April 29, 2025

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Outing luxury brands, AI's role in efficiency, and more.

In this edition of The Sidekick, we’re exploring ways Chinese manufacturers are allegedly exposing the true cost behind high-end luxury goods and AI’s growing influence on how we source and manage spend.

We’re also looking at vulnerabilities within the perishable goods supply chain, how new tariffs are hitting the pharmaceutical space (and your invoices), and why -despite all the tech - procurement still comes down to strong relationships.

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Let's get into Issue #016!

How OEMs are outing luxury brands.

Would you buy a Birkin Bag for $1,400 if it was the exact same product as the $38,000 version sold in the United States, just without the logo? It’s a tempting thought, especially if it has been revealed that  these bags are being sold directly from the OEM (Original Equipment Manufacturer) in China.

People have long accepted that luxury brands charge a hefty markup for their logos, but this much? Is a logo really worth an extra $36,600?

Rumors are swirling that Beijing, stung by Trump’s tariffs of up to 145%, has lifted the confidentiality clauses on Chinese subcontractors. This (apparently) gives manufacturers free rein to “out” luxury American and European brands like Birkin, Lululemon, Zara, Fila, Under Armour, and more. 

Tiktok, in particular, has been flooded with videos of Chinese manufacturers trolling luxury brands by revealing, firstly, that American or European labels are actually made in China, and secondly, the true costs of production which are a mere fraction of the sale price.

The Birkin Bag subcontractor video is worth watching. Titled “The real cost of a Birkin Bag,” it features a smooth-talking presenter sitting in a factory setting holds a nearly-finished bag and breaks down the cost of manufacturing, namely:

• Togo leather: sourced from Nuti (Italy), Weinheimer (Germany), and Haas (France): US$450 per bag. 
• Thread: Nil Au Chinoise (France), described as the “Rolls Royce of thread”: US$25 per bag
• 316 Stainless Steel hardware/clasp: US$150 
• Heat seal edge oil (Italy): US$50
• Lambskin interior lining (France): US$100 
• Riri zippers (Switzerland and Italy): US$10
• Human labor (particularly French artisans): US$600
• Cloth package: US$10

Total = US$1,395, later sold for $38,000

Similarly, a Tiktok creator called “LulusourcingChina” stands outside a factory in Zhejiang explaining that Lululemon activewear is made on their production line for $5 to $6 before eventually being sold in the United States for $100. 

But here’s the twist: it’s all (probably) untrue, or at least impossible to verify online.

These are most likely clever counterfeiters posing as subcontractors, taking advantage of this moment in history to help boost sales of their illegal goods. It is estimated that 70% to 80% of the world’s fake goods are manufactured in China.

Comments sections under the videos are full of consumer comments about being frustrated at having paid full price, although these, too, can obviously be faked. 

Experts argue that no luxury European or US brand would take the illegal risk of lying to their customers about country of origin, slapping a “Made in France” label on a Birkin Bag and marking the price up by over 90%. The EU also imposes hefty penalties for consumers who purchase counterfeits.

People also believe the quality and craftsmanship of these items cannot be equated with genuine luxury goods. But this is where we run up against a false perception about Chinese quality. Yes, there is plenty of low-quality Chinese “junk” on the market; but China also boasts some of the best manufacturing skills in the world. 

In this interview featuring Apple CEO (and supply chain expert) Tim Cook, the Apple CEO explains that China stopped being a low labor cost country many years ago, yet the stigma remains. Apple chooses to manufacture in China because of “the skills, the quantity of skills in one location, and the type of skills,” such as advanced tooling and precision.

“In the US, you could have a meeting of tooling engineers and I’m not sure you could fill the room. In China, you could fill multiple football fields. It’s that vocational expertise,” Cook says, that is desirable and needed.

Seen in this light, it doesn’t seem so unlikely that a Chinese factory with highly skilled workers could produce a genuine, luxury handbag or top-quality activewear. 

Perhaps most tellingly, a statement from China’s e-commerce department warned:

"Any misleading marketing, infringement, or counterfeit activities by entities posing as subcontractors for established brands will be promptly referred to law enforcement agencies for investigation and action."

Supplier evaluation takes time and effort, which is why many organizations may be tempted to cut corners when they need a product or service in a hurry. This puts the organization at risk of engaging a supplier that fails to comply with relevant guidelines, laws, policies, and regulations in your sector; or they may be a counterfeiter. 

Leading GPOs like Una use stringent methods to audit and investigate potential partners before signing any agreements. GPO members can be sure that due diligence has been performed and all suppliers have been thoroughly vetted.

Closing the efficiency gap by 2025.

The Hackett Group is well-known in procurement circles and, in a sign of the times, has recently rebranded itself as a generative artificial intelligence (Gen AI) consultancy.

Hackett has released its 2025 Key Issues Study, revealing that:

• 64% of procurement leaders anticipate a significant transformation in their roles due to AI within the next five years. 
• However, the sector faces a pressing challenge: workloads are expected to rise by 10% in 2025, while budgets will only increase by 1%, resulting in a concerning 9% efficiency gap.
• In response to these challenges, many procurement organizations are planning to invest in Gen AI technologies, with 42% looking to adopt new solutions and 33% aiming to enhance their existing systems.

As of 2024, approximately 49% of procurement teams in Hackett’s study had piloted AI use cases to explore how they can leverage Gen AI for greater value.

4% reported large-scale implementation, with AI-driven tools demonstrating productivity gains of up to 10% in terms of quality and cost savings. Around 47% of organizations use embedded AI features in existing procurement software, such as Coupa AI Classification and SAP Joule Copilot.

Although adoption is still nascent, leaders are optimistic about the benefits; some organizations are already seeing productivity boosts of 25% or more. Key areas where AI is making an impact include purchase order processing, spend analytics, and e-procurement, with increasing pilot activities in contract lifecycle management and advanced analytics.

The study indicates a significant shift towards intelligent automation among procurement organizations, focusing on priorities like cost reduction, supply continuity, and digital transformation.

Transforming the operating model has become a higher priority as leaders aim to address the widening efficiency gap and prepare for extensive AI integration.

Despite the promising outlook, challenges remain. Procurement leaders cite data quality, privacy concerns, supplier volatility, and complex existing processes as major barriers to successful AI implementation.

To overcome these hurdles and accelerate AI-driven transformation, The Hackett Group advises leaders to:

1. Automate processes to enhance digitalization and analytics.
2. Align operating models with end-user requirements.
3. Focus on practical execution and scaling of pilot projects.
4. Upskill teams to work effectively with Gen AI technologies.

Keeping a pulse on the industry.

The Future of Procurement is Relational

Jumping from AI adoption to human skills, a recent article from SCMR stresses that despite rapid technological advancements, better procurement outcomes stem from better relationships.

Procurement success isn't just about negotiating the best prices or managing contracts effectively. Instead, strong, strategic relationships - particularly in terms of SRM - are becoming more essential than ever amid external pressures like geopolitical uncertainty. Professionals are increasingly understanding that these relationships, built on trust and communication, are vital for risk mitigation, innovation, and cost control.

But it’s unhelpful to say that relationship management is a solely “human” skill. Tech absolutely has a part to play in SRM. Organizations are leveraging technology to enhance communication and collaboration, which can lead to significant benefits beyond just avoiding disruptions. By fostering transparency and working closely with suppliers, businesses can unlock new efficiencies, drive innovation, and improve compliance.

As the repot says, the future of procurement is relational, emphasizing that nurturing these connections is not just beneficial but a competitive advantage in navigating challenges and uncovering opportunities for growth.

News from the War on Tariffs

The Trump administration’s proposed tariffs on imported pharmaceuticals may lead to increased drug prices and exacerbate existing shortages, according to experts.

The complex global supply chain for pharmaceuticals relies heavily on international sourcing, and tariffs could disrupt this network, ultimately driving up costs for patients already struggling with drug affordability. Analysts express skepticism about whether these tariffs will successfully incentivize drug manufacturers to shift production back to the US. Many companies would face billions in costs and years of investment to relocate manufacturing, raising doubts about the feasibility of Trump's goal.

While some drugmakers might be better positioned to absorb tariff costs, others, especially those reliant on foreign ingredients, could be forced out of the US market. This would not only harm competition but could also worsen the ongoing drug shortages, particularly for generic medications that account for 90% of prescriptions.

As tariffs are implemented, the broader impact on patient costs remains uncertain, with many fearing that rising prices will provoke backlash and do little to reduce healthcare costs in the United States.

Meanwhile, the Wall Street Journal has reported that several companies, from bathroom-fixture suppliers to toy shops, have started adding tariff surcharges onto customer invoices as a separate line item. This deliberate move to highlight the impact of tariffs rather than bundling the costs into the overall price has led the WSJ to quip that this could be called “the tariff isn’t our fault” fee.

One Port Disruption Could Cripple Perishable Goods Supply Chains

A recent report from researchers at the Massachusetts Institute of Technology sheds light on a serious vulnerability in the US perishable goods supply chain.

It reveals that a disruption at a key port, like the Port of Wilmington - which handles a large chunk of the country’s banana imports - could cause a domino effect, leading to a collapse of the entire network. If this port were to face a major issue, such as a natural disaster or logistical hiccup, the impacts could be severe, resulting in food shortages and higher prices for consumers.

The study emphasizes that the US port system is like a house of cards; if one crucial port fails, the whole structure could come crashing down. Without the ability to quickly reroute cargo, other ports may struggle to handle the sudden influx, causing delays that could lead to wasted food and increased costs.

As imports from regions like Latin America play a vital role in the US food supply, the report highlights the urgent need for better planning and stronger infrastructure to protect against potential disruptions in the perishable goods sector.

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🌟 New & Updated Resources from Una

• How to Mitigate Supplier Risk
• Four Ways to Deal with Shrinkflation as Tariffs Begin to Bite
• How to Balance Bold Moves with Procurement Fundamentals During Transformation
• 11 Realistic Spend Management Strategies Every Procurement Leader Can Use
• Let's Talk Tail Spend: The Hidden Costs You Can't Afford to Ignore
• The Proven Spend Management Playbook for Procurement Leaders

🎙️ New From The Sourcing Hero Podcast

• Episode 209 featuring Ryan Christensen
• Episode 210 featuring Louis Bastone
• Episode 211 featuring Gale Daikoku
• Episode 212 featuring Vytas Sliesoraitis

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