A variety of letters this week, with some more on our First Thoughts piece on The True Costs of Offshoring. That includes our Feedback of the week from Kathleen Fasanella of Fashion Incubator, who says large retailers are unnecessarily contributing to the loss of US manufacturing.
Tony Tyler, however, disagrees with Boston Consulting Group’s George Stalk, who argued in our piece that retailers are better off with OK merchandising and great supply chains than the other way around.
You will also find letters on supply chain for small and medium-sized businesses (SMBs), managing supplier risk, and comments from a reader who thinks when we publish articles about oil speculation and such, we actually contribute to the problem. We say: don’t blame the messenger.
Feedback of the Week - On the True Costs of Outsourcing:
As the author of a book on DIY apparel manufacturing, I suppose I'm another "manufacturing fundamentalist" - mostly.
Stepping neatly aside the points and counterpoints already made, I suggest there's other problems affecting consumer choice with respect to the retail purchasing infrastructure of big retailers. Currently, it is nigh impossible to be a vendor to department stores if you're not producing offshore.
Unfortunately, seasonal products such as apparel require a timely feedback loop to address consumer demands such as fit, sizing and styling. These demands cannot be readily addressed with offshore push manufacturing. By the time feedback works its way back to the production floor, they're already cutting the next season's goods.
Minimally, it takes 18 months to respond to consumer's wishes.
A solution for smaller producers making higher margin goods is lean manufacturing. I have a client in Houston who sells women's gym clothes - consumer direct - from their website. They carry no finished goods in inventory. From the time product is ordered by the customer, it is cut, sewn and shipped all within 24 hours.
While this is a tiny company with only four employees, they were on track to break seven figures last year. This is a model that anyone can adopt and modify to scale, but it requires a vastly different mindset and capital requirements. Typically, the set-up is roughly equivalent to one machine per operator. With lean manufacturing, we use pods, a semi-circular arrangement of many machines per operator. It also results in higher quality.
Kathleen Fasanella
Fashion Incubator
More on the True Costs of Offshoring:
I would like to make a comment on Mr. Stalk’s thoughts.
I’m afraid that I disagree [that Stalk prefers OK merchandising and a great supply chain in retail to the reverse situation].
It is the marketing hype that sells into today’s markets for many products. The Hype often bends the truth, but marketing was never really about “Integrity” anyway.
If you stock up and sell out because of Hype, you can make great margins. But buying at promo prices and selling at regular prices produces even better margins.
Many items destined for promos arrive early and get sold at the regular price with greater margins than if they had arrived at the correct time.
Equally, many of his promo items also arrive late and are sold at the regular price, albeit a bit more slowly, despite the fact that some customers do take rain checks on the late arrivals.
The marketing hype gets people into the stores – say on a July 4th weekend and boosts the business, even if the products are already sold out, or have not yet arrived.
So the poor Supply Chain combined with good marketing hype leads, in this case, to greater margins!
Tony Tyler
President
eF3 Systems Inc.
On Supply Chain for SMBs:
This is a pretty good article.
I am passionate about helping SMBs. The question that I have is:
- what is really important to SMBs?
My experience selling enterprise software (Oracle ERP, Oracle Supply Chain) to the SMBs made me realize that SMBs do have supply chain problems which they describe with terms like:
- “we have an inventory problem”
- “the distributors are not moving inventory”
It is likely that marketing to the SMBs will require a hyper-customer-centric approach - i.e., we have to speak their language and speak it very fluently - hence, the "hyper" customer-centricity.
Looking forward to continuing the dialogue.
Shankar Saikia
Technology Entrepreneur & Sales & Marketing Consultant
On Managing Supplier Risk:
Good article, the point of you must use information from multiple sources, financial and otherwise is critical. While I have not used the Altman method, looking at these ratios in the context of current financial health has been a sanity check I have used on public companies.
For private companies, there is no replacement for on-site monitoring and visits, while it can be a delicate subject to approach, if you have a strong partnership with your critical supplier, random visits can be a valuable tool. I do also ask for a list of their critical path suppliers, what steps are they doing to weather this storm, how are they investing in improving their efficiency, what % of the business do you control, has it changed and what steps you can do to help them weather the storm? And depending on the level of risk to my business (sole source supplier, technology, etc.) I would also prepare a formal SWOT analyses, rating the critical supplier risk each quarter.
It is my experience that a true partnership will allow you to see the trouble coming ahead; however, the best relationship needs to be checked, just as the supplier should do in checking your viability.
Randal T. Platts
Supply Chain/Manufacturing Operations Professional
Been there, done that, in 1986 no less. It might work in the US, but other countries' accounting standards are different. It showed the two largest domestic electronics manufacturers in Taiwan as approaching bankruptcy. They are still thriving (but not the largest). It assumes an arms-length relationship between the company and its bank. That's not true around Asia.
My advice: Talk to your sales office (if you have one) in the supplier’s country about how they check credit-worthiness of their customers. If you don't have a sales office, contact a major accounting firm from your country who operates there.
Dick Locke
Global Procurement Group
Global Supply Management Training
On Oil Prices Set to Soar:
Printing articles like this feed the fuel to flame the fires that will come when oil prices start to rise.
People read articles and believe them to be true. So everyone gets scared or investors start buying up oil shares; thus, the prices keep rising.
Stop fueling the flames.
Timothy Otzenberger
Lenzing Fibers Inc
Shipping/Day Process Supervisor
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