By Paul Scott Abbott, AJOT
Latin America may have lost luster as a source for apparel, but it will never be entirely replaced by the Far East and Middle East, according to a logistics executive for San Francisco-based specialty retail giant Gap Inc.
Alex Albertini, international logistics manager for Gap Inc., told an Oct. 12 gathering of the South Florida Roundtable of the Council of Supply Chain Management Professionals (CSCMP) that his firm is sourcing only about 20% of its merchandise in Latin America. Using factories in the Americas, however, continues to have benefits.
“A diversified sourcing network is essential,” Albertini said, citing the importance of diversification in reducing overall sourcing risks. “I would never source everything out of one region.”
Albertini noted that Gap Inc.‘s source countries outside Latin America include China, Turkey, Jordan and Vietnam. As for domestic US sourcing, Gap Inc. has “almost none,” with socks being a product line exception, he said.
Gap Inc., with $16 billion in annual revenues, operates some 3,000 stores under brands of The Gap, Banana Republic, Old Navy and Forth & Towne.
While retailers typically pay more for product from Latin American factories than they do for goods made in China, sourcing in Latin America, according to Albertini, offers advantages such as speed in getting onto the shelves of US stores goods reflecting the hottest fashion trends, flexibility to make last-minute changes, and quality and innovation on the part of some vendors in such areas as wash-finishing of jeans.
“It’s not as simple as, ‘It’s cheaper over there,’” Albertini said, referring to China during a presentation on what he termed, “a very delicate subject” - “Global Offshore Sourcing: Latin America vs. China and Beyond.”
Albertini opened his presentation by displaying two pair of similar-appearing jeans - one made in China, the other made in Guatemala. He said, “The consumer does not want a product from Guatemala or China. It doesn’t matter where the product comes from. What matters is that it’s readily available to the consumer.”
So, if a particular item can be sourced quickly out of Latin America while returning the company $1 of profit per $1 invested, there is little point in considering shifting that item’s source to China, Albertini said. Such items, which generate substantial profit margins with swift inventory turnover, constitute “company treasures” as they register high marks on the critical metric of gross margin return on investment, or GMROI, he added.
The delivery of good global logistics, according to Albertini, includes four key elements in addition to cost, those being movement of product, movement of information, time and service, and integration of the entire supply chain.
Factors in sourcing management noted by Albertini include distance, foreign intermediaries, regulation, security, modes of transportation, warehousing and inventory management and third-party logistics management.
Industry demands lowest prices
Daniel Grimes, one of the third-party logistics executives attending the Hilton Miami Airport luncheon program told the American Journal of Transportation that his firm, UTi United States Inc., favors urging multiple lines of supply.
“Don’t put all your eggs in one basket,” said Grimes, who is Uti’s Miami-based vice president of sales and marketing for Latin America. “There could be SARS. There could be backlogs.”
Grimes said UTi customers such as Levis continue to favor Latin America as a primary source, while relying on Asian factories for a smaller percentage of product. Factors in Latin America’s favor, he said, include proximity, speed, quality of workmanship and flexibility in design.
“The Chinese are more process-oriented, like, ‘This is the way we do it, and that is that,’” Grimes said.
Another luncheon attendee, supply chain management consultant Paul S.