While most of the observations made so far throughout this series hold true for multiple retail segments, the increasingly fickle and demanding customer base of teens (and their paying parents) or yuppies has led to the fashion apparel or garment retail vertical market to become one of the fastest changing of all markets. If these retailers do not constantly refresh their presentation and assortment for consumers, they run the risk of losing out to their competition, no matter how competitively they source and deliver their product.
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 a few weeks. These retailers achieve such a feat by running different supply chains for different market segments. This means that these retailers use a combination of inexpensive volume production in nearby Southern and Eastern Europe countries and, in some cases, they leverage expensive airplane 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 and assembly is the century-old manufacturer New Balance. New Balance's entire staff prides itself 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 those in the US, such as Gap, J. Crew, and 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 and 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 full price. Hesitant customers might not find a desired item the next time they come (akin to the expression, "you snooze, you lose"), either because of the item's "hot" demand (meaning without replenishment) or because of a deliberate store policy of automatically marking down and selling goods every six weeks or so.
Price pressure is the strongest driving force in the apparel industry. It can be felt across the entire supply chain, from consumer to retailer, apparel brand wholesaler or manufacturer, and apparel contractor to the fabric vendor. Successful apparel retailers tend to excel at more accurate forecasting, inventory optimization, and supply chain speed and agility. Major North American retailers have typically turned to software, such as analytics for forecasting, inventory optimization, or markdown calculations, and specifically 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 these processes up is to have close relationships with suppliers (for example, committing to a particular factory and sharing more information).
Direct shipping, also known as "DC bypass," is another effective practice that occurs when vendors ship goods directly to the retail store instead of to the retailer's distribution center (DC). Successful execution of this is still extremely challenging and requires supply chain partners to be flexible enough to make last-minute changes to carton and container assortments as well as to destinations. Sourcing and logistics leaders also want access to information that enables decision making closer to market (meaning end consumers), such as data to evaluate whether they should make changes to colors, styles, production locations, order sizes, retail assortments, or shipping plans.
With this shift, sourcing and product lifecycle management (PLM) tools have emerged as important technology enablers within the retail enterprise, since such tools can help offset the loss of control and slowed responsiveness associated with outsourcing the manufacturing of merchandise to remote parts of the world. Avant-garde retailers that are driving private label strategies forward are doing so by automating key sourcing functions, streamlining business processes, and implementing best practices across multiple product lines.
As fussy consumers continue to demand new products "yesterday," leading retailers have to extend the skills and tools required to effectively scale their sourcing and PLM communications and processes. Additionally, reducing the error rate early in product design phases prevents issues from becoming magnified further into the product life cycle and supply chain. Searching for and identifying the appropriate sources for goods and services takes up half of the entire sourcing cycle, and 80 percent of the product cost is built in the design and development phases when sourcing occurs (requiring close, cooperative relationships). From another angle, the expenses related to design are typically up to 15 percent of the nominal product cost, but up to 70 percent of the product delivery cost can result from a (poor) design.
The results of a recent survey by Eqos show how winning retailers rate the value of the following means to overcome organizational inhibitors and other challenges to global sourcing. In descending order of importance, these approaches and means are: 1) improved integration technology tools; 2) collaboration with suppliers on costs and implementation; 3) availability of success stories and case studies about the winners in a particular line of business (LoB); 4) deployment of hosted or on-demand solutions to mitigate initial costs; 5) creation of an interdisciplinary team to investigate benefits; and 6) leveraging consultants and internal LoB champions to help with process changes.
The findings from another survey show that companies that achieve the best returns from global sourcing employ the following strategies: standardize sourcing procedures; coordinate sourcing decisions across functions, divisions, and geographies; establish procedures and intelligence for accurate and timely landed cost calculations; use advanced analytical tools; and automate global sourcing processes.
Performing the above best supply chain practices concurrently rather than sequentially (where possible) has led to production times, on average, to be almost halved. Given this enormous decrease, manufacturers and brand wholesalers are able to streamline and reduce the product design cycle, for which successful downstream and upstream systems integration is important. As such, the PLM software category is taking on much greater meaning in the sourcing and logistics realms.
PLM emerged as a tool for discrete manufacturing, which needed to keep track of product specifications in computer aided design (CAD) drawings. However, these traditional tools not only poorly translate to fit the needs of process manufacturers, but they are especially unfit for fashion retailers.
Retail remains a very tactile industry, focused on the hand, drape, and durability of fabrics and trims. Designs are still sketched on paper and pinned onto size models or mannequins. Yet, the popular misperception is that new product development and introduction (NPDI) in apparel is a simple progression from a designer's sketch to the finished item. Retailers approach PLM in terms of collections and seasons, continually launching new creations. 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 cannot be simulation-tested as can be done in discrete manufacturing. Apparel and footwear buyers need to touch, see, and feel their components; they are involved in every step of the product life cycle. 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 because of a lack of communication between merchants, product designers, and vendors. If not developed inside this nine-month window, the idea is, well, out of fashion. In the real world, product design and development can take up to eighteen months, with design improvements and changes communicated across time zones and in different languages, samples test-marketed, fit specifications modified, and colors refined--designs are constantly being updated.
The apparel industry operates in an environment of rapidly changing consumer trends and competitive margins. The consequences of a poor product selection or late delivery can result in a lackluster selling season--it can even be truly disastrous for a retailer. Competition for product differentiation and increased profit margins mean that delays or missed communication can interrupt production, delay shipments, increase cost, and impact sales, thereby posing 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 the years, as opposed to shared components, ingredients, and subassemblies in the discrete and process manufacturing markets.
Facilitating collaboration between designers, merchants, sourcing professionals, and the factories is the first step for any PLM application. Moving away from phone calls, faxes, and e-mail strings to a centralized collaboration environment can ensure that all parties are in tune with the latest requirements. The dynamics of consumer demand, consumer fickleness, and fashion trends are what make fashion retail so complex. With thousands of stock-keeping units (SKUs) containing color, size, and attribute options undergoing multiple iterations during design and development, as well as numerous quality checks, the apparel retail industry requires a specialized PLM solution. A well-devised planning refinement process should secure the right product margin.
In order to take advantage of the price differentials associated with global outsourcing, retailers need to be extra vigilant about design changes, where the tracking of components, test results, and packaging requirements, as well as quality issues, require a PLM system to promptly alert retailers to key milestone updates and results. Also, the retail environment for PLM requires quality testing to be done throughout the product life cycle, but mostly before production even starts. The system should monitor the product progress and assure quality requirements throughout the entire process. In the retail industry, component materials, works in progress (WIPs), and finished goods can undergo a battery of sampling, rigorous testing, and rework up to the last moment before in-line production starts.
To keep deliveries on schedule, a comprehensive process and alerting system is needed to capture and communicate specification changes, test results, and potential production impacts, as well as to provide the visibility to manage materials and resources effectively. The above information and quality resolution, calendaring and status alerts, and the component library (or a growing database of approved designs and configurations or components) should all keep product development and production on track and moving toward the store floor.
Typically, retailers try to take advantage of traditional product design 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 necessarily to track quality testing, manage sourcing activities, unite the buying process, or maintain the official transaction details. Thus, it has been difficult, if not impossible, for such systems to produce "one version of the truth" for financial reporting and compliance with the US Sarbanes-Oxley Act (SOX) and Customs-Trade Partnership Against Terrorism (C-TPAT).
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 enable retailers to prequalify suppliers for a particular order based on their previous work and certifications, and they grade these suppliers on the quality of new orders received.
While the TradeStone PLM for Retail product was described in The Future for an E-sourcing Solutions Builder, the counterpart Eqos Product Management Suite is comprised of the following four modules that manage supplier-related processes from a product-centric perspective:
1. Eqos New Product Introduction--manages the product from the specification stage through to delivery to the retailer, automating the NPDI processes and data gathering across companies to reduce time-to-market and increase launch success rates.
2. Eqos Product Information Management (PIM)--facilitates the synchronization of information both internally and externally via a centralized repository of product data and graphics information. This repository is the foundation of information on quality, and provides the reference point for store-specific ranges, campaigns, promotional activities, and product performance management.
3. Eqos Promotional Event Management--automates and manages the initial planning, pre-evaluation, execution, and post-event analysis of promotions, including seasonal events, product introductions, and regular consumer offers.
4. Eqos Product Performance Management--publishes product performance data to suppliers and to internal parties.
Data can include sales, stock availability, forecasts, receipts, dispatches, and store range details, and it is reported at store, region, depot, or aggregate corporate levels. This module incorporates alerts, exception, and lost opportunity reporting against any metric, including expected sales, availability, and ranging parameters. A single view of the truth should eliminate the redundancy introduced by multiple spreadsheets in need of updates, the hunt for e-mail strings, and constant re-keying of information in multiple systems. Companies should be able to harness the Internet to ease sourcing and procurement processes and to tackle the most serious problem of sourcing--the headache caused by separate systems for domestic and international buying, and the inability of smaller companies to leverage global buying platforms.
No doubt, retail manufacturers are expected to produce the highest quality items at the lowest possible prices, while buyers and sourcing people must seek to get the best prices and the tightest delivery times. Consequently, retail manufacturers should institute globally visible time-and-action calendars and leverage existing IT investments to work together to bring products to market, report on critical milestones, and achieve and propagate "one source of the truth." Information-sharing should benefit trading partners by improving forecasts and the coordination of manufacturing and distribution systems and strategies, reducing lead times, and accelerating reactions to marketing data.
Research findings report that almost two thirds of systems and solutions that are employed as parts of strategic sourcing initiatives remain manual or are conducted by fax or e-mail. It is not atypical for a buyer to access several such systems and maintain up to a dozen spreadsheets as part of the buying and sourcing process. Almost every organization should strive to eliminate redundant data entry and move away from multiple sourcing documents to manage commitments correctly. Having more timely information leads to more accurate demand forecasting, which then leads to lower shortage costs (that is, expenses incurred due to inadequate inventory can be reduced by more accurate forecasting).
An astute application suite or a composite application that entails sourcing, order management, PLM, order fulfillment, production visibility, business process modeling (BPM), critical path management, dashboards, etc. should support the way each trading party thinks and how each needs to execute to achieve common goals. This can be accomplished by presenting 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.
Appropriate enterprise software has automated many of the business processes that make up supply chains, and with this automation should come cost reduction and increased efficiencies. In general, the major benefit of properly harnessing supplier relationship management (SRM) tools is improvements in agility. Agility is the ability to respond more quickly, efficiently, effectively, and accurately across the entire supply chain process.
Central to agility are shorter cycle and lead times that come from the elimination of manual processes and from more reliable and more frequent status reports of the manufacturing and shipping process. This, in turn, allows for quicker identification of problems and for finding the appropriate solutions. Also, with a quick automatic transfer and availability of data, manufacturing specifications may even be changed for a product that is already on order without necessarily taking it out of queue, thereby again shortening total order lead times. The most common aspects of improved agility that stem from shorter cycles include the following:
1. lower inventory levels, since with shorter lead times and cycle times, the level of safety stock (buffer) may be reduced, which leads to savings by reducing inventory levels and obsolescence costs;
2. improved on-time delivery (reduced incidence of out-of-stock items);
3. increased customer satisfaction due to improved on-time delivery, shorter lead times, and more accurate information regarding order status; and
4. better responsiveness to market needs (changes in the market) due to greater knowledge of the market and shorter time requirements for informing trading partners.
Still, 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 sourcing, SRM, or PLM system selection--either as a stand-alone or within a broader supply chain management (SCM) framework. Therefore, one should keep in mind that each package will have its own unique combination of features and components, and will require varying degrees of data input and updating by users.
Customs duties and tariffs, as well as rates of exchange and transportation costs, should be available to accurately calculate total cost of goods. This requires a data model and integration at the product and item level between the sourcing system and the enterprise resource planning (ERP), order management, warehouse management, transportation, and other pertinent enterprise systems. In any case before any company expands its supply network to include low cost sourcing or assembly, it should make thorough comparisons based on all the costs involved in all the possible scenarios.
Global sourcing is substantially more complex than domestic sourcing, and it should not be attempted without adequate technological support and business process control. Executive global sourcing mandates that are not supported with such tools to execute typically either fail or do not meet expectations. The ideal situation for a retailer is to establish a collaborative trade platform that offers the tools, content, community, and business infrastructure to support global commerce communities and a transparent trade process.
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