Global Supply Chains in Apparel Industry - Case Study Example

Apparel Industry Global Supply Chains In Apparel Industry Mr/Ms.xxxxxxxxxxxxxxxx MBA, Section xxxxxx xxxxxxx January 5, 2009 Global Supply Chains in Apparel Industry Executive Summary The supply chain for the apparel industry girdles the globe. The complexities of the supply chain are exacerbated by recession, vagaries of demand, competition, shifting comparative advantage among countries, trade relations, thinning margins and crashing product life cycle. The seasonality of demand makes the product vulnerable to rapid erosion of value after the season. The industry is fraught with several issues due to inherent complexity. The demand and prices are time dependent, uncertain and seasonal. Fragility of multi tier, fragmented supply chain driven by specialisation, quotas and comparative advantage impinge on supplier loyalty. Switching costs are moderately high for manufacturers and hence lot sizes drive costs. Visibility is lacking in supply chain regarding down stream activities with consequent vague projections on deliveries. Capacity is determined by external factors such as time limited quotas with no information available about delivery by competitors for the same quota. This arduous process takes 6 to 12 months, which is excruciatingly long compared with the value added cycle time of only 6-12 weeks. The brand owners therefore begin their work on the product more than a year before the selling season. The players in the industry have responded to the troubled times with the initiatives such as Quick Response Time, Collaborative efforts among the participants and concurrent engineering necessitating the deployment of contemporary web enabled information technology in the supply chain management. Introduction The global apparel industry is typically with a number of complexities. Fluctuating and uncertain demand, short product lifecycle, wide variety not always amenable to the economies of scale and supply chain transcending geographic boundaries, time zones, cultures and languages. To win in this industry, efficient supply chain management is a major base for sustainable competitive advantage. The search for comparative advantage has led many apparel industry players to globalise their operations in the recent times. This is borne out by the penetration of imports. For instance, in UK, the degree of import penetration in this industry is 92% (Jones 2006). The vertically integrated local model gave way to multi-tier globally distributed model. This model hinged on availability of skills, specialised process technology, international trade relations and regulatory milieu present in host countries for outsourcing. The made to order nature of the product and the needed skill intensity in competencies rendered this industry seek economies of scope rather than economies of scale in certain activities in the value chain. In UK vertical integration was predominant among the players in the apparel industry such as; Courtalds, Coats Viyela and the old Burtons organisations. However this has radically changed with large textile conglomerates breaking up into disparate businesses - the instance courtaulds textiles in 1990. Today, the majority of UK apparel manufacturers are not vertically integrated (Jones 2006). According to U.S. Office of Technology Assessment 1987, the apparel products can be divided into three different categories (qtd in Alper 2004). I. Fashion" products, with a 10-week product life{approximately 35 percent of the market. II. Seasonal" products, with a 20-week product life{approximately 45 percent of the market. III. Basic" products, sold throughout the year{approximately 20 percent of the market. The basic category comprises Mens and childrens merchandise. The womens merchandise dominates seasonal and fashion categories, showing the importance of fashion and resulting frequent design changes in the womens market. (Alper,2004) The apparel for women with frequent design changes and fashion shifts are not easily amenable to economies of scale. The other categories like basic products are in larger batch sizes, where economies of scale can be exploited. The supply chain has many varients; styles, seasons, styles within a season and so on. While the individual activities could be same, the grouping of activities may differ depending on macro factors such as supplier core strength, quotas and exchange rate fluctuations. This may result in distinctive seasonal multi-layered supply chain. The different season delivery times for apparel industry are as follows: I. Fall 1: July-August II. Fall 2: September – October III. Holiday: January – March IV. Summer: March – Mid April (Alper 2004) Supply Chain Transition Push supply chain was appropriate when the demand outstripped supply in the mid 20th century. Being sure of the off take and armed with long term forecasts, the apparel organisations built inventories and availed the economies of scale with large batch size. The buffer stock was built at every node due to the bull whip effect. By early 21st century, the paradigm shifted. Powerful brands and retailers called the shots. For instance, in UK in 2004, Pentland, the biggest apparel manufacturer had assets of £385 million, while Marks & Spencer the biggest retailer had £7377 million worth assets. Similarly, the most successful manufacturer Burberry notched profits £81730000 in sharp contrast to that of M&S’s £674300000 (Jones 2006). Meanwhile new entrants proliferated, intensifying competition. Supply therefore outstripped demand shifting the balance of power to the retailers and brand owners. The retailers and brand owners would place orders in varying quantities of particular styles and colours depending on the market realities. The suppliers downstream had to respond quickly to these requirements. The demand was highly uncertain making inventory carrying risky. The production also could not be in large batch sizes. The push supply chain gave way to pull supply chain, which signifies manufacturing meeting the market needs. The pull supply chain laid emphasis on reduction of inventory and timely supplies to the market. The economies of scale was sacrificed. Now a hybrid of both concepts; Push-Pull supply chains are in vogue. The push concept is applied at the initial stages of yarn, fabric and some accessories and the pull concept is applied at the stage where the differentiation takes place. The players would therefore choose to harness economies of scale in the initial stages in the supply chain and economies of scope towards the other end where the products get differentiated. Therefore product differentiation is postponed closer to the bottom of the value chain, where the near true picture of demand emerges (Daspal). The Key Problems and Issues: The global apparel industry is fraught with following issues due to inherent complexity: Demand and prices are time dependent, uncertain and seasonal Fragility of multi tier, fragmented supply chain driven by specialisation, quotas and comparative advantage impinge on supplier loyalty Switching costs are moderately high for manufacturers and hence lot sizes drive costs. Suppliers are spread across the global landscape, some lack infrastructure The entire demand for a season or style should be met by one lot Visibility is lacking in supply chain regarding down stream activities with consequent vague projections on deliveries. Capacity is determined by external factors such as time limited quotas with no information available about competitors’ delivery for the same quota. Inaccurate Plans for production and transit lead times, which are based on rules of thumb. Substantial padding of schedules. System lacks documentation of communication across the supply chain. Supply chain cycle time is 2-3 times the total season cycle time and 6-9 times profit season cycle times for many styles. This results in unmet customer demand and lost opportunities. (Seagrave 2002) Main Challenges Main challenge for the apparel industry is to streamline the management of disaggregated Supply chain girdling the earth across geographic regions and crash the cycle time from concept to sale. Brand owners and agents, who usher their products into the intensely competed apparel market, orchestrate a long supply chain from fiber producer to the retailer. The players in this value chain are fiber producers, mill owners, zippers and Snaps manufacturers facilitated by logistics providers such as transporters, freight forwarders, export agents, warehouse providers, brand owners and retailers. The arduous process from concept to sale takes 6 to 12 months, which is excruciatingly long compared with the value added cycle time of only 6-12 weeks. The brand owners therefore begin their work on the product more than a year before the selling season (Johnson, 2002) The complexity of the supply chain management is portrayed in the table below that shows the total number of events to be monitored from concept to the sale of the product: High Low Seasons 12 or more 4 Apparel Sub-Divisions 200 50 Items per Sub-Division 30 10 Process Steps 300 300 Events to monitor 21,600,000 600,000 Fig 1: Events in the Apparel concept to sale cycle (Seagrave 2002) The mind boggling number of events can not be monitored manually. These events are dispersed across the globe. The participants are across the spectrum in terms of technological sophistication, language and bargaining power. This would essentially require web enabled project management tools. The second challenge is to avoid the Bullwhip effect, which is rampant in the apparel industry. The industry by nature being volatile is prone to frequent changes in the pattern of demand at the retail end. Often, the information flow is distorted or not conveyed at all at the right time. The distorted information can ripple back upstream through the supply chain causing magnified variances. Strategic Initiatives Reduction in the cycle time of the entire process from concept to selling is engaging the attention of the players. The process should also be flexible and change according to the requirement of the market ideally on the fly. According to Kurt Salmon Associates, the inherent inefficiencies in the value chain inflicted a loss of 24% of revenues for the industry annually due to forced mark downs, excess inventory and also stock outs (qtd Alper 2004). In a volatile industry afflicted with down turn in the recent past, the need is felt for a dynamic system, where the signals should crisscross the supply chain triggering changes in styles, colors, designs and volume in real time. Now with the omnipresence of the internet, information technology is being deployed increasingly to bridge the communication gaps among innumerable participants in the value chain. Concurrent engineering is now enabling the designs to be simultaneously created and altered with inputs from all those fabric designers, textile engineers and the like. The full deployment of web enabled information technology will be what the industry has ordered. It will minimize the bull whip effect, crash the cycle time and enable collaboration among various participants in the supply chain. Conclusion The global supply chain in the apparel industry is undergoing a shake out. The recession has intensified competition putting extreme pressure on the margins. This has made outsourcing destinations change with changing trade relations, shifting sources of comparative advantage and fluctuating currencies. With supply outstripping demand, many partners in the supply chain are in jeopardy. Uncertain, seasonal and fluctuating demand, perishable value in apparels after season, bullwhip effect, excruciatingly long cycle time from concept to sales, shrinking batch size, lack of visibility in the supply chain have impinged adversely on the industry. The initiatives such as Quick Response Time, Collaborative efforts among the participants and concurrent engineering have necessitated the deployment of contemporary information technology in the supply chain management. References Daspal, Debasis, Apparel Supply Chain and its variants, fibre2fashion.com, http://www.fibre2fashion.com/industry-article/11/1067/apparel-supply-chain-and-its-variants3.asp Johnson, Eric (2002). Product Design Collaboration: Capturing Lost Supply Chain Value in the Apparel Industry, http://ssrn.com/abstract_id=307461 Jones, Richard M (2006). The Apparel Industry, Blackwell Publishing, http://books.google.co.in/books?id=C-brC0J1logC&pg=PA55&lpg=PA55&dq=UK+examples+in+supply+chain+apparels&source=web&ots=sq1gOdeVva&sig=x1FBxh7sJ_UW5dU64XXvPoWBrT0&hl=en&sa=X&oi=book_result&resnum=9&ct=result#PPA60,M1 Seagrave, William (2002). The Apparel world: Lagging Behind The Supply Chain Curve, Jan 2002, Tech Exchange.Com http://www.techexchange.com/thelibrary/Supply_Chain_Lag.html Sen.Alper (2004). The US apparel industry: a supply chain review, BNet, Oct 2004, http://www.bilkent.edu.tr/~alpersen/Papers/ApparelReview_Sen_October_2004.pdf Read More