Fools Gold

Global sourcing has been a godsend for many Australian companies – in particular given the Australian dollar’s golden run against the “green-back”. It has dramatically reduced merchandise costs and increased margins for many – let’s face it – ordinary retailers.

But some have been incredibly lazy at taking the saving with little or no thought about the hidden costs of doing business off-shore.

The biggest of these are Total Quality Management (TQM) principles covering everything from sustainability to ethical practices to quality of goods and standards. Mattel Corporation is neither the first nor the last global brand to get into trouble sourcing cheap off-shore production. Lead poisoning makes an emotional editorial. The class action that will follow will make an even bigger one.

Employment practices; adherence to globally accepted production standards; sustainable and ethical practices; moral rights; copyrights; and environmental impact are just some of the issues that some retailers may very shortly be paying very large penalties for ignoring.

Global sourcing is a powerful and positive part of international commerce. It is a viable and important part of any retailers mix. However, it needs to be approached as rigorously as any other part of a well managed retail business.

The good retailers spend a great deal of time, money and organisational effort in managing TQM principles in their global sourcing. They run their own systems and testing procedures to ensure minimum compliance and standards are exceeded. They understand that investing a small part of the margin gain in these kinds of practices is good business and not just because they understand the moral obligation of their brands to their customers.

Good retailers build businesses that customer want to do business and want to keep doing business with. Saving money on buy cost through global sourcing creates an available pool of funds for investment in innovation, differentiation, quality and dependability as well as increased margin. They can all be accommodated comfortably and for the long term.

Short cut exploitation has always been a temptation in retail. But the good retailers know that short-term greed may line your pockets for a while. But it has a habit of burning a hole in them in the longer term.