NONFOODS: Global GM Sourcing: Going direct

Two recent events demonstrate just how much global sourcing has become a part of everyday life for retailers: Traffic at the nation's major retail container ports is steadily growing and is expected to hit a record high in July, and Global Source's China Sourcing Fair, to be held in June, sold out its booth space by April.

And there's no sign that the outsourcing trend propelling these events is slowing. "We expect to break records twice this summer, and that's before we even get to the peak of the season this fall," says Paul Bingham, economist for Waltham, Mass.-based global sourcing consultancy Global Insight, which released the Port Tracker report with the National Retail Federation earlier this month.

Unlike in the past, though, an increasing number of these shipments are going directly to retailers that have ordered them directly from the manufacturers, rather than going through an import/export company.

"If a company can source globally, it will have the ability to find new ideas, products, and companies that would be overlooked using an insular approach to sourcing, such as by using an import/export company," says Bennett Little, president and c.e.o. of Business Stationers Worldwide, a supplier of school and office supplies in Montreal.

The Colorado Springs, Colo.-based nonfood supplier association General Merchandise Distributors Council (GMDC) pointed out this increase in the direct importing of seasonal nonfood products in its Seasonal Best Practices special report released last year.

According to GMDC, while seasonal events have always featured a wide variety of imported goods, these products have traditionally been sourced through domestic import companies. However, today many retailers/distributors travel to Asia, India, and other locations to find appealing products -- at the right price points -- and then import them back to the United States in full-container loads. This allows mass retailers to profitably sell seasonal merchandise at aggressive price points that wouldn't have been possible in the past.

The challenge of choosing

But where's the best place from which to source? While the GMDC study notes that China is the primary source for seasonal products sold in the United States, many retailers, following product suppliers that are moving manufacturing plants to lower-cost locations, are looking to other countries such as India, Pakistan, and Vietnam as sources.

But retailers should study the markets and the products in question carefully to make sure they know what they're getting into.

"India makes some great cloth," says Little. "But can you get delivery, and can you get it as ordered? Pakistan and Bangladesh are often cost-effective, but totally unsafe to go to, and merchandise is often stolen right off the docks. Taiwan, Korea, and Japan have excellent-quality products, but at prices that are often impossible for anything other than their local markets. Vietnam has an excellent, want-to-work population, but a government that arbitrarily makes laws, and then, just as arbitrarily, changes them. So, by default, one is often left with China. Given its huge landmass and diversity, it has just about every raw material, and efficiently trades for those it doesn't. It has a huge population that wants to work, and an increasingly modern infrastructure of roads, trains, bridges, and ports. And the government is pro-business."

Those retailers who venture into new territories must often become experts in manufacturing -- as well as geography, climate, and international politics -- to best manage their suppliers. Little gives examples of the issues such retailers face: "Is there enough water for production purposes, which is a major issue in China? How is labor sourced? How are production standards for labor and quality monitored?"

Not surprisingly, language is also a major challenge to retailers' attempts to source globally. If a retailer isn't staffed with someone who speaks the language of the source country, it has to find a trustworthy outsider who does. Even then, local dialects can differ from one town to another.

Fortunately, as the demand for global sourcing rises, more companies are being created to smooth the process. "Every retailer from every part of the world is looking for new ways to improve their Asia-Pacific sourcing program," says Chris Sellers, c.e.o. of Agentrics, an Alexandria, Va.-based sourcing solutions provider. "Suppliers across the region continue to expand capabilities and offer significantly greater value."

Technology companies such as SAP AG and TradeStone Software have stepped up to the plate, developing applications that automate much of the sourcing process. But all the technology in the world won't help a retailer that neglects to learn about the local culture.

"Better understanding promotes better satisfaction," notes Little, "and that opens up better trade possibilities."
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