New Deloitte Study Shows How Retailers Are Adjusting Supply Chains: Part II

Editor’s Note: As reported in Part I, Deloitte researches say retailers are adopting new strategic responses that correspond more closely to the acute cost of new pressures.

Retailers’ top three emerging strategies include: diversifying their country source of supply footprint (35 percent), re-shoring production to domestic vendors (33 percent), and consolidating vendors (28 percent).

“Re-shoring to local markets is becoming an increasingly attractive option for retailers looking to reduce transportation costs and for products with low labor intensity,” said Michael Daher, principal and Retail Sourcing Practice leader, Deloitte Consulting LLP. “For retailers in sub-sectors such as apparel, which tend to have the most vendor fragmentation, cost pressures may incentivize vendor consolidation – especially when retailers desire to improve their leverage to negotiate lower costs, manage smaller order sizes and execute faster production cycles.”

Outsourcing of retailers’ sourcing activities continues to play a significant role. Virtually every sourcing activity was fully or partially outsourced more than 50 percent of the time, and for activities like raw material and finished goods sourcing, that number rises to more than 60 percent. Several retailers are disterimediating their supply chain partners by establishing off-shore sourcing offices to “go-direct” to the manufacturers.

Ethical sourcing remains a top priority among retailers: a total of 92 percent of respondents indicate their organizations are either currently enhancing their ethical sourcing capabilities to address sourcing pressures or plan to do so in the future.

Deloitte’s study also found that, among the 94 countries noted as sources of supply, China, Mexico and Canada are the most prevalent. However, after more than a decade as the undisputed leader as a sourcing and manufacturing base, China’s appreciating currency, economic growth and rising labor costs have begun to impact its dominance in the supply market. Survey respondents indicate that other Southeast Asian countries – including India, Vietnam, Cambodia and the Philippines – are becoming increasingly attractive sourcing locations, particularly for apparel and softlines.

To download the full report, “Private Label Sourcing: Strategies to Differentiate and Defend,” with detailed survey results and strategies for retailers, visit: http://www.deloitte.com/us/privatelabelsourcing

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