Lesson 4: Manufacturing Strategy & Outsourcing

What are the 5 different manufacturing strategies?

OWN FACTORY

SUB-CONTRACTING / C.M.T. (Cut Making Trimming)

FINISHED PRODUCT PURCHASING / O.E.M. or O.D.M.

FULL TRADING

LICENSE OF PRODUCTION

What is own factory manufacturing?

Control the complete manufacturing process in internal workshops

What is subcontracting?

Model developed by « X » who is the owner

Choosing and buying of the yarns and materials by « X » who is the owner

An external factory only cuts, makes, and trims the product.

What does the manufacturing acronym O.E.M. stand for?

Original Equipment Manufacturer.

What does the manufacturing acronym O.D.M. stand for?

Original Design Manufacturing.

What is O.E.M?

Brand X designs the model.

The supplier manufactures the product.

Materials are chosen or approved by X, but the supplier buys them.

What is O.D.M?

The supplier already has designs.

Brand X chooses a model from the supplier's collection.

The supplier manufactures the product.

How do O.E.M. and O.D.M. models differ in terms of design origin?

In O.E.M. the model is designed by the brand ('X'), whereas in O.D.M. the model is chosen from the supplier's collection.

In an O.E.M./O.D.M. model, who is typically responsible for purchasing the materials?

The supplier, though the brand ('X') may choose or recommend them.

what is full trading?

Buying from the supplier's collection without brand

Affixing of the label « X »

What is the licence of production?

Exclusive production for a given territory

Design by « X » but industrial development by the supplier

Payment of royalties of sales by « X » to the supplier

What are the pros of own factory?

- Internal know-how

- product development, sizing, pattern

- product homogeneity

- reactivity

what are the cons of own factory?

social costs

What are the pros of Subcontracting

- reactivity if local

- flexibility of supply

- product differentiation

what are the cons of subcontracting?

- costs if local

- financial investment on textile

- know how in design and pattern making

- formulation of requirements

- import management if abroad

- size of supplier

What are the pros of O.E.M/ O.D.M?

- unique interlocutor for fabrics and making

- no financial investment on textile

- size of supplier

what are the cons of O.E.M/ O.D.M?

- delay

- follow

- import management

- formulation of requirements

- risk on grading

- risk of copy and counterfeiting if ODM

what are the pros of full trading?

-product availability

- creativity, specific know how (leather)

what are the cons of full trading?

- cost

- no differentiation

- quality

what are the pros of license?

- Unique

-Close relationship between teams

- homogeneity of products

What are the cons of license?

- all risk on the supplier

- risk for the supplier

What elements to take into account when outsourcing?

Marketing choice (made in ...)

Reactivity attentions

Raw materials, yarns and fabrics (wool, cotton, polyester/polyamide, blend, print, fantasy, laces, furs...)

Product : time to cutting and manufacturing, difficulty of manufacturing

Size of order

Transport (weight, packaging...)

Internal organization of the company

Access to the local market of outsourcing

What is a key marketing choice to consider when deciding whether to outsource manufacturing?

The impact of the 'Made in...' label.

What are direct import costs?

Fabric and labor costs

Agent commission

Quality control

Transport, insurance, customs duties

what are indirect import costs?

Travels, communication

Production controls, supplier audits

Financial costs (documentary credit)

Exchange rate risk

Transaction costs

what are cover costs?

Quality : repair, reconditioning

Delay, breaking of the supply chain : risk of commercial prejudice

Work conditions: reputation risk, image prejudice

The timeline of sourcing history indicates that in the 1970s, production was primarily _____ and retail was non-concentrated.

local

What two major events in 1989 and 1994 significantly impacted global sourcing?

The fall of the Berlin Wall/China's opening (1989) and the implementation of NAFTA (1994).

A purchaser pays for more than just the direct workers' wages; what is an example of another cost included in the price?

Managers, machinery and building depreciation, energy, or taxes.