Kurt Cavano, CEO of TradeCard

Kurt Cavano, CEO of TradeCard

There's plenty of talk about the uphill battle confronting apparel supply chains in the face of cautious consumer spending and the pressure on margins from rising raw material, labour and transportation costs. What's needed are constructive ways to counter these pressures. Kurt Cavano, CEO of the TradeCard supply chain platform, believes technology has a key role to play.

Many apparel retailers, brands and manufacturers are already working to offset higher input costs through new fabrications, value engineering, and tougher negotiation with suppliers - but despite this, the consensus seems to be that there's actually very little left to take out of the supply chain.

Perhaps not surprisingly, as CEO of the TradeCard supply chain platform, Kurt Cavano believes there's still an ace to play when it comes to boosting efficiency, reducing risk, shortening cycle times and inserting speed into supply chains: technology.

"The low hanging fruit of finding cheap places to work are over, so now it's [a case of] using technology to drive the other costs out of your production to keep your prices as stable as you possibly can," he told just-style.

"If we look back at the last 20 years, apparel has been in a deflationary market. We've been able to find cheaper places to manufacture goods, we've been able to improve processes to drive out costs, and up until the last 18 months commodity prices have been relatively stable."

But now several components in the apparel supply chain are inflating; not just cotton but also oil (which drives the prices of synthetic fibres and fabrics) and labour.

"The industry has been chasing the low cost needle, going around the planet trying to find the cheapest place to manufacture," Cavano notes. "We found it and all set up shops in China, but now the labour rates in China are inflating 10 to 15% a year, so even that's not working.

"As an apparel industry we've crossed through a new threshold into a period where apparel prices are going to inflate at rates that the consumer has not seen for 20 years [price rises of 3-5% a year for the next several years are possible, he believes]. And we need to do something about it."

Driving out costs
Hooking together all the parties in the supply chain - the brands, theretailer, suppliers, suppliers' factories, finance and logistics teams - on a cloud-based technology platform like TradeCard takes out costly and time-consuming layers without the need to install local software.

"It really does change the way you think about your supply chain," Cavano enthuses. "The agility that a brand gets by having their whole supply chain connected together makes them virtually vertical. And it really does improve efficiency and productivity."

Creating a paperless supply chain obviously has a great environmental cost savings too. But the real value comes from instant visibility by all parties to the same information. "You can get one version of the truth about what's going on in your supply chain," Cavano explains.

"The retailer or brand cares about 'where's my stuff' while the vendor is more concerned about 'where's my money,' and by bringing it all together you can answer those questions electronically."

Extending the connections to raw materials suppliers as well can help improve access to key inputs, so "all of a sudden you can start tuning your supply chain in ways that you couldn't do in the old paper way."

Since it was launched a decade ago, TradeCard's user base has grown to include names like Levi Strauss, Columbia Sportswear, Guess, Gant and Eddie Bauer.

Its initial focus was to eliminate letters of credit and make global trade as easy as using a credit card. But this too has expanded, so that today the platform is increasingly used for early payment programmes to ensure vendors have access to capital at lower interest rates than they would normally be able to get.

 "When buyers stretch payment terms to their vendors they're actually adding costs to the supply chain because they [the vendors] have to borrow money at a higher cost. If you can do early payment programmes you can take a substantial amount of capital costs out - and those are things people typically don't think about."

But even though a lot of supply chain executives focus solely on driving out costs, this is not the only way to save money in the supply chain.

"Instant access to information lets you react more quickly to demand signals, get the right colours, styles and sizes to market at the right time, and focus on the things that really matter. That kind of supply chain tuning has huge effects on margins," Cavano adds, "because you have better sell-through.

"With a little bit of work you can take 2-4 weeks out of your supply chain, and that's a lot of capital that's tied up, that's a lot of distance time-wise between when you're getting feedback from your customers and when you're actually delivering the goods."

Where's sourcing going next?
Not only is there still a lot of room for many companies to improve, but they're going to have to navigate even more changes on the sourcing front.

With goods at a wholesale value of $13bn - that's about $30bn at retail - sourced through TradeCard in 2010, and over 7,800 buyers, sellers and service providers in more than 60 countries connected through its network, the platform provides a great overview of what's going on in the market.

Rising prices and labour issues in China have prompted a shift in production to lower cost countries like Bangladesh, as well as Vietnam, Indonesia and India. But there's also "more thought" going into near-sourcing strategies too.

"Some of that is driven by the reality of the costs of transportation and the instability that we're seeing in the Middle East and how that's going to affect oil, so maybe it's time for us to rethink the whole far-sourcing strategy," Cavano explains.

For TradeCard, too, changes are underway as it builds on its third and fastest-growing trade flow -which runs from Asia to Europe - after moving Esther Lutz to a new role growing its business with European retailers and brands. Customers here already include O'Neill Europe and Cortefiel.

And as part of a project with Avery Dennison it is rolling out factory floor automation tools to around 3000 factories in Asia so they will be able to generate the barcodes and tags needed to ship direct to stores. Connecting the factory to the store is another way of driving out costs by speeding deliveries and reducing cycle time.

There are also new tools for raw materials management that enable raw materials to be reserved at the mills, and financed, so that retailers and brands can lock up commodities like cotton at a fixed cost.

"Having the ability to commit electronically is really key," Cavano notes. He adds, with some understatement: "It's an interesting transformation period that we're going through right now."