The clothes line

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‘Pile it high and sell it cheap’ arguably has no place in the fashion industry. Anyone, however unimaginative, can mass-produce garments in unvarying colours and styles; the Soviet Union managed to keep it up for several decades.

Fashion should be, more than almost any other industry, about managing the supply chain so that the customer gets what she wants, when she wants it. (Or even, these days, he – I’m told that some males take more than a passing interest in what they wear.)

Essentially, the entire fashion industry revolves around the teenage girl. While her mother may have been willing to wait for the autumn or the spring ‘season’, her daughter – if she’s going out on Saturday night – expects to find a brand-new outfit in her favourite high street fashion outlet on Saturday morning. Needless to say, while her clothing collection has long burst the seams of an average sized wardrobe and would comfortably fill a medium-sized truck, she ‘has nothing to wear’. Fathers and boyfriends shouldn’t begrudge the cost too much – she’s keeping needy Bangladeshis and Moroccans – not to mention bands of Soho fashion designers – in gainful employment.

Time was when supply chain issues in the apparel industry were about building and designing distribution centres but lately they have taken on a much more strategic aspect says Kurt Salmon Associates (KSA) principal Dave Rush. As one of the leading consultants involved in the sector, KSA finds that its remit has been expanded to cover issues such as customer demands, the impact of upstream sourcing decisions and supplier capabilities.

Forward ordering still goes on
While it would be wrong to paint a picture of an industry that has moved completely to a demand pull supply chain; a substantial amount of forward ordering still goes on, says Rush. Retailers and manufacturers are making much greater efforts to flow merchandise through their supply chains, he says. ‘The idea is to keep the sales floor as fresh as possible,’ he explains, with frequent changes of styles and colours.

Changing customer requirements have manifested themselves, above all, in higher expectations that deliveries will be made on time, and in full. There is also more demand for services such as price ticketing, reduced packaging, security tagging and packing by store, says Rush. And electronics has also come to fore, ‘with more and more of a push into electronic advanced shipment notices, for example, and we’re also starting to see a strong push for electronic catalogues’.

Another trend is toward ‘staged’ or themed deliveries. Instead of a manufacturing churning out 10,000 identical items and shipping them in from the Far East, only a proportion of that number will be produced initially, while the remainder might have a different colour or styling. ‘It gives the customer a reason to come back to the store,’ Rush explains.

The ‘vertical’ retailers – companies like Zara, Mexx or Mango who combine their own manufacturing expertise with a vivid high street presence – were the first to put these theories into practice, but the branded retailers are learning fast. A recent KSA study in North America suggested that the vertical operators were 40 per cent more efficient in cost-per-unit terms, mainly due to their greater degree of control and resulting higher consistency. Ultimately, it is due to the fact that ‘Zara need only worry about Zara’ rather than the actions of a third party manufacturer.

In fact the business model throughout Inditex, Zara’s owning group, is characterised by vertical integration throughout, from design up to sale in own stores, including production and distribution. According to Inditex’ supply chain manager, Lorena Alba, logistics is one component of this model, serving the main objective of the company, which is to count on the biggest flexibility and capability of adaptation to the market needs in the shortest period of time. The role of logistics is important in the sense that it makes it possible for Inditex’s different chains to offer the products that its clients demand, in as short a time as possible. ‘Consequently, the greatest concern of our groups since the beginning has been to reach the maximum efficiency in our logistics system,’ says Alba.

Cutting lead times reduces the risk associated with fashion. For that reason, Inditex has an own production capability, which is used for products with a stronger fashion component and own production represents approximately 50 per cent of the total. Products from Spanish and other European countries’ suppliers account for 80 per cent of the total, with only 20 per cent from other parts of the world, mainly Asia. Higher costs of production in Europe are compensated for by the reduction of fashion risk. ‘To produce near the place where decisions are made allows us to bring those decisions closer in time to the moment at which the products are placed at the stores at the disposal of our clients,’ explains Alba.

Each Inditex chain (Zara, Kiddy’s Class, Pull and Bear, Massimo Dutti, Bershka, Stradivarius and Oysho) has its own distribution centre from where its products are sent to all its stores throughout the world (over 1,600 for the total group, in 46 countries in Europe, North America and Asia). In general, distribution is by road to all those places that can be reached in 24 hours. For the rest, airfreight is used, and in all cases maximum delivery time is 48 hours. Each company has its own vision and business model. In Zara’s case, it is based on an offer which is constantly renewed. Zara delivers the products to all its stores twice a week, always including new models.

Boosting system speed
IT policy has always been to include those technologies that boost system speed and efficiency. Alba comments: ‘It is vital for the suitable operation of our system to handle a big volume of information quickly. In this sense, for example, the inclusion of manual gadgets at the stores allows us to receive and send the right information for the organisation of the merchandise dispatch just a few hours before this happens. All this has been specially significant.’

Shoemakers are under as much pressure as clothing manufacturers, says Keld Moestrup, vicepresident of upmarket manufacturer Ecco Sko. Although Denmark-based, the company sells its products in much of Europe, North America and Asia and Pacific. ‘The market is under heavy pressure,’ he explains. ‘In the past we sold shoes mostly into the main seasons and if they went well there was perhaps a repeat business, but now the pattern is for a smaller main order and more emphasis on repeats. So that puts pressure on us.’

At the same time, he continues, manufacturers are making more demands for value-added services such as labeling, packing and delivery and there is an ever-increasing emphasis on precision. One trend, which started in the US but will probably work its way to Europe, is for retailers to charge manufacturers and suppliers for wrong or incorrect deliveries.

Ecco Sko recently integrated Connecticut-based Mercator Software’s Integration Broker to support its supply chain in Denmark, Germany and the US. ‘One advantage of Mercator is that it gives us the ability to take in repeat orders automatically and to communicate every day with customers,’ explains Moestrup.

Systems integration has been pursued for a long time, he adds, but the Mercator system is more comprehensive than earlier efforts, integrating the company not only with its customers but with DCs, suppliers and manufacturers. Links with suppliers have perhaps been relatively slow to come, but some momentum is now building. Of course, many are in relatively underdeveloped and distant countries. (Ecco is more integrated than most shoe manufacturers in that, for instance, it does its own tanning – and even owns a handful of retail outlets.)

Shoes are mostly made from leather which, as a natural material, can sometimes throw up unexpected surprises. Too many insect bites on the hides, for instance, mean that production has sometimes to be quickly rethought.

The vertical retailers have brought a sense of urgency into the fashion business, although it is possible that their effect has been overplayed, thinks Mike Daly, Managing Director at logistics specialist, DTS. ‘Yes, they do have a sense of urgency about the business, which is good, but when they need to, many retailers can react quickly.’

Interesting dynamics
And the industry is currently going through some ‘interesting dynamics’, according to Rush. ‘There is certainly a push for smaller, staged deliveries, coupled with a desire (by the retailer) for later commitments. That’s giving rise to some interesting dialogues.’

Steve Scala, senior vice president at business process outsourcer Global exchange Services, says that in order to avoid the two main bugbears of fashion retailing, stock-outs and markdowns, his company is helping them to move to ordering at the individual (EAN or in North American parlance UPC) level. He adds: ‘We’ve got supply chains to be more quickreplenishment. The manual world was slow, and there was no visibility of in-transit items.’ Global exchange recently bought Celarix, a leading provider of supply chain visibility and connectivity solutions.

Another area that is now ‘red hot’, adds Scala is ‘data synchronisation’. Global exchange has created a data sychronisation engine that allows users to merge their own data with that of the standard EAN or UPC numbering – style data, size data, department numbers or so on – to create a comprehensive electronic catalogue. It’s particularly pertinent in the apparel sector, especially shoes, where additional widths as well as sizes, plus all the different style information can create a truly mind-boggling array of different numbers. GE is running data synchronisation pools in the US, Canada and Australia.

Traditionally, it has been very difficult for a mass manufacturer – one of the well-known sports shoe makers, for instance – to address multiple customer demands, and many are now looking to their supply chains to deliver some much-need flexibility. ‘They may buy the raw material, and then buy the production capacity, but at that stage they may not know whether they’ll be producing them in red, or in yellow. It’s only when exact customer demands have manifested themselves that that decision will be taken,’ says Scala.

For the future, KSA’s Dave Rush sees the branded retailer acting ‘in a much more collaborative fashion, ‘and I also think we’ll see the major suppliers enhancing their supply chains to enable them to act more like a vertical.’ The major brands will also look at multiple supply chains able to respond, variously, to the needs of forwarding ordering, in-season replenishment or short-cycle orders.

In their fight-back against the verticals, other retailers will increasingly adopt ‘never out of stock’ replenishment strategies for core items of their range like t-shirts or standard colour shirts. ‘Not having the right size in stock is a very quick way of losing customer loyalty,’ says Rush. ‘The customer is becoming more demanding and wants a better shopping experience and having the right stock in size is a key part of that.’ Having too much stock on the sales floor is almost as bad as not having enough, though. Fashion-conscious customers don’t want to feel that they are buying a mass-produced item and some retailers try to exploit the ‘it’ll be gone next week’ syndrome to the hilt.

Dramatic fall
Production of clothing is falling dramatically in most west European countries in the face of low labour cost regions. As well as closing or downsizing plants, many companies have also contracted out at least some of their production to contract manufacturers, many of which are also based in low-cost countries. According to Mintel, of the major west European markets, only Italy is a net exporter (in late 2001). Italy and France have maintained export levels, thanks to their reputation for haute couture.

The move to low-cost countries in the Far East, south Asia, North Africa and the Near East is nearly complete as far as most EU countries are concerned. If anything, there has been a small trend backwards thanks to the new vertical retailers (socalled because they manufacture what they sell) who have mounted manufacturing operations in northern Spain. Rush comments: ‘The vast majority of apparel will come from distance sources, even more so as China opens up. Against that there is the completely different model of the verticals, such as Zara, who manufacture in Spain. But even they are now sourcing the more basic, highly predictable, products out of the Far East.’

This trend could continue as further supply chain improvements are made to production in the Far East, he says. There has been a tendency to bury production and supply chain inefficiency in the overall lead time inherent in Far East manufacturing, with the result that lead times from the Far East are not 20 days longer than from North Africa – allowing for the longer sea voyage – but as much as three months longer.

Clothing industry logistics specialist DTS has moved with its customers over the years. There is in fact a highly recognisable pattern, says Daly. Manufacturers discover low-cost locations; then, after 20 years or so, alternative industries – tourism, for instance – soak up surplus labour, earnings expectations rise and, in some cases, the country concerned joins the EU. Daly reckons that there is a 20-year window between a country starting up manufacturing and pricing itself out of true mass markets.

One effect has been to increase the relative importance of logistics and transport costs, says Daly. ‘Twenty years ago, you didn’t worry about transport costs, only the cost of the cloth and making-up prices. Then cloth costs came down – whereas they might be Á6 a metre 20 years ago, now they’re only about Á1.5.’ Labour costs have sunk to around Á0.75 an hour in the remoter eastern European countries or in the cheaper Mediterranean rim locations. China, when it becomes a fully-fledged member of the World Trade Organisation, could potentially drive labour costs down still further for those who can handle the longer lead times, but beyond that ‘wages are having less of an impact because of this bottoming-out effect’.

That leaves logistics costs, which have risen progressively from around 1 per cent of the total to perhaps around 5 per cent today. These could increase further if, as many expect, China becomes a major clothing producer for the European market. China has its attractions – as well as low basic costs, its producers are efficient, though geared towards mass production rather than small production runs.

And retailers do need to find ways of cutting costs still further. Competition in the market is shaving off double digit percentages in selling prices every year. You can kit out an entire family for under Á75 at some leading supermarkets. Ten years ago, that wouldn’t have bought you much more than a half-way respectable pair of trousers.

‘So I think, post-2005, China will storm away with a big percentage of clothing production. But fashion is a fickle thing, and, whereas the high street retailers can order from the eastern bloc or Med rim and then, if it sells, repeat it at monthly intervals, because of the sheer distance and the way the Chinese industry is structured, you just can’t do that sort of repeat business,’ says Daly.

Local business practices
As production has scattered to the four corners of the earth, the logistics industry has followed, though it hasn’t always been easy adapting to foreign customer’s regimes or local business practices. Firms like DTS have even taken on a quality assurance role, and offer a host of added value and reworking services – around 20 per cent of imported garments require some work, whether adding – or replacing – labels, washing instructions or pressing and finishing. ‘When clothes were produced in east London, it didn’t matter so much if they had to go back to the factory to be reworked,’ explains Daly. Much of the ticketing work is carried out in Europe because retailers either leave pricing to the last minute or – under pressure from a competitor, perhaps – change their mind at the last minute. Putting on security tags is another big issue, and will remain so until source tagging takes off in a big way.

Quick – response location
Despite all the pressure from the low-cost countries, there is still a place for manufacturing in the UK, and not just at the luxury end of the market, DTS’s Mike Daly says. ‘The UK is seen as a quick-response manufacturing location,’ he says. ‘If Carrefour decide that lemon is, after all, going to be the big colour this year, or if a high street chain want t-shirts with the results of a crucial football tie printed on them in the shops on Saturday, it can be done’.

The term ‘manufacturer’ has become a bit loose. Many Europe-based manufacturers in fact outsource most physical production overseas while retaining design functions, in a distinct echo of the trends that have occurred in, say, the computer industry. Some though will keep a few rolls of cloth on hand, and some machinery for rapid-response work.

The industry, meanwhile, continues to tweak its supply chain. One of the latest trends, identified both by freight firm Davies Turner and DTS, is point of origin (POI) warehousing, which sprang out of the increasing costs of warehousing operations in Europe.

John McCartney, Davies Turner’s UK sales director explains: ‘All the main retailers have warehousing operations which are becoming very expensive and congested.’ The benefit of POI warehousing is that goods can be prepared and configured – ready to go straight onto the shop floor if need be -loaded onto a trailer and the European warehouse operation replaced by a simple cross-dock transfer. The trailer can be loaded in a logical order, for ease of unloading in the UK.

POI warehousing has made its mark in countries such as Turkey or Tunisia, which are regarded as ‘quick response’ producers by the trendier high street retailers. However, there is nothing to stop similar principles being adopted in the Far East, says McCartney. Experiments carried out by Davies Turner suggest that 60-hour response times from North Africa are possible using road transport – albeit with double-manned trucks. Realistically, replenishment can be carried out consistently within about seven days.

The UK, where property and labour market pressures are perhaps highest, is at the forefront of the change, but the same principles apply anywhere in Europe where big distribution centres are expensive to build and run.

High street fashion is not about small, niche markets. The volumes involved in mass fashion retailing are mind-boggling. Even a single major retailer may sell tens of millions of items in one country in one year alone.

But in disaggregated form the numbers are positively frightening. Bear in mind that genuine fashion producers are not in a position to hit the button and churn out tens thousand uniform items – the need to stock all the permutations of size and colour alone make for a very fragmented stock holding.

Customer responsive
Moreover, retailers have got to be much more customer-responsive. In years gone by, they could get away with perhaps annual changes to their collections – though Marks & Spencers nearly didn’t – but now they have to be much more responsive to what customers actually want, changing styles, colours and perhaps size ranges on a monthly or even weekly basis. Retailers like Mango and Zara have shown the rest of the industry what a truly responsive supply chain can achieve.

Faced with enormous volumes on the one hand, and increasing demands for responsiveness on the other – allied to the tendency to produce in far-flung locations in the Far East or South Asia – almost anything can become a bottleneck. Take a seemingly mundane item like labelling and tagging. The logistics of getting millions of labels to the right place at the right time – and all of them showing the right price and other product details – can be alarming. Labelling used to be a big headache for fashion retailers. In some circumstances, it could take six months for them to get the labels printed, shipped and attached, and even then there were often problems with quality and accuracy. Or, labels could be printed and attached after importation, which brought its own problems of logistics and, also, cost.

Labelling solution
The solution that Checkpoint Systems – a major labeller for the apparel and other industries – has come up with is the ‘Printshop’, originally developed in partnership with C&A. This is a black box stationed strategically wherever garments are produced. Some companies have their own print shop, others are shared. Labels that have been pre-printed, perhaps with a brand name or a retailer’s logo, are fed into the print shop which then adds specific data such as size, price, colour and so on. Erik Cardinaal, sales director for Checkpoint Systems, Benelux says; ‘We can print labels in five days, three days or even one day.’ It saves the retailer money in that it allows them to concentrate on their core activity, while allowing them to carry out the labelling operation close to source, often in a low labour cost location. (Following the footprint of the industry, Checkpoint has recently installed Printshop in Poland and was due to open another in St Petersburg in June.) But perhaps more important than the cash saving is that it gives the retailer flexibility. It helps make it possible to operate on short lead times, to change colours, styles, prices and other features frequently – which is, after all, what fashion should be about.

Flexibility in production
Techniques such as these can help restore some of the flexibility in production that was lost when production was shipped to distant offshore locations in Asia.

Checkpoint Meto produces labels to a wide range of formats and design and quality levels, including labels incorporating security devices if desired. It is a leading light in source tagging, the process whereby security tags are incorporated efficiently and unobtrusively into the garment at point of production, providing protection throughout the supply chain.

The company is also at the forefront of RFID technology, though in truth this technology will probably make its mark in other areas, such as keeping track of airline baggage or library books, before reaching the high street. When it does arrive though, it could enable even more precise control of the supply chain. One welcome side effect for producers is that it could also stop the grey import market in its tracks. Wal- Mart has however suggested that the day when it starts to routinely use RFID tagging for some of its stock – though not necessarily apparel – is not too far away.

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