Lawson highlights hidden costs of outsourcing

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Many companies fail to identify the hidden costs and risks of outsourcing to production manufacturers in low cost countries, according to the findings of a report looking at sportswear companies commissioned by Lawson Software.

Quality control, inefficiency, credit, the cost of establishing a supply source and travel to resolve issues were all highlighted by the research as being responsible for adding unexpected costs.

Lengthy transport and unplanned delays at ports of entry were also found to add significant cost, as companies may be forced to establish extra inventories as a precaution.

The report draws attention to the fact that shipping garments from Asia to northern Europe can often take six to eight weeks, whereas shipping from eastern Europe or north Africa to northern Europe takes six to ten days, which could result in added lead time, last-minute rush delivery charges and lost sales creating additional costs.

Andrew Dalziel, marketing director for fashion at Lawson, said: “With the total cost of sourcing in China increasing compared to eastern Europe or central America and the Caribbean, multi-sourcing is taking over from outsourcing.

“Multi-sourcing recognises the need to create different sourcing strategies based on product characteristics. So companies may look for shorter lead times for those fashion items that have uncertain demand, rather than using lover cost options that require much longer lead times.

“They need greater agility to deal with unexpected demand shifts – higher or lower – and information technology plays an important role in the global sourcing strategies.”

The report contains research data on key performance metrics for sportwear, offering a benchmark for the industry. It identifies some average key metrics for business performance among sportswear companies that it recommends companies should meet:
• 6.7 per cent net profit
• 34.8 per cent gross profit margin
• 10.3 per cent return on capital expenditure
• 84 pence ($1.23) earnings per share (EPS)
• 5.9 inventory turns per annum

Lawson advises those companies that are not achieving or exceeding the statistics above to review their business process and identify potential improvement opportunities and potential hidden costs.

The full report can be downloaded at

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