The research by Technopak shows that how fashion retailers and manufacturers are being urged to rethink their supply chain to adequately respond to the unpredictable nature of shopping.
This is a moment many of us have been eagerly waiting for. After nearly three years of stagnation, the world of economy is slowly coming back to life. Companies across the globe have begun shifting their focus from cost-control and survival mode to growth. As industry leaders pursue dreams of profitable growth, they have started realising that ensuring sustainable profitable growth requires one to look at factors besides operational efficiency. There is an intense need to build a supply chain that can address the needs of highly connected and dynamic customers. Apart from the retail sector, no other sector has been as much at the forefront of these new growth initiatives. Globally, retail is the largest private sector industry, and is exceedingly organised in developed markets such as the US, where the penetration of organised retail is nearly 85 percent. Within the organised retail sector, apparel is the strongest category.
The world of apparel retailing has changed dramatically since the emergence of departmental stores, chain stores, and supermarkets in the early 1900s. The driving forces back then were mass production, wide distribution, effective advertising, consumer credit systems, and innovative customer service offerings, such as formal return policies. The same factors drove the industry towards globalism, supported by the opening up of economies worldwide, falling transport costs, rising standards of living, and the emergence of popular culture as a global phenomenon. With the expansion of the retail industry and of cross-border retailing in the past two decades, internationalisation has become one of the most important issues in retail strategy. Revenues earned within the domestic market are invested in operations in new markets in an attempt to sustain fi nancial growth targets. This, in turn, has allowed retailers to consider further expansion, outside of domestic markets.
However, in recent years, as the global economy continues to remain uncertain, the apparel trade scenario has undergone a marked change. Although companies continue to expand beyond their home countries, business and operational strategies have evolved. The recent global financial crisis has had a major impact on most businesses, creating unique challenges for supply-chain management executives. Today, they are forced to deal with declining sales, growing inventories, and aggressive cost-reduction goals, uncertain energy and commodity pricing, global sourcing initiatives, quality improvement programmes, and budget reductions. In the light of the competition extant in the market, firms have to focus on continuous improvement of the extended supply chain. The battleground becomes supply chain versus supply chain efficiency, and quicker delivery and higher levels of customer service at substantially lower cost. Further, it is no longer just about the enterprise and its profitability, but also about the extended supply chain. In an increasingly volatile global market, crucial decisions need to be made not just regarding cost reduction, but also about how to position the inventory within the value chain and manage available production capacity in order to meet uncertain demands.
Inaccurate information about supply chain can result in inefficiencies, excess inventory and inventory costs, poor customer management, low revenues, misguided capacity plans, ineffective logistics, and mismanaged production schedules. While research, development, and innovation can facilitate an organisation in terms of gaining a competitive edge, the novelty of innovative products makes the demand for such products hard to predict. Furthermore, the lifecycle of such products is typically short as competitors imitate these products and end up splitting the margin. The shorter lifecycles and the larger variety, which are the USP of these products, further add to the unpredictability, the risk of obsolescence, and the cost of added inventory. The important components in the manufacturing-focused supply chain include material planning, production planning and scheduling, replenishment planning, demand planning and collaborative planning, store and DC replenishments, promotional planning, category management, shelf analysis, and retail-side store forecasting. The T&A supply chain can be segmented into the following seven main phases – fibre production, textile manufacturing, garment manufacturing, distribution, consumption, disposal, and aftermarket.
Receding share of apparel in household consumption: US and EU
In the past few years, because of the global economic instability, it has been observed that the share of apparel in household consumption in the US and EU has been declining. This can largely be attributed to shrinking economies, reduced disposable incomes, and a dented consumer confidence. If we look at one of the key indicators of an economy’s health, that is GDP growth rate, all major consuming economies, except China and India, are expected to register a rate below 5 percent. Apparel retailers have thus started broadening their horizons, and now they are more than willing to look at foreign markets for growth and profitability.
Higher growth of per capita apparel consumption in developing countries
Developing countries like China, India, and Brazil are fast emerging as apparel retail markets, going beyond being just manufacturing hubs. They will form significant alternative markets to the US, EU and Japan in the near future. It is projected that the per capita apparel consumption will increase by approximately 50 percent in China and 25 percent in India, between 2011 and 2015.
Major retailers and brands based in the US, EU, and Japan have also realised this trend and they are now taking the international route, especially in developing countries, and are expanding much more aggressively. This initiative is already showing positive results as retailers have started registering much higher growth in their revenues from overseas expansion.
Apparel retail: Growing outside of the US, EU and Japan
Earlier, retailers had presence in only one country. Now, with retailers expanding into international markets, they need to supply merchandise to various markets while maintaining consistent quality standards and at the same time, establishing efficient supply chains. This results in the need for market-specifi c planning tuned to local consumer preferences and requirements. There is thus an increasing need for localised merchandise planning, depending on the country, which encompasses product categories, garment sizes and cuts, designs, colours, pricing, seasonality, and prominent selling channels.
The past few years have seen an exponential growth in rental spaces globally. Again, many stores have started offering similar products, leading to stronger competition between brands to capture the limited share of customers’ wallets. Within this environment, as markets become more customer-focused and dynamic, the supply chain could act as a key differentiator for any company. As customers are now much more demanding in terms of broader selection, superior quality, and higher availability, it becomes critical for any apparel company to invest in and develop a supply chain that is adaptive and anticipative.
Evolving role of retailers and increasing consumer demands
With the evolving role of a store and of retail spaces, physical stores will not just be limited to being points of sales anymore, but will instead act as a customer interaction medium for brands. Stores will eventually play a larger role in the overall buying experience of customers. They will act as a point of product display, for customers’ physical interaction with the brands’ products made available online, and a point
of distribution to online shoppers, besides being a point of sale. With the increased incidence of impulse purchasing and shorter product lifecycles in clothing, fashion seasons are increasingly becoming shorter, and there is wider acceptance of fast fashion models. It is crucial that response times are reduced, which in turn necessitates establishing a strong and collaborative supply chain between the buyer and the
supplier. Thus, shifting sourcing patterns are requiring teams to work through a greater number of seasons, often as many as 12 instead of the earlier two or four seasons. Again, the need for better control on raw material costs and improved responsiveness to changing fashion has squeezed lead times. Consequently, manufacturers do not have the luxury of receiving orders for greige fabric, or for blocking capacity, in anticipation of future orders anymore.
Growth of alternate retail channels: Online retail
With the acceptance and proliferation of alternate retail channels such as e-commerce, there is now a heightened need for collaboration. E-tailing offers a host of advantages to apparel brands and thus has the power to transform traditional retailing economics. Thus, with the rise and acceptance of apparel e-tailing, there is a need for collaboration and strategic alliances between manufacturers, retailers, and such service providers as logistics players and warehouses.
Need for an adaptive supply chain strategy
Within Indian retail, the major segments are food, clothing, consumer durables, and books and music. Again, within organised retail, clothing is the fastest growing category, and parallels food. The growth in the apparel segment is predominantly driven by the development of modern retail. The increased presence of organised retail has created an opportunity for such new retail formats as hypermarkets, cash & carry, and e-commerce. As a result, a large number of international apparel brands have forayed into India to leverage the potential. The consequent increase in competition has further impelled international brands to customise their products and policies to suit Indian tastes and preferences.
Similarly, the consumption supply chain is unique, as the consumers’ tastes change every few kilometres. The ethnic, linguistic, and cultural diversity of India results in sharp differences in tastes, habits, incomes, and consumption. This results in retailers’ product proposition becoming region-specific, leading to a multiplicity of stock keeping units (SKUs). Further, the phenomenal increase in operating costs due to the increase in real estate prices is pushing down retailers’ profit margins considerably. These high real estate rentals leave no room for retail stores to stock excess or additional inventory. The combination of these factors leads to a unique Indian consumption supply chain, which includes the handling of a large number of SKUs in pieces, in contrast to the handling of limited SKUs in the form of pallets by most large retailers across the globe. Further, in emerging countries like India, the retailing business continues to be dominated by independent retailers, mom-and-pop stores, and unorganised markets. Here, wholesalers and distributors carry goods from various suppliers to the independent retailer (owned shops and unorganised markets). Due to such inherent dynamics and multifaceted nature of the clothing industry, fashion retail has its own special prerequisites. Thus, there is a growing need to learn the art of handling
these complexities, and to design, develop, and execute supply chain solutions that are distinctively Indian. To survive in today’s challenging global market, alongside buying the right goods at optimum prices, it is also crucial to have products at the right place, at the right time, and at the right operational expenses. This requires efficient logistics systems and processes. The T&A industry stands out as one of the most globalised industries in the world, with a supply chain spread across the globe, which includes retailers, contractors, merchandisers, buyers, suppliers, logistics players, warehouses, and customers, each with an important role to play. The entire supply chain needs to be integrated, as managing logistics requires close coordination across the network of suppliers, manufacturers, co-packers, distribution centers, transportation providers, and stores. Traditional supply chains generate sequential and isolated plans for inventory, production, distribution, and procurement. Retailers across the world are attempting to implement various supply chain practices in order to efficiently manage their key goals, including reducing slow moving inventory and thereby improve stock turnover, reduce clearance inventory, improve the process of ordering, receiving, packing out from receiving, improve the process of product markdowns, improve the sales per footfall, sales per employee, reduce out-of-stock inventory, guarantee accurate store sales or
inventory data, and improve merchandise availability.
Global buyers increasingly prefer suppliers who can provide end-to-end solutions rather than just manufacture garments. In order to gain a competitive edge, most buyers and suppliers are looking at consolidation and are exploring strategic partnerships with each other. Further, T&A businesses everywhere are trying to develop a customer focused business model. They enter into long-term strategic partnerships with their buyers in order to have total control over the supply chain and create economies of scale. For manufacturers, capacity blocking ensures volumes and better production planning due to end-to-end visibility. Building a long-term relationship with buyers also helps establish supply chain excellence.
For buyers, strategic partnerships ensure a faster turnaround, closer-to season decision making, lower out-of-shelf time and lost sales, fewer markdowns, reduced inventory levels, and an opportunity to focus on the core business of retailing rather than on sourcing activities. Suppliers can contribute to reducing supply times by setting up a vertical supply chain from fibre to garment, as this will shrink the time spent on transportation. Further, the time spent on approvals and couriers can be saved through a closer collaboration with buyers. Thus, increasingly, the visible trend is towards consolidation and forging strategic partnerships across the value chain. Players are integrating activities from design development, vendor management, manufacturing, to supply chain.
In recent times, the industry has witnessed various forms of strategic partnerships covering diverse business issues. Many retailers and brands are looking at partnerships involving upstream integration to better control the value chain. At the same time, many players are relying on strategic tie-ups for research & development, and innovation. Dye manufacturers are working closely with fibre players to launch coloured fibres targeted at specific markets. Fabric and apparel manufacturers, as well as retailers, are collaborating with pure-play logistics players to focus solely on their areas of competency and maximally leverage their expertise and experience. Of late again, many fibre players,
which have managed to establish themselves as fibre brands, have entered into collaboration directly with apparel brands to launch fibre-specific programmes in specific markets.
The need for a sustainable supply chain
Traditionally, the T&A industry has operated in an unsustainable way. Energy and other resources have been used wastefully and inefficiently throughout the supply chain, leading to increasingly unsustainable levels at each phase of production and logistics. Post-purchase use and disposal are hardly ever given due consideration during the development and production phase of T&A merchandise. In production hubs across countries like India, Pakistan, Bangladesh, China, Sri Lanka, and Vietnam, toxic fumes from dyeing units, untreated water, etc. are increasingly released into community drains. The use of child labour and hazardous living conditions is also common in these countries. Further, diesel-based electricity generation, and the use of pesticides and insecticides in cotton farms are predominant issues in any textile or apparel hub.
The industry has been largely dominated by incompliant sweatshops and working environments. Many occupational health hazards are associated with the industry’s workforce due to the prevalence of such working conditions and the related exposure to hazardous chemicals, particularly in cotton production. Also, wet pre-treatment, dyeing and finishing, fibre dust, denim dust, etc. give rise to respiratory diseases and are heavy lung irritants. Increased globalisation, consumerism, and the desire for fast fashion have lent substance to this unsustainable value chain.
Briefly, the existing approach vis-à-vis the development of the T&A value chain is neither environmentally nor socially conducive nor viable. Each phase of the clothing production value chain has the potential for negatively affecting the environment besides having a social bearing. Thus, there is need for immediate intervention by the entire T&A industry. Although many organisations and brands are following a new sustainable approach, and taking steps to modify their supply chain practices in order to minimise the environmental and social implications, there is still much more to be done. Throughout the T&A industry, there is at present a gap in terms of making the entire supply chain sustainable. It is imperative to create an approach that is environmentally and socially viable, while also being profitable.
For brands and organisations, it is now all about how to be sustainable and engage stakeholders effectively and efficiently. Building a sustainable economy will require prompt change and approach by thought leaders. Businesses with sustainable supply chains incorporate sustainability into their day-today operations and decisions at every level. Progressive T&A companies are competing to address extant issues and create more sustainable businesses. The strategic approach to sustainability involves developing a philosophy of sustainability within the organisation, creating goals, implementing workable projects to meet these goals, educating employees and stakeholders, and regularly auditing the entire supply chain to correct any abnormalities. The industry needs to be proactive in finding ingenious and innovative ways of designing and developing fashion instead of looking at sustainability as a constraint or a limitation.
CONCLUSION
The unique features of the T&A supply chain are short product lifecycles, low predictability, high volatility, and high levels of impulsive purchasing. It requires getting the merchandise to the retail stores within short times-to market and at low costs-to-market repeatedly. Given the long lead times that are extant in the industry, it is important to have an effective supply chain to help retailers buy products as close to the season as possible.
Thus, globally, there is a need to develop flexible manufacturing rather than large manufacturing. There is also a need to focus on lean manufacturing strategies, shorter runs, just-in-time inventory management systems, and automated systems. More adaptive manufacturing approaches need to be followed. Manufacturers should separate manufacturing bases for the basics and fashion ranges, and apply a multi-location manufacturing approach. They can manufacture value-added products in-house and outsource the basics. Additionally, manufacturers must focus more on improving business efficiency. Technology deployment, across the entire value chain, will also be critical in the immediate future. Retailers should use advanced analytics tools for forecasting.
Tools for processing ‘Big’ data must be used for tracking consumer demands and fashion trends. Technology deployment will reduce the need for labour management and ease the product development and sampling process, besides facilitating production (through
greater automation), warehousing, and shipping processes. Retailers must develop localised or regional supply chains through strategic alliances, joint ventures, acquisitions, and or wholly owned manufacturing and marketing subsidiaries for each China, India, and Brazil. Increasingly, there is a need to create a sustainable supply chain model alongside improving business efficiency and profitability. The impact of T&A production, throughout the supply chain, on the environment and society needs to be minimised. Developing and executing a strategy for sustainability is critical for all T&A-focused organisations, as there is a growing push from both consumers and the industry. Leaders have to move beyond strategies for short-term prosperity and work towards long-term sustainability.
Supply chain in India suffers from the perception that these are activities related to logistics or warehousing. In several organisations, supply chain management (SCM) was started as a reactive process to increasing costs and global competition. Some organisations regarded SCM as a tool for profitability, rather as a tool for cost reduction. However, in recent times, Indian apparel retailers have learnt from their western counterparts and have given SCM a strategic position in their business strategy, instead of viewing it as merely an operational issue. Large format retailers are looking at SCM as a key to increase their profitability.
Many organisations in India are now gradually moving towards improving their profitability and efficiency by implementing various supply chain techniques. The most commonly used tools are information technology based. Apparel retailers have started seeing information technology as an important tool to improve efficiencies and are taking definitive steps towards leveraging IT tools in bridging the gaps in the supply chain. Companies have begun to understand the need for building a sufficiently flexible supply chain, which enables them to capitalise on new growth possibilities like developing a new product in the shortest possible time. The future belongs to those companies wherein a robust and fl exible supply chain can become the base for any growth initiative.
