The Rules of the Fashion Industry The WritePass Journal

The Rules of the Fashion Industry Introduction The Rules of the Fashion Industry IntroductionTraditional Supply Chain Issues in Fashion Apparel Industry1. Changing Customer Tastes Unmet Due to Long Lead Time   3. Inflexible Supply Chain Hindering   Control4. Ineffective Information Flow Impacting Operational Efficiency Countering Traditional Supply Chain Issues The Fast Fashion Supply Chain Practices1. Quick Response to Shifting Consumer Tastes and Demands2. Increased Flexibility of   Supply Chain Through Vertical Integration3. Better Inventory Management Through Controlled Production4. Use of   Efficient IT Infrastructure   for Rapid Information DisseminationLimitation of Fast Fashion Supply Chain Practices1. Vertical Integration v/s Economies of Scale2. Centralised Distribution Centres v/s Global Expansion3. Vertical Integration in New Markets v/s High Labour and Production Costs  The Best Fit Supply Chain Practices   for a Fast Fashion Retail Company1.   Seamless Integration of Design Cycles with Inventory Control2.   Make Them And   Buy S ome3. Negotiate Shipping Contracts for Overseas Expansion E-Retailing4. Use   Efficient IT Systems for Seamless   Information FlowConclusionBibliographyRelated Introduction The rules of the fashion industry have changed. Fashion is no longer the diktats of seasonal fashion houses. Fashion today is ever evolving, ever changing. What’s hot today is not tomorrow.   The definition of haute couture (high fashion) and prà ªt-a-porter (ready to wear) no longer bear the exclusive association of highly-priced designer garments or expensive boutiques available to the cream of society. The average person be it a teen , college student, guy or   girl next door, mums and dads with toddlers, or people in their 40s and 50s ageing like fine wine, just about everyone wants to be trendy, fashionable, well dressed and smart.   Affordable, fast-changing fashion is driven by customer needs and demands and not supply.   Making affordable, fast-changing styles of fashionable clothes to the consumer is the key success driver of the fashion retailers. Consequently, the choice of a supply chain management (SCM) model and the supply chain practices adopted by fashion companies are also keeping the customer at the helm.    Traditional Supply Chain Issues in Fashion Apparel Industry As I begin to research the best possible SCM model for the fast-fashion retail company I’ve been hired for, I first seek to understand the limiting factors in the traditional supply chain management in apparel industry. My analysis of the broad issues are as follows:   1. Changing Customer Tastes Unmet Due to Long Lead Time   In any retail operation, particularly of fashion garments, there is variability in consumer demand due to changing tastes. For example tunic tops last quarter, jeggings this quarter and so on. Changing consumer tastes and long lead time from design to production render ordering of fashion garments risky. The long lead time also hinders offering variety to consumers in terms of styles and range.   As consumer tastes become more diverse and fast changing, increasing the fashion range and decreasing the garment lifecycle, whilst managing inventory becomes exponentially challenging. 2. Unpredictability in Demand Resulting in Inventory Costs The problem of selling fashion garments due to demand uncertainty has grown enormously for fashion retail houses. Adding to this problem is the level of SKUs (stock keeping units), which raises the level of uncertainty if a particular range of fashion garment will sell or not in a given season. This means the retailer carrying a range of fashion garments that don’t sell or overstock and also that sells beyond expectations resulting in running out of stock. Delays in replenishment for not having an inventory of fashion garments in high demand will result in stock-out costs. Therefore, inventory is not always undesirable. Three types of costs are typically incurred in inventory: Enforced markdown of unsold overstocked garments Loss of sales due to stock outs of high-demand clothes   Warehousing costs The level of inventory will depend on forecasted demand, frequency of orders, lead time and cost to receive replenishment. 3. Inflexible Supply Chain Hindering   Control Supply chain includes different requirements and roles from its participants. The typical participants include Supplier, Manufacturer, Distributor, Retail Merchant and Consumer. The fashion manufacturer’s success hinges on their ability to maintain relationships between each of the entities in the supply chain. In a way, the participants of the supply chain foster dependency and a slight slip at the supplier end has the capacity to bring operations in the supply chain to a grinding halt. This dependency of the manufacturer on various entities of the supply chain necessitates weighing the option of make v/s buy. The strategy involves decision on activities that can be performed in-house versus those that can be outsourced. Control, quality and speed of the activities within the supply chain are key determinants in choosing make or buy, produce in-house or outsource. 4. Ineffective Information Flow Impacting Operational Efficiency The IT infrastructure or lack thereof has a direct impact on the information flow between entities, which in turn impacts the operational efficiency of the supply chain. A bullwhip effect at the downstream has a significant impact on forecasting, production and inventory at the upstream. Even if apparel companies install IT systems, it is challenging for companies to obtain sales data that do not own their sales channels. It becomes difficult to refine manufacturing according to sales data. Countering Traditional Supply Chain Issues The Fast Fashion Supply Chain Practices Some of the key words that have stood out from my analysis of the traditional supply chain are changing customer tastes leading to uncertain demand, long lead time, inventory costs, ineffective information flow, IT infrastructure, make or buy strategies. How did some of the high-velocity fashion retail houses conquer these challenges? An analysis of the supply chain practices at two such fast fashion retail companies Zara and HM provide key insights. 1. Quick Response to Shifting Consumer Tastes and Demands The retail clerks and store managers at Zara determine the new styles to manufacture by feeding sales data back to the manufacturers. Store managers and staff relay customer feedback to regional managers on styles, fabric, cut and colours. While most fashion houses create designs for the public, it is the public that creates Zara’s designs.HM‘s design team too bring to the stores clothes that customers are demanding. HM adopts a customer-driven approach to production. By making use of traditional research methods as well as street trends, HM’s central staff and national offices channelise a lot of their effort into research and prediction of emerging trends. The new high velocity retailers require frequent shipment in small batches as an ongoing replenishment determined by ongoing sales data as well as customer preferences at sales outlets in contrast to traditional apparel supply chain model where manufacturers made typical bulk shipment per season. Both HM and Zara long renounced the traditional industry practice of spring/summer and autumn/winter collections. Their seasonless cycle involves bringing new clothes on a rolling basis throughout the year, which enables designers to receive customers’ reactions to their new line and incorporate them into more new lines rapidly. Zara has the fastest lead time with a catwalk to rack time of just 15 days. 2. Increased Flexibility of   Supply Chain Through Vertical Integration The success of Zara’s fast production is in its vertically integrated supply chain model providing total control of its process from design to sale. Zara owns most of its manufacturing capability and is thus able to maintain flexibility of the manufacturing process enabling it to respond to rapidly changing consumer tastes. About 50% of Zara’s clothes are manufactured in its state-of- the art factories. Zara uses a hybrid manufacturing approach with high demand trendy, highly perishable clothes being produced in its factories in small batches, whereas low demand variability items such as T-shirts and jeans are produced by contract manufacturers. HM does not have factories but relies on a network of 750 external suppliers with flexible lead times and low production costs.   HM also pioneered vertical integration with the distribution network. This vertical marketing enables HM to directly gain and exploit information about sales and customers and accelerate its response to the market. Vertical integration enables cost savings due to reduced tiers in supply chain. 3. Better Inventory Management Through Controlled Production At Zara, if a particular range or style of clothes sells out, it simply makes more of them. If it doesn’t, then it stops production. This approach coupled with Zara’s bi-weekly shipment to retail stores minimises overstock and inventory enabling Zara’s clothes to be sold at full retail price with high profit margins.   Zara limits each design to 3 sizes and 3 colours. Zara is efficiently able to move inventory owing to its up-to-the-minute design, just-in time production and delivery. HM, which relies on its suppliers aims to find the optimal time and supplier to order each item of clothing. On an average, HM is able to get supplementary orders in a few weeks for clothes that are selling well. At HM, the stock management is primarily handled internally.   The store stockroom within HM called the ‘Call-Off warehouse’ replenishes stores with clothes that are in high demand on item level. 4. Use of   Efficient IT Infrastructure   for Rapid Information Dissemination High-velocity operation depends on rapid information flow to a large extent. All of Zara’s stores are linked to its headquarters electronically. The entire supply-chain operation at Zara from design to retail is digitally controlled. Information flow binds the entire pieces of Zara’s operation together. Information is shared openly across business units that are highly adaptable with decision making capacity. IT is a crucial component of HM’s value chain. IT integrates HM stores with the logistics, procurement departments and the central warehouse. An intelligent procurement system processes sales data gathered from central departments. Communication on design and new product development occurs electronically between departments. Limitation of Fast Fashion Supply Chain Practices Clearly, some of the supply chain practices of Zara and HM have been a break-through in the traditional supply chain apparel industry. While the advantages of their practices are undisputable, it is important to be aware of some of their limitations. 1. Vertical Integration v/s Economies of Scale While vertical integration has several advantages, it is important to note some of the limitations. As seen from Zara’s vertical integration model from design to sale and HM’s vertical integration in distribution, flexibility and control are the key drivers. However, vertical integration doesn’t enable acquiring economies of scale. Low lead times of Zara and HM does not give them the cost advantage of high volume discount manufacturing or buying. 2. Centralised Distribution Centres v/s Global Expansion Both Zara and HM are quickly able to replenish garments in their numerous retail stores across Europe.   Although both Zara and HM have scaled up their distribution systems, the centralised logistics will be subject to diseconomies of scale as newer stores are opened in new markets and continents. Shipping garments from their single distribution centre may work well within Europe. However, short lead times and low operational costs may be impacted as they branch out in new territories. 3. Vertical Integration in New Markets v/s High Labour and Production Costs To have state- of- the art factories and replicate the manufacturing, distribution process in new countries may be challenging. Potential economic and regulatory variables such as minimum wages or unions may render manufacturing in new countries impractical.   The Best Fit Supply Chain Practices   for a Fast Fashion Retail Company Taking the best supply chain practices of fast fashion houses Zara and HM and at the same time covering the gap for some of their identified limitations forms the basis of my recommendation. 1.   Seamless Integration of Design Cycles with Inventory Control Integrate design cycles seamlessly inventory control and thereby control short term expenses with long term performance goals. Customers can be compelled to revisit stores for new designs and catering to their varied tastes through rapid response through effective inventory management 2.   Make Them And   Buy Some The advantages of vertical integration are far too many. But vertical integration as seen is not without limitations. The costs associated with rapid manufacturing maybe suitable for fast forward apparel. However, for clothes with low demand variability, a long lead time with materials and manufacturing costs savings may be more efficient.   Low variability garments also enable acquiring economies of scale with bulk manufacturing or buying. 3. Negotiate Shipping Contracts for Overseas Expansion E-Retailing Thinking ahead, as part of overseas expansion and e-retailing strategy, setting up manufacturing and distribution centres overseas can involve significant costs. It would be prudent to set up contracts with 3rd party logistic companies that enable negotiations of transportation costs based on volume and frequency by acquiring economies of scale 4. Use   Efficient IT Systems for Seamless   Information Flow Invest in Enterprise-wide IT systems such as Enterprise Resource Planning (ERP) to integrate all entities of the supply chain. Use of other IT systems such as personal device applications (PDAs) by sales clerks to feed in real-time sales data and customer feedback linked to ERP systems will be a key success driver in dissemination of information which in-turn will positively aid in rapid production. Conclusion As a concluding note, emulating the success of fast fashion houses may or may not prove to be the most beneficial approach. Ultimately, the long term goal, positioning and vision of the fast fashion retail company holds the key to adopting the best fit supply chain strategy and practices. Bibliography icmrindia.org/casestudies/catalogue/Operations/HM%20Supply%20Chain%20Management%20Practices- Marketing % 20 Case % 20 Study .htm#Idea _ Generation _ and _Design