickly hire 51 new workers, including many women and older men, two groups that often struggle to handle heavier loads. This summer, the company opened a 150,000-sq. ft. addition to its Mt. Sterling warehouse where only those lighter-weight cases are stored.

It’s an unusual way of responding to higher demand, which is testing the capacity of companies like Dot Foods. Many food companies are installing machines to retrieve goods from shelves and assemble orders. But the technology isn’t cheap, and grows more expensive when orders are varied or complex.

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Dot Foods serves as a link between food manufacturers that sell goods by the pallet or truckload to distributors that don’t always have space for excess inventory. Dot’s 10 warehouses stock about 40,000 different items—from canned green beans to frozen chicken, crackers, spoons and spatulas—and ships many different quantities and combinations within a couple days. On an average day, the Illinois warehouse ships out about 85,000 cases of various goods.

“Automation works well when you’re moving full pallets of product, but it’s not the most effective solution for what you call single case fulfillment,” said Bryan Langston, manager of Dot Foods’ Mt. Sterling facility. Mr. Langston said business has been booming as the economy rebounds and he has jobs to fill. But it can be a challenge to find those workers, given the warehouse’s far-flung location.

Elizabeth Preston, 34, started at Dot Foods’ Mt. Sterling facility in April, where she works exclusively in the warehouse’s “light-pick zone,” as they refer to the new addition. The average case weight in that part of the warehouse is 6 to 7 lb. “It’s a little easier on your body,” she said.

On a typical 12-hour shift, Ms. Preston drives a forklift around the warehouse with a list of items she needs to pick up for customer orders. If it’s croutons, for example, she’ll pull up to the crouton shelf, collect the cases she needs, scan their bar codes, and drive on.

Ms. Preston’s husband, who has worked for the company for 13 years, has tougher lifting requirements. “I could probably do what he does right now,” she said, “but in 10 years could I lift the big cases? No, and I wouldn’t want to try.”

Ian Hobkirk, director of warehouse consultancy Commonwealth Supply Chain Advisors, says in a low-margin business like food distribution, “it’s desirable to reduce labor costs as much as possible.”

Mr. Hobkirk said pricy automation can cut down on the physical requirements for workers while reducing the need for labor generally, but there are other systems that aren’t quite as extreme and “let you get the most out of the labor you invested in.” Technologies such as “voice-directed picking,” which eliminates cumbersome barcode scanners, or “engineered labor standards,” which set calculated performance goals for each worker, are some examples, he said.

Dot Foods is sticking with what works.

“We need to make sure we’re casting our net into the widest waters,” Mr. Langston said, which they’ve accomplished by “creating new positions in the warehouse that will appeal to a wider group.” The Illinois facility expects to add 60 more warehouse workers to its crew of 850 by the end of the year.

Understanding the 8 Stages of the Omnichannel Order Lifecycle

Jul 27, 2015 12:41 PM By Jim Barnes

In a complex, omnichannel environment, retailers must address new questions such as what kind of investment in omnichannel makes sense, and how it will impact the bottom line. To determine the optimal approach and pinpoint opportunities for accelerated growth, savings and customer service improvements, retailers must define and implement processes, supporting technology and people across the eight stages of the omnichannel order lifecycle.

Each stage of the order lifecycle is interdependent with a number of sub-cycles that fall into two categories:

• Forward logistics: Any order received through any channel falls into this category. Fulfilling to the customer as efficiently as possible is the crux of the order management lifecycle.
• Reverse logistics: For every order, the returns process must also be considered. Without proper omnichannel solutions, returns can be far more complicated than purchases.

The eight stages are as follows:

Inventory availability

Supply chain responsiveness and customer service are improved by global, real-time inventory visibility across channels. Visibility to on-hand inventory and the segmentation of inventory (by physical and logical site, catalog, product and item) allows retailers to delineate among inventory in different physical locations, including within the store.

In order to improve gross margin return on investment (GMROI) and the customer experience, retailers need the ability to:

• Expose inventory and eliminate silo channel inventory to ensure a customer demand can be met regardless of inventory positioning
• Enable advanced order routing logic that evaluates cost versus service tradeoffs based on inventory positioning and variable supply chain costs such as transportation and labor

Order routing

The cornerstone of most advanced order management systems (OMS) is the ability to optimize the order routing logic through a work flow, or rules engine.

Orders can be optimized based on fixed and variable costs, such as transportation mode, carrier and service level. Systems can also route orders based upon store and DC labor capacity and cost.

Often overlooked is the ability to weight the order based on service versus cost tradeoffs, followed by tie breakers. When two stores within the same geographic region can fulfill the order at the same cost and service level, which store gets the order? Dynamic order routing is critical for improving order profitability.

Customer care and analytics

Knowing and proactively serving your customer is vital. Visibility to customer data at the point of purchase enables enhanced customer service. Buying behaviors, appeasement trends, preferred payment methods, loyalty points and customer call notes all improve the management and expediency of inbound and outbound calls. While the data models and user interfaces of many OMS systems today are order versus customer centric, omnichannel must start with the customer.

Payment processing

Retailers must understand how to mitigate variable and costly payment processing transactions and merchant service charges. Ensuring the OMS is PCI compliant is critical. From routing and allocation to how orders are processed and charged, managing multiple transactions from one customer can be complicated.

Authorization of payment is noted on a customer’s debit or credit card, and settlement of payment often occurs when the order has been physically shipped. Defining the payment process lifecycle from authorization to fraud detection and settlement can expedite order fulfillment and prevent shipping delays.

Fulfillment

There are many options for fulfillment, including brick-and-mortar stores, vendors, DCs, third-party logistics providers (3PLs), or in-store pickup. Strategically leveraging the best option for a given order will reduce overall costs while increasing fulfillment speed, not to mention GMPO. Regardless of where the order is shipped from, end-to-end integration is key.

Shipment

Shipping methods often vary depending on the product and shipment distance. Offering free or reduced rate shipping reduces GMPO. At the order level, retailers must be able to manage multiple ship-to locations, dynamically rate a shipment and select different carriers based on service level, origin and destination.

Importantly, retailers must also be able to upgrade or downgrade packages based on promised dates. Advanced OMS systems utilize real-time rating engines to evaluate where to route an order based on cost and service.

Integration

While each stage of the order lifecycle is pivotal, they must all be integrated to achieve omnichannel success. Many software systems can manage one or more stages of the order lifecycle, but few can communicate across solutions with ease.

A single software platform that enables seamless integration among solutions can be a strategic differentiator, addressing visibility and communication gaps and enabling retailers to more easily optimize the entire order lifecycle.

By understanding the eight stages of the omnichannel order lifecycle, retailers can begin investing in the optimal processes and enabling technology to make their omnichannel vision a reality.

China Debt Woes Present a Growing Threat to Supply Chains, Report Says

The Chartered Institute of Procurement and Supply warns that actions by China’s central bank may raise the potential for defaults and disruptions

ENLARGE

CIPS recommends companies communicate more with suppliers in China and set up alternatives at each tier of their supply chains. Above, a textile factory in Suzhou, China. PHOTO: REUTERS

By 

BRIAN BASKIN

July 27, 2015 1:38 p.m. ET

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China’s troubled debt market is a growing threat to global supply chains, according to a new report from the Chartered Institute of Procurement and Supply.

Companies doing in business in China could see suppliers fall into disarray overnight if the People’s Bank of China moves to rein in the debt market, either through monetary policy or by allowing more borrowers to default, said John Glen, a CIPS economist.

Even suppliers with good credit could be forced to cut costs or delay shipments if they are able to borrow less, he said. “There’s probably going to be … a significant amount of defaults, and what you have to make sure of is that default doesn’t cause dislocations in your supply chain,” Mr. Glen said.

China was the top factor behind a jump in the CIPS risk index to its highest level since late 2013, when Europe’s economic and credit problems drove uncertainties for supply chain managers to a 20-year high. The index, scheduled to be released later this week, rose to 80.1 in the second quarter, from 78.7 in the first three months of 2015.The Chinese economy is grappling with slower growth and a stock market plunge that has seen the Shanghai Composite Index fall nearly 30% in just a few weeks. That’s complicating efforts by China’s central bank to channel lending toward boosting growth while reining in bad loans and the amount of cash heading into the country’s stock markets.

CIPS put China’s contribution to global supply chain risks on par with India, which is typically viewed as a more dangerous place to do business.

In its report, CIPS recommends companies doing business in China communicate more with suppliers there and line up alternatives at each tier of their supply chains. That way, if one company fails another can quickly step in. Commodities producers, which often deal directly with debt-laden Chinese buyers, also need to make sure they are properly insured against default, Mr. Glen said.The biggest risk to Western firms is that small manufacturers deep in their supply chains buckle as credit tightens, Mr. Glen said. Such companies typically are less transparent about their finances and may only deal with other Chinese suppliers, making it harder for Western companies to monitor them. But if they fail, it can interrupt supplies to companies higher up the chain.

Are You Ready For Your Next Food Recall?

Contact The Supplier

By Sam Lewis, associate editor
Follow Me On Twitter @SamIAmOnFood

Obviously, a recall is one of the last things a food manufacturer or processor wants to endure. Food recalls wreak serious havoc on bottom lines, brand reputation, and consumer confidence; this is why food makers go to such great lengths to prevent them. However, despite the best laid HACCP plans, food security policies, and GMPs, food recalls still happen. If one were to happen to your company today, would you be ready for it?

Food recall plans are created to quickly and effectively locate contaminated, damaged, or out-of-specification food products, remove them from the marketplace, isolate them, destroy them, find the cause of the event, correct the cause the cause of the event, and assure the public of the affected company’s obligation to food safety. Because the recall plan does all of these things, establishing a food recall committee to create a list of procedures and individuals who will execute them is imperative. Below are 12 fundamental elements your company’s food recall plan should include.

1. Intentions
   The first element a food recall committee should take in creating a food recall plan is establishing intentions. The food recall plan should make it clear why such a plan exists and for what particular products. Cleaning and sanitation procedures the company follows for each product can also be included.
    
2. Terms And Definitions
   You should include a section that defines all of the terms related to a recall. Each level — degree to which it will affect public health — of a recall also should be defined. A few examples of these terms include recall, withdrawn from market, recall classification, and class I, II, and III recall.
    
3. Roles And Responsibilities
   Every person in your company who has a role in executing a recall should have their tasks and accountabilities laid out in your company’s food recall plan. The food recall committee will determine each member’s responsibilities. Finally, each member of the committee should have current contact information listed within the recall plan, and this information should be updated immediately when changes occur.
    
4. Data Collection
   Information about contaminated or affected product can be gathered two ways: internally or externally. Internal collection occurs when a product is determined to be contaminated or out of specifications by someone (e.g., plant worker, packager, warehouse employee, or others) within a food company. From there, the severity of the issue needs to be immediately evaluated by plant managers and/or quality assurance managers. If serious enough, the recall team should also be alerted.
   
   Obviously, external collection occurs outside the confines of a food manufacturing facility. Often external data is collected through consumer complaints. Each occurrence should be investigated by appropriate departments to determine the severity of the issue. If the problem is found to be serious, the recall team should be notified immediately.
   
   Additionally, a questionnaire should be included in your company’s recall plan to record details about the affected product. This survey should include questions such as, “What caused the complaint?,” “When did the complaint occur?,” “Have any tests conducted support the complaint?,” and “What are the serial numbers of affected products?”
    
5. Hazard Assessment 
   Any potential health hazards the affected products may pose to the public, along with the recall class, should be stated in your food recall plan. This assessment should evaluate if illness or injury has occurred from the affected product, the severity of health hazard the product poses to the public, the short- and long-term health consequences of consuming affected products, and how much of the affected product is on the market.
    
6. Regulatory Body Notification
   Once the decision to execute a recall has been made, the recall coordinator — as determined by the recall committee — must notify regulatory agencies. The contact information of regulating bodies should be included in your recall plan. When notifying the appropriate agency, the recall coordinator should provide all identifying characteristics of the affected product, the reason for recalling the product, how the issue was found, how much of the affected product was made and distributed, all records of distribution, all recall communications, recall depth, and a warning to the public about consuming the affected product. With this information, the regulating agency will determine the depth of the recall.
    
7. Communication
   A successful recall is dependent upon effective and appropriate communication. Public relations members and the recall coordinator should set up a recall communication center and draft documents to communicate with suppliers, retailers, wholesalers, and consumers. Those pre-made documents should include a press release and a communications letter.
   
   The press release should be a generic template that can be modified as-needed. It is used to alert the public of the affected product and any potential health risks it poses. Any class I recall requires a press release, but the FDA will advise companies of any situation that requires a press release and may issue its own.
   
   The communications letter should be drafted and amended as-needed to inform your company’s partners (i.e., suppliers, retailers, and wholesalers) about the recall. Additionally, documents that show which means of communication will be used, i.e. media outlets, wire services, and sample communications, should also be drafted. Finally, within these documents, the name and contact information of a designated spokesperson should be included.
    
8. Status Reports 
   Generating these reports intermittently during a recall will give a brief summary of the effectiveness of the recall. Your status reports should include a record of how many suppliers and retailers were notified of the recall, who responded to the notification, and how much of the affected product has been accounted for. The food recall plan should indicate how often these reports are to be generated.
    
9. Returned Products
   Your recall plan should clearly define the company’s strategy for handling the returned product. Create documents stating that returned products will be isolated until the recall has ended, isolated products will be destroyed upon approval from management, and that you have notified the FDA of your plan to dispose of affected products.
    
10. Ending The Recall
    Within your recall plan should be policies stating how to end the recall process. Include written statements declaring that the recall coordinator will decide when the recall will end and when consumers will be issued replacement products or reimbursed. Returned products should be controlled by the plant that produced them, and the total number of returned products must be reported by the plant’s QA manager.
    
    Your company’s recall coordinator will create documents reporting the entire recall for management. The reason for the recall, its extent, how much affected product was recovered, how returned products were handled, and the total cost of the recall should be included in this report.
     
11. Supplements
    Your recall plan should include all the drafted, generic documents your company will need to successfully endure a recall. Included in these supplements are definitions of recall classes, a press release template, a sample FDA press release, a template to create a product withdrawal form, and a recall flow sheet outlining how information is passed along and how decisions are made in the recall process.
     
12. Mock Recalls
    When all of these documents, policies, and procedures have been established, mock recalls can be performed at your facility to determine the plan’s overall efficiency and any failures within it. Should a mock recall reveal major flaws in your recall plan, third-party organizations can offer assistance in establishing robust, tried-and-true procedures to help strengthen your company’s plan. Hiring a consultant to help you overcome this challenge may seem like an excessive expense, but, I assure you, the cost of this advice is significantly less than the cost of a lengthy recall.

eCommerce Insights: Jet.com Pricing Analysis vs Amazon and Walmart

On Tuesday 21 July, Jet.com officially launched, promising shoppers the "lowest prices on everything". On the day of launch, Profitero analyzed more than 16,000 exactly-matched products across 7 categories on Jet, Amazon and Walmart and found that Jet was priced an average of 9% lower than Amazon and 6% lower than Walmart.

Profitero's Keith Anderson was one of the first 10,000 users to test Jet.com in beta and provided his initial first impressions of the upstart shopping site in an earlier post. Now Jet has finally launched to the wider public, Profitero carried out analysis on its first day of sales to determine whether the online shopping club really does live up to its hype.

On exactly-matched products, Jet was priced an average of 9% lower than Amazon

On July 21 2015, Profitero analyzed 16,028 matching products across 7 categories on Jet, Amazon, and Walmart. On exactly-matched products, Jet was priced an average of 9% lower than Amazon and 6% lower than Walmart.

In Profitero’s methodology, “exact matches” are products that are identical (same UPC, brand, and pack configuration). It's important to note that all pricing analyses do not consider extra discounts at Jet from combined orders, waived returns and preferred payment methods.         

Price Comparison Between Jet, Amazon and Walmart

Source: Profitero eCommerce data, 7/21/15

Our analysis reveals that Jet’s pricing was slightly closer to its competitors in higher-priced categories, although Jet was still, on average, cheaper. For example, Jet was priced 6% lower than Amazon on electronics products, compared to 9% lower across the 7 categories analyzed.

 Source: Profitero eCommerce data, 7/21/15

Source: Profitero eCommerce data, 7/21/15

Notes: Products studied were in-stock and sold by all three retailers; Percentages do not sum to 100% since some products were priced the same between retailers

On average, Jet was priced lower than Amazon on its best-selling products

We also analyzed Jet's pricing on Amazon's best-selling products - those Amazon products with a best seller ranking of 20 or below in their respective categories - and found:

• Jet was, on average, priced 8% lower than Amazon even on Amazon’s best-selling products
• In some categories, Jet’s pricing on Amazon’s top 20 best sellers was closer to Amazon’s; for best sellers in the Household category, for example, Jet was priced 8% lower than Amazon, compared to 12% lower on non-top-20 Household products

However, Jet is not cheapest across the board

While Jet.com was priced on average 9% lower than Amazon and 6% lower than Walmart on exactly-matched products in the 7 categories we analyzed, this certainly isn't the case across all products. There was a percentage of products in every category, particularly electronics and office supplies, where Jet was more expensive.

For certain products, such as VIZIO Flat-Panel TVs M-Series 55 in., we see that Jet.com is more expensive than both Amazon and Walmart (Jet Price: $1221.99, Amazon Price: $948.00, Walmart Price: $948.00).

According to Profitero's VP Strategy & Insights Keith Anderson: "Although there is no clear winner on price, it is clear that Jet is pricing aggressively at launch, especially on key household essentials such as Baby, Beauty, Pet Supplies, and Household products. Price competition is at the center of Jet’s strategy, and the price comparisons Jet includes on its own product pages are likely to intensify competition."

Online retail pricing is increasingly dynamic and transparent and Profitero expects all three retailers’ pricing strategies (and the broader market) will continue to evolve. Profitero will continue to monitor and analyze the landscape - so look out for further updates. In the meantime, increased competition is ultimately good news for shoppers as they are set to benefit from lower prices.