Background

Our client is an e-commerce company in the fashion industry, providing services to many countries like America, Canada, and Africa. The client is looking for a cost-effective, sustainable supply chain solution from raw materials to manufacturing the product. The global presence of suppliers and manufacturers from various countries puts different parameters into the problem, like costs, time, and sustainability practices.

Omega Strategy

Omega has provided the client with a complete analysis of the suppliers and manufacturers from different countries and the associated costs.

Suppliers and Manufacturers

Kenya textile industry chain adopts the CTM (processing with supplied materials) mode. Kenya has a small cotton resource, and fabrics mainly depend on imports. Kenya’s local textile and garment industries are relatively backward in development. Still, it has become one of the key countries in Africa to attract foreign investment in the textile and garment industries due to low prices of production factors and preferential investment policies. CK, Arrow, Izod, Cherokee, H&M, and other international brands have set up production and processing bases in Kenya.

The current textile industry is relatively scattered and has no mature industrial chain, which is reflected in the production and sales lack of necessary connection. Second, many small and micro-enterprises can only produce low-value-added products, and equipment is relatively simple. The textile and garment companies registered in the KenyaExport ProcessingZone (EPZ) include 22 large foreign companies, 170 medium-sized companies, eight cotton gin mills, eight spinning mills, 15 weaving, and knitting companies; nine accessory manufacturers, and more than 75,000 small and micro-enterprises.

China is the second-largest producer of cotton and the largest consumer and importer of the commodity. The 2020-2021 cotton output is about 5.95 million tons, but it still faces a demand gap. Currently, China’s total fiber processing volume accounts for about 50% of the world’s chemical fiber output, which accounts for about 70%, and total export volume accounts for about one-third. In terms of total capacity, China’s textile industry chain has generally reached the advanced or leading international level regarding varieties, output quality, production efficiency, independent technology, and equipment.

Textile and garment exports continued to grow in the first half of 2021. As the global textile and garment industry chain was forced to halt due to the epidemic, many orders have moved from Southeast Asia to China, resulting in a substantial increase in orders. Currently, China’s textile and garment industries face the problem of rising prices of raw materials and labor, which makes their sales profit decline.

India is one of the world’s largest producers of cotton and jute. India is also the world’s second-largest silk producer, with 95 percent of the world’s hand-woven fabrics coming from India. India’s cotton exports jumped 40 percent in 2020–2021 from the previous year due to the depreciation of the rupee and higher global prices. India’s industrial textiles sector is estimated at $16 billion, about 6% of the worldwide market. India’s textile and clothing sector is the country’s second-largest employer, providing direct employment to 45 million people and 100 million others in related industries.

Cost Allocation

Production costs determine the base price. The input of labor and materials directly affects the quality of goods. The most important thing to consider in finding a manufacturer is whether the factory equipment and the laborers’ skills can achieve the quality the brand pursues. In cooperation with factories, brands will also encounter various issues, such as product quality, delivery time, and rework time. Therefore, brands must find the right factory. How to better communicate and avoid a run-in with factories is a problem that brands need to explore constantly. Second, the amount of output is also an essential factor in determining factory costs and final prices. Omega has suggested some suppliers and manufacturers based on the factors mentioned above.

The choice of fabric directly determines the final texture of an item. Still, given that some materials are scarce and expensive, most brands have had the experience of compromising costs in production. There are two main methods to control the cost of fabric. They are:

Balance the positioning of pricing and overall brand value and make appropriate optimization and adjustments in the selection of materials and processing technology to control the cost of products.

The other way is the reverse: The brand first develops a table of products, including prices and categories, then makes competitive products according to this framework.

Impact

The insights from the analysis provided by Omega have helped the client select the best supplier and manufacturer to improve their supply chain to be more sustainable and cost-effective. The cost analysis has given them insights into better management of the costs in various areas for better growth.

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