SCORE YOUR SUPPLY CHAIN ACCURATELY

The volatility in cotton prices over the last three years should have taught everyone involved in cotton, textiles, and a very important lesson: namely, that understanding, managing, and scoring the supply chain accurately is critical to the survival and profitability of every business. Far too often, sourcing decisions have been made based on only one dimension – nominal price, or “first cost”. Price becomes meaningless if delivery is not made. A common refrain in 2011 was that the brand or retailer couldn’t get delivery of the garment because the contractor couldn’t get the fabric because the weaver or knitter did not get the yarn from the spinner who did not get the cotton from his supplier. In many cases, those who operated in the one-dimensional “price” world got stung very badly.

There should be multiple factors involved in reaching sourcing decisions, and these factors are interactive. While sourcing decisions will be different for each region, each product, and each company, there are some common rules which should be followed. Sourcing executives should make informed decisions after carefully considering all the factors, the component parameters of those factors, and the way they interact with each other. This article offers a “Sourcing Scoreboard” for making informed decisions about scoring the supply chain accurately.

This model is built for the sourcing decisions a U.S. brand or retailer would make for the supply of jeans, though the principles could be applied to other products and other regions. This example considers three potential sourcing regions: 1) Western Hemisphere, principally NAFTA, CAFTA, DR, and Colombia. 2) China (so big it should be considered as a region unto itself) 3) Other emerging Asian countries, such as India, Pakistan, Bangladesh, Cambodia, Vietnam, etc.
It does not attempt to give an “absolute” score on each parameter, but rather just a “relative” score. For example, 1 is best, 2 is next best, and 3 follows. It then combines the scores on all parameters into a “spidergraph” which reflects how each region scores for each factor. In a spidergraph, closer to the center signifies “better”. Think of it as “being close to the pin” in golf, or being “in the right orbit” in the solar system. If you’re too close to the sun, you burn up, but if you’re too far away, you freeze to death. The model will consider each factor and all its parameters, and then will show the sum of all factors.

Cost is usually the first consideration in sourcing. However, sourcing managers should be looking at total cost, not just first cost. Total cost is made up of many components, such as first cost, logistics, duties, finance costs, inventory / mark-down risks, and costs of replenishment. As the first spidergraph shows, the red line for Other Emerging Asia (OEA) is best on first cost, but worst on all the other components. China leads on logistics, and comes in second on other components. The Western Hemisphere (WH) is worst on first cost, second on logistics, and first on other components.
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Speed to market is a critical factor. Particularly in uncertain economic times, leaner inventories with higher turns lead to better profits. WH is best on innovation and production lead times, and second on other factors. China excels on access to inputs and supply chain integration. OEA lags the other two regions on all parameters of speed to market.
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Quality is obviously important. WH leads on consistency, testing protocols, and amount of seconds or rejects. China excels in redundancy, which is defined here as having backup capacity to continue production in the event of power outages, natural disasters, etc. Again, OEA lags on all individual components.
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Reliability is perhaps the most important factor of all. If no garments are delivered, price is immaterial. Or if the shipments arrive late and miss the season, they will have to be discounted heavily. The Western Hemisphere as a region excels on financial strength, rule of law, reputation and past performance, the ability to control costs, and risk management. China is generally second, though the rule of law may be even harder to enforce there than it is in other parts of Asia where English or French laws were at least partially adopted. Again, OEA generally comes in third.
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Social responsibility increases in importance each year, and rightfully so. WH leads on labor and environmental compliance, education, medical care, and independent monitoring. China is judged to be second on all parameters except perhaps environmental compliance, while OEA is third on most measures.
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Summing up the scores on the parameters which make up each set of factors yields the spidergraph below. It shows that when all factors are considered, the Western Hemisphere outperforms the other two regions on total cost, speed to market, reliability, quality, and social responsibility. Again, these are simply relative scores – 1,2, or 3 – and they may differ for each company and for each product. However, this scoring tool provides an accurate and convenient mechanism for sourcing managers to input their own values to see how their supply chain compares to other alternatives. Please visit our web site at www.pcca.com/SourcingScoreboard to get your individualized scores.
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