2. .1 Arezzo&Co Sourcing: Competitive
1 Advantages
Brazil and the Vale dos Sino offer strong competitive advantages, a combination of
production capacity, skilled labor and production flexibility
Brazil is the world’s third largest footwear producer
The world’s largest livestock population: 13% of the market
RS: 1 third (BRL 1 billion) of Brazilian revenue for leather industry
Vale dos Sinos: one of the world’s largest footwear manufacturing hubs
Abundant skilled and specialized labor force
Production flexibility: volume vs. variety vs. speed
1,700 manufacturers: components, footwear, machinery, tanneries and others
trade entities and research and teaching institutions
Source: Abicalçados, 2012 / ASSINTECAL / FAO / AICSUL. 2
3. .2 Arezzo&Co Sourcing: Competitive
1 Advantages
Arezzo&Co is a leader in the Brazilian leather fashion footwear sector, but also has
great growth potential through domestic sourcing
Women’s leather footwear production: nearly 70% of Brazil’s leather footwear production
Brazilian Production * Leather footwear * Women’s leather *
819 237 160
* Milion of pairs
Vale dos Sinos: 26% of Brazilian footwear production
BRAZIL SOUTHERN REGION Vale dos Sinos
Production (million pairs) 819 Production (million pairs) 270 Production (million pairs) 216
Jobs (thousands) 338 Jobs (thousands) 138 Jobs (thousands) 110
Source: Abicalçados, 2012 / ASSINTECAL / FAO / AICSUL./ Arezzo&Co 3
4. .3 Arezzo&Co Sourcing: Competitive
1 Advantages
Arezzo&Co is a leader in the Brazilian leather fashion footwear sector, but also has
great growth potential through domestic sourcing
Brazilian leather industry: Distribution of components and tanneries:
749 tanneries Components:
- Micro: 4%
- Small: 4%
Leather production: Components: - Medium: 5%
- Micro: 3% - Large: 7%
• Bovine: 43,0 - Small: 2% Tanneries: 12%
• Ovine: 5,0 - Medium: 4%
Tanneries: 4%
• Goat: 2,5
Vale dos Sinos component manufacturing:
• 31% of Brazilian companies in the category Components:
- Micro: 1%
# of # of - Small: 3%
Segment Segment
companies companies - Small: 3% Components:
Tanneries: 10% - Micro: 38%
Outsole complements 27 Upper materials 78 - Small: 40%
- Medium: 44%
Upper complements 197 Insoles 33 - Large: 60%
Tanneries: 34%
Components:
Footwear production
Packaging 46 47 - Micro: 54%
chemicals
- Small: 51%
Leather production - Medium: 41%
Tools, dies/moulds 152 37
chemicals - Large: 33%
Heels, outsoles and Tanneries: 41%
Chemicals 83 134
high heels
Source: Abicalçados, 2012 / ASSINTECAL / FAO / AICSUL. 4
5. .4 Arezzo&Co Sourcing: Competitive
1 Advantages
Competitive lead time, costs and minimum production requirements to serve the
Brazilian fashion market
CHINA (different clusters)
Lead time: 120 to 150 days
Minimum/model: 5,000 pairs
Minimum/construction: 20,000 pairs
Production cap. (pairs): 10,000 million
ITALY Cost (FOB): USD 16-18/pair
Lead time: 70 days Cost (DDP): USD 42-45/pair
Minimum/model: 800 pairs
Minimum/construction: 4,000 pairs INDIA
Production cap. (pairs): 202 million Lead time: 160 days
Cost (FOB): USD 35/pair Minimum/model: 5,000 pairs
Cost (DDP): USD 49/pair Minimum/construction: 20,000 pairs
Production cap. (pairs): 2,000 million
Cost (FOB): USD 15/pair
Cost (DDP): USD 23/pair
VIETNAM
Lead time: 120 to 150 days
Minimum/model: 2,000 pairs
Minimum/construction: 8,000 pairs
Production cap. (pairs): 682 million
BRAZIL Cost (FOB): USD 18/pair
Lead time: 40 days Cost (DDP): USD 26/pair
Minimum/model: 800 pairs
Minimum/construction: 4,000 pairs
Production cap. (pairs) 894 million
Cost (w/o tax): USD 21/pair
Cost (w/tax): USD 27/pair
Note:
Cost estimates based on Arezzo brand product
DDP (delivered duty paid): delivery in Brazil with all taxes paid
FOB: free on board
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6. .5 Arezzo&Co Sourcing: Bags and
1 Accessories
Nowadays, unlike what takes place with footwear, Asia is a good alternative
for bags and accessory supplies
Profile of Arezzo&Co's imports from Bags: 30%
China1: Wallets and other accessories: 50%+
Bag do not have forms or fitting
Less variety of models
Fashion content less perishable
Simpler production techniques
Lower costs: Brazil has little specialized production
Inexistence of anti-dumping fees
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7. .6 Arezzo&Co Sourcing Process
1
Sourcing process focused on ensuring flexibility, speed and cost control in the
creation of new products
Raw material price negotiations
1 2 3 4 5 6 7
Logistics
Trends and Technical
style
Design
Design
Engineering Samples Showroom and Store
distribution
Scheduling
+
Manufacturer negotiation
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8. .7 Supply chain management
1
Ensures agile, flexible outsourcing
Coordinated production chain Investments in product
Management: engineering: At home know how
Cost data
Manufacturers Arezzo
Gross material
Gross material
&Co
Finished materials
Raw Materials Engineering folder
Cost management efficiency Efficient lead time
Quality standard guarantee Flexibility
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9. .1 Understanding shoes
2
A non-complex shoe has 61 raw materials administered by the factory team. R&D
optimization ensures management of costs and deadlines.
Anklet (8 parts)
Buckle (2 parts)
Upper (11 parts)
Spike rivet (2 parts)
Assembly insole
(11 parts)
Toecap (2 parts)
Heel (7 parts)
Half sole (3 parts)
Reused from collection to collection:
High Heel (2 parts)
SKU 10%
Outsole (3 parts) MODEL 35%
CONSTRUCTION 70%
Packaging (10 parts)
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10. .2 Sourcing grid – in-house vs. outsourcing
2
Production is guided by the end client's demand and the variables deadline
and quantities per model defined the sourcing format
Own Factory Unitary cost curve
• Specialized in producing small volumes of
special editions and customized products Volumes made in-house
• Agility and autonomy Efficient production
frontier
• Capacity: 1,200 pairs/year Outsourcing
BRL/pair (illustrative)
Outsourcing
• Large quantities
• High level of specialization in certain categories
# pairs/
500 2000 5,000 100,000 model
• Light asset
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