GLOBAL SOURCING STRATEGY Elizabeth Paladeau, Ana Carmona, Taylor Block, Ashley Pollard Wednesday, November 14, 2012
COMPANY OVERVIEW Smitten NYC is a high-end intimates company located in Soho, New York City.
Mission Statement: Smitten aims to create high quality, luxurious intimates that make women feel sexy and stylish.
Atmosphere: We offer one of a kind customer service and pride ourselves on knowing our customers’ needs and knowing them by name. We hope to create an intimate and high end buying experience for our customers with products of the highest quality.
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WHAT WE STAND FOR: • • • • • •
Quality Luxury Customer service Relationships Fit Feel
As a company we have strict set of ethical guidelines that suppliers and manufacturers must adhere to in order the work with us. These sourcing guidelines have helped determine what
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Sourcing guidelines
EMPLOYMENT
1. Non Discrimination: Smitten will not
5. Working Hours and Operation: Smitten requires
engage with vendors who discriminate in
that vendors comply with all wage and hour laws as
recruitment, hiring, training and employment practices. 2. Child Labor: Smitten will not engage with vendors who employ any person under the age of 18 (or 14 where local law allows) or younger
mandated by applicable country law or industry standard. Smitten also expects that employees will not routinely work in excess of sixty hours per week and employees will be provided with a minimum of one rest day in every seven-day week. 6. Employment Records: Smitten requires that vendors retain one year of complete and accurate
3. Involuntary Labor: Smitten will not engage
records and documentation relating to employees in
with vendors who use any forced or involuntary
manufacturing and operations positions necessary to
labor, whether prison, bonded, indentured or
demonstrate compliance with these Guidelines other
otherwise. 4. Coercion and Harassment: Smitten requires that vendors treat each employee with
than information and records that applicable law requires vendors to retain for a shorter period of time. 7. Disciplinary Practices: Smitten will not use business partners who use corporal or other forms of
dignity and respect, and will not use corporal
mental or physical coercion
punishment, threats of violence or other forms
8. Wages and Benefits: Smitten will only do business with partners who provide wages and
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Sourcing guidelines
HEALTH & SAFETY & ENVIRONMENT
1. Healthy and Safety: Smitten requires that vendors provide employees with a safe and healthy workplace in compliance with all applicable laws and regulations, ensuring at a minimum, occupational safety, machine guarding, emergency preparedness, industrial hygiene, reasonable access to potable water and sanitary facilities, fire safety, and adequate lighting and ventilation. Any vendor that is a manufacturer will also ensure that the same standards of health and safety are applied in any housing or canteen facilities that it provides for employees. 2. Environment: Smitten requires that vendors comply with all applicable environmental laws and regulations and ensure that all required environmental permits and registrations are obtained, maintained and kept current and that operational and reporting requirements are followed. 3. Community: Smitten will become involved in the community when the right opportunities arise and will encourage our employees to become good and active citizens. Furthermore we will favor business partners who share our commitment to community involvement.
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All new and existing factories involved in the manufacturing or finishing of products for Smitten are regularly evaluated to ensure compliance with our above guidelines. If Smitten determines that a contractor is not complying with our guidelines, we require that that contractor implement a correction plan within a specified time period. If a contractor fails to meet a correction plan commitment, Smitten will terminate business
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PRICE RANGE
$100-500
Target Customer
TARGET CUSTOMER
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Middle aged women between 20-45 residing in Manhattan, New York.
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Current to local happenings throughout the city as well as global news
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Fit and conscious of their bodies Feminine and sexy Aware of fashion trends Single or involved in a relationship with no children
PURPOSE OF STRATEGY DEVELOPMENT ď ś Companies often look to source globally because you can often find cheaper manufacturing rates, more unique product offerings, and varied techniques and on occasion, higher quality. However variations in lead times, duties, tariffs, and customs must all be considered as well as the cultures and social, business, and economic climates of the countries you are looking to do business with.
ď ś Smitten NYC is looking to source globally because we believe that in order to maintain the quality that our customer is looking for we must look to outside suppliers and manufacturers. Also, in order to obtain the styles we want to create it is necessary to source our fabrics from other countries. Wednesday, November 14, 2012
Product Assortment
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Seasonal
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9 fashion items
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1 evergreen item
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total of 2,500 units
Country Analysis FRANCE
CANADA
THAILAND
HONDURAS
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FRANCE TEXTILE INDUSTRY •
French minister of finance for Louis IV once said:
Fashion could be to France what the gold mines of Peru were for Spain.
This chart displays the Change in Revenue (in %) in the different stores within France. It is important to note that Lingerie increase 1.7% in independent chains, decreased -5% in specialty chain stores, increased 1% in Wednesday, November 14, 2012
FRANCE’S RISK & BENEFITS BENEFITS
RISKS •
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Quality of infrastructure and public services.
exports to corporate turnover.
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Good demographics.
Limited presence of French
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Relative energy independence.
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Top world tourist destination.
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Number two agricultural power.
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Competitive international groups.
Relatively small contribution of
companies in emerging region.
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Weakness of small and medium businesses.
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Low youth and senior employment;
youth Wednesday, high November 14, unemployment. 2012
CANADAS TEXTILE INDUSTRY Of the top 10 products exported out of Canada, apparel and textiles don’t even make the list. Though present, the textile industry is small in Canada. It is not a driving force for the country’s economy and is not a service the country is known for.
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CANADA’S RISK AND BENEFITS BENEFITS • • • • • • • • • • •
Limited public debt Strong banking system Close proximity to New York Low taxation rates Low operating costs Strong environmental protection laws Stable government Very accepting of new business ventures Strong trade agreement ties Friendly social environment Mostly English speaking country
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RISKS • • • • • • • • •
Strong concentration of exports geographically and by economic sector (US accounts for 75% of exports) Harsh climate International competitiveness weakened by the strong Canadian dollar High household debt High minimum wage Lack of raw materials Partly French speaking country Not a strong textile industry Lack of high quality, expert work force
COUNTRY RANKINGS Canada
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France
THAILANDS TEXTILE INDUSTRY •
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Thailand’s modern textile and apparel industry, which began in 1936 when the Ministry of Defense imported textile machinery to produce textiles for military applications, has become a leading industry in that exportoriented country. Private textile mills were established shortly after World War II as a result of textile shortages. In 1960, the Investment Promotion Act prompted local and Chinese investors to buy and expand mills that were once military-owned. Soon after, some Japanese companies joined Thai textile firms in joint ventures. Thai- land’s modern textile industry has since grown beyond its military beginnings and now plays a key role in the Southeast Asian country’s economy. Presently, Thailand boasts a fully integrated textile industry. There are more than 400 dyeing, printing, and finishing firms, in addition to 2,500 apparel firms. These mills employ more than 1 million workers, or 22.1 percent of the country’s entire industrial labor force.
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THAILANDS RISK AND BENEFITS Risks • Political Uncertainties
Benefits • Open and Welcoming Economy
• Unstable Climate
• Diverse Manufacturing Sector
• Location • • Terrorism threats
• Pro- active Government Policies
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• Large, Adaptable and Costefficient Workforce
HONDURAS TEXTILE INDUSTRY
Honduras hosts some of America’s most successful apparel manufacturers. They produce brandname items in fashion wear, underwear, sports wear and casual wear. Today Honduras is the largest textile exporter in the Caribbean Basin. Honduras is the
This graph shows that Honduras is prominent in cotton and basic apparel which points out another factor why Honduras isn’t a good option for Smitten. Intimates
7th exporter of apparel and textile products by volume to the U.S. market
manufacturing in Honduras is notably lower than other
behind countries such as Mexico and
apparel items.
China; Honduras is first among Central American and Caribbean countries.
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HONDURAS RISK AND BENEFITS
• • • • • • •
BENEFITS
Good geographic location Good ports and air transport infrastructure Good cross border regulations Good legal system Centralized economic policy-making Large external market (US) Trade agreement: CAFTA ( Central America free trade agreement)
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• • • • • • • • • • • • • • • •
RISKS Weak enforcement Policy uncertainty and inconsistency Higher cost for business because of Bureaucratic regulations government favoritism and corruption Low-skilled human capital Deficient road system Poor connectivity Poor social indicators Low technology penetration Poor supplier base Low availability of process machinery Low buyer sophistication Limited internal market Poor working conditions Lack of innovation
COUNTRY RANKINGS THAILAND
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HONDURAS
SUPPLIER RANKINGS FRANCE
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CANADA
THAILAND
THAILAND
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HONDURAS
SUPPLIER COMPARISON •
Overall the manufacturers in France had the highest ranking with Macosa (Manufacturer 1) having the highest average ranking.
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Canada was a close second with Claudel (Manufacturer 1) having the highest ranking.
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Thailand was third with Bema (Manufacturer 3) having the highest average ranking.
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Honduras has the lowest overall ranking, the manufacturers are known to be partnered with Hanes & Fruit of the loom are massive companies that may not take outside requests or smaller shipments for manufacturing.
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COUNTRY SELECTION FOR MANUFACTURING FRANCE
THAILAND
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CANADA
HONDURAS
MITIGATION OF RISKS
Through our rankings we have decided to manufacture in France, Thailand and Canada.
France was chosen because of the strength and high quality of the apparel industry as well as the availability of our fabrics, such as Chantilly lace. Despite a decline in the apparel industry it is still one of the most highly regarded in the world and luxury goods and lingerie still remain on of France’s top exports.
Thailand was chosen because of skilled manufactures and cost effective work force. This overrides the large distance between Thailand and New York as well as the political uncertainties.
Canada was chosen despite its limited apparel industry because of its close proximity to New York, and strict sourcing guidelines, minimum wage laws, and environmental
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HONDURAS ELIMINATION Smitten does not consider Honduras a viable option for manufacturing. Although Honduras is a strong country for manufacturing cotton apparel and fast fashion, it is not the best option for Smitten as we are high end, boutique level company. We seek high quality fabrics such as Chantilly lace, silk chiffon, and viscose polyamide that would not be found in Honduras. Honduras is also a risk to do business with since we feel strongly about our sourcing guidelines and Honduras has been known for subpar working conditions as well as child labor. Honduras also lacks innovation and skilled labor. Latin America in general is also known for being a risky location for businesses because of its high rate of corruption.
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MANUFACTURING LOCATIONS
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PLACEMENT GRID
We chose to produce Styles 100, 101, 105, 107, 108, and 109 in France with Macosa because they have Chantilly lace, which is most easily sourced in France. Macosa is also the most skilled manufacturer and can handle that delicate fabric the best and is the most familiar with it due to their luxury clients.
Styles 102 and 104 will be manufactured in Thailand because one of their clients is Spanx and style 102 is a slimming body suit. Style 104 is our most basic undergarment and can easily be handled by Bema’s work force.
Styles 103 and 106 are to be manufactured in Canada because they are a nightgown and a robe and our Canadian manufacturer specializes in loungewear. Wednesday, November 14, 2012
STRATEGY DEVELOPMENT •
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Smitten designed its product line based on trend forecasting for the Autumn/Winter 2013 season. We researched databases such as WGSN to gain inspiration on what to expect in terms of colors and silhouettes for the upcoming year. From there we were inspired by retro silhouettes. Being a small boutique located in Manhattan we knew space was and issue. Therefore we were ordering a rather small volume, 2,500 units to be exact.
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Smitten spent a great deal of time evaluating the cost of manufacturing our products in Canada, Thailand, France, and Honduras. We took into account the price of o fabrics o components o labor o freight o import taxes o other fees.
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When negotiating… o Canada marked up 10% higher than our initial quotes o France marked up 30% higher than our initial quotes o Thailand marked up 5% from our preliminary costs.
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Through our negotiations we also determined lead-time and cash discount. We determined that we wanted to have our product by the holidays (November). For France and Thailand the lead-time would be 5 months. For Canada we were able to negotiate a lead-time of 3 months so we would get our product at the end of August.
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We are paying in cash. In France our manufacturer has asked for 75% up front. But with that money up front after 2 seasons of future production we will receive a 5% cash discount. Our Canadian manufacturer asked for 55% up from and did not negotiate a cash discount with us.
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COSTING •
France’s labor laws are some of the most unique in the world having both the world’s shortest workweek of 35 hours and one of the highest minimum wages of $12.22 per hour. In order to make France more competitive the National Assembly passed four bills, introduced by President Sarkozy that aimed to both modernize the economy and reform the labor market. The laws state that any work done beyond the 35-hour workweek is exempted from income and taxes. This was meant to spur worker productivity per hour, which in France is the highest out of the G8 countries.
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All products with Chantilly Lace are to be manufactured in France because Chantilly Lace is cheaper, and more readily available in France, seeing as it originated there.
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The minimum daily wage rate varies, depending upon location, from 137 baht (US$ 3.43) in some provincial areas to 175 baht (US$ 4.38) in Bangkok. Employers must pay workers a fair wage. If employers are found guilty of not paying workers adequate wages, legal action may be taken.
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When determining costs of manufacturing style 103 and 106 in Canada, we took into account the price of raw materials but more importantly the price of labor. According to Industry Canada, as of 2009, supplies and materials make up 71% of manufacturing costs. The remaining 29% is spent on labor and energy. Considering materials are the major factor in manufacturing the market is vulnerable to any fluctuation in the prices of materials and supplies.
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Looking at labor, the minimum wage in Ontario is currently at $10.25. Ontario has the highest minimum wage in the country and is much higher than the United States which had a definite effect on the overall cost of manufacturing.
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NEGOTIATED PRICES •
Style 100 - Retail Price: $250 Margin: 92.48% = $18.79
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Style 101 - Retail Price: $300 Margin: 94.3% = $17.11
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Style 102 - Retail Price: $140 Margin: 94.31% = $ 7.97
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Style 103 - Retail Price: $350 Margin: 97.03% = $10.41
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Style 104 -Retail Price: $120 Margin: 97.57% = $2.92
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Style 105 - Retail Price: $300 Margin: 90.34% =$28.98
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Style 106 - Retail Price: $400 Margin: 97.4% =$10.41
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Style 107 - Retail Price: $200 Margin: 95.09% =$9.83
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Style 108 - Retail Price: $300 Margin: 93.91%= $18.28
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Style 109 - Retail Price: $270 Margin: 94.08% = $15.99
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OVERALL MARGIN
94.07%
Smitten chose the three manufacturers based:
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quality, cost location lead time capacity clients capabilities infrastructure value added services
Macosa, located in France, specialized in handmade lingerie and offers unparalleled expertise on French lingerie. Claudel Lingerie located in Canada is unique because they not only provide a completely vertical integration but also sales and marketing services. Bema Co. Ltd. located in Thailand provides marketing and manufacturing services.
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FINALIZED STRATEGY •
There are many benefits of the overall sourcing strategy developed by Smitten. The strategy aligns with our company’s ethics and values. All of the manufactures chosen have strict labor laws and sourcing guidelines that are comparable with Smitten’s. Smitten’s detailed guidelines will ensure that the chosen suppliers be committed to conducting business in a very efficient, and responsible manner.
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This strategy will maximize the planned margins because Smitten’s manufacturing costs are severely low compared to projected P.O.S prices. Though the basic markup is 68%, Smitten has marked up its merchandise by almost 95%. Though this seems unusually high, it’s the target market we’re attempting to reach. The higher the markup, the higher the profit margin. All of the manufactures chosen have quality assurance teams that will routinely check the quality of our products during manufacturing. Smitten will verify that our products are made from quality raw materials as to ensure that our products are innovative and fashion forward.
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All of the countries have thriving economies and the manufacturers chosen are steadily growing, in clientele and revenue. All three manufacturers have different specialties but appear to be viable options for Smitten in future manufacturing opportunities.
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APPENDIX
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