IAF Convention 2012: Getting smarter across the supply chain
Instead of focusing on product costs as a way of offsetting the pressures faced in both retail and sourcing markets, the apparel supply chain should look instead at optimising processes, boosting collaboration and generally getting smarter, industry executives believe.
"As far as buyers are concerned, their priority is first cost," says Dr Harry Lee, chairman of Hong Kong based manufacturing giant TAL Apparel in a keynote address at this week's IAF World Apparel Convention in Portugal
"Service, reliability, quality are second or third choice," he told delegates, adding: "The one thing about the apparel trade that is very different from any other consumer markets is that focusing on the first cost may not be the best strategy."
Lee suggests that rather than chasing cheaper production prices around the world, better supply chain management can instead help deliver a value-added service, lower inventory, increase sales and reduce markdowns "so that everyone can win."
Pointing out that "markdowns are the number one cost that we deal with in the fashion value chain," Bob McKee, fashion industry strategy director at business management software supplier Infor, explains: "It's not a matter of trying to fix the model, it's a recognition that the model must change.
"We're in an industry where consumers expect to pay less, and suppliers need to charge more. But we have to recognise that we're not going to drive much more out of the cost of a product. We have to begin to do things differently."
Collaboration is one solution, with Kurt Cavano, founder, chairman and chief strategy officer at supply chain trade platform provider TradeCard, noting that this also requires a change of mindset to "thinking about your supply chain as a set of partners that are working together, not a set of enemies that are competing against each other."
This makes it possible to "strip out costs and you can all benefit in what is turning out to be a very turbulent decade."
Tools that "compress cycle times and bring visibility and automation across the whole supply chain," also "allow the buyer and seller to collaborate in a way that everybody can see benefit," Cavano notes. "If the customer does well, everybody else in the supply chain does well."
Likewise, Guido Brackelsberg, managing director at web-based supply chain management (SCM) systems provider Setlog GmbH, agrees that "the next level of cost-savings must come from optimising processes. But this is only part of it. Any software is only as good as it's being used."
Collaboration in practice
It's all very well to talk about the benefits of collaboration, but what about putting it into practice?
Dr Lee points out the complexities involved at TAL Apparel, which makes garments including wrinkle-free shirts, blouses, pants and polo shirts for brands and retailers including Brooks Brothers, Burberry, Dockers, J Crew, JCPenney and Tommy Hilfiger.
For just one of its customers there are 25000 stock-keeping units (SKUs) - and he notes that "unless something is done to manage the SKUs, significant markdowns will always plague us."
In one SKU-intensive trouser programme with an annual volume of 350,000 pieces, TAL has helped shorten lead times, improve service levels and increase inventory turn through a continuous replenishment programme.
By keeping one month's worth of fabric and trims in the factory, the purchase order issue time has been cut from 150 days to 60 days - a 60% reduction. Within one year the average service level climbed from 91% to 96%, while the high in-stock helped increase sales by $1.14m. Inventory turns rose from 5.3times to 6.5 times - which saved about $650,000 in inventory dollars.
Continuous replenishment benefits have also been seen by a fast-growing clicks and mortar business taking 600,000 non-iron shirts a year. Covering 103 styles, TAL not only has the fabric in stock, but also manages the colours and sizes being cut based on US sales information. The inventory turn has risen by 71% to 7.39 times; the in-stock ratio has improved by 5% and the lead time has fallen by 44%.
"We calculated there was a saving of at least $4.58 per garment - which is about one-third of the FOB price," Dr Lee explains.
"We have tried to better plan from the supply side and allowed our customer to better manage their retail business; we've tried to support our customer by maximising their profits."
At TradeCard, Cavano notes that "every week you take out of the supply improves margin at the retailer by 12%. And that's a lot of money."
Colombia Sportswear has used its technology to work with its suppliers to direct ship orders to retailers - and eliminated the need to build a new warehouse.
While retailer Belk mass-manufactured big orders but used technology to create last-minute pack plans with colour, size and style runs that are specific to geographic store groups. By best-matching the customers in each region it achieves a higher sell-through.
Luxury sourcing challenges
The luxury end of the apparel industry - where production focuses on highly complex garments and low order volumes that might involve just three pieces per style - faces a very different set of problems.
"The big challenge in premium apparel sourcing is that the traditional manufacturing clusters have disappeared or lost their competitive edge," explains Jan Hilger, director of operations at Escada.
"95% of the fabric we use in tailored women's wear comes from Italy, but the number of factories has reduced massively in recent years. If you have many people close to each other they inspire competition; if you have less players the innovation goes down - and that is a major problem for premium luxury.
"With every cluster dying, and with every producer closing, we lose competence. On the other side, in the luxury business the product requirements are growing exponentially; there are new materials, new combinations, and new manufacturing methods to try out."
Recognising there is strength in numbers, the solution to these sourcing difficulties has been for a group of luxury firms to team up and work together as a 'High End Fashion Cluster'.
"When we put ten women's wear brands together we suddenly have the volume of ten women's wear brands - and the importance," Hilger explains. "We have been doing this for one and a half years and it's working very well."
The initiative has seen Escada's clothing technicians inspect products for several brands. "We even combine shipments, do training together, and have a growing number of brands in the project.
"The time is right for new ways of working together, and what we are doing in the luxury segment seems to be one solution to tackle some of the problems."
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