Customers, middlemen and factory suppliers are becoming increasingly more aligned

Customers, middlemen and factory suppliers are becoming increasingly more aligned

The role of the middleman has become far greater and more important than ever before, with responsibility beginning before the onset of the supply chain and continuing long after its end – as David Birnbaum explains.

In the 1960s, when the global garment industry was in its formative years, it was by today's standards very primitive.

There were but three major garment exporters: Korea, Taiwan and Hong Kong.

The mode of communication was airmail and cable. You could telephone New York from Hong Kong provided you made a reservation in advance.

The job of the middleman was supply chain management.

Fifty years later, the global garment industry has become far more professional and complex – for the most part.

The number of garment exporting countries has grown from the original three to well over 100.

Communication has moved from cable, post and rudimentary telephones, first to telexes, then to fax and more recently to the all-encompassing internet and smartphones.

Only the role of middleman, whose ability is limited solely to supply chain management, remains stuck in the 1960s system. Not a day goes by without some middleman promising the latest and best in supply chain management. It is past time that we are ask ourselves some basic questions.

What are these people offering – and who needs what they are offering?

The supply chain is one-dimensional linear process. At its most extended form, it begins with the arrival of the customer's sample and ends with the arrival of the stock order at the customer's warehouse in its designated importing country. The steps of the supply-chain were well-defined years ago.

After 50 years of learning, who needs or wants further education?

At this point, the only possible users are the zero-service factories operating at the lowest level of competence, and first-time importers who know nothing of the industry.

For the rest of us, those "experts" offering the latest in supply chain management are trying to sell us last-generation skills at today's price.

Imagine you are contacted by a company claiming to be garment sourcing specialists. You pay them a retainer and they recommend you work with factories located in Korea, Taiwan and Hong Kong

OR

You are contacted by a company claiming to be communication specialists. You pay them a retainer and they send you a telex machine.

OR

You are contacted by a company claiming to be logistics specialists, only to discover they are farriers (horseshoe makers).

Indeed, there was a time when the horseshoe, the telex machine, and the original big-three garment exporters were cutting-edge. However, those times are long gone, as are the companies and individuals selling those products and services. Just as people do not need the best factory located in Korea, Taiwan or Hong Kong, the cutting-edge telex machine and the world's best horseshoe, so too people no longer need the middleman whose sole service is supply-chain management.

Schumpeter was and is still correct: Those who cannot change die.

Not only is supply chain management obsolete, the entire supply chain concept is fundamentally flawed. By its nature the supply chain is a top-down approach whereby those at the top – the customers – make their demands on those at the bottom – the factory suppliers – whose job is to meet those demands.

This competitive approach has led to a series of serious failures that are beyond the scope of the supply chain to overcome. By its nature the supply chain is a zero-sum game, whereby any advantage gained by the customer is at the expense of the supplier. This is not only true of FOB price negotiations, but also product development services and the all-important speed to market

The role of the middleman today has become far greater and more important than ever before. To some degree it includes supply chain management, but there are two important differences:

  • The old competitive system has been replaced by a non-zero sum system whereby both sides work together and both sides benefit. Today customer, middleman and factory supplier are becoming increasingly more aligned, recognising that real value is achieved when cooperation leads to solutions to problems that have plagued the industry for generations.
  • The responsibility of the new middleman begins before the onset of the supply-chain and continues long after the the end of the supply chain.

Here are but a few examples of the role of the new middleman.

Before the supply chain

Product development:

  • Reducing lead times;
  • Ensuring design integrity: The sample follows the sketch and the stock follows the sample;
  • Ensuring at the outset that the price will be within the customer's target;
  • Ensuring the factory is able to reproduce the sample in production, properly and at efficiently.

If we look at a flow chart beginning at step 1 – designer draws first garment sketch – and ends at step 101 – stock garment order leaves factory – the pre-production phase (product development) requires 85 steps. Yesteryear's middleman entered the process at step 86.

Today's middleman starts at step 1. To assist the designer, the middleman's staff must include the following:

  • Master patternmaker: To work with the designer to bring rigour, so that both the designer and the middleman understand just what the designer wants.
  • Material sourcing specialist: To work with the designer to ensure the fabric selected is the best for that garment; and to ensure that the selected mill meets and maintains sustainability standards.
  • Merchandiser: To ensure that the cost of the garment is within the customer's range and is relevant to the customer's target consumer; and to ensure that the pre-production phase is reduced to allow speed-to-market.
  • QA: To ensure that the garment can be made efficiently and correctly by the factory.

During the supply chain

Production:

  • Ensuring cost reduction is achieved through increased efficiency thus ensuring greater profit for all;
  • Ensuring that existing orders are within the factory capacity;
  • Ensuring that the factory maintains standards of both sustainability and compliance.

Qualified engineers:

  • Productivity: For the most part garment factories operate at relatively low levels of productivity – 50% is above average. At the same time factory overheads in these factories range between 300%-500% of direct labour. As a result, any increase in productivity will yield substantial reductions in overhead; even when labour rates rise with each increase in productivity. There is substantial evidence an increase of 25% can be achieved within the first year – provided the middleman has qualified engineers.
  • Scheduling: These same engineers can ensure that the factory has the capacity to produce all orders on time without resorting to excessive overtime.
  • Compliance and sustainability: While the initial audits must be carried out by specialists from the middleman, the engineers tasked for productivity and scheduling can ensure these standards are maintained. Where the current model relies on annual inspections, the new model relies on engineers working at the factory on a regular basis.

After the supply chain

Markdowns: We all agree that markdowns are by far the greatest garment cost. The new middleman recognises that his greatest responsibility must be to reduce markdown, because as the nexus between the customer and the factory supplier he is the only one who can achieve markdown reduction.

Markdowns result because some styles, some colours, and some sizes sell out while others do not. The underlying problem is lead times. If lead times – from first designer sketch to stock garments arrive in-store – are 45 weeks, it is inconceivable that anyone can determine in advance just which styles will sell and which will die on the rack.

The goal must be to reduce lead times from 10 months to under 2 months.

  • Product development = 21 days
  • Production = 14 days
  • Shipment – factory (air) to in-store delivery = 14 days

This schedule is not some theoretical academic exercise. At this very moment middlemen are reaching this goal. They have the tools. They have the skilled professionals. They have the knowledge. Most importantly, they are not wasting their time trying to force some zero-service factory to reduce CM by 12 cents.