Does Your Apparel Supply Chain Need a Logistics Makeover?
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Does Your Apparel Supply Chain Need a Logistics Makeover? ©2018 Purolator International, Inc. 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 Introduction ©2018 Purolator International, Inc. 2 Does Your Apparel Supply Chain Need A Logistics Makeover? 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. Introduction ©2018 Purolator International, Inc. 3 Does Your Apparel Supply Chain Need A Logistics Makeover? 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: A Global Supply Chain That Is Becoming More Global ©2018 Purolator International, Inc. 4 Does Your Apparel Supply Chain Need A Logistics Makeover? • 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.