Lanka apparels in new supply chain breakthrough
Sri Lanka’s top foreign exchange (forex) earner, apparels, have arrived at the next level in global supply chains and in the manufacturing front, have progressed beyond the original design manufacturing (ODM) status.
“It’s a first time in the world for us. We are pioneering G4 level in Sri Lanka. We are beyond the experimental level and it’s a new supply chain model. We, at PVH Corp, are directly working with manufacturers instead of working through an office in Sri Lanka,” New York’s PVH Corporation Executive Vice President Global Supply Chain Mark Green revealed.
The New York Stock Exchange (NYSE)-listed PVH Corp (or Phillips-Van Heusen) is one of the largest lifestyle apparel companies in the world (and also reportedly the world’s largest shirt company) with 2012 retail sales totalling US $ 16.8 billion from its brand portfolio.
PVH owns well-known global brands such as Calvin Klein, Tommy Hilfiger, Van Heusen, IZOD, ARROW, Speedo, Warner’s and Olga under it. Its Calvin Klein earned US $ 7.6 billion in Y2012 while Tommy Hilfiger earned US $ 6 billion brand revenues in the same year.
PVC, the branded apparel designer and retailer, has 2035 stores across the world, 1025 of which are located in Europe. PVH’s 2013 revenue projection stands at US $ 8 billion.
“Sourcing is evolving. Relationship between factories and buyers also changing,” said Green and explained the supply chain evolution.
“In the G1 level, manufacturers, retailers and brands, all reside in close proximity. There are no language, distance, time or competence challenges. This was in pre-1980s. In G2, generally taking place in 1980-2005, supply chains fracture, manufacturers and brands go global but retailers remain local. Agents and importers emerge.
In G3 level, retailers replace agents and importers with their own supply chain teams. This was evident from 1990 to 2012. G4 is onwards 2009 to near future-manufacturers reach a level of sophistication that replaces retailers’ own supply chain teams.
The comparison- In G3, domestic retail teams reach out to engage with offshore suppliers who are global multicountry manufacturers, while in G4, supplier teams of offshore global multicountry manufacturers reach up to engage with retailers. In G5, in future, manufacturers go vertical or virtual vertical into retail environment.”
Speaking of PVH’s Sri Lankan breakthrough, Green said, “We have specially chosen Sri Lanka for our supply chain G4 level experiment. In fact, we are beyond the experimental level since we have achieved almost 80 percent progress in this regard, starting around October-November 2012. It’s a first time in the world for us.
We are pioneering G4 level in Sri Lanka. I am not saying that PVH pioneered G4 across the world but I am not aware anybody else working in that level - we are in the whole vertical of G4. It’s a new supply chain model that we are experimenting.
In this, we, at PVH, are directly working with Lankan manufacturers, in this case, Sri Lanka’s Brandix, instead of working through an office in Sri Lanka. We train Brandix to do product development - on approvals on colour and fit, colour breaking, etc.
They also work with us on plan- ning and forecasting so that the model we base is not the FOB price of the product but the ultimate profitability of the whole business. The measure of success is the increase in the margin increase, as opposed to the traditional model where you buy from the cheapest supplier and manage your margin yourself.
The reason we are choosing Brandix is in fact a business reason - due to trust that we built with them and also their skills, capabilities and their ability to manage the supply chain points – design, development, costing, sourcing raw materials and so on. In fact, we are giving a piece of our business for them to enter and manage.”
Asked of the annual volume/values of PVH’s purchases from Sri Lanka, Green responded, “It’s an internal piece of info and not for disclosure. PVH was not very engaged in intimate apparel business until we acquired the Warnaco Group in February 2013 and acquired Warner’s and Olga brands after which we started engaging more and more with Sri Lanka. We also have a bigger strategy on Sri Lanka to source non-G4 apparels for these labels and we will be doubling our sourcing from Sri Lanka to this end, in the next 12 months. Still, at the moment, Sri Lanka is a small percentage of our business.”
Addressing the forum, Industry and Commerce Minister Rishad Bathiudeen stressed that Lankan apparel sector has progressed beyond its ODM stage to original equipment manufacturer (OEM).
“Sri Lanka’s apparel sector has progressed from its ODM stage and is now striving to become an OEM to the world market. And our apparel journey will continue to grow,” Minister Bathiudeen said.
He added, “Apparels and a few other products consist of 60 percent of our exports. We are aiming at US $ 4 billion apparel exports by 2015. This alone shows as to how strong our export concentration is on this sector. What is more important is that it is this sector that supported us through the recent global market downturn. The forex contribution to Sri Lanka by our apparels is well known.
In the half decade of 2007 to 2012, total apparel, export earnings increased by 38 percent to US $ 3.8 billion. In the same period, exports only by Board of Investment (BoI) exporters increased by 45 percent to US $ 2.8 billion. Therefore, there is no doubt, that the apparel sector is a success story for Sri Lanka and for our US $ 20 billion export goal by 2020.
More importantly, I believe that our apparel sector is a success story not only due to the heavy foreign exchange earnings or the global branding we see today. In fact, it is a successful case study of moving away from a quotabased ‘stitching economy’ to one that is now globally competitive on its own efforts. Our apparel sector, achieved this by trying to go above 60 percent value addition practice, real productivity enhancements and production aimed at premium quality.
As the Industry and Commerce Minister, therefore, I believe that first and foremost, it is my duty to pay my gratitude to the entire apparel workforce on behalf of the government and the people of Sri Lanka for the sector’s successful efforts in significantly changing and upgrading the outlook of this industry. In that I should stress that Sri Lanka’s apparel sector is entirely driven by private sector firms.”