Study identifies potential hidden costs of outsourcing production and how IT can help attain both high quality and low cost.
(SAN DIEGO, CA., APRIL 21, 2009) A new report commissioned by Lawson Software (Nasdaq: LWSN) exposes potential hidden costs and risks of outsourcing production of sportswear garments to manufacturers in low-cost countries. According to the findings*, many companies fail to identify hidden costs when developing their outsourcing strategies. Quality control, inefficiency, credit, the cost of establishing a supply source, and travel to resolve issues can add unexpected costs. Lengthy transportation and unplanned delays at ports of entry can also add significant costs, because companies may need to establish extra inventories as a precaution.
As an example, shipping garments from Asia to Northern Europe can typically take 6-8 weeks. But shipping from Eastern Europe or North Africa to Northern Europe often takes 6-10 days. Added lead time, last-minute rush delivery charges and lost sales can add more costs.
“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,” said Andrew Dalziel, Lawson marketing director for fashion. “Multi-sourcing recognizes 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 lower cost options that require much longer lead times. They need greater agility to deal with unexpected demand shifts, higher or lower, and IT plays an important role in these global sourcing strategies.”
The traditional belief that lowers costs means lower service quality is shifting to the notion that low cost and high quality service can be attained through efficient and effective use of IT. Peter Bambridge, Research Director at Gartner Inc. comments, “The real synergies of outsourcing production can be found in IT systems and long-term partnership relationships within the supply chain that can lead to sustainable performance improvements. Harnessing the benefits of IT can help overcome difficulties of distant locations in the global apparel supply chain to ensure retailers’ demands for speed and flexibility as well as total quality are met.”
The Lawson-commissioned report contains research data on key performance metrics for sportswear, providing a benchmark for companies in the industry. This analysis follows an Operational Excellence report that Lawson published in 2008. The latest report identifies some average key metrics for business performance among sportswear companies today:
• 6.7 percent net profit margin
• 34.8 percent gross profit margin
• 10.3 percent return on capital expenditure (ROCE)
• $1.23 earnings per share (EPS)
• 5.9 inventory turns per annum**
The report recommends that those that are not achieving or exceeding the above metrics should consider reviewing their business processes and identifying potential improvement opportunities and potential hidden costs. The full report is available at www.lawson.com/sportswearreport.
Lawson is a leading business applications supplier to the sportswear industry and its solutions have been selected by three of the top five surfwear companies and its sportswear and sports goods customers help to clothe and equip five of the world’s top ten golfers.
* Research methodology – The Supply Chain Performance in the Sportswear Sector: Analysis of Key Performance Metrics was commissioned by Lawson, and produced at Heriot Watt University by Dr. Neil Towers, senior lecturer in Fashion Supply Chain Management and Patsy Perry, final year PhD researcher. The report contains both a qualitative of the current trends towards outsourcing and a quantitative analysis of the key performance metrics of companies operating in the manufacture and distribution of sportswear. Key performance metrics were collected from the published financial data of 51 sportswear companies worldwide.
** Definition of Inventory Turns per Annum – Inventory turns per annum is the number of times a company turns over its investment in inventory within a 12 month period. It is calculated as the cost of goods sold in a 12 month period divided by the average inventory value.
About Lawson Software
Lawson Software provides software and service solutions to 4,500 customers in manufacturing, distribution, maintenance and service sector industries across 40 countries. Lawson’s solutions include Enterprise Performance Management, Human Capital Management, Supply Chain Management, Enterprise Resource Planning, Customer Relationship Management, Manufacturing Resource Planning, Enterprise Asset Management and industry-tailored applications. Lawson solutions assist customers in simplifying their businesses or organizations by helping them streamline processes, reduce costs and enhance business or operational performance. Lawson is headquartered in St. Paul, Minn., and has offices around the world.
Visit Lawson online at www.lawson.com.
This press release contains forward-looking statements that contain risks and uncertainties. These forward-looking statements contain statements of intent, belief or current expectations of Lawson Software and its management. Such forward-looking statements are not guarantees of future results and involve risks and uncertainties that may cause actual results to differ materially from the potential results discussed in the forward-looking statements. The company is not obligated to update forward-looking statements based on circumstances or events that occur in the future. Risks and uncertainties that may cause such differences include but are not limited to: uncertainties in uncertainties in the software industry; uncertainties as to when and whether the conditions for the recognition of deferred revenue will be satisfied; increased competition; general economic conditions; the impact of foreign currency exchange rate fluctuations; continuation of the global credit crisis; global military conflicts; terrorist attacks; pandemics, and any future events in response to these developments; changes in conditions in the company’s targeted industries and other risk factors listed in the company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. Lawson assumes no obligation to update any forward-looking information contained in this press release.