Apparel software trends 2014: Supply chain challenges
3 April 2014 | Features & Interviews | Source: Leonie Barrie
What are the biggest challenges facing the global apparel supply chain in 2014? One that stands out is the pressure to deliver on the omnichannel promise. There's a fundamental disconnect between the demands of an omnichannel retail environment working to give consumers immediate results, and an apparel supply chain that is getting longer, more fragmented and more difficult to predict.
Susan Olivier, vice president, consumer goods and retail, Dassault Systèmes:
What we are going to see as the biggest single challenge is the confluence of two forces. The first is people expecting ever-accelerating newness in terms of whether it is fashion novelty or fabrics or the latest colour trend. Whatever it is, customers expect instantaneous results: "I read it in a magazine; I want it in my store or online."
But at the same time, in terms of the apparel supply chain, to produce all of that is getting longer and more fragmented and more difficult. Turkey is a perfect example. It is a country that supplies not only its own market but many retailers in Europe and North America. Everybody is waiting for the results of the political elections before they invest. It is slowing everything down in terms of decisions and also how people work.
As India and China are becoming more consumers and not just producers, other countries are becoming more and more necessary for the supply chain, and it's harder to plan and manage all the risks associated with that. For example, risks of delays due to political instability, lack of infrastructure, banking instability, negative weather impacts. We come to a point where it is becoming difficult to plan with a sense of assurance multiple months out.
Anastasia Charbin, worldwide marketing director - fashion & apparel, Lectra:
The biggest challenge will be changes in business models as consumer demand moves online and competition diversifies. At the same time, we see companies integrating manufacturing or manufacturers launching brands. At Lectra, over 60% of our manufacturing customers in China have launched their own brands, and these include big powerful groups with the potential to disrupt the North American or European markets.
In order to stay competitive, companies must simultaneously manage bottom and top-line activities while not risking current revenues, or potentially worse, the brand itself.
There is a big push to streamline process, cut costs and become more efficient. This is possible with a lean business model that lets you also stay versatile enough to respond quickly to shifts in disruptions along the way, whether technological, geo-political or demand driven.
Companies also need to think about top-line growth strategies like expanding internationally, adding new product lines, targeting new consumers or moving to a fast fashion model, diversifying the offer to respond to consumer needs which have become more immediately and easily communicated through digital media.
Bill Brewster, VP of global sales and marketing at Yunique Solutions:
The biggest challenge facing many companies in 2014 is ensuring visibility across all aspects of the business. Apparel companies are complex beasts with a multi-stage sample process, meticulous costing, time-consuming raw material development, complex capacity planning and infinite commitments. Add to this multiple supply chain partners and the need to clearly understand which suppliers are in compliance with social and quality standards, and it becomes obvious how vital accurate and timely information is to upholding a brand's promise.
Bob McKee, global fashion industry strategy director, Infor:
Omnichannel and customer experience. Everyone is talking omnichannel and it conjures up visions of e-commerce, mobile commerce, social media and many more exciting and innovative new vehicles to market. Yet what is often forgotten is that one of the fundamental principles of omnichannel is the need for global inventory visibility.
The transition to an omnichannel world impacts the supply chain and value chain through dynamic shifts in inventory commitments, inventory handling and inventory shipments, as the business model evolves to cope with the likes of more and smaller shipments, direct ship, click and collect, etc.
Too many companies are still hampered by inventory silos that are reserved for different channels, due the limitations of disparate or old IT systems and internal structures and KPIs that drive insular behaviours. The result: a customer can walk into a store to find a garment is not in stock, yet it might be available on the brand's website. This is not the multi-dimensional buying experience today's consumers are demanding.
Lack of inventory visibility also leads to unknown inventory commitments across the value chain. It hampers efforts to manage cash flow, reduce tied-up capital, and to tightly manage inventory levels with the aim of reducing markdowns. Although sometimes accepted as the industry norm, increasing economic pressures mean this way of operating is no longer sustainable. Managing and controlling inventory well is fundamental to improving business performance and success.
Ethical sourcing also remains a hot topic, and as economies continue to recover it will probably be back at the top of boardroom agendas. Most companies still have a long way to go to be able to prove their goods are sourced ethically, organics are authentic and no conflict minerals or banned chemicals were used in their production. Holding information and being able to trace quickly back through it is a necessity.
John Robinson, senior vice president sales and marketing, Simparel:
In the fast-paced and competitive business of fashion, managing the growing complexities of the supply chain continues to present significant challenges to retailers, brands and manufacturers.
In response to rising costs, risks and many other factors, buyers are rapidly shifting and diversifying their sources of production and raw materials. Doing business in these new locations and companies quite often means dealing with lower levels of infrastructure, safety standards, labour standards and skills, efficiencies and other factors critical to the business. Of course, social and regulatory compliance continues to grow more challenging as these shifts occur.
Perhaps most importantly this year, fashion companies are challenged as never before to meet the demands of an exploding omnichannel retail environment. Today's savvy and technology equipped consumers are demanding a seamless shopping, buying and returns processes regardless of where or how they purchase. Retailers and their supply chains are challenged to fulfil orders from every channel accurately and instantly.
With all of these things in mind, many companies are rethinking their supply chain strategies and considering reshoring or near-shoring some portion of their production to the Americas. In addition to reducing supply chain complexities, the opportunity is there to gain many other benefits through producing in close proximity to market.
Mark Burstein, president of sales, marketing and R&D, NGC:
Global fashion supply chains continue to be focused on the traditional issues of reducing product development time and improving speed to market; faster time to market is still the #1 benefit that companies hope to gain from their PLM and SCM investments.
Beyond this, though, we see several key challenges facing global apparel supply chains today. These include ethical sourcing and social compliance, as well as meeting the burdens of a growing number of government requirements such as CPSIA, SB657, Dodd-Frank and many others.
It's imperative for fashion companies to ensure that their products are safe and manufactured responsibly. The Rana Plaza tragedies became a rallying cry to ensure safe working conditions for factory workers in Pakistan, Bangladesh and other countries. However, the problems are complex, difficult to address, and intertwined with the very culture of global apparel production.
For example, given the continued emphasis on speed to market and low prices, coupled with increased quality demands, buyers may continually put more pressure on factories - not to mention overbooking factories, then making last-minute order changes or cancellations. Forced to respond to intense pressure, factories may take potentially disastrous short-cuts.
The proliferation of government regulations has an adverse effect on fashion sourcing, too. Companies must ensure their products meet a growing number of governmental requirements, adding another layer to already-burdened product development and supply chain operations.
Russel Beron, marketing director, Core Solutions:
For 2014 the global apparel supply chain faces ongoing challenges in two key areas - apparel production costs and addressing the needs of the omnichannel consumer.
While cost pressures in the apparel supply chain are nothing new, the challenges of low cost apparel sourcing markets such as increasing wage costs, quality and safety issues and also material price fluctuations are still top of mind for apparel retailers and brands.
Adding to the dynamic, the digital age has brought global supply chains into the spotlight as almost every week we hear stories of rising costs in China, ongoing safety issues in Bangladesh, pressure from unions in Cambodia to raise wages, inflation in Vietnam and so on. Despite the potential of 'new' apparel sourcing markets in Myanmar, or Sub-Saharan Africa, reliance on low cost labour, which is still prevalent in the industry, is clearly not sustainable for the industry long-term.
Companies that see the future are mitigating the risks of low cost apparel sourcing markets by leveraging systems which can deliver efficiency across their supply chains and enable greater collaboration with their suppliers to ensure on-time, on-trend delivery and quality.
The whole omnichannel/multichannel topic is not new either, but what we see shifting is the greater expectation on the supply chain to deliver on the omnichannel promise. While much of the fundamentals of retailing still apply, the demands of consumers and the multiple channels where they can shop or browse is continually pushing the supply chain to be faster, more visible and more efficient. These pressures are being felt everywhere from product development to planning, sourcing, production, and logistics.
This being said, we still see a lot of fundamentals that apparel retailers and brands need to address from an IT point of view. For example the heavy reliance on spreadsheets and information silos which limit the ability to respond to consumer demands. This applies to both traditional and omnichannel retail.
Howard Heppelmann, general manager, supply chain solutions at PTC:
In 2014 global apparel supply chains face numerous challenges. For the majority of companies, the greatest challenges include increasing speed and agility, growing multi-channel sales, enabling personalisation and regionalisation, meeting regulatory and CSR requirements, as well as reducing material costs. These challenges impact the bottom line, and meeting them is critical to what matters most - delivering great products on-trend, on-time and on-cost.
As in past years, direct costs continue to escalate due to ever-rising global material and labour prices. Global apparel supply chains are seeking ways to rationalise materials and drive greater reuse across geographies and brands. In 2014 we also see indirect costs from corporate social responsibility programmes rising faster than ever in response due to increased scrutiny from NGOs, consumers and government regulations, such as the US Conflict Minerals law.
While companies focus on new sourcing strategies to better control costs, meet CSR goals and reduce cycle time, they must also focus on strategies to expand into new markets. Companies who don't rise to this challenge will face increasingly better positioned competition. Companies must not only expand geographically, but also leverage new sales channels, pursue new business models, such as wholesale or private label, and deliver brands that are more personalised for the customer.
Jatin Paul, CEO, WFX (World Fashion Exchange):
With multiple vendors and sub-vendors involved in the apparel supply chain process, gaining visibility into exactly what is happening and when is key to sourcing efficiently and delivering goods on time.
Margins in apparel companies evaporate when goods have to be air-lifted or charge-backs enforced, which happens due to any error in production or delivery of merchandise.
The convoluted supply chain is becoming even more fragmented and geographically dispersed, making it harder to stay on top of product moving through it. With consistent pressure on end product pricing, realising any margins means business execution with little error.
Ethical sourcing and compliance issues have also plagued certain certain sectors of the industry over the past year, so brands and retailers need to put more resources into ensuring that they source from factories that are compliant with certain standards. This can slow down the sourcing process, so needs to be managed effectively without compromising on speed. Factories, on the other hand, need to make new investments in infrastructure and other elements to be compliant and continue to service their customers.
Managing a team across a large geographic spread is another challenge. Its not uncommon to have designers in one location, a warehouse in another and a sourcing team based in another country. On the factory side, its not uncommon to run multiple physical units often in different locations far from each other. Managing different operations in different locations, yet with all teams working on the same product, results in a huge challenge to keep everybody on the same page and moving in one direction.
Andy Hinton, business development director, Fast React Systems:
We believe that there are two main challenges facing the industry in 2014.
The first is the continuing discussion on compliance, labour unrest in manufacturing countries and increasing production costs. With production costs rising due to labour wage increases in some countries, new emerging manufacturing countries are able to compete with lower prices for their garments.
This may seem ideal for retailers/brands and sourcing companies to keep costs down, but in reality will mean new supplier audit checks have to be completed in order to ensure that new suppliers are providing the right conditions and are ethically compliant.
This takes extra time and resources, which can be difficult to find in the current environment, where existing staff are often already stretched. It is, however, essential that these activities are performed to ensure that brand image/positioning and values are maintained.
The second challenge is speed to market, which will remain a top priority for most fashion businesses. The cycle of design creation through production to delivery will continue, and demands from consumers will continue to increase. Consumers are becoming more product savvy and therefore have higher expectations.
To meet these expectations, brands, retailers and sourcing companies have to ensure that their products arrive to market on time and, in some circumstances, before their competitor's products.
With a quick turnaround needed, the pressure is on the supplier to provide the shortest lead times possible - giving rise to a number of issues at different points in the supply chain which, in turn, can cause an increase in landed costs (the use of unplanned airfreight). This is often seen as a 'trade-off' for shorter lead times, but effective planning and visibility throughout the supply chain can help solve these issues before it's too late.
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