New Trends and Challenges For Sourcing

Posted: 09/22/2021 - 09:00
New Trends and Challenges For Sourcing

New Trends and Challenges For Sourcing

With the COVID-19 Delta variant threatening pandemic recovery around the world, brands that source products globally are facing supply chain challenges in a business landscape mired by transit limitations, factory shutdowns, surging shipping costs, delays, labor shortages and rampant supply shortages. As brands shuffle to meet volatile consumer demand, recent data on inspection activity and digital transformation initiatives outline the most recent trends that are reshaping sourcing and supply chain strategies.

Virus Resurgence Threatens China’s Remarkable Rebound

Building on momentum after a promising first quarter, China’s sourcing footprint continued to gain ground through the second quarter and recorded growth that exceeded 2019 levels, according to a quarterly inspection and audit report.

Demand for inspections and audits in China expanded by a colossal 34% year-over-year (YoY) in the second quarter of 2021, which represents 21% growth when compared to the same time period during 2019 – long before the COVID-19 pandemic tore apart global supply chains.

However, with the world still entrenched in the pandemic and all eyes on the Delta variant, China’s stunning rebound is putting a gentle foot on the brakes. The pace of expansion decelerated through the second quarter, slowing from 25% growth in April (compared to 2019 figures) down to 20% growth in May and then 17% growth in June. 

Unfortunately for China, the interest of Western buyers in its sourcing largely follows the same downhill trend – especially for North American buyers. While demand from U.S.-based brands for inspections in China was up by 10% in the second quarter (when compared to the second quarter of 2019), the pace of the rebound has also been losing steam on a month-to-month basis.

While China’s rebound in sourcing has been remarkable, it is worth noting that the recovery has not touched all consumer goods industries the same way. For example, while homewares and electronics recorded double-digit YoY growth in the first half of 2021 (compared to both 2020 and 2019), inspection and audit demand is still trailing behind pre-pandemic levels in some of the country’s key sectors, such as eyewear and the clothing (textile and apparel) industries.  

Sourcing Demand in South Asia Skyrockets

After a disastrous 2020, when clothing brands sat on mountains of unsold inventory worth billions of dollars, the textile and apparel sector is in comeback mode. As consumers emerge from quarantines and reenter public spaces, the clothing industry has compensated for its aforementioned reduced interest in China with continued expansion through various sourcing markets elsewhere in Asia.

In particular, South Asia’s established markets are recording explosive growth, with demand for inspections in textiles and apparel up 81% in India and 66% in Bangladesh in the first half of 2021 when compared to pre-pandemic 2019, according to the quarterly inspection and audit report. 

Growing demand for textile inspections was also recorded in markets of Southeast Asia (including Cambodia, Indonesia and Vietnam), South and Latin America (including Mexico, Haiti and Guatemala) and the Mediterranean (including Turkey, Morocco, Jordan and Egypt). Markedly, while the latter region has traditionally been favored as a sourcing market for European-based buyers, the second quarter of 2021 saw it recording an uptick in inspections and audits from U.S. buyers.

The growth in these alternative markets suggest that brands remain focused on diversifying sourcing from new markets to circumvent sustained pandemic delays and alleviate uncertainties about the future.

Soaring Demand from Western Buyers

As the sourcing industry in multiple sectors and regions continues to defy the pandemic slump and vigorously climbs upward, some markets in Southeast Asia are benefiting from exceptionally high buyer interest. For example, Vietnam, Cambodia, Indonesia and Thailand all recorded double-digit growth in demands for inspections and audits in the second quarter, according to the quarterly inspection and audit report.

Cambodia, in particular, remains high on the list of go-to alternative sourcing markets for U.S. buyers. In the second quarter of 2021, volumes for inspections and audits in Cambodia shot up nearly 100% compared to 2020; when compared to pre-pandemic 2019, 2021 volumes in the second quarter still represented a 23% YoY increase.

Digitization Illuminates Blind Spots and Enhances Quality Control

Up to 77% of companies admit to having sourcing blind spots in their supply chains, according to a recent survey of global brands from our digital and technology division QIMAone, and two-thirds report that they don’t have streamlined communications in place with their suppliers.

When you couple this lack of transparency with supplier delays – like we continue to see amid pandemic disruptions – it spells out disaster for a brand’s sourcing footprint. Inevitably, to be successful, brands must illuminate these blind spots and achieve end-to-end supply chain visibility, particularly in the inspection process.

Being successful on this front may require a shift in operational priorities, however. While pricing and perceived value have traditionally been seen as the main drivers of consumer trends, brands may be surprised to learn how influential quality measures are on the bottom line too. Poor quality costs can add up heftily and account for up to 40% of operational expenses when there’s an underlying problem.

Moreover, some brands may be unprepared to level up quality control programs in an evolving consumer marketplace. According to a recent survey on consumer sentiment, product quality was found to be a key driver for 40% of younger consumers, suggesting that the focus on quality will continue to sharpen into the future.

Considering the mounting prominence of quality, the case for sourcing digitization is quite compelling: 14% of brands say that product quality issues have a “very serious impact” on their business; but for those with highly digitized supply chains and sourcing processes, this number is cut down to just 7%.

Looking Ahead: Balancing Diversification With Compliance Objectives

Unfortunately, according to historical inspection and audit data, a sudden surge in export volumes has brands diversify sourcing markets – such as what we’re seeing in South Asia and Southeast Asia – often comes at the cost of quality and ethical missteps, including compromised worker safety.

This correlation is once again rearing its ugly head as brands try to move to the other side of pandemic recovery, according to data gathered by structural engineers during field audits at reopened factories. Among the factories inspected for structural, fire and electrical safety thus far in 2021, two-thirds were found in need of remediation, according to the quarterly inspection and audit report. Fire safety was a particularly dire concern, with over half of the factories audited in the first half of 2021 requiring improvements in the near term.

Meanwhile, ethical compliance overall continues to plummet at an alarming rate, with average ethical scores dwindling by a further 4% (when compared to the first quarter of 2021) to scrape a three-year low. These troubling figures show that the ongoing specter of the pandemic – as factories globally struggle to reorganize, recoup and adapt to volatile consumer demand cycles – threatens to undo much of the pivots and improvements that brands made toward ethical supply chains in the pre-pandemic period.

To forge ahead safely and responsibly in today’s uncertain sourcing landscape, brands must prioritize human rights, environmental sustainability and quality in their recovery programs – or risk facing costly lawsuits, hefty fines, operational inefficiencies and irreparable brand damage.


About The Author

Sébastien Breteau's picture

Sébastien Breteau is the founder and CEO of QIMA, a quality control and compliance service provider that partners with brands, retailers and importers to secure and manage their global supply chain. Breteau has more than 20 years of experience in supply chain management, founding his first sourcing company in 1997. 

Founded in 2005, QIMA has become a leading player in Asia and has expanded its operations globally to more than 35 labs and offices, 4,000 employees, and operating in 85 countries. In 2020, the company launched QIMAone, a collaborative platform that digitizes quality and compliance management for global brands, retailers, and manufacturers.