CMT vs Package sourcing
Cleaning off my desktop I came across this question I’d never posted. Oops. I include it now because it’ll still be useful to those with similar questions or those who have not considered the implications and challenges of growth and how it can change the primary focus of their companies. I have nothing against larger concerns but I like working with smaller operations because accountability is direct, there’s less diffusion of responsibility and costs are lower. Also perhaps surprisingly, it is smaller companies that employ the most people (my primary motivation here), especially domestically.
This visitor wanted to know my opinion with regards to CMT vs. Package sourcing. For reference, CMT means hiring a contractor for the functions of Cut, Make and Trim. Package refers to contracting for sourcing the goods as well or Fabric, Cut, Make and Trim. In other words, if the cost of fabric is included in a vendors cost, they are Package.
…at the moment half of our vendors are CMT, and half are Package. We pay all our vendors commission on sourcing trims overseas that we find here in LA. The problem that we are having is that we have so many styles and so many deliveries, we can’t keep up with our fabric buys, and ensuring that fabric is in the CMT factories when it is needed. Our goal is to have all our CMT vendors buy fabric directly from our mills [established vendors]. This way we, as a company, are not liable for deliveries being late due to fabric delays. The vendor must follow up on the fabric, and if it’s late, they are responsible for ensuring garment deliveries are kept. Right now, most of our deliveries have slid because we couldn’t keep up with the mills. I feel like we push everyone to be on time, but we can’t seem to do it ourselves. One package vendor, whom I adore, tells us the truth. (I won’t say what company…although someone here knows) “John expects us to always be on time, we are penalized for not keeping deliveries, even when it is your fault. I am obligated to work with you, but you can’t expect me to be nice when my company is being held liable for your mistakes.” I love them, but why does the production team get all the anger? We just pass on what Design, Sales, and our bosses tell us to.
Yes, all Package programs will save on follow up work when it comes to fabrics, but then we won’t know why the delivery is late, and we have to trust that our vendors will keep us informed if things are falling behind. I think that we are relenquishing more & more control of production, and it’s going to back fire in the company’s face. What are your thoughts, which is better CMT or Package? Pls don’t base your opinion on my comments above, I’m just venting.
First of all, regardless of what you are outsourcing be it CMT or Package, you will still be held liable for failure to deliver to your customers. In a large operation I think issues become distorted; internally it may be useful to have someone to blame or hold accountable but it makes no difference to your buyers -who won’t be getting their goods- or to sales reps -who won’t be collecting their commissions- even assuming your contractual internal controls can temporarily offset sales losses. Regardless of size, the company won’t be in business long without product deliveries no matter how many chargebacks you can levy (and presumably collect) from erstwhile vendors who may have their own very legitimate reasons for failing to acquire the goods in a timely manner. For smaller enterprises, this situation is untenable as few are likely to have the wherewith all to enforce the payment of fines. Maybe you’ll get it eventually but you may go broke trying to collect.
The allure of package sourcing is strong, more tempting than the Siren’s song. I know that few of you can resist thinking about it because the idea of having someone else deal with the hassle of sourcing fabric is tempting but is that something you really want to do? Is it something you can do? Most smaller producers rely on the uniqueness of fabrications to sell their goods so fabric selection is rarely such that it can be sourced generically. Package is more common with commodity goods or utility items with highly engineered specifications, things that are easily detailed and quantified. Still, it is possible to package certain product lines -activewear for one- but smaller operations will still have to deal with longer turn around times when in general, a large number of them owe their competitive advantage to speed. In other words, you’ll have to inspect the goods the vendor proposes to use for your line; you can’t just trust them. That takes time and money.
Assuming you’re not in commodity goods like denim or tees, I think most everyone should source their own fabrics because you may not realize the cost savings you anticipate. There is no doubt that a package vendor producing denims, who is sourcing for several product lines and not just yours, will have greater economies of scale and can get better fabric prices than you can but the issue is, the vendor is sourcing for several product lines, not just yours so it’ll be harder to set yourself apart from competitors in your market. Another issue is testing the goods for performance; will the package vendor test the goods to comply with your specifications? You may end up spending more on attorney’s fees than it would have cost you to do the sourcing yourself. I think a better situation could be that you develop a relationship with a CMT contractor who then becomes a package vendor once they’ve (and you have) proved themselves.
Lastly, I just don’t think the savings are really there especially if you’re a small operation. It’s not Lean, you’ve added layers of complexity when you think you’ve added accountability and there’s always a price for that. Being pig-headed, all of this tends to rub me the wrong way because when it comes down to it, smaller companies are more profitable than large ones. They are you know. Dollar for dollar, calculating sales and profit per employee, smaller companies make more money than large ones.
I know quite a few of you have dealt with these issues too. I await your two cents.