Bangladesh is one of the leading exporters of Ready-Made Garments (RMG) in the world and earning nearly 76 per cent of its foreign exchange through exporting textiles and ready-made garments. Presently, almost 100 per cent export-oriented knitted fabrics are being produced in the country but more than 60 per cent of the export-oriented woven fabric is imported making our RMG costlier. Apart from woven fabric, we have to import 100 per cent of dyes, chemicals, spare parts and machinery. In RMG, the supplier provides final manufacturing cost to the buyer prior to order confirmation. For that a factory prepares cost sheet estimating costs in different heads like Fabric, Trims and Packing materials, Labour cost and Overheads. In old-paradigm companies, cost reduction efforts are focused primarily on raw materials and materials because that is all that most cost systems are able to quantify, besides labour. We must find out some ways to minimise the cost in order to be competitive in the world market. So it is very clear that, to sustain in the business in the world market on a long-term basis, Bangladesh should improve its export-oriented textile and RMG sector and offer better price than other competitors in Vietnam, Cambodia, etc. Bangladesh should simultaneously try to increase the export price in order to gain further from these sectors. Value addition is one of the best ways to maximise profit. Value addition means increasing sales value. There are various ways by which value can be added to a product. For example, two shirts both of same size and produced from similar raw materials by two different companies, may be sold in the market with substantial difference in prices. The reason could be one of many e.g. brand, quality control, dyeing or finishing processes used, special finishes like moth-proof or fire-proof, attribution of art works like embroidery and attachments etc. While the sector is under pressure from buyers to reduce the price in order to remain competitive in the global market, it needs to increase profit and reduce costs to achieve the target. It is estimated that product sourcing costs can be as high as 60 per cent to 70 per cent of sales; non-product sourcing costs (e.g., factory building, fixtures, professional services, marketing and advertising) can be a significant source of savings as well. Most buyers/retailers have significant savings opportunities in trimming product-and non-product-sourcing spending. In non-product spending areas, the focus is twofold. Externally, retailers can aggressively negotiate more favourable terms across companywide spending. Internally, they can reevaluate the selection of the products and product specifications driving overall costs, as well as the selection of vendors meeting those product and service requirements across multiple brands and businesses. There are always middlemen in the market to reach the products to the ultimate consumers from the manufacturers. As such, price of the products increases and the consumers pay the high price. Because, the First Sale is one which occurs between the manufacturer and the middleman. The Second Sale is one which occurs between the middleman and the importers. There is three-tier transaction: Manufacturer to Middleman, Middleman to Importer. In recent times, retailers are takingt cost of supply chain and manpower, etc. into consideration. They are considering reaching the suppliers directly skipping the service of agents. If the standard commission of buyers’ agent is considered, the retailers can reduce the cost between 5.0 per cent and 10 per cent through an aggressive strategic sourcing programme centring direct negotiations and improving collaboration with vendors. Benefits can be higher depending on the retailer’s sourcing capabilities and willingness to pursue product- and agent-related savings. But ultimately, for all retailers, minimising costs across the entire sourcing spend spectrum requires a broad set of capabilities, flexible processes and renewed negotiations with supplier garment industries. For spend areas directly related to final merchandise, savings come largely from optimising the sourcing operating model. A key decision is how to source each product type, i.e., whether to use internal resources or agents. The retailers can evaluate product requirements, by category or brand, and unearth savings opportunities across each tier of their supplier base. Bangladesh RMG is dominated by buyers’ agent, who negotiate the deal between garment industries and overseas buyers. They also monitor the production and issue quality certificates. In some deals, they approve the source and quality of raw materials. In many cases the letter of credit (L/C) from buyers is issued in favour of buyers’ agent and the agent transfers the L/C to garments industries. The agents some time handle the matter in such a manner that both the buyer and seller remain in the dark about the margin of these buyers’ agent. The most successful retailers systematically analyse their entire spend spectrum and then develop a comprehensive strategic sourcing programme accordingly. Such a programme addresses the cost drivers unique to a particular spend area and also takes into consideration specific market, garment industries and product needs so as to not jeopardise product quality or customer experience. Recently, the global garments giant Mark & Spencer’s has decided to skip service of buying agents and purchase garments directly from factories in order to reduce the cost of products. They have already set up their Supply Chain Department with experienced executives as reported in Daily Mail (Online) dated October 25, 2015. This is a major decision which may have an impact on our garment sector since other buyers will follow the same strategy to reduce cost. Bangladesh garment factories do not apparently have sound marketing strategy and lack efficient marketing executives and are unable to deal with overseas buyers directly. The sector has hired many Sri Lankan, Indian and Pilipino production and quality control executives to gain confidence of the buyers. In fact, Bangladesh is relying on buyers’ agent for orders. Bangladesh RMG sector does not also have sufficient number of skilled workers and it is not possible to fill up the gap overnight since the sector requires a huge manpower. Private universities (including specialised garments one) offer BBA course but unfortunately have until now failed to fill up the gap of skilled manpower in the marketing sector. Moreover, in order to reduce dependence on western market, a serious effort should be made to explore new markets for RMG exports. Japan, Australia, Russia, Eastern Europe, the Nordic countries, Central Asia, Africa and the Middle East are some of the places where a serious effort can be made to carve out a niche for Bangladesh garments. Last but not least, the RMG sector must prepare itself to face the challenge of dealing directly with the garment retailers in the western market bypassing the buyers’ agents.
