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One of the biggest topics for retailing in 2013 is how to integrate e-commerce and physical retail to give the consumer a seamless shopping experience. Part of the challenge falls to the supply chain to figure out how to synchronize the production and delivery of goods through multiple channels. In this new environment, supply chain management and specifically global sourcing are crucial levers to improve the retail experience and ensure profitability. As such, it is important to stay current on global sourcing trends. Global commodity prices, material costs, currency exchange rates and labour costs are all constantly changing variables which impact the sourcing and production of goods. With this in mind, Core Solutions embarked on producing a update to provide information on the latest global sourcing indicators, ranging from commodity and labour prices to exchange rates and changes in the regulatory environment. http://www.coresolutions.com/
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Global Sourcing Update Facts & Insights
Produced by:
Q2 2013 - Global Sourcing Update CORESOLUTIONS
1 www.coresolutions.com [email protected]
Americas: +1.908.898.1880 Europe: +44.20.8133.0328 Asia: +852.2378.6300
FOREWORD
[GLOBAL SOURCING UPDATE]
Core Solutions’ Retail Global Sourcing Update provides research and
analysis aimed at informing global sourcing and buying decisions. Each
issue provides a snapshot of key information impacting global sourcing,
including container shipping prices, currency exchange rates, commodity
costs, PMI Indices and other data along with our own insight and analysis
from customers and analysts.
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Q2 2013 - Global Sourcing Update CORESOLUTIONS
2 www.coresolutions.com [email protected]
Americas: +1.908.898.1880 Europe: +44.20.8133.0328 Asia: +852.2378.6300
Table of Contents
Purchasing Manager’s Index ...................................................................................................... 3
Wages ............................................................................................................................................ 4
China Minimum Wage Snapshot ............................................................................................ 4
Global Low Cost Sourcing Country Wage Snapshot ........................................................... 5
Container Freight Rates for Major Routes ................................................................................. 6
Currency Exchange Rates .......................................................................................................... 8
Global Commodity Rates............................................................................................................ 9
Crude Oil .................................................................................................................................... 9
Rubber ........................................................................................................................................ 9
Metals ....................................................................................................................................... 10
Wood ........................................................................................................................................ 11
Wool, Hides, Cotton ................................................................................................................ 11
Plastics and Fibers ................................................................................................................... 12
Apparel Sourcing Trends ........................................................................................................... 13
Topic Spotlight: Sustainability ................................................................................................ 16
About Core Solutions ................................................................................................................. 17
CBX Sourcing Solution ................................................................................................................ 17
Next Steps .................................................................................................................................... 18
Q2 2013 - Global Sourcing Update CORESOLUTIONS
3 www.coresolutions.com [email protected]
Americas: +1.908.898.1880 Europe: +44.20.8133.0328 Asia: +852.2378.6300
Purchasing Manager’s Index
To help understand industry and economic conditions in a country, the PMI Index
tracks variables such as output, new orders, stock levels, employment and prices
across the manufacturing, construction, retail and service sectors.
A reading below 50 indicates contraction from the previous month, while a
reading above 50 indicates growth. Currently 22 countries and regions conduct
the PMI survey and compilation, based on an internationally standardized
methodology.
This update looks at a selection of emerging economies and key sourcing
countries, providing indicators for the past 3 months.
COUNTRY FEBRUARY
2013
MARCH
2013
APRIL
2013
INDICATORS
Brazil 52.5 51.8 50.8 Modest recovery, growth
higher in services
China 50.4 51.6 50.4 Manufacturing slowdown,
external pressures continue
Egypt 46.0 44.8 44.2 Declining output and new
orders, plus inflation
India 54.2 52.0 51.0 Continued slowdown in
manufacturing output
Indonesia 50.5 51.3 51.7 Increasing output, based on
domestic demand
Mexico 53.4 52.2 51.7 Loss of momentum in
manufacturing to continue
Poland 48.9 48.0 46.9 Ongoing decline in output
and new orders
Russia 52.0 50.8 50.6 Slow manufacturing growth,
limited new orders
South Korea 50.9 52.0 52.6 Strong new order growth
fueled by domestic demand
Turkey 53.5 52.3 51.3 Moderate growth in output,
new order and exports
Vietnam 48.3 50.8 51.0 Manufacturing expanding
on domestic demand
PMI Index Source: HSBC, Markit, CFLP
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Wages For the past few decades wages have been a key variable in global sourcing. This is
changing as labor costs are increasing across most low cost sourcing countries.
China Minimum Wage Snapshot
Wages in China vary widely by province, but across the country have followed a trend
over the past decade of an annual rise of over 10%. This trend is continuing. Export
focused regions such as Zhejiang and Guangdong have raised the minimum wage by
12% and 19% respectively in 2013. The central government plans to continue pushing for
wage increases in the coming years to improve inequality.
A survey of more than 300 factories in the Pearl River Delta by Stephen Green, China
economist at Standard Chartered, found that wages for blue collar workers are set to
rise 9.2% in 2013, up from a 7.6% increase in 2012. The survey also found that additional
pressure is coming from stricter enforcement of social insurance contributions – which
can add substantially to the wage bill – and higher demands from workers’
representatives.
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Global Low Cost Sourcing Country Wage Snapshot
Below is a snapshot of minimum wages in key Asia sourcing locations, with the addition
of Egypt and Ethiopia. This is updated with the most current available information.
Wages often vary by region or province and in some cases might include costs other
than the base wage. In some cases with a distinct variance, we provide an average.
With greater visibility into social conditions and increasing unrest and union pressure,
wages in traditional low cost sourcing countries are on the rise.
BANGLADESH CAMBODIA CHINA EGYPT ETHIOPIA
$38/month US$ 83/month US$ 188/month US$ 105/month US$ 23/month
In the garment industry
the minimum wage is
US$ 38 per month.
The minimum wage is
set nationally every five
years by the National
Minimum Wage Board.
Breakdown
US $ 55 – Regular
+ US $ 6 –living
+US$ 10 – Attendance
+US$ 5 – Health
+US$ 7 – Transport
Total = US$ 83
Unions are demanding
minimum wages to start
in 2013 at US$ 120
Set locally, ranges
from US$ 138 per
month in Jiangxi
Province to US$ 238
per month in
Shenzhen, Guangdon
g Province.
Currently there is only
one national
minimum wage; there
are no sectorial rates
or occupation-based
rates. Only one
national rate: EGP 700
Some government
institutions and public
enterprises set their
own minimum wages:
public sector
employees, the
largest group of wage
earners, earned a
monthly minimum
wage of US$ 23
INDIA INDONESIA LAOS MALAYSIA MYANMAR
US$ 60/month US$ 71-230/month US$ 79 per month US$ 297 per month US$ 75-120/month
With effect from April 1,
2011 the National Floor
Level of Minimum
Wage has been raised
to US$ 60 per day.
Wages vary by region.
US$ 2.18 per day in
Bihar
US$ 3.40 per day in
Haryana (with local
cost of living
allowance included).
Depends on region. 17
areas have different
minimum wage. E.g.
Jakarta: US$ 230
Solo: US$ 109
Central Java: US $ 71
Expecting US$ 120 at
end of June 2013 –
negotiating
Need to increase as
to reduce migration
to Thailand
US$ 79 per month;
employers were
required to pay US$ 1
meal allowance per
day.
70%-80% of textile
workers are foreigners
US$ 297 per month on
the Peninsula
Malaysia, and US$ 261
per month for the
states of Sabah,
Sarawak, and Labuan
Inclusive of taxes and
benefits
Skilled worker at
Yangon.
PHILLIPPINES SRI LANKA THAILAND VIETNAM
US$ 190- 220 /month US$ 63 US$ 300/ month US$ 89 - 125 /month
Garments are made in
3 regions and wages
rang from $6-8 per day.
In 2013 minimum
wages will be
dismantled replaced
with a two-tier system.
1st tier: Minimum floor
wage for new hires/
low skilled . 2nd tier:
productivity – based
system.
In the industrial sector,
minimum wages are
varied depending on the
worker category.
Semi-skilled: US$ 55 – US$
63
Skilled: US$ 59 – US$ 75
Last increase was in
April 2012 which was
40% up from the
previous minimum
wages
Automotive industry
expansion means
textile workers will
migrate
US$ 300 per month
applies from 1st Jan
2013
US$ 67 – US$ 96 is
previous minimum
wages
US$ 85 -95 per month
(urban), US$ 67-74 per
month (rural) for
unskilled laborers at
private enterprises
New minimum wages
to start in March 2013
could be postponed
to September 2013.
Sources: WageIndcator.org, SAFSA, Wikipedia
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Container Freight Rates for Major Routes The rates below are supplied by The World Container Index - which reports actual
spot container freight rates for selected East-West trade routes – and Xeneta
which relies on data inputted by companies, allowing users to cross-reference
prices. All indices are reported in USD per Forty Foot Container. We report on
historical rates for key Asia-Europe and Asia-U.S. routes.
Analysis: After seeing sharp increases in late 2012, rates have seen a downward
trend since January 2013, falling 41 percent since the end of the first quarter and
are now in the same range as this time last year. Prices have been hurt by a
weakening global economy and a glut of freighters built before the global
financial crisis.
Source: www.worldcontainerindex.com
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Source: www.xeneta.com
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Currency Exchange Rates Following are 90 day exchange rates and one year indicators for major currencies
commonly factoring in global sourcing.
EURO to USD:
Euro to RMB:
USD to RMB:
EUR/USD - % change
2 years -8.38%
1 year 4.31%
6 months -0.66%
3 months 1.19%
30 days 1.50%
Source: Oanda
USD/RMB - % change
2 years 4.63%
1 year -2.20%
6 months -1.86%
3 months -1.60%
30 days -0.44%
Source: Oanda
EUR/RMB - % change
2 years -12.63%
1 year 2.01%
6 months -2.51%
3 months -0.43%
30 days 1.05%
Source: Oanda
The Euro has gained marginally
on the USD in the past 90 days
and is trending up.
The Euro has gained on the RMB
in recent months, on negative
signs in the Chinese economy.
The USD is following a continuing
trend of steady weakening
against the RMB.
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Global Commodity Rates Commodity prices fell almost across the board through the first quarter and into the
second quarter of 2013. According to the IMF and other sources, the near-term outlook
as reflected in futures prices, shows broad declines across all main commodity groups.
Overall, prices are projected to decline by 2 percent in 2013 (year over year), with
improving supply prospects for all main commodity sectors.
Oil prices went below $100 a barrel for the first time since June 2012. Energy prices are
expected to fall by almost 3 percent on recovering oil supply from the past year's
outages and strong growth in non-OPEC supply. Copper fell to around $7000 per ton, a 3
year low. According to many analysts, weakness in commodity prices reflects slowing
global growth and less demand from China for raw materials.
Crude Oil
Rubber
Rubber
Rubber prices fell by
23% year-on-year.
Commodity Price Sources: IMF data,
Index Mundi, Plasticker
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Metals
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Wood
Wool, Hides, Cotton
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Plastics and Fibers
A selection of plastic related prices is provided below. These are calculated from offer
prices in the Plasticker Material Exchange. These are not necessarily true transaction
prices. For Q1 into Q2 2013, prices have remained relatively flat and trended down over
the past 3 months, especially for polyester and PP regrind flakes.
Source: Plasticker
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Apparel Sourcing Trends
Given that apparel is one of the key sectors we serve, we monitor the industry closely,
specifically from a sourcing and production perspective. We do this by talking to our
customers, attending industry events and monitoring media and analysts in the sector.
The apparel sector has seen a significant shake-up in the past few years, where rising
costs, primarily for labor have placed added pressure on retailers, brands and suppliers.
When you add the recent high profile incidents in Bangladesh, it’s clear that apparel
sourcing sector is ready for a change. This shift can be summed up in five key trends.
The comments below were made by sourcing executives in the apparel industry at the
2013 Prime Source Forum in Hong Kong.
Consolidation
The apparel industry has seen a lot of collaboration both among the buyers, whether
they are retailers or brands, and among the suppliers. “Sourcing companies need to be
much more integrated with their customers, to understand where their orders are and to
gain visibility,” said Kevin Burke, President and CEO of the American Apparel and
Footwear Association. What this also means is that the sourcing models which worked
before, with a strong focus on squeezing lower costs from suppliers, are no longer what
the market needs. “We have to learn to embrace change, many retailers were not able
to reinvent themselves,” said Mark Green, Executive Vice President of Global Supply
Chain for PVH which owns brands such as Calvin Klein and Tommy Hilfiger.
Collaboration
Both buyers and suppliers are calling for more collaboration, but the industry is not quite
there yet. “Our ability to offer visibility into planning and forecasting is limited due to a
shortage of information provided to the mills,” one representative from an apparel
supplier noted. Many of the bigger more successful players are already well down this
path, others are moving in that direction. “Your customer is your partner,” emphasized
Peter Kaminsky, Managing Director, Carter’s Global Sourcing. The future will most likely
“I think we will see a consolidation and a huge change in the marketplace
in the next 2-5 years.” - Ranjan Mahtani, Owner and CEO Epic Group, a
substantial Bangladesh supplier to a number of leading retailers and brands,
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see a limited number of large buying houses and a selection of highly efficient suppliers
who make up the bulk of the market. There will still be a place for highly efficient niche
brands and suppliers. Collaborative technology plays a key role in this future.
Efficiency
With labor costs, a typical price lever, increasing in many low-cost sourcing countries by
up to 20%, greater attention is being placed on efficiency. The need for greater
efficiency is ultimately dictated by the consumer market demanding more variety of
high quality products across multiple channels at a lower price. This translates into
greater complexity through the supply chain. This is also evident in the reality of more
complex orders. “While overall volumes are not increasing, order sizes are getting
smaller, which means more small orders,” said Stephen Forte, Head of Global Sales for
Coats.
Consumer
In case anyone forgets, sitting at the end of the chain is the consumer, who is more
price, design and quality conscious than ever. Despite new buzzwords, like omni-
channel retail, it still seems that the opportunities from a sourcing and supply chain point
of view lie in looking at the fundamentals, including streamlining operations, reducing
inventory and building efficiency into the end-to-end supply chain. “If we can’t ship to
where the consumers are going to be at, we are going to have a problem. We need to
figure out how to be more nimble,” noted Edwin Keh, CEO, the Hong Kong Research
Institute of Textiles and Apparel (HKRITA).
“We have only really started to scratch the surface on efficiency. I am
trying to take the cost of the man out of the equation.” - Colin Browne,
Vice President, Footwear Sourcing, VF Asia Limited
“We have been able to offset wage increases with productivity, but this is
getting tougher. The consumer will not pay more.” - Duncan Scott, Vice
President External Products, New Balance.
“The average tenure of our suppliers is ten years, for some it’s 25 years, we
call them partners because we believe in partnership ” - Craig Dana,
Managing Director, Ann Taylor Far East.
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Sustainability
Certainly the recent factory fires in Bangladesh have highlighted the corporate social
responsibility issues, but by all indicators, sustainability is no longer just a green check-
box, but a real imperative for many companies. “Ethical sourcing is a big issue that
won’t go away until we become better. We owe a lot to our suppliers. When they
become better, we become better,” said Jenny Sim, VP Global Sourcing, Foot Locker
Inc. Industry standards will enable improved communication between retailers, brands,
suppliers and other parties in the supply chain. The industry is moving towards
collaboration on an agreed set of standards. “There is a need for a common
understanding on the top issues, even 60% of what we can agree on. The industry needs
to drive change versus the NGO’s.” – Philip Poel, Managing Director, Under Armour
Other sourcing trends to look out for:
Additive Manufacturing – 3D printing.
As 3D printing matures and decreases in price, it could mean that retailer could promise
“No wait time” to bring products to market; more innovative products thanks to lower
R&D; smaller, more specific-content shops; and super-customized products. Wohlers
Associates predicts the additive manufacturing industry (3D printing) will be valued at
$3.1 billion worldwide by 2016 and $5.2 billion by 2020.
“We as an industry have a target on our back. The answer is improved
communication and collaboration.” – Peter Kaminsky, Managing Director,
Carter’s Global Sourcing
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Topic Spotlight: Sustainability
With the recent factory fires and building collapse in Bangladesh, global apparel
sourcing and manufacturing is facing ongoing scrutiny. The issues extend beyond
Bangladesh to other low cost sourcing countries such as Cambodia where two factories
collapsed in May.
On the plus side retailers and brands are taking some action to improve worker
conditions and fire safety and raise the standards of safety.
Recent Agreements include the Accord on Fire and Building Safety in Bangladesh which
was signed by H&M, Indetex (Zara), Primark, Tesco, Marks & Spencer and PVH. The full
Accord on Fire and Building Safety in Bangladesh is available for download here.
At this point, retailers and brands are willing to pay to improve conditions, but the
bottom line is still cost. Bloomberg recently produced an interesting graphic (below)
which highlights how squeezed apparel suppliers really are and how a few cents on one
apparel item can make a difference.
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About Core Solutions Core Solutions (CORE) helps retailers, brands and suppliers streamline their supply chains,
from Concept to Delivery. CORE’s extended supply chain management platform (CBX)
enables organizations to drive greater speed, agility and efficiency and profit in bringing
private label and branded merchandise to market.
The CBX platform includes modules for Planning, Product Development, Buying,
Sourcing, Order Management, Logistics and Finance.
CBX Sourcing Solution Provides automated request for quotes for one or more products.
Vendors receive email notifications and reminders automatically.
Vendors complete quotes online or via Excel interface.
Side-by-side quote comparison, with configurable Estimated Landed Cost (ELC)
What-If analysis enables staff to adjust cost components to refresh ELC.
Facilitates quote review, shortlisting and confirmation between buyers, category
managers and sourcing team.
Vendor can upload photos/images and product documentation, such as
instructions, certifications and 3rd party test reports.
Helps Reduce overheads in issuing RFQs and processing quotes.
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Next Steps
Are you a retailer or a brand interested in:
Streamlining your sourcing operations?
Scaling your direct sourcing?
Growing your private label program?
Driving greater visibility through your supply chain?
Increasing profitability for your company?
Click below to learn more about how Core Solutions can help:.
Request a Callback
Request a demonstration
Email: [email protected]
Or call us directly:
Americas: 1.908.898.1880
Europe: 44.20.8133.0328
Asia: 852.2378.6300