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Everyone Can Win!


Is something not right with the chain of entities that deliver the final value-added product to the consumers?

Apparel and Home Textile retail brands enjoy a high price markup ranging from 100% to as high as 400% over their sourcing price, but most still struggle to secure meager profit margins of 1-3%. As the brands’ profit margins erode, fabric manufacturers and yarn suppliers also bear the heat. Typically, they operate in the 5% – 10% (average 8%) profit brackets; sometimes they even make losses. So, what’s going wrong?

This summer, newspapers were full of advertisements of colorful Chinos and other new offerings. Every other brand showed off similar offerings. Their mantra is to offer something new and exciting in every season. Design and merchandising departments of every leading brand are eager to predict the trends of forthcoming seasons so that in a competitive market, their offering is always in keeping with the ‘current trends’.

The Chain

Now, predicting trends is not an easy task. The supply chain of apparel is a complicated one involving many stakeholders. It starts from yarn manufacturers who take different types of fibers as raw material and create yarns of different qualities and counts. Fabric manufacturers are suppliers to brands, which generally outsource the apparel manufacturing. To create a particular fashion line, this whole route has to get synchronized as operations at every stage are specific to particular qualities and designs of garments. In general, it takes 60-90 days for the fabric manufacturer to deliver the processed fabric. Including designing and garmenting, it takes almost six months to produce the offering for a season.

The Issue

Brands sell through various channels/entities. Designs that the brands come up with are booked by these entities well in advance. Based on these bookings, brands determine the demands for each of their designs and go back to their suppliers and apparel manufacturers to book their capacities. It is a challenge for the merchandiser to make the stores look ‘fresh’ to the customers. Hence, the offerings of one season are broken into several placements, which help in rejuvenating the look and feel of the stores.

When the season starts, not everything sells at the same rate. Some designs are winners, selling out in the first two to three weeks; they disappear from the stores. Most of the time, these winners also end up as broken sets —some sizes remaining unsold. The stores have no option but to remove these balance pieces from the shelf to the backend store.

Brands are compelled to flush surplus inventory at marked down prices at the end of the season (End of season sale —EOSS) for two major reasons — to release blocked working capital, and to clear shelf space to display fresh arrivals of the next season. Every season, this vicious cycle repeats itself. So even if the outlets had good footfalls, the brands make very low profits.

Does the Viscous Cycle End?

Apparel brands, over the years, have taken different measures to solve this problem through better forecasting —with focus on improving buyer’s capabilities to “sense” the future fashion trends; and through partnering with the garment manufacturers — the flow speed of the garment manufacturing lines have been improved phenomenally. Many companies have tried forward/backward integration as well. But, even when the whole chain is under single ownership, the challenges have persisted.

We should Attack the Right Problem

The industry has to introduce new offerings every season, this cannot be changed. Keeping stock of fabric and converting it into garments based on the indication of the sales rates of an SKU from the store will improve the reaction time significantly. The aggregation at a fabric level (same fabric used to create different styles and sizes) will surely help reduce surplus of garments.

The TOC Approach

The fabric manufacturing lead time is the most significant part of the supply chain’s lead time. The weavers’ lead time, which is 45 to 60 days (from yarn to fabric), determines the reaction time of the complete supply chain. If it is cut by half, the garment can be reintroduced in the store well within the four- month season.

Though the lead time of production —order to flow from yarn to finished garment about 45-60 days, the actual processing time (touch time) of an order on the machines is only 1.5 – 2 weeks. The gap between touch time and lead time is because of waiting times in front of every resource. The waiting time can be reduced by limiting the visibility of orders on the shop floor, which prevents cherry picking across many orders (for larger batches of a component). This prevents the de-synchronization of the flow in the components of the garment by having a priority system that forces the synchronization. The lead time of manufacturing an order will crash to half i.e. about three weeks.

The Last Word

The many entities that constitute the fashion supply chain work with individual goals. If all entities are to flourish, it is important that they ensure a ’big win’ for every one. This can be achieved if each appreciates the challenges faced by the other.

Chandrachur works as a consultant with Vector Consulting Group since May 2012. He has been associated with projects in Textile and Automobile sectors. He holds a postgraduate diploma in management (PGDM) from IIM, Ahmedabad. He loves to travel and has actively pursued writing scripts of plays and direction as a hobby. Chandrachur Datta can be reached at chandrachur@vectorconsulting.in.