Global Sourcing NIFT 2

Global Sourcing
•Merchandising decision –”where” to source
•Sourcing is determining the most cost efficient vendor of

materials, production and/or finished goods at the specified
quality and service level with delivery within an identified
time frame
•Sourcing maybe :
–Domestic
–Foreign
•Globalization is associated with viewing multiple sites in the
world as markets and or sources for producing or acquiring
merchandise or services
MFA (Multi fiber agreement)
• Established in 1974 through 2004 imposing
Quotas on the amount developing countries
could export to developed countries
• Bilateral agreement among 60 countries
• In 1986 MFA merged in GATT
• After Uruguay Talks,GATT replaced by
WTO(World Trade Organisation)
• Purpose of GATT and WTO:increase
international trade by reducing trade barriers
• HTSA(Harmonised Tariff Schedule of the United
States
MFA (Multi fiber agreement)
• However the trade become highly skewed in favor of China
– After quotas on baby clothes ended, China's exports to the
United States rose 826%. Soft luggage exports rose fivefold.
Production of these items in Mexico, Thailand and Indonesia has
dropped by half.
– During the first three months of 2005, exports of Chinese-made
cotton knit shirts and blouses to the U.S. rose 1,250%. In
January 2004 (under quotas), China shipped 941,000 knit shirts
to the United States. In January 2005, it shipped 18.2 million.
– During the first three months of 2005, exports of Chinese-made
trousers to the United States increased by 1,500% and exports of
underwear by 300%.
– From 2001 to 2003, during the partial phase out of quotas,
China's share of the United States sock market jumped from 2%
to 40%.
• Hence EU imposed a 10% growth cap and US imposed a growth cap
of 7.5% on imports of textiles and textile related products
Global Sourcing
Regulation of Trade
•At the time of renegotiation
–US/Canadian Free Trade Agreement(1988)
–North American Free Trade Agreement
(NAFTA)
–European Union
–Asia/Pacific Rim
•Basic premise of trading bloc-some
developed countries that are relatively
developed with higher average incomes and
some with lower incomes come together for
mutual gain
Global Sourcing
Regulation of Trade
•American Trade Blocs:
–Carribean Basin Initiative(CBI)-1987
•Combination of countries in Central America and West
indies
•Item 807(concept of tax on value addition)
•GALS(Guaranteed access levels):eliminated of quota
restrictions
–Special Regime(1988)
•Provided access to Mexico
Global Sourcing
Regulation of Trade
•US /Canadian Free Trade Agreement-1989
–Restrictions on trade on automobiles,textiles,apparel
–Restrictions by tariffs and quotas
–Phase out of quotas in ten years
–“Fabric forward Rule”
•NAFTA
–Including US,Canada and Mexico concluded in 1992 and
implemented in 1994
–“Rule of Origin”-yarn forward”
Global Sourcing
Regulation of Trade
•Benefits of NAFTA to US apparel industry:
–Firms had to export cut parts to benefit from reduced
tariffs
–Finishing operations not included in value additions-
hence had to be performed in US
–Firms could both import goods and sell directly to Mexico
from Mexican operations
–Less paper work required
–Other trade agreements
•Caribbean Basin Trade Partnership Act,2000
•African Growth and opportunity Act,2000
•Free Trade Area of the Americas
–Development of codes of conduct such as WRAP(World
wide responsible apparel production
Global Sourcing
Regulation of Trade
•EUROPE
–European Economic Community(EEC) formed in 1952
followed by European Free Trade Association (EFTA) in
1960
–EEC provided for
•elimination of tariffs and quotas on all trade b/w
member nations
•Common policies regarding transportation,
agriculture and social insurance
•Permit free movement of people and financial
resources
Global Sourcing
Regulation of Trade
–EFTA
• Formed on objection of UK on loss of control on
national policies
•Included UK, Norway, Sweden, Denmark,
Switzerland, Austria and Portugal
•Provided for elimination of tariffs on industrial
prodects
•1993 EEC evolved into a 12 nation group known as
European Union(EU) and subsequently EU-15 on
addition of Austria,Finland and Sweden
•1994 EFTA and EU combined to form EEA(European
Economic Area)
•2004 EU-15 enlarged to include 10 new member
states and 5 remain potentials
•2001-Euro currency
Global Sourcing
Regulation of Trade
–ASIA
•ASEAN(Association of South East Asian Nations)
include
Brunei,Cambodia,Indonesia,Laos,Malaysia,Mynmar,
philippines ,Singapore,Thailand,Vietnam
•“Big Three”-HK, Korea and Taiwan till trade opened
b/w US and China
•2001 China admitted to WTO
Global Sourcing
Regulation of Trade
–ASIA
•ASEAN(Association of South East Asian Nations)
include
Brunei,Cambodia,Indonesia,Laos,Malaysia,Mynmar,
philippines ,Singapore,Thailand,Vietnam
•“Big Three”-HK, Korea and Taiwan dominated
apparel trade till trade opened b/w US and China
Sourcing
• Europe and Middle East
– Austria: Knitwear, Furs
– Belgium: lace, alpine wear
– Denmark: woolens, raincoats
– England: Tailored mens’ and women’s fashion
– Finland: Knitwear, furs, suedes
– France: Designer men and women
fashion,lace,knitwear,furs,perfume
– Germany: furs, leather accessories
– Greece: Inexpensive leather, furs
– Ireland: Knit sweaters, linens,lace
– Israel: Swimwear, women’s sportswear and accessories
– Spain: leather accessories
FACTORS IN THE SOURCING DECISIONS
–Cost Elements
–Ensure all costs are included
–Capacity
•“Relationship” is critical
•Includes Financial capacity, plant space capacity
&available workforce capacity
–Minimums
–Labor skills and equipment Assessment
•Contractor evaluation form
–Infrastructure
•Availability of quality raw materials, trim, findings and
packaging supplies
•Availability and reliability of electric power,material
suppliers and shippers
•Roads and transportation
–Throughput time and Lead time
•Total Throughput time is the time it takes for a
production order to be processed from authorization to
shipping
–Quality Standards
–Competition
–Distance
–Government Regulations
–Quotas/Tariffs/Other barriers
–Political and Economic environments

–Human Rights
•Child Labor
•Forced labor
•Health and Safety
•Freedom of Association and the right of collective
bargaining
•Discrimination
•Working hours
•Compensation
COSTING
Calculating the CMP-II
Total Cost of the factory = USD 200,000
(all costs included except fabric and trims)
No.of Machines =450
No. of people employed =800
Per Machine cost per day =200,000/(25X450)=USD17.7
Productivity per line =400pcs per day
No.of machines per line =40
Cost per line =40X17.7=USD711
CMP of the garment =711/400=USD1.7
COSTING
Calculating the CMP-II
Total Cost of the factory = USD 200,000
(all costs included except fabric and trims)
No.of Machines =450
No.of lines =11
SAM value of a garment =30 minutes
1 operator should make 2 garments in 1hr
450 operators should make 900 garments in one hour
And make 900X8X25=180000 garments in a month
SAM value of the factory=180000X30=5400000
Cost per SAM =200,000/5400000=USD0.037
CMP of a 20 min SAM garment=40X0.037=USD1.48

Global Sourcing NIFT 2

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Global Sourcing

•Merchandising decision –”where” to source

•Sourcing is determining the most cost efficient vendor of

–Political and Economic environments

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