The Fashion and Apparel Retailers' Conundrum
Written By: Predrag Jakovljevic
Published On: June 29 2006
Zooming into the Fashion and Apparel Retailers' Conundrum
Most of the considerations explored in this series so far hold for multiple retail segments, but with an increasingly fickle and demanding customer base of teens (and paying parents) and yuppies, the fashion or apparel or garment (the precise term depends on the region) retail vertical is probably one of the fastest changing. If these retailers do not constantly refresh their presentation and assortment for consumers (as well as how competitively they source and deliver), they run the risk of being overtaken by their competition. For more information on the scope of retail management systems, see Retail Systems: A Primer and Retail Market Dynamics for Software Vendors.
Part Three of the series The Gain and Pain of Global Retail Sourcing.
The market is buzzing about the examples of European retailers Zara and H&M, which are known for their ability to design, produce, and deliver new styles to stores in only three weeks. They achieve this via a combination of inexpensive production in nearby southern and eastern European countries, and in some cases, by leveraging expensive plane shipments to deliver brand-new goods to stores in three weeks. In the US, a good example of balancing the lower costs of globally sourced goods with a higher quality of domestic (or regional) final manufacturing or assembly, would be century-old New Balance, whose entire staff pride themselves on knowing the "business of making athletic shoes first," including even the internal information technology (IT) group.
By turning their inventories more often, such retailers (including US ones like Gap, J. Crew, or Wilson's Leather) even have the luxury of selling most of their merchandise at full price or at an initial markup unit (IMU) rather than at significant markdowns or discounts. In addition to giving consumers a reason to shop more often, leaner inventories and faster turns can improve margins by encouraging shoppers to buy more often at a full price. Hesitant customers might not find a desired item next time they come ("you snooze, you lose"), either because of the item's hot demand nature (without replenishment, owing to the emergence of an increasingly opportunistic "one-night stand" merchandizing approach of late), or because of a conscious store policy of automatically marking down and selling the goods every six weeks or so.
The price pressure is nonetheless most apparent (and is the strongest driving force) in the apparel industry, and can be felt across the entire supply chain (from consumer to the fabric vendor, via retailer, apparel brand wholesaler or manufacturer, and apparel contractor). Successful apparel retailers tend to excel at more accurate forecasting or inventory optimization, or supply chain speed and agility (in terms of inventory turns and replenishment times). For more details, see The Gain and Pain of Global Retail Sourcing and The Intricacies of Global Retail Sourcing.
Major North American retailers have typically turned to software such as analytics for forecasting, inventory optimization, or markdown calculations, and Web-based software to tie together data from disparate departments and trading partners, all to speed up supply chain processes from remote low-cost material (fabric) and labor locations. One way to speed up these processes would be to form closer relationships with suppliers (for example, by committing to a particular factory and sharing more information up front).
Direct shipping, also known as "DC bypass," is another more effective practice that occurs when vendors ship goods directly to the retail store instead of to a retailer's distribution center (DC). Successful execution is still extremely challenging, and requires supply chain partners to be flexible enough to make last-minute changes to carton and container assortments, and destinations. Like other executives within their companies, sourcing and logistics leaders also want access to information that enables decision-making closer to market, such as data for evaluating whether they should make changes to colors, styles, production locations, order sizes, retail assortments, or shipping plans.
Enter Product Lifecycle Management
Thanks to these best supply chain practices, production times have recently been almost halved on average. This is also thanks to executing operations in parallel rather than sequentially (where possible). For instance, the processes of sourcing production fabrics and trims, collaborative sharing of forecast projections with contractors, and testing the sample material's quality, can all be done at the same time. And with production times almost halved, manufacturers and brand wholesalers are increasingly turning to streamlining and reducing the product design cycle, for which successful downstream and upstream systems integration is increasingly important. As such, the product lifecycle management (PLM) software category, which has traditionally applied to discussions of pre-production processes, is taking on much greater meaning in the sourcing and logistics realm.
PLM emerged as a tool for discrete manufacturing, which needed to keep track of product specifications in computer-aided design (CAD) drawings, and where-used information for standard components and subassemblies, as well as simulation-based testing. However, these traditional tools not only poorly translate to fit the needs of process manufacturers (see Preparing for Product Development in Process Manufacturing), but are especially unfit for fashion retailers. Retail remains a very tactile industry, focused on the hand, drape, and durability of fabrics and trim, and designs are still sketched on paper and pinned on size models and mannequins. Yet the popular misperception is that new product development and introduction (NPDI) in apparel is a simple progression from an impulsive designer's sketch, via pinning muslin pieces together, to sewing the finished item together on the model before the catwalk down the runway. Retailers understand that this idea is pure fantasy, since first of all they approach PLM in terms of collections and seasons, continually launching new styles, fabrics, and colors. Planning allocation for the various pieces that comprise a collection is still determined by budget.
In this industry, collections are defined by their attention to quality, which certainly cannot be simulation-tested as in discrete manufacturing, since apparel and footwear buyers need to touch, see, and feel their components, and are uniquely involved in every step of the product lifecycle. Designing and planning for a season's collection typically begins at least 9 months in advance, with 90 percent of product designs never seeing the light of day due to lack of communication between merchants, product designers, and vendors, within which time the idea is already, well, out of fashion. In the real world, product design and development can take up to eighteen months, with iterative design improvements and changes communicated across time zones and languages; samples are test marketed, fit specifications are modified, colors are refined, and designs are constantly updated.
The Challenges of Apparel PLM
While both discrete and process manufactured items and apparel can devalue rapidly, apparel operates in an environment of rapidly changing consumer trends and more competitive margins. The consequences of poor product selection and delivery can result in a lackluster selling season, and can even be truly disastrous. The competition for product differentiation and increased profit margins that mark the fashion retail industry mean that delays or missed communication can interrupt production, delay shipments, increase cost, impact sales, and thereby pose serious threats to the viability of the company. The design process is iterative and collaborative, with buyers and vendors working together to get the right product at the right price point, while styles, details, sizing, and palettes create the brand look over years, as opposed to the shared components, ingredients, and sub-assemblies of the discrete and process manufacturing markets.
Facilitating collaboration between designers, merchants, sourcing professionals, and the factories is the first step for any PLM application, given the thousands of design iterations and change orders across product families and collections. Moving from phone calls, faxes, and email strings, to a centralized collaboration environment should ensure that all parties are in sync with the latest requirements. It is precisely the dynamic element of consumer demand, consumer fickleness, and fashion trends that make fashion retail so complex. With thousands of stock-keeping units (SKUs) containing color, size and, attribute options undergoing multiple iterations during their design and development, as well as numerous quality checks, the apparel retail industry indeed requires a specialized PLM solution. The well-devised planning refinement process should secure the right product margin. In an industry where new collections make or break earnings, a retail company with $1 billion in revenues can reportedly save $1 million a year by shortening its supply cycle time by just one day.
In order to take advantage of the price differentials associated with global outsourcing, retailers need to be extra vigilant about design changes, where-used implications (that is, tracking fabric, accessories, trims, testing results, and packaging requirements across collections, and so on), and quality issues, and require a PLM system to promptly alert them to key milestone updates and results. Also, the retail environment for PLM is different from and much more dynamic than traditional PLM for discrete manufacturers, since quality testing is done throughout the product lifecycle, but predominantly before production even starts. The system should monitor the product progress and assure quality requirements from design concept via product brief, technical package, request for quote (RFQ), order, and delivery, to invoice. In the retail industry, component materials, work-in-progress (WIP), and finished goods can undergo a battery of sampling, rigorous testing, and rework up to the last moment before in-line production starts.
In order to keep deliveries on schedule, they need a comprehensive process and alerting system to capture and communicate specification changes, test results, and potential production impacts, and to provide the visibility to manage materials and resources effectively. This information, along with quality resolution, calendaring, and status alerts (as well as the component library, or a growing database of approved designs and configurations or components such as fabrications, buttons, zippers, trims, embellishments, and so on, with automatic where-used cross-referencing), should all keep product development and production on track and moving towards the store floor. For more information, see Process Manufacturing: Industry Specific Requirements; Part Three: Textiles and Intentia: Stepping Out With Fashion and Style; Part One: Characteristics and Trends of the Fashion Industry.
Typically, retailers try to take advantage of product data management (PDM) solutions such as Gerber's WebPDM or Freeborder's Product Manager to organize their production specifications. But these systems were primarily designed to integrate with cutting and piecing machinery, not to track quality testing, manage sourcing activities, or unite the buying process, nor to maintain the official transaction details, making it difficult, if not impossible, to produce "one version of the truth" for financial reporting and compliance with the US Sarbanes-Oxley (SOX) and Customs-Trade Partnership against Terrorism (C-TPAT) requirements.
Nor are PLM packages for discrete and process manufacturers the right fit for retail PLM, as they are not built for the diversity of attributes, rigors of quality testing, or the inherent relationship with global sourcing, order management, and supply chain functions. Some astute apparel PLM systems also enable retailers to pre-qualify suppliers for a particular order based on their previous work and certifications, and grade them on the quality of new orders received (see The Next Phase of Supplier Performance Management in the Retail Industry). Also, integration with nifty applications like Google Earth's geospatial locator should help them virtually immediately locate available agents, inspectors, and facilities to speed quality testing and manufacturing.
To summarize, retail manufacturers are expected to produce the highest quality items at the lowest possible prices, and designers are expected to put together unique collections that fly off the shelves, while buyers and sourcing people seek to get the best prices and the tightest deliveries. Consequently, virtually every organization, regardless of the industry, should have corporate goals for excellence, such as to institute globally-visible time-and-action calendars, leverage existing IT investments to work together to bring products to market, and to be able to report on critical milestones, and achieve and propagate "one source of the truth." An astute application suite or composite application that would entail sourcing, order management, PLM, order fulfillment, and so on, should support the way each party thinks and needs to execute, by presenting respective users with screens and workflow from the perspective of the job to be done, regardless of role, organization, geography, language, or currency. Simply said, the software has to mask the complexities of global trade, especially among users who have historically been loath to adopting technology.
The complexity and specialization of the global sourcing space makes it hard for any aspiring vendor to handle all the requirements of automating global e-business, and all of the above issues and requirements should be taken into account during an sourcing or GTM system selection, whether it is stand-alone or within a broader SCM framework. Therefore, owing to a still fragmented market, one should keep in mind that each package will have its own unique combination of features/components and will require varying degrees of data input and updating by users. Customs duties and tariffs, as well as associated rates of exchange and transportation costs should be available to accurately calculate total cost of goods, which requires a data model and integration at the product and item level between the sourcing system and the ERP, order management, warehouse management, transportation, and other pertinent enterprise systems.
This concludes the series The Gain and Pain of Global Retail Sourcing.