Does Your Apparel Supply Chain Need a Logistics Makeover?

Introduction

When then J.Crew Chief Executive Officer Mickey These changing expectations are driven largely by regions. For most apparel makers, this includes Drexler was asked to describe his apparel the increasing role of eCommerce and, specifically, suppliers located in China as well as Vietnam. company’s typical customer, he responded with: the tremendous impact amazon.com is having on Sprawling supply chains have helped create “She’s loyal as hell until we go wrong. Then she the apparel industry. Financial services firm Cowen long lead times – currently it takes as long as 15 wants it on sale.” and Company expects Amazon to overtake months to bring a new concept to market. Macy’s as the largest U.S. apparel retailer by the Drexler’s simple, albeit blunt, observation would An added concern includes threats of increased end of the 2018, with consumers increasingly seem to describe consumer attitudes across trade restrictions between the United States, turning to Amazon as a “go-to” source for basics the entire apparel and accessories market. China, and other nations. Both China and the including T-shirts, jeans and underwear. In fact, Today’s consumers have heightened expectations United States have proposed new tariffs on goods Amazon’s top-selling apparel items during 2017 about virtually every aspect of their apparel- traveling between the two countries, which could included ASICS men’s running shoes, Levi’s men’s buying experiences: significantly drive up the cost of fabrics and other regular fit jeans, and UGG women’s boots. apparel-related materials. The threat of trade • They want to be continually impressed with barriers has become so significant that the U.S. new selections. Amazon is on track to become Fashion Industry Association’s 2017 industry • They expect sizes, preferred styles, and colors benchmark study saw “protectionist trade policy to be in stock, or easily accessible. the largest U.S. apparel retailer. agenda in the United States” jump from the Source: Cowen and Company 10th “top business concern” during 2016 to the • They have come to expect deep discounts, number one concern in 2017. and will not hesitate to either wait until an item Customers have grown accustomed to the ease goes on sale, or turn to a competitor for less and convenience of online shopping, and they expensive options. expect apparel retailers to do whatever it takes to meet those expectations. 60 percent of companies source • And they expect to be able to shop across materials from 10 or more countries Easier said than done. These changing channels, with high expectations for Source: 2017 Fashion Industry Benchmarking Study, United States personalized online experiences that include expectations come at a time when apparel Fashion Industry Association fast, flexible – and preferably free – delivery. companies’ supply chains are more globally sourced than ever, with 60 percent of companies Today’s manufacturers face seemingly competing sourcing materials from more than 10 countries or challenges to (a) meet customer expectations for

fresh inventory offered via multiple platforms while While most retailers aren’t looking to mimic Zaro’s (b) relying on increasingly global supplier networks. “fast-fashion” strategy, many analysts believe the “sweet spot” lies somewhere in between. The Meeting these challenges can be done of course. key is striking the right balance between current Look at Zaro. The Spain-based fast-fashion processes that work, those that don’t, and innovator has seemingly mastered the art of rapid innovative new options. A retailer that commits production and distribution to become to finding that balance will benefit from greater the world’s largest fashion retailer, with sales efficiencies including shortened distribution cycles of $17.2 billion during 2017. Zaro turns out an and better customer service. estimated 10,000 different products each year, which keeps customers returning to its stores. The following discussion provides an overview According to Forbes, “it takes the company of top trends and challenges affecting today’s only 10 to 15 days to go from the design stage apparel industry along with discussion about how to the sales floor.” Roughly 60 percent of all savvy logistics solutions are helping to solve those products are made in Spain and nearby countries. problems. At a time when “item out of stock” Merchandise is shipped from distribution have become the four most dreaded words in a centers located in Spain, and stores receive new retailer’s lexicon, smart logistics have taken on a shipments twice a week. new urgency, with apparel managers realizing the value of a customized, innovative logistics strategy.

A Global Supply Chain That Is Becoming More Global

To understand the scope of the apparel industry’s global supply Also important to keep in mind are the apparel markets of North Assistant Professor Sheng Lu of the University of Delaware’s chain, consider that 97 percent of apparel sold in the United American Free Trade Agreement (NAFTA) partners Canada and Department of Fashion & Apparel Studies collaborated on the States is made overseas, according to the American Apparel Mexico. During 2017, those markets were valued at $26 billion study and draws three important conclusions about global & Footwear Association. During the 1960s, almost 95 percent of and $14 billion, respectively. sourcing trends. clothing sold in the U.S. was made domestically. • While China is in no danger of losing its prominence as a U.S. During 2017, China accounted for 33.7 percent of U.S. apparel supplier, there are indications that demand for faster speed market share, which was actually down from 34.6 percent during to market is causing companies to rethink their China-based 2016. Vietnam’s share of the U.S. market increased from 13.4 sourcing strategies. It is possible that the days of companies percent in 2016, to 14.4 percent in 2017 And the third-largest “chasing the cheapest needle,” are coming to an end. source of U.S. apparel products is Bangladesh, which accounted • The slight shift away from China may be benefiting Western for 6.3 percent of the market during 2017. Hemisphere-based suppliers. The study reports a noticeable The U.S. Fashion Industry Association’s 2017 benchmarking increase in sourcing from the United States, Guatemala, El survey found China to be the most frequently used sourcing base, Salvador, and Haiti. In addition, the study notes, 50 percent with 91 percent of respondents indicating that they source in and 21 percent of respondents, respectively, source from 97 percent of apparel sold in the China. Important to note, that figure is down from 100 percent, Mexico and Canada, confirming the significance of NAFTA as which the survey reported in each of the three previous years. an important sourcing base for U.S. fashion companies. United States is made overseas. • U.S. apparel companies tend to source from multiple foreign Top sourcing bases, as cited by survey respondents, include: countries. Almost 60 percent source from more than 10 Clearly, the industry has changed dramatically. But something that different countries or regions and say they expect their • China – 91 percent has not changed is the critical need for apparel makers to have sourcing bases will expand in coming years. the latest fashion trends delivered to stores as quickly as possible • Vietnam – 88 percent – no easy task given that products arriving at the local mall are • India – 76 percent usually coming from China, Vietnam, or India. • Indonesia – 73 percent • United States – 70 percent Challenges of Today’s Global During 2017, the U.S. apparel market was valued at $267 billion, • Cambodia – 64 percent Supply Chain second only to China’s $284 billion market. To put the size of • Bangladesh – 61 percent U.S. apparel companies benefit financially from sourcing these two markets in context, consider that the world’s third- production in low-cost developing countries, but this strategy is largest apparel market, India, was valued at $50 billion. not without its drawbacks. Key considerations include:

• Faster lead times. A McKinsey & Company report The emergence of “fast fashion” and eCommerce has exposed • Product Life Cycle Management (PLM). These describes the “typical” process followed by U.S. apparel the inefficiency of this model, with Zara able to bring a product to technology solutions can be quite effective at helping companies: “A shirt is manufactured in a faraway country market in just three weeks. Zara’s drastically shortened lead time companies reduce lead times – by an average of 25 to based on a months-old design and then shipped for weeks is possible because of multiple factors, including: 30 percent. PLM has been referred to as a “cradle-to- across the ocean before reaching a retailer. A consumer might grave” approach since every stage of a product’s life cycle • In-house design and production teams eventually buy it at half price in an end-of-season sale – a is monitored and linked. According to Apparel News, • Reliance on limited selection of fabrics and materials routine event in an industry whose long lead times and big PLM technology was originally developed as a tool for the • Inventory forecasting models linked directly batches give it little flexibility to adapt production to shifting automotive and aerospace industries. But its benefits quickly to consumer feedback consumer demand.” Given the complexity of the process, it’s became apparent to other industries, including apparel. • Reliance on just-in-time manufacturing methods in which not surprising that the typical retailer needs six months to bring Mark Burstein of NGC Software explained the benefits a small batches of inventory are manufactured and quickly a conceptualized product to market. At Ralph Lauren, a plan is PLM system can have for an apparel company: “Internal shipped to stores underway to reduce lead time from 15 months to 9 months. teams, design development, suppliers – they know what • Linear management model in which store managers can fabrics are being used, what colors were approved, the provide feedback directly to designers (This model status of production and the exact location of containers bypasses the multiple levels of personnel in place at that are in shipment.” most traditional companies) • Streamlined manufacturing and distribution processes A 2017 survey conducted by Gartner found PLM solutions are confined to Spain with suppliers located in close proximity having a significant impact among apparel companies: (Suppliers deliver within five days of an order being placed, with most deliveries via truck) • 38 percent have reduced product development time • Materials sourcing and finishing services (sewing, cutting) • 19 percent have improved overall margin located close to production facilities • 29 percent have reduced total lead time Zara has revolutionized the fashion • 24 percent have achieved faster time to market While traditional apparel companies can certainly take note of the • 29 percent have reduced inventory industry with its dramatically Zara model, few are in a position to uproot their globally based shortened lead times and reliance supply chains and start over. Instead, companies are looking on just-in-time principles. to reduce lead times by integrating any number of innovative approaches and using technology to help weed out inefficiencies.

This is where technology comes in. By adopting “the right” technology solution – selected from the dozens of apparel industry-specific solutions currently on the market – a company can have a bird’s-eye view into parts of its business that may be underperforming, anticipate potential production or shipping delays, and establish critical communication links between different parts of its organization. Kohl’s has challenged suppliers Ralph Lauren has set a goal of to develop new processes for The more stakeholders “in the loop,” the greater the likelihood reducing lead time from 15 months to for collaboration and efficiency. But that collaboration will improving efficiency. 9 months. come with increased exposure to risk. Finding the right • Li & Fung was able to overhaul that process by introducing balance is key. An experienced logistics provider can help three-dimensional digital designs instead of physical samples. • Visibility/Supplier Collaboration. Former Ralph Lauren a determined business identify the right solution for adding Now designers in the United States can “see” modifications CEO Stefan Larsson, in citing his company’s goal of reducing visibility to its unique supply chain. throughout the product development process and collaborate lead times from 15 months to nine months, stressed the • Pre-production Efficiency. In 2016, Kohl’s challenged through an integrated system with the Asian production team. need to strengthen the collaboration with its supplier base its suppliers to dramatically improve production times and This has trimmed a process that routinely took six months in Asia. “The suppliers are really advanced and have a lot of indicated an openness to new ideas and processes. One down to a few days. knowledge. We have to get even closer to them and leverage partner, Li & Fung, has been able to cut lead times in half by • Fabric Platforming. Fortune reports that some that knowledge,” Larsson said in a discussion with analysts. focusing on product pre-production. As reported by the St. manufacturers, including Gap Inc, are taking advantage of

Louis Post-Dispatch, Kohl’s had traditionally followed a process efficiencies achieved by purchasing large amounts of particular But how can a business accomplish this with dozens of in which U.S.-based designers would wait for samples to arrive fabrics and then creating designs for that fabric, rather suppliers located in as many as 15 different countries? from Asia. After modifications were made and transmitted than the other way around. This is a practice that has been The short answer is to establish visibility across the entire back to Asia, a final run of products would eventually be instrumental to Zara’s fast-fashion delays. organization so that managers have insight into all parts of the shipped by sea. design, production, and distribution processes. But for most companies, this is easier said than done.

Minimizing Customs Delays To manage this uncertainty – and minimize the risk of shipment delay – apparel companies are increasingly turning Few industries experience the repercussions of customs to experienced logistics providers for “on the ground” customs bottlenecks more than apparel companies. For one thing, since expertise. A capable provider will offer access to a network of 97 percent of apparel sold in the U.S. is made elsewhere, virtually local providers who will have complete awareness and expertise every article of clothing must comply with all applicable customs with domestic customs requirements, who will ensure that a time- mandates and regulations, and undergo a strenuous customs The World Bank’s “Logistics sensitive shipment has all necessary paperwork completed and examination. filed, and who will make sure all necessary duties and fees paid Performance Index” ranks countries prior to the shipment’s arrival at the border. In addition, since the bulk of products are made in developing based on the efficiency of their countries, there is a strong likelihood that a customs experience In addition, a local customs expert will understand the nuances will be less than efficient. customs processes. of that country’s customs process. This could include knowing which clearance points tend to have delays, which are generally Consider a men’s three-piece suit that is assembled in China but The World Bank maintains an annual “Logistics Performance most efficient, and an understanding of any trade facilitation depends on fabric from Vietnam and zippers and buttons made Index,” which benchmarks countries' overall customs programs that could expedite the process. in India. Each component – the fabric, zippers, and buttons – will management performance in key areas including customs need to comply with Vietnamese and Indian export protocols as efficiency. During 2016, among countries with the highest well as with Chinese import requirements. Once completed, all concentrations of apparel suppliers, scores for customs documentation must be compiled in accordance with strict U.S. efficiency included: China (3.66/5.0), Vietnam (2.98/5.0), and Tariffs and Free Trade Agreements While the U.S. and China continue to debate possible apparel import requirements. Bangladesh (2.66/5.0). The United States was rated (3.99/5.0) and NAFTA partners Canada and Mexico scored (3.93/5.0), and tariff increases, American companies have the opportunity to (3.11/5.0) respectively. take advantage of several existing opportunities to minimize tariff obligations. International customs complexities are further exacerbated by the fact that customs requirements can be very fluid. A company First, and something applicable to all imports, not just those from believing it has finally become an expert in a certain country’s China, is the importance of a correct tariff classification code. customs requirements may find those regulations have changed Every product entering the United States must be assigned a dramatically – sometimes with no warning. 10-digit code from the Harmonized Tariff Schedule of the U.S., maintained by the U.S. International Trade Commission. The

classification code is used to determine a product’s rate of duty Improper tariff classifications can result in tariff overpayments and and eligibility for free trade agreement benefits. in a failure to obtain applicable free trade benefits. Although most Apparel companies do not always apparel products originate in countries with which the U.S. does not have a free trade agreement in place – the International Trade apply for free trade agreement Association’s Office of Textiles and Apparel (OTEXA) reports 85.7 benefits for which they are eligible. percent of textiles and apparel imports came from non- FTA regions during 2016 – FTAs can be a source of Professor Lu noted that companies may not be applying for tremendous savings. these FTA benefits because of the complex process for proving eligibility. Each trade agreement includes detailed “rules of origin” But of those imports that do come from countries with which a that a business must meet in order to be eligible for benefits, and free trade agreement is in place, a significant number are missing those rules are very precise. out on FTA benefits for which they are eligible. Asreported by The International Trade Commission the University of Delaware’s Professor Sheng Lu, “in 2016 about Many companies entrust the FTA-application process – as administers the Harmonized Tariff 29.9% of U.S. textile and apparel imports from South Korea, well as the entire customs compliance process – to a customs 24.3% from CAFTA-DR [Dominican Republic-Central American broker or logistics provider. A knowledgeable third party will have Schedule of the United States. Free Trade Agreement], 16.3% from NAFTA, and 12.9% from experience with tariff classification, FTA benefits eligibility, and all Columbia did not enjoy the duty-free treatment granted by the other aspects of the complicated global customs process. With tens of thousands of codes to choose from, and sometimes respective FTAs.” just slight differences between codes, it is not uncommon for an incorrect code to be assigned. The Auditor General of Canada, for example, reported that 20 percent of shipments arriving in that country are misclassified.

A Global Supply Chain That Is Becoming More Global ©2018 Purolator International, Inc. 8 Does Your Apparel Supply Chain Need A Logistics Makeover? eCommerce and the Changing Role of the Store – the Shifting Business Model In the U.S. Fashion Industry Association’s 2017 benchmarking marked a 25 percent increase over the previous year. At that rate, Online Dressing Rooms and Returns study, participating business’s listed “market competition in the the Internet giant is predicted to overtake Macy’s by the end of United States from eCommerce” and “market competition in the 2018 as the largest clothing seller in the United States. Management United States from brick-and-mortar stores” as top challenges. Other retailers have also recognized the importance of delivering Along with Amazon’s diverse inventory offerings, consumers are an optimal online experience. A wide range of companies allow And with good reason. Consider analysis from comScore drawn to the company’s free delivery, flexibility, and benefits, as customers to zoom in for close inspection of fabrics and design. marketing analyst Adam Lella: “Brick-and-mortar retail stores are offered through its Amazon Prime membership service. Amazon Levi’s has rolled out a “virtual stylist” that utilizes bots to help closing at their fastest pace in years, and it’s apparel companies Prime members pay $99 per year for the service, which provides consumers visualize how a particular pair of jeans might fit. The that are bearing the brunt of this fallout. Despite a healthy guaranteed “free” two-day delivery plus other benefits, including company’s technology even allows consumers to compare how a economy and consumer sentiment more positive than at any access to free music and books. Amazon Chief Executive Jeff specific size of Levi’s jeans compares with competitors’ sizing. time since the recession, several factors are contributing to the Bezos announced in April 2018 that more than 100 million downturn in retail – perhaps the most notable being the channel people worldwide are current Amazon Prime subscribers. Bezos’s shift from offline spending to online.” announcement marked the first time the company had publicly acknowledged the size of its membership service.

The Amazon Effect Amazon is also providing online apparel shoppers with personalized and premium customer experiences. Among other things, “the Echo Look” was introduced in 2017 and is promoted Levi Strauss has developed a “virtual as a virtual style assistant. As described by The Verge, “Echo Look is a camera that takes full-body length photos to catalogue your stylist” to help online customers make outfits in a ‘Look Book’ and suggests fashion recommendations informed sizing and style decisions. through machine learning. It also has a shopping element that suggests fashion items from (of course) Amazon.” Such personalized touches can also help address a problem Driving much of the growth in eCommerce, of course, has been endemic to online clothing purchases – returns. While the National Amazon, which has not only dramatically increased the scope Retail Federation estimates a “typical” retailer can expect a returns of its apparel and accessories offerings but is also entering the rate of eight percent, that number jumps to as high as 30 percent category with its own brands. As reported by WWD, Amazon’s for an online clothing retailer. U.S. apparel sales exceeded $5.5 billion during 2017, which eCommerce and the Changing Role of the Store – the Shifting Business Model ©2018 Purolator International, Inc. 9 Does Your Apparel Supply Chain Need A Logistics Makeover?

The reason for this may be fairly obvious. As noted by the San website), or through a hybrid option (purchase online, pickup in • Omnichannel customers spend an average four percent more Francisco Chronicle: “In a physical store, consumers can try on store), apparel companies are differentiating themselves from on every in-store shopping trip and 10 percent more online clothing in a dressing room. When they order online, they often online-only retailers. than single-channel customers. find the shirts and pants they bought are either too big or too small, regardless of the brand.” While the HBR authors are careful not to give full credit to omnichannel platforms for increased loyalty and repeat business, As a result, many consumers will order an item in different Retailers are leveraging the one thing the study does state: “Our study firmly endorses traditional sizes or colors, with the intention of returning all but one, a they have that Amazon doesn’t – retailers’ logic of embracing an omnichannel strategy and using it phenomenon sometimes referred to as “the bedroom as the new as a differentiator to fight the retail onslaught.” dressing room.” But, as the Chronicle notes, with each return a physical store. order costing from $3 to $12 to process, online returns get very Research by Harvard Business Review found omnichannel Once retailers realize the importance and the inevitability of expensive very quickly. customers are more valuable to a retailer, both in terms of money embracing an omnichannel, customer-centric sales experience, spent during a typical transaction and with regard to loyalty. the logical question becomes: “Now what?” Online shopping tools, such as Levi’s virtual stylist and Amazon’s Among the HBR findings: Echo Look, can help customers make better-informed decisions This seems to typify supply chain managers’ initial reactions as and hopefully help reduce the number of products returned. • Omnichannel customers tend to make good use of multiple the realization sets in that changes will be needed to integrate “touchpoints.” This includes using a smart phone app to new omnichannel platforms. “A retailer has to make decisions,” How are apparel companies compare prices or download a coupon, in-store digital tools Pete Madden, a director at AlixPartners retail consultancy, said in such as an interactive catalog or price-checker, buying in-store a CNBC interview. “Do I own my distribution center? Do I pay a adapting to changing expectations and having items shipped, and buying online but picking up third party to do it for me? The cost for certain corporate functions for buying options? in-store. associated with running distribution centers, like IT and marketing, Clearly there is broad understanding among apparel companies • Omnichannel shoppers logged 23 percent more repeat can be in the tens of millions of dollars in terms of investment.” shopping trips to a retailer’s stores and were more likely to of the need to adapt. But many are realizing they have one thing In addition, Madden noted, “there’s also the investment to build recommend that retailer than those who used a to offer customers that Amazon doesn’t – a physical store. This and manage websites, apps, distribution centers and establish single channel. has given way to the rise of omni-channel, as companies leverage shipping networks or partnerships to fulfill those orders. • Shoppers who conducted pre-purchase online research on their physical stores to provide consumers with enhanced A retailer needs systems to help shippers with order management the retailer’s own website led to 13 percent greater in-store shopping options. By giving customers the choice to shop either and tracking, and to show them where inventory may be available spending among omnichannel shoppers. via a brick-and-mortar store, a digital platform (mobile app, (i.e., online only, or available in certain stores). Plus, there’s a cost eCommerce and the Changing Role of the Store – the Shifting Business Model ©2018 Purolator International, Inc. 10 Does Your Apparel Supply Chain Need A Logistics Makeover?

to manage the complexity of the ‘endless aisle’ online, logistics AlixPartners determined that the most profitable distribution incurring excessive carrying costs? And perhaps most important, and IT coordination with shipping vendors….” method for an apparel retailer is… the traditional brick-and- how do you fulfill customer orders in the least expensive, least mortar transaction. disruptive way possible? In other words, building an omnichannel platform is no small undertaking. Inventory visibility. The answer to these questions depends on the degree of visibility a business has in its supply chain. A Many apparel companies choose to take an “all of the above” highly visible supply chain will allow a retailer to know – with exact approach to their omnichannel distribution strategies, offering precision – where a product is located. Easier said than done customers multiple options, including: for many businesses. This is because many businesses maintain parallel fulfillment operations for retail stores and eCommerce • Buy in-store/Take delivery in store operations with separate distribution centers, replenishment • Online purchase/Delivery through distribution center Source: CNBC • Online purchase/In-store pickup processes, and sometimes even separate inventories. • Online purchase/Fulfillment from store But, given strong customer preference for omnichannel options “With separate systems and separate inventory stocks in place,” such as buy online/in store pick-up, a retailer needs to decide notes research by Chain Link Research, “stores have no visibility However, research from AlixPartners found that omnichannel if the higher costs associated with providing that service can be to the inventory in the other channels and vice versa. Each store fulfillment options can be quite costly for a retailer. The growing justified by the benefits of meeting customer expectations. usually has visibility to only the inventory at [its] own location. trend to fill eCommerce orders from brick-and-mortar stores, for In determining its omnichannel strategy, an apparel company will If they are out of stock in the store, the store associate does example, is highly inefficient from a cost perspective – in fact, need to evaluate multiple core processes that affect every aspect not have the visibility or tools to check available inventory at it’s the least profitable model. As CNBC explains, “the main of its supply chain. other stores, or across the network of other stocking locations reason for the compressed profitability is the cost of double- – distribution centers, logistics providers, or inventory at the shipping merchandise. manufacturer that is available to fulfill an order.” Inventory Management “As a retailer, you are operating two channels, and shipping that The heart of omnichannel lies in allowing customers to make The key is finding a way to integrate all systems so that merchandise twice.” First, shipping charges are paid to the truck purchases and then take delivery of those products across any employees – and customers – have visibility into inventory levels company that delivers merchandise to the store; and then again number of convenient venues. But for sellers, making this possible and locations. And like so much in today’s modern supply chains, to the shipping company that picks up the eCommerce package is among the greatest headaches. How do you manage inventory visibility is possible through technology. from the store and delivers it to the customer. so that it is where it needs to be at the exact right time? And how do you make inventory available across all channels without eCommerce and the Changing Role of the Store – the Shifting Business Model ©2018 Purolator International, Inc. 11 Does Your Apparel Supply Chain Need A Logistics Makeover?

Businesses have a plethora of technology solutions to choose • Challenge of having “just enough” inventory in the right place components of an omni-channel transportation management from at a variety of price points. Many businesses are satisfied at the right moment to meet in-store sales as well as “ship-to- system (TMS). Today’s successful supply chain allows a business with off-the-shelf software, or cloud-based offerings, while other store” and “ship-from-store” commitments. to schedule transportation based on its needs rather than be businesses may opt for a customized solution. While each • Pressure to adapt to the new world order in which customer locked into a rigid “one size fits all” service schedule dictated by business will have unique needs, visibility goals must include: preferences are driving businesses’ supply chains. Key its traditional service provider. Instead, today’s TMS has many customer expectations? Namely, fast and free delivery service moving parts, with technology being the glue that holds everything • Real-time data updates with regard to merchandising systems with little tolerance for late arrivals. together. One industry expert defines today’s TMS as a “holistic” • Creating and shipping transfers to store • Pressure for retailers, who often do not have system that “allows retailers and manufacturers to gather facts • Facilitating movement of products to meet consumer needs enough distribution centers or the bandwidth to absorb the about current and future orders, and then make the best possible • Inventory updates from point-of-sale systems costs of offering free shipping. judgment that combines low price with high service. • Advance notifications of all inbound merchandise As business conditions change, this process is repeated to • 24/7 stock counts The challenge then is for businesses, operating on razor-thin ensure that shippers are always making the right choice for the • Initiate in-store stock replenishment margins, to offer Cadillac levels of service for very little cost current environment.” • Processing “return to vendor” orders for product returns, both to their customers. “Most retailers are trying to figure out the those eligible for resale, and those that are unsellable. Shared Assets. Once unthinkable, a growing number of eCommerce model,” says Huw Thomas, CEO of Alberta-based businesses are taking control of transportation costs by reaching mall developer Calloway REIT. “There are very few significant-size agreements with companies with similar supply chain needs – Distribution/Transportation retailers that have profitable eCommerce businesses. The delivery usually competitors – to share distribution centers, truck space, component of the eCommerce equation is a very, very expensive Considerations and other assets. The practice, known as “horizontal collaboration” piece of the puzzle because, in essence, you’re matching the Omnichannel, and its emphasis on fluid inventory and flexible or “collaborative shipping,” allows companies to reduce costs prices that you have in a physical store, but you’re delivering for shipping and delivery options, will necessarily force deep on distribution, delivery, and even backhauling costs. Among the free sometimes very substantially-sized products to a consumer.” analysis of existing distribution and transportation processes. Top companies currently collaborating: French food giant Danone considerations include: The good news? It can be done. Among the current “best and probiotic drink manufacturer Yakult have shared a Tokyo practices” businesses are using to meet today’s transportation/ distribution center since 2011. Another example: U.S. chocolate • eCommerce-driven surge in multiple small package distribution challenges: manufacturers the Hershey Co. and The Ferrero Group in shipments, each in need of delivery to a private residence or

small business often located in remote regions. Rethinking the TMS. Flexibility, scalability, and adaptability North America have shared warehousing, transportation, and – these are three words that are often used to describe critical distribution processes and assets, also since 2011. eCommerce and the Changing Role of the Store – the Shifting Business Model ©2018 Purolator International, Inc. 12 Does Your Apparel Supply Chain Need A Logistics Makeover?

Businesses interested in integrating horizontal collaboration And with regard to the actual delivery: solutions into their supply chains should be forewarned though. • Customers want to be able to re-route their shipment up until It’s not for everyone, and it’s hard work. According to the "North the last minute. American Horizontal Collaboration in the Supply Chain Report," • They want real-time tracking and visibility, similar to Uber produced by supply chain research group Eyefortransport, top driver tracking. concerns for businesses include: Last mile services account for • Customers want great communication, including an email or a • Fear of information disclosure text when a delivery is imminent with a follow-up text or email • Lack of clarity over who’s in charge as much as 28 percent of total after the delivery has been made. • Lack of widespread acceptance of ideas transportation spend. • They expect immediate notification when a problem arises, • Difficulty finding appropriate partners with information about how that problem is going to be solved. • Difficulty starting trusting relationships Research by Temando found that in addition to free and • Depending on the shipment, if special services are required, fast shipping, consumers want more shipping options. Lots such as installation or assembly, customers expect the delivery Last Mile. With eCommerce requiring delivery to consumers’ more options. personnel to be experienced, knowledgeable, courteous, and homes and local business addresses, critical last mile delivery • 77 percent would like guaranteed weekend or after- to have the right equipment with them at time of delivery. capabilities have been in the spotlight. According to the Council hours deliveries of Supply Chain Management Professionals (CSCMP), last • 80 percent would like same-day shipping mile services account for as much as 28 percent of total logistics • 61 percent in favor of 1- to 3-hour shipping costs. But what exactly do consumers expect in last • 76 percent want a specified time slot for delivery mile services? • 82 percent want to collect their shipments from stores (This includes a growing preference for “click and collect,” whereby customers collect their shipments at a designated location, which might be a local convenience store, drycleaner, or a locker facility)

Logistics to the Rescue

As fashion companies face the realities of today’s changing coordination between the manufacturing facility and its suppliers. retail environment, many have turned to their logistics companies An experienced logistics provider can help manage the process for assistance. Global supply chains that previously coasted and ensure precision-like materials deliveries and pickups of along with delivery times measured in weeks are no longer finished products. acceptable as retailers adapt to consumer expectations for increasingly fast deliveries.

Fortunately, logistics innovations have kept pace with the changing apparel industry. Technology and creative thinking have combined to enable solutions that simply didn’t exist as recently as five or six years ago.

For many apparel companies, their logistics provider has become an essential partner and integral to strategic planning and execution. Among the logistics solutions now available to Zara pushes key decisions about apparel companies: styles, sizes, and colors until the last Just-in-Time Manufacturing. As apparel companies adapt possible moment, based on real-time to the need for “smaller inventory batches produced more frequently,” many have adopted some of the same just-in-time customer feedback. (JIT) manufacturing techniques that have helped drive success for many fast-fashion companies, including Zara and H&M. Through JIT, an apparel company can drive final decisions about production – styles, sizes, colors – until the last possible moment, based on customer feedback and sales intelligence. The key though is having the necessary materials on hand when production decisions are made. And this, of course, depends on a well-executed logistics strategy. Successful JIT requires careful

Expedited Services. Expedited service has become an Returns Management. Long considered the “necessary evil” increasingly attractive solution for ensuring guaranteed deliveries of retail, product returns can amount to as much as 30 percent of of time-sensitive apparel shipments. A shipment of sweaters, for an apparel company’s total sales. But savvy business managers example, sitting in a Chinese warehouse but set to go on sale have come to see potential in those returns – both as a way in a few days throughout American stores could seamlessly be to satisfy customers with a hassle-free returns policy and as a delivered via an expedited solution. Other companies have relied source of revenue. Returns management has become such an on expedited services for just-in-time manufacturing efficiency or important part of the customer purchasing experience that nearly for its highest levels of customer service, including extra security half of all consumers check a retailer’s returns policy before for valuable shipments and inside deliveries. making a purchase.

Distribution Center Bypass/Direct-to-Store Shipping An experienced logistics provider can work directly with a Solution. Traditional distribution solutions have been upended business to help build a suitable returns process. Key components by out-of-the-box thinking that allows merchandise to travel of that strategy should include: directly to retail stores. This eliminates unnecessary and inefficient distribution center stopovers. It used to be that shipments were • Process for consumer to use in sending back a return (i.e., routinely shipped to a distribution center, often located hundreds including returns label with original packaging, of miles off-route, just to be sorted and re-loaded. By allowing RMA authorization) shipments to move directly to their end destination, a company • Whether to offer free returns shipping can shave three to seven days from its transit time. • Schedule for picking up/delivering returns to designated

returns facility Direct-to-Consumer Shipping Solution. Innovative • Process for transporting returns between the United States logistics solutions can help apparel makers facilitate deliveries and Canada to their growing base of eCommerce consumers. Mark Burstein • Role of technology in ensuring high visibility and tracking of NGC Software describes a highly efficient solution in which: capability for consumers “Orders are packed and labeled at the factory, then consolidated and shipped in bulk. Once the shipment clears customs in the destination country, a courier service…deconsolidates the shipment and delivers each order directly to the consumer.”

Bringing It All Together – Choosing the Right Logistics Provider

Retooling a supply chain to meet the realities of the omnichannel services as needed. This is especially helpful for businesses • Scope of Service. Today’s logistics providers are able to market can be a daunting undertaking. Businesses are literally with seasonal sales fluctuations. offer a range of service options that can be customized to fit a bombarded with emails, trade publications, and direct solicitations • Experience. There is no substitute for experience. And with business's precise needs. If you find that a logistics provider is from vendors offering to supply “superior” insight about how best so many providers from which to choose, it’s essential for forcing you to adapt your needs to meet its capabilities, it’s a to upgrade supply chain functionality. a business to carefully research a logistics provider before good sign that the carrier is not up to the job. signing on the dotted line. A knowledgeable provider will have • Technology. Many logistics providers have their own So how do you know? With so many options from which to documented experience in apparel logistics and understand customized technology solutions that integrate with their choose, how can an apparel company possibly decide which the nuances of this industry. This will include a broad range customers’ internal systems. This allows for a seamless on solution is best and which logistics provider can provide the top- of logistics solutions that have been used with other apparel boarding, and it allows several critical functions to share data, level service it needs? customers, along with ideas about how to efficiently address generate reports, and provide tracking/visibility. Following are a few considerations to keep in mind when deciding your company’s issues. the best logistics partner to add to your supply chain team: • Customization and Collaboration. It’s essential to view your logistics provider as a partner. You want to build a • Single Source/Comprehensive Solution Provider. relationship based on a mutual understanding of your business Given the complexities of an omnichannel supply chain, it is objectives, priorities, and needs. This information sharing can imperative to have a logistics partner that can offer complete only happen through many, many direct conversations and management of the entire process. A qualified logistics ongoing open lines of communication. A qualified logistics provider will offer comprehensive services ranging from order provider will use this information to create a customized management, inventory management, warehousing, kitting, solution to meet your specific needs. picking, labeling/shipment preparation, transportation, delivery, • Customer Service. Equally important is a high level and all back-end functions including recordkeeping and of customer service. Services should include a dedicated compliance mandates. And a comprehensive provider representative with whom you have a personal relationship should also provide reverse logistics services to process and direct contact information. Your customer service merchandise returns. representative should be fully aware of your supply chain, provide you with regular updates, and know A single source provider will have 360-degree insight into all about – and resolve – any snafus or changes before global processes and the ability to ramp up or scale back they become problematic.

Conclusion

In an April 2018 interview, brothers Ian and Shep Murray, co- But what Amazon and fashion retailers like Vineyard Vines have founders of Connecticut-based Vineyard Vines clothing chain, were in common is an underlying need to respond to consumer asked by Maria Bartiromo of the Fox Business Network for their preferences by delivering a top-notch customer experience. That thoughts on what Ms. Bartiromo called the “Amazoning” of the means having a steady supply of fresh inventory, making sure economy. “After all,” Ms. Bartiromo noted, “you’ve got stores going different colors and sizes are in stock, and ensuing customers can out of business left and right.” take delivery of their purchases on their terms. And given that 97 percent of apparel sold in the United States comes from abroad – Shep Murray responded by acknowledging the presence of most of it from Asia – this is no small undertaking. Amazon in the retail category and even noted that he is an Amazon customer. But he went on to explain that the retail store still offers a Smart retailers like Shep and Ian Murray are realizing there’s no unique experience that cannot be replicated online. “What we want going back, that success in today’s changing retail environment to do and what we think our customer is looking for is a better means delivering the experience their customers expect. No small experience,” he explained. “Amazon is a great marketplace but undertaking for sure, but as any smart retailer will find, a smart when you go into our stores and you meet our customers and you logistics strategy is the key to everything. get to touch and feel the products and you see the packaging we provide and all the cool lifestyle stuff that we do…, we believe that there is a place for Amazon and brands.”

This commitment to coexist seems wise as apparel companies come to the realization that Amazon is not just a player in clothing sales but is poised to become the largest U.S. clothing retailer.

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