Supply chain management: Retailers embrace new sourcing practices

Retailers, just like their customers, sometimes have to shop around to get the products they need to line their shelves. This process is called sourcing, and it’s an essential part of supply chain management—the journey from manufacturer to shoppers’ homes.

• IBM defines sourcing as the “process of identifying, evaluating and selecting suppliers to provide goods and services,” while procurement software provider GEP tacks on an important caveat, defining the sourcing process as including “every activity that revolves around identifying and assessing potential suppliers as well as selecting and engaging with an appropriate supplier who offers the best value.”

In other words, in supply chain management parlance, sourcing is about finding both the right products and the right price. But within that simple concept are a wide range of practices, and many retailers are now throwing out their old playbooks to adapt to changing economic conditions. Here’s a quick rundown of some of the ways sourcing is evolving:

Beyond China

You can’t talk about sourcing without talking about China. But while China remains the US’s third-biggest exporter, rising geopolitical tensions and higher tariffs have pushed a number of retailers to look elsewhere for their goods. For some, that has meant hopping over to other Southeast Asian countries such as Vietnam, India, and Malaysia.

• Walmart, for example, now sources a quarter of its US imports from India, up from 2% in 2018, according to trade data shared with Reuters. And while the company still sources 60% of its US goods from China, that’s down from 80% in 2018.

Buying local

That’s one way to get around the difficulties of international trade. Another is sourcing more products domestically, a strategy that Adidas signaled it was taking during its most recent Q2 earnings call. CEO Bjørn Gulden said that due to tariffs, “we are going to a model that is more local” and that “we have basically tried not to source any products anymore from China into the US.” Walmart similarly has invested in reshoring and localization of sourcing, even as it also seeks new international partners such as India.

Getting hands-on

Then there is the case of discount furniture outlets Big Lots and American Freight. Both recently started sourcing from countries such as Vietnam and Malaysia, but not because they were trying to move out of China or reshore their sourcing. Rather, they were previously purchasing mainly from domestic wholesalers and wanted to get closer to the manufacturing process. Setting up new sourcing capabilities in those countries has allowed them to work directly with factories to produce products tailored to their customers.

The need for speed

One change in the competitive landscape that is keeping retailers invested in China is the rise of Temu and Shein. As these Chinese fast fashion e-commerce companies have grown their presence in the US, Amazon has bolstered its presence in China with its new discount marketplace, featuring low-cost items that ship directly from its warehouses in China within 9–11 days.