Published: Images Business of Fashion November 2013 Fashion should be trendy! This summer, newspapers were full of advertisements for colourful Chinos and other new offerings. Every other brand showed off similar offerings. Their mantra is to offer something new and exciting in every season. There are two major seasons – Spring-Summer and Autumn-Winter. The 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 chainNow, predicting trends is not easy. The supply chain of apparels is complicated and involves many stakeholders. It starts from yarn manufacturers who take different types of fibres as raw material and create yarns of different qualities and counts. They weave the yarn to make multiple qualities of fabric. To add colours, either the yarn is dyed (pre-weaving yarn dyeing) or the fabric is dyed (post-weaving piece dyeing). For multi-colour designs, the pre-weaving yarn dyeing route is important. <figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//1_1713164921.png" width="1000" height="1000"></figure>Fabric manufacturers are suppliers to brands which generally outsource 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. Generally, it takes the fabric manufacturer 60-90 days to deliver the processed fabric. Including designing and garmenting, it takes almost 6 months to produce the offering for a season. Thus, to remain relevant in the ‘current trend’, brands have to always predict the future trend. By future, we mean at least 6 months to 1 year. The colourful Chinos in stores today must have been at the designer’s desk at least six months before! The issueBrands sell through various channels/entities. These entities book the designs that the brands come up with well in advance. Based on these bookings, brands determine the demands for each design and go back to their suppliers and apparel manufacturers to book their capacities. Basically, buyers have to forecast the demand and make a decision whether to ‘Buy Deep’ or ‘Buy Shallow’. Lower prices for higher quantities of fabric are also a factor that influences ‘Buy Deep’ decisions.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 rejuvenate the look and feel of the stores. There is an opportunity to do flash introductions as well. If a brand copies the design of another, develops it and introduces in its own chain within the season, it is a flash introduction.<figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//2_1713164941.png" width="1000" height="1000"></figure>When the season starts, not everything sells at the same rate. Some designs are winners, selling out in the first 2 to 3 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. Every placement generates a few winners. Buyers would love to get the winners back on the shelf within the season. Most often, they refrain from placing an order for the winners. The supply lead-time of fabric is 45-60 days, and that of garmenting is about 15 days. If reordered, the garment will appear in the store after 65-80 days, by which time the season is entering its waning period. The risk of these repeats remaining as surplus is very high. The buyer is more worried about the remnant inventory as it impacts his open-to-buy budget (OTB) for future buys. Hence, most of the time the buyer does not order repeats. For the same reason, even flash introductions for identified winners are also avoided.Results:<figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//3_1713164967.png" width="1000" height="1000"></figure>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: <ul><li>Release blocked working capital </li><li>Clear shelf space to display fresh arrivals of the next season. </li></ul>This vicious cycle repeats itself every season. At the end of every season, the management reviews similar data, and blames its fate for not identifying winners correctly. 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. <ul><li>Better Forecasting – Focus on improving the buyer’s capabilities to ‘sense’ the future fashion trends. </li><li>Partnering with the garment manufacturers – The flow speed of the garment manufacturing lines have been improved phenomenally. </li></ul>When required, the transfer batch size between work centres has been practically reduced to one to get garments out in record time. However, the core problem of higher lead times of the whole supply chain has not changed. Many companies have also tried forward/backward integration. But even when the whole chain is under single ownership, the challenges have persisted.We should attack the right problem. The uncertainty that hovers over this industry is due to the following facts: <figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//4_1713164983.png" width="1000" height="1000"></figure> The industry has to introduce new offerings every season; this cannot be changed. ‘Buy Deep’ route is not an option as surplus can kill the company. So the only option available is to ‘Buy Shallow’, and to react well within the seasons to maintain the supply of winners. 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 (the same fabric used to create different styles and sizes) will surely help reduce the surplus of garments. However, the surplus of ‘out of fashion’ fabrics is bound to be there. Unless a retailer has a different market segment to flush out the excess fabrics, the risk can be significant. The TOC approachThe lead time for fabric manufacturing is the most significant part of the supply chain. 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 4 month season. Though the lead time of production – order to flow from yarn to finished garment – is 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 time in front of every resource. The waiting time is either due to a long queue in front of a resource or due to the unavailability of all components to start processing (de-synchronization of the arrival of parts for the assembly) or waiting in the finished goods warehouse for the complete kit of all products. The waiting time can be reduced: <ul><li>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. </li><li>By having a priority system that forces the synchronization </li></ul>The lead time of manufacturing an order will crash to half i.e. about three weeks. Not all orders have to be promised such low lead times. The first placements by the brands, anyways are done with adequate lead times. These shorter lead times are only offered for repeats. For e.g. a large brand’s shirt category, could generate Rs. 150 Crs. worth of sales. Usually, 30% of this is brought in by winners. A repeat of Rs. 30 Crs. worth of winners can add Rs. 15 Crs. to the brand’s bottom line. This is significant for the brand because as a company it could be making a total profit of Rs. 30 Crs. (3% PBT on Rs. 1,000 Crs. sales). A brand that gains such huge profits due to the efforts of a fabric supplier should not have any hesitation in offering a premium for rapid repeats. A 10% premium of the fabric price, for a garment which is sold with 100% markup, decreases the gross contribution by about 3%. When the brand gives up the 3%, it gains the balance 47%. This not only creates a win-win for both parties, but also relieves the industry chain of the constant pressure of margins. The brand gains additional profit due to additional sales of winners. The possibility of rapid repeats enables the brand to ‘buy shallow’ across the whole range. This decreases surplus stocks, leading to higher rotation of capital. Since the brands cannot predict the winners upfront, they will have to increase the range with the supplier who is committing to rapid repeats. This means more business for the weaver, who will then extend preferential treatment to such brands in return for a premium for repeats. The implementation requires a few paradigm shifts for both parties. Most mills want to ensure the booking of their capacity well into the future. Even if the production lead time of an order is brought down to 3 weeks, the total lead time will have to be assessed taking into account the queue of all orders committed to by the mill. Trying to push an order through as a ‘chase order’ will create chaos in planning and eventually lead to a loss of capacity due to increased setups. This may also, at times, jeopardize orders of rapid repeats. Unless some capacity is allocated for rapid repeats, it is not possible to deliver them reliably in 3 weeks. If orders received do not fully use up the capacity allocated, it does not mean that the capacity is wasted. It can still be used for other orders. The brand, on the other hand, has to understand the dilemma of the weaver in allocating capacity. It should commit to loading this capacity. If it does not, the weaver will reduce the allocation next season. The brand will have to change its buying philosophy. It has to ‘buy shallow’. The decision for repeat buys is based on the sales rate. Some OTB will have to be kept unutilized to order repeats. The brand will also have to change its policy of not offering premiums to fabric manufacturers. It has to give up the mentality of trying to make profits by pushing down prices with the weavers, especially for the repeats. Case of a leading shirting fabric manufacturing millThe company manufactures high-end, yarn-dyed fabric and supplies to leading brands in India. It sources yarn from various spinners. Its main customers are retail chains that procure fabric and get garments manufactured to sell in their stores/franchisees. In eight months of TOC implementation, the company achieved<figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//5_1713165001.png" width="1000" height="1000"></figure>The company offered rapid repeats, with penalties for even one day of late delivery, to a leading retail chain in India. It has not only experienced an increase in volumes from this customer but has also received substantial rapid repeat orders. The retail chain has changed the buying process to accommodate the advantage offered by the mill. The last wordThe 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 everyone. This can be achieved if each appreciates the challenges faced by the other.

Everyone can win!

Published: Images Business of Fashion November 2013 Fashion should be trendy! This summer, newspapers were full of advertisements for colourful Chinos and other new offerings. Every other brand showed off similar offerings. Their mantra is to offer something new and exciting in every season. There are two major seasons – Spring-Summer and Autumn-Winter. The 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 chainNow, predicting trends is not easy. The supply chain of apparels is complicated and involves many stakeholders. It starts from yarn manufacturers who take different types of fibres as raw material and create yarns of different qualities and counts. They weave the yarn to make multiple qualities of fabric. To add colours, either the yarn is dyed (pre-weaving yarn dyeing) or the fabric is dyed (post-weaving piece dyeing). For multi-colour designs, the pre-weaving yarn dyeing route is important. <figure class="image"><img style="aspect-ratio:4000/1629;" src="https://backend.vectorconsulting.in/storage/editor_uploads//tg-article-8-img-1_1736144574.jpg" width="4000" height="1629"></figure>Fabric manufacturers are suppliers to brands which generally outsource 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. Generally, it takes the fabric manufacturer 60-90 days to deliver the processed fabric. Including designing and garmenting, it takes almost 6 months to produce the offering for a season. Thus, to remain relevant in the ‘current trend’, brands have to always predict the future trend. By future, we mean at least 6 months to 1 year. The colourful Chinos in stores today must have been at the designer’s desk at least six months before! The issueBrands sell through various channels/entities. These entities book the designs that the brands come up with well in advance. Based on these bookings, brands determine the demands for each design and go back to their suppliers and apparel manufacturers to book their capacities. Basically, buyers have to forecast the demand and make a decision whether to ‘Buy Deep’ or ‘Buy Shallow’. Lower prices for higher quantities of fabric are also a factor that influences ‘Buy Deep’ decisions.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 rejuvenate the look and feel of the stores. There is an opportunity to do flash introductions as well. If a brand copies the design of another, develops it and introduces in its own chain within the season, it is a flash introduction.<figure class="image"><img style="aspect-ratio:4000/2895;" src="https://backend.vectorconsulting.in/storage/editor_uploads//tg-article-8-img-2_1736144585.jpg" width="4000" height="2895"></figure>When the season starts, not everything sells at the same rate. Some designs are winners, selling out in the first 2 to 3 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. Every placement generates a few winners. Buyers would love to get the winners back on the shelf within the season. Most often, they refrain from placing an order for the winners. The supply lead-time of fabric is 45-60 days, and that of garmenting is about 15 days. If reordered, the garment will appear in the store after 65-80 days, by which time the season is entering its waning period. The risk of these repeats remaining as surplus is very high. The buyer is more worried about the remnant inventory as it impacts his open-to-buy budget (OTB) for future buys. Hence, most of the time the buyer does not order repeats. For the same reason, even flash introductions for identified winners are also avoided.Results:<figure class="image"><img style="aspect-ratio:4000/3115;" src="https://backend.vectorconsulting.in/storage/editor_uploads//tg-article-8-img-3_1736144593.jpg" width="4000" height="3115"></figure>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: <ul><li>Release blocked working capital </li><li>Clear shelf space to display fresh arrivals of the next season. </li></ul>This vicious cycle repeats itself every season. At the end of every season, the management reviews similar data, and blames its fate for not identifying winners correctly. 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. <ul><li>Better Forecasting – Focus on improving the buyer’s capabilities to ‘sense’ the future fashion trends. </li><li>Partnering with the garment manufacturers – The flow speed of the garment manufacturing lines have been improved phenomenally. </li></ul>When required, the transfer batch size between work centres has been practically reduced to one to get garments out in record time. However, the core problem of higher lead times of the whole supply chain has not changed. Many companies have also tried forward/backward integration. But even when the whole chain is under single ownership, the challenges have persisted.We should attack the right problem. The uncertainty that hovers over this industry is due to the following facts: <figure class="image"><img style="aspect-ratio:4000/2545;" src="https://backend.vectorconsulting.in/storage/editor_uploads//tg-article-8-img-4_1736144601.jpg" width="4000" height="2545"></figure> The industry has to introduce new offerings every season; this cannot be changed. ‘Buy Deep’ route is not an option as surplus can kill the company. So the only option available is to ‘Buy Shallow’, and to react well within the seasons to maintain the supply of winners. 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 (the same fabric used to create different styles and sizes) will surely help reduce the surplus of garments. However, the surplus of ‘out of fashion’ fabrics is bound to be there. Unless a retailer has a different market segment to flush out the excess fabrics, the risk can be significant. The TOC approachThe lead time for fabric manufacturing is the most significant part of the supply chain. 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 4 month season. Though the lead time of production – order to flow from yarn to finished garment – is 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 time in front of every resource. The waiting time is either due to a long queue in front of a resource or due to the unavailability of all components to start processing (de-synchronization of the arrival of parts for the assembly) or waiting in the finished goods warehouse for the complete kit of all products. The waiting time can be reduced: <ul><li>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. </li><li>By having a priority system that forces the synchronization </li></ul>The lead time of manufacturing an order will crash to half i.e. about three weeks. Not all orders have to be promised such low lead times. The first placements by the brands, anyways are done with adequate lead times. These shorter lead times are only offered for repeats. For e.g. a large brand’s shirt category, could generate Rs. 150 Crs. worth of sales. Usually, 30% of this is brought in by winners. A repeat of Rs. 30 Crs. worth of winners can add Rs. 15 Crs. to the brand’s bottom line. This is significant for the brand because as a company it could be making a total profit of Rs. 30 Crs. (3% PBT on Rs. 1,000 Crs. sales). A brand that gains such huge profits due to the efforts of a fabric supplier should not have any hesitation in offering a premium for rapid repeats. A 10% premium of the fabric price, for a garment which is sold with 100% markup, decreases the gross contribution by about 3%. When the brand gives up the 3%, it gains the balance 47%. This not only creates a win-win for both parties, but also relieves the industry chain of the constant pressure of margins. The brand gains additional profit due to additional sales of winners. The possibility of rapid repeats enables the brand to ‘buy shallow’ across the whole range. This decreases surplus stocks, leading to higher rotation of capital. Since the brands cannot predict the winners upfront, they will have to increase the range with the supplier who is committing to rapid repeats. This means more business for the weaver, who will then extend preferential treatment to such brands in return for a premium for repeats. The implementation requires a few paradigm shifts for both parties. Most mills want to ensure the booking of their capacity well into the future. Even if the production lead time of an order is brought down to 3 weeks, the total lead time will have to be assessed taking into account the queue of all orders committed to by the mill. Trying to push an order through as a ‘chase order’ will create chaos in planning and eventually lead to a loss of capacity due to increased setups. This may also, at times, jeopardize orders of rapid repeats. Unless some capacity is allocated for rapid repeats, it is not possible to deliver them reliably in 3 weeks. If orders received do not fully use up the capacity allocated, it does not mean that the capacity is wasted. It can still be used for other orders. The brand, on the other hand, has to understand the dilemma of the weaver in allocating capacity. It should commit to loading this capacity. If it does not, the weaver will reduce the allocation next season. The brand will have to change its buying philosophy. It has to ‘buy shallow’. The decision for repeat buys is based on the sales rate. Some OTB will have to be kept unutilized to order repeats. The brand will also have to change its policy of not offering premiums to fabric manufacturers. It has to give up the mentality of trying to make profits by pushing down prices with the weavers, especially for the repeats. Case of a leading shirting fabric manufacturing millThe company manufactures high-end, yarn-dyed fabric and supplies to leading brands in India. It sources yarn from various spinners. Its main customers are retail chains that procure fabric and get garments manufactured to sell in their stores/franchisees. In eight months of TOC implementation, the company achieved<figure class="image"><img style="aspect-ratio:4000/3792;" src="https://backend.vectorconsulting.in/storage/editor_uploads//tg-article-8-img-5_1736144609.jpg" width="4000" height="3792"></figure>The company offered rapid repeats, with penalties for even one day of late delivery, to a leading retail chain in India. It has not only experienced an increase in volumes from this customer but has also received substantial rapid repeat orders. The retail chain has changed the buying process to accommodate the advantage offered by the mill. The last wordThe 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 everyone. This can be achieved if each appreciates the challenges faced by the other.

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Vector Consulting Group - Research and Publications: The inventory strategies of & ;Buy Deep&#039; and &#039;Buy Shallow&; is fraught with risk for apparel retailers. Way out?

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