“Retailers are typically out of stock 30 per cent of the time,” adds Peter Willmot of Kurt Salmon Associates. “Where clothing is a discretionary purchase, the industry must maximize its potential to make every possible sale. That means that Quick Response, as the industry currently understands it, will not be enough. To survive in the next millennium it will be impossible not to be quick. Speed, electronic linkage and strategic alliances will be the fundamental parts of business practice.”
“The crucial factor is information technology, and sharing information throughout the supply chain,” says Peter Butenhoff, President of TC 2 , a non-profit organization dedicated to increasing the competitiveness of the US soft goods industry. “IT will drive the whole concept of mass customization and help to shorten lead times. IT will cut out the waste that contributes about 30 per cent of the cost of our products.” By Butenhoff’s definition, waste includes costs associated with double handling, holding inventory, and clearance mark-downs. “We’ve tolerated waste in the past, because there’s been no information to avoid it. Now that we’ve got the information it’s a logical cost reduction to go after.“
Sharing information will represent something of a cultural shift for many in the industry. The customer-supplier relationship has frequently been characterized by confrontation rather than cooperation. “At an intellectual level, senior management can appreciate the benefits of sharing,” says Peter Willmot, referring to the situation in Europe. “But in practice, retailers frequently expect manufacturers to buy sales data. Manufacturers are reluctant to share information with retailers for fear of losing a negotiating position. It will be difficult to overcome this.”
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Difficult but not impossible
In the US, there is a greater willingness to cooperate, a fact which has driven the recent upsurge in interest in Microsoft’s Value Chain Initiative (VCI). The VCI aims to provide tool sets to facilitate communication between the various applications of trading partners worldwide. “Retailers are capturing point of sale information and are willing to share it with suppliers,” comments Peter Butenhoff. “The information is there. The challenge is how to use it, and also how to help smaller manufacturers gain access to it.” TC 2 is currently working alongside other agencies on the Demand Activated Manufacturing Architecture project, which is set to help the small and medium size manufacturers participate in the growing world of electronic commerce.
Butenhoff continues, “The companies that have capitalized on this information have done very well. Wrangler worked with WalMart to achieve inventory turns of 25 times a year, compared with an industry average of three to four turns.“
The dominance of the big retailers in the US goes some way to explaining how cooperation has come about. Approximately twenty retailer groups account for 80 per cent of sales. Manufacturers have been ‘forced’ to cooperate with the retailers in order to survive. Vendor Managed Inventory (VMI) has become the norm, with manufacturers producing floor ready merchandize that can be put on display as soon as it arrives at the store. Gone are the days of stores employing staff to unpack, price and hang the garments from branded suppliers. These days the supplier does all the work!
Cooperation is helped by common standards applied across the whole industry in the US. These mainly arise from the work of the Voluntary Industry Communications Standard (controlling EDI), Uniform Codes Council (controlling UPC codes and labeling), and the National Retail Federation (coding colors). The lack of similar standards in Europe is one barrier to efficiency in the supply chain that will have to be overcome.
While VMI may appear to place costs on suppliers, and give all the benefit to retailers, this is not the case. “Manufacturers that embrace it and do it well gain huge market share,” says David Graham of JBA’s Chicago office. “The challenge for software vendors is also to embrace the VMI concept and add functionality that supports it.“
The promise of mutual benefit has persuaded one of America’s biggest clothing companies to review its application of IT and EDI. According to Keith Smith of Williamson-Dickies Manufacturing, a major supplier of workwear and private label jeans, “We’re trying to get win-win situations between ourselves and our suppliers, and ourselves and our customers.” The company has recently invested in JBA’s System 21 to help improve scheduling, reduce lead times and cut inventory. “By the end of 1997 we want a technology platform to let us move into VMI,” says Smith, “and to improve our performance in the supply chain.“
Ultimately, supply chain performance is the key to success. “If the supply chain is poor, no matter how good your products are, you won’t succeed,” says Professor Sweeney. Industry must use information to improve its performance. “Invest in information not inventory,” adds Peter Butenhoff, “and use that investment to manufacture closer to market and according to actual demand. It’s the only way to survive.“