While most of the observations made so far throughout this series hold true for multiple retail segments (for more information on the scope of retail management systems in general, please see Retail Systems: A Primer and Retail Market Dynamics for Software Vendors), 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.
For more background on global sourcing, please see previous parts of this series: The Blessing and Curse of Global Sourcing and Supplier Management, Distinctions and Benefits of Strategic Sourcing, The Promise (and Complexities) of Private Labels, The Anatomy of Retail Sourcing Processes, and No One Said Sourcing Overseas Would Be Easy.
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.
Enter Product Lifecycle Management
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 (see Preparing for Product Development in Process Manufacturing), 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.
For more background on global sourcing, please see previous parts of this series: The Blessing and Curse of Global Sourcing and Supplier Management, Distinctions and Benefits of Strategic Sourcing, The Promise (and Complexities) of Private Labels, The Anatomy of Retail Sourcing Processes, and No One Said Sourcing Overseas Would Be Easy.
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.
Enter Product Lifecycle Management
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 (see Preparing for Product Development in Process Manufacturing), 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.
No comments:
Post a Comment