The cost of cotton: What if the price goes up?

The use of cotton dates to the Neolithic age and spans thousands of years to the present day. China, India and the United States are the largest producers of cotton, but countries around the world play major roles in its manufacturing. It has become one of the most important materials in daily usage and can be found in anything from candles to clothing, which means any change in the cost affects a large portion of the world.

 

Let’s travel back in time to 2011-2012 for a second. Cotton prices nearly doubled to 90 cents per pound and reached a 15-year high in 2011. To make matters worse, we saw an additional 10-15 percent increase in 2012, which continued to deteriorate the bottom line for both retailers and manufacturers. Cotton prices like we experienced over those two years impact the entire value chain from cotton farmers to end consumers. We need to learn from this experience and find a way for retailers and manufacturers to anticipate and manage the volatility by forecasting cotton demand.

 

With a recent cost increase of nine percent to 75.66 cents per pound, the highest level in the last two and a half years, retailers are hard pressed to find a solution to navigate the tough waters ahead. For some perspective, two-thirds of a basic cotton garment’s cost comes from the fabric and two-thirds of that fabric cost comes from raw cotton. An increase in the price of cotton would have a significant negative impact on the margins of both retailers and manufacturers if not managed well. It is crucial for retailers to find a way to communicate with suppliers and manufacturers to minimize price and manage supply and delivery.

 

Instead of relying on outdated manual methods like Excel to manage and track their costs, retailers need to invest in technology that allows them full visibility into all the potential variables like cost fluctuation in order to make fully informed and more accurate decisions.

 

Bamboo Rose provides an industry-proven solution to weigh the ‘what ifs,’ allowing retailers to:

  • Accurately forecast demand by benchmarking historical data and tracking material usage across product lines, seasons and departments
  • Stay updated on material price changes
  • Communicate with manufacturer partners to avoid last-minute surprises related to price increases and supply shortages
  • Conduct reliable margin analyses to make informed decisions

With a year of good weather ahead and increased acreage for cotton growing in the U.S., these prices may not stay high for long. Either way, retailers who can anticipate any changes in import or export expenses and the global price of cotton will be better prepared to manage how their business is affected.

 

Read our latest white paper for more info on how your company can go live on day one with PLM, Sourcing, and Global Trade Management & P2P to handle international challenges and implement “what if” costing.

About Ann Diamante

Chief Product Officer