Apparel software trends: Supply chain challenges
2 April 2013 | Features & Interviews | Source: Leonie Barrie
Social and environmental compliance are the main issues facing today's apparel supply chains, according to industry experts consulted by just-style. The continued shift towards faster and faster fashion cycles, along with pressure on retailers to adapt to an omni-channel experience, are also throwing up challenges when it comes to flexibility in global sourcing.
James Horne, VP of marketing and business development, Centric Software
Disruptions to labour markets and rising labour rates in China were major issues as recently as 12 to 18 months ago. Today many brand owners mitigate the risk by diversifying their supplier and labour bases beyond China, into Vietnam, Cambodia, and elsewhere in Southeast Asia and around the world.
Compliance tracking, reporting and management - as it applies to consumer protection, social compliance, safety standards and more - is the bigger challenge today. After deadly garment factory fires in Bangladesh rocked the industry, brand owners have been challenged to do the right thing from within the industry. At the annual executive summit of the American Apparel and Footwear Association (AAFA) last month, Rick Darling, president of Li & Fung USA, urged fellow apparel industry executives to join together and take action to eliminate risk to human lives around the world.
The realities of global sourcing mean that managing strict compliance to standards is tough. A company can perform factory audits, document appropriately marked fire escapes that are not blocked with piles of supply, and file appropriate documentation with the authorities. But how does that company know that an hour after the auditor leaves, the factory staff doesn't pile the supplies high in front of the exits again?
Mark Burstein, president of sales, marketing and R&D, NGC
Vendor compliance and factory safety are the #1 issues in apparel supply chains. Tazreen was a wake-up call for our industry. More than 700 workers have perished in factory fires in Bangladesh since 2006, and unsafe working conditions there have created PR nightmares for some of the industry's best-known brands and retailers. Companies are insisting upon better guarantees for worker safety, strict compliance with safety regulations, and full disclosure of any subcontractors.
Some observers in our industry reacted with scepticism to Wal-Mart's announcement of a zero-tolerance policy for unauthorised subcontracting, but it's a step in the right direction. Other brands and retailers are certain to follow Wal-Mart's example.
As a result, however, the apparel sourcing process is getting even more complicated. Supply chain transparency is more critical than ever. While brands and retailers have historically based their sourcing decisions on a combination of price, quality and on-time delivery, companies must now evaluate vendors on a complex matrix that includes:
- Factory safety and the ability to guarantee safe working conditions;
- Full transparency on the use of subcontractors;
- The ability to satisfy compliance issues, such as CPSIA (the California Transparency in Supply Chain Act), and child labour and environmental laws;
- As well as the traditional metrics of price, quality, delivery record and suitability for the work.
Ben Muis, managing director at Conceptable.com and 1970i.com, fashion industry process and PLM expert
Sourcing has shifted and is continuing to shift. Where it was once fashionable to move your production to China, now it is fashionable to move it back.
Suppliers in China are trying to balance their increasing costs whilst trying to both maintain long-standing relationships with their increasingly demanding western clients and take their new home-market opportunities.
In the meantime, other regions are either trying to give better offers to the growing number of companies interested in sourcing in their area or, in the case of the UK/Europe, even reactivating or expanding their manufacturing facilities in response to the sudden renewed interest.
What it means in reality for those working in the product and supply chain functions is that they need more flexibility, more scalability and more control at the same time. They don't just want to place big orders in one or two locations; they want to place multiple smaller ones in both short and long lead-time locations. It is crucial in this scenario that product, quality, cost and compliance are all under control in what has become an even more fluid fashion industry.
On top of this many companies have streamlined, or culled, their teams. So not only does the supply chain have to cope with changing demands, they also have to do this with smaller teams.
Andrew Brown, managing director, Fast React
Rising manufacturing costs: These will place further pressure on margins and this is likely to result in fewer suppliers being able to meet target prices. In the highly competitive retail market, buyers must seek competitive cost prices for their products. If, due to rising costs, they are unable to secure a real reduction in cost price, they must look to at least stabilise costs and achieve the same price year on year. Rising manufacturing costs together with static or falling ex-factory prices present a highly challenging combination for all.
Compliance: The availability of 'new' lower cost countries is now limited and represents a risk in terms of unknown suppliers, quality, compliance etc, whilst the risk of existing suppliers in established countries breaking compliance when under pressure is also increased.
Flexibility and speed to market: These continue to be key strategic goals of many buyers and brands because they reduce the need to hold inventory, reduce risk and can provide competitive advantage. A fast and lean supply chain can replenish successful selling items very quickly, allowing the buyer to capitalise on the sales trends, but this places significant additional pressures on all parts of the supply chain, requiring a high level of coordination and performance.
Judy Gnaedig, director, strategic projects - fashion, Lectra
The apparel supply chain remains exceedingly complex and few companies can manage it effectively. The cost of mismanagement has put many apparel companies out of business in the past few years, so there is no doubt that for any business, effective and efficient supply chain management is key.
The principal characteristics required are flexibility, because having several options to source in terms of delay is vital; and cost, including the possibility to source product closer to home, namely "near-shoring".
And let's not forget about collaboration. The supply chain being global and the key contributors almost certainly being in different locations and geographies, means that having access to the same information and being able to contribute to the same process is very important.
And last but not least, cost management. Offshore sourcing and its efficiencies have helped to drive down costs, but as the cheaper zones are no longer as cheap and the required skills are not easily found elsewhere, many companies are bringing back product development skills in-house. This means equipping themselves with the technology that allows them to do this.
Challenging, yes, but the benefits are worth it: owning and managing the fit of your brand, overseeing what your suppliers are doing and having visibility of component costs. As a result, many companies will better control their costs and strengthen their brand identity.
Michael Hung, CEO, Core Solutions
The challenges are not that different from previous years; what is different is an economic reality where resolving these issues is an imperative for profitability and survival. As we all know, in the past few years a lot of apparel retailers and brands have fallen by the wayside, either failing or being absorbed into other retail groups.
That said, the top three ongoing challenges we see in the market and hear from our apparel customers are the need to respond faster to consumer trends, a strong push for improved collaboration and transparency, and also a greater focus on CSR issues and quality in the wake of high profile incidents such as the recent fires in Bangladesh.
Key players in the apparel industry realise that the answer to these challenges is improving efficiency and business processes and taking a long term view of the industry. This includes enabling the supply chain to add more value.
We are still surprised that many apparel retailers have not evolved their definition of the supply chain but still think of it as logistics - shipping, consolidation, warehouse operations. While optimising the logistics side of their supply chains is important, they need to recognise that the greatest opportunity for efficiency improvement and consumer responsiveness lies within their broader supply chain processes. At the same time apparel firms are realising that social and environmental compliance make sound business sense in the long term.
Mary Beth Borland, worldwide director of RFA Strategy, PTC
The greatest challenges facing the global apparel supply chain remain growing retail competition from an expanding number of sales channels, delivering an increasing percentage of private label goods, pressure to integrate supply chains and the continued shift towards faster and faster fashion cycles. All of these challenges affect the bottom line, and meeting them is critical to what matters most - delivering great products on-trend, on-time and on-cost.
Bob McKee, global fashion industry strategy director, Infor
At present one of the main challenges facing everyone in the fashion supply chain is the dawn of the super-smart customer. Armed with a smartphone, iPad or even just a mobile phone, consumers can now research products, availability and pricing with ease. For example, 70% of shoppers now check websites actually in the store. They can look up a friend's Facebook page, product reviews or a fashion blog to find out more about what they are looking at, or looking for. This can drastically change buying behaviour.
Some consumers now browse and buy online, picking up the item at a shop, while others use traditional shopping (albeit augmented with a smartphone and QR scanning codes) to browse and identify what they like, then access apps to compare prices and find the cheapest local stockist. Alternatively they may simply head home and use a PC to visit more price comparison sites and order based on price.
The pay-off for adapting to this new environment is not just survival, it is healthy growth. Because while it is undoubtedly more challenging to fish in these cross-channel waters, in Europe, for example, a multichannel shopper is - on average - likely to spend 15-30% more than someone who only uses just one channel.
Esther Lutz, VP of business development, TradeCard Europe
Today's consumer wants to buy fresh, attractive clothes. But equally important, they expect goods when they want them, through the channel they choose - at attractive prices. It has to be convenient and the consumer has to feel good doing it. There are several challenges within this scenario for apparel supply chains:
- Challenge 1: Fresh product, available when consumers want to buy. This is only possible if brands and retailers increase their speed to market and have a clear inventory picture at all times. Shorter lead times mean that all supply chain partners need to be pulling on the same end of the rope, and then need to cut buffer times. Traditional supply chain processes will need to change. What can be done differently? Commitments to raw materials need to be made earlier. Size distribution and packaging need to be done later in the process. RFID tagging at source will play a big role one day in tracking inventory from factory floor to shop floor.
- Challenge 2: A seamless omni-channel experience. A consistently positive shopping experience across all channels needs to be backed up by a flexible supply chain. Nothing is more frustrating to a consumer than getting excited about a product and then finding out it's not available. The apparel supply chain needs to be able to execute on a variety of strategies. This includes direct to warehouse, direct to retailers' warehouse or cross dock/mark for store scenarios, as well as direct to own stores, and direct to consumer shipments.
- Challenge 3: Attractive prices. Consumers are very price conscious. Increased production and transport costs can't be passed onto the consumer. Therefore, someone's margin is getting squeezed in the middle. Preserving margins in this environment is a major challenge.
- Challenge 4: Consumers want to feel good buying your product. They want to make sure that they don't support unfair business practices or purchase products that do unnecessary harm to the environment. One misstep alone nowadays gets broadcast in social media within hours of its happening. The brand or retailer gets punished immediately by the consumer and media.
Susan Olivier, vice president, consumer goods and retail, Dassault Systèmes
After the economic downturn of recent years the customer is increasingly interested in spending again. But it's a very different customer - she is instrumented and informed, looking for new products and new shopping experiences, in store and online. She expects great service, knowledgeable staff and clear product information online. And if she's not satisfied with what she finds, the competition is just a click away.
At the same time cost pressures continue and global sourcing is facing continued political and economic instabilities. How can brands and retailers manage brand equity and inspire consumer loyalty while driving operational excellence for their companies?
So how do brands and retailers get better consumer insights, earlier in the supply chain, maintain consistent quality standards regardless of sourcing location and still optimise costs? That is what the apparel industry is facing.