Retailers are adopting new strategic sourcing capabilities to meet shifting pressures from increased volatility and raw material costs, according to a new study of apparel, merchandise and grocery executives from Deloitte. Many organizations have boosted their sourcing of private labels. Consumer behavior is changing as mobility and online shopping becomes more common.
"Rapid population growth, skewed to developing regions, is increasing demand on raw material sources while providing new markets for low-cost labor," said Michael Daher, retail sourcing practice leader at Deloitte Consulting. "Additionally, online, mobile and social channels continue to disrupt the retail landscape . As low-cost online competitors continue to expand across more categories, private label provides an opportunity for retailers to defend their market share by offering products that are exclusive to their banner."
Daher added that new private label products require more advanced sourcing. Retail executives said raw material cost increases and volatility were their top market pressures, followed by higher labor costs and fuel price changes. Raw material, manufacturing labor costs and transportation fees made up around 80 percent of of total product costs. To meet new challenges, retailers were diversifying their sourcing locations, bringing production back to domestic vendors and consolidating suppliers. As costs of labor continue to rise and local currency appreciates, some organizations were seeking more cost-effective sourcing destinations, such as India, Vietnam, the Phillippines and Cambodia. Ethical product sourcing was a concern for 92 percent of organizations surveyed.
Organizations needed to realize there was not a one-size-fits-all approach to sourcing and must instead analyze their unique needs, Supply Chain Digest stated. Large companies constantly face a number of pressures, which requires sourcing strategies for change in market conditions. Reviewing operations regularly could allow executives to identify opportunities and improve areas of deficiencies.