Published: Images Business of Fashion, November 2013<h2>Fashion should be trendy!</h2>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’. <h5> </h5><h2>The chain</h2>Now, predicting trends is not easy. The apparel supply chain is a complex system that involves numerous stakeholders. It starts with yarn manufacturers who use different types of fibres as raw materials to produce yarns of varying qualities and counts. They weave the yarn to produce a variety of fabric qualities. 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 essential. <figure class="image"><img style="aspect-ratio:1600/642;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//the-chain_1753002082.jpeg" width="1600" height="642"></figure>Fabric manufacturers are suppliers to brands which generally outsource apparel manufacturing. To create a particular fashion line, this entire process must be synchronised, as operations at every stage are specific to the garment’s particular qualities and designs. Generally, it takes the fabric manufacturer 60-90 days to deliver the processed fabric. Including designing and garment production, it takes nearly six months to produce the offering for a season.  Thus, to remain relevant in the ‘current trend’, brands always have to predict future trends. By future, we mean at least six months to one year. The colourful Chinos in stores today must have been at the designer’s desk at least six months before! <h5> </h5><h2>The issue</h2>Brands sell through various channels and entities. These entities book the designs that the brands develop well in advance. Based on these bookings, brands determine the demand for each design and return to their suppliers and apparel manufacturers to secure their capacities. Essentially, buyers must forecast the demand and decide 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 also an opportunity for flash introductions. If a brand copies the design of another, develops it and introduces it in its chain within the same season, it is considered a flash introduction.<figure class="image"><img style="aspect-ratio:4000/2895;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//tg-article-8-img-2-1736144585_1777299120.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 2-3 weeks, and then disappearing 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 and store them in the back end.  Every placement generates a few winners. Buyers would love to get the winners back on the shelf by the end of the season. Most often, they refrain from placing an order for the winners. The supply lead time for fabric is 45-60 days, and for garments, it is around 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 concerned about remnant inventory because it affects his Open-to-Buy (OTB) budget for future purchases. Hence, most of the time, the buyer does not order repeats.  For the same reason, even flash introductions for identified winners are also avoided. <h2>Results</h2><figure class="image"><img style="aspect-ratio:4000/3115;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//tg-article-8-img-3-1736144593_1777299343.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 or EOSS) for two major reasons: <ul style="list-style-type:disc;"><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, management reviews similar data and blames failure to identify winners correctly. So, even if the outlets had good footfalls, the brands make very low profits.  <h2>Does the vicious cycle end?</h2>Apparel brands have taken various measures over the years to address this issue:<ul style="list-style-type:disc;"><li>Better forecasting: Focus on improving the buyer’s capabilities to ‘sense’ the future fashion trends.</li><li>Partnering with garment manufacturers: The speed of garment manufacturing lines has significantly improved. </li></ul> When required, the transfer batch size between work centres has been reduced to practically one to expedite garments production out in record time. However, the core problem of higher lead times throughout the entire supply chain remains unchanged. Many companies have also attempted forward and backward integration. However, even when the entire chain is under a single owner, the challenges persist. 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://web-assets.vectorconsulting.in/storage/editor_uploads//tg-article-8-img-4-1736144601_1777298972.jpg" width="4000" height="2545"></figure> The industry must introduce new offerings every season; this is a constant requirement. The ‘buy deep’ route is not an option, as surplus can kill the company. Therefore, the only option available is to ‘buy shallow’, and to react well within the seasons to maintain a steady supply of winners. Keeping stock of fabric and converting it into garments based on an SKU’s sales rate in the store will significantly improve reaction time. The aggregation at a fabric level (using the same fabric to create different styles and sizes) will surely help reduce the surplus of garments. However, a surplus of ‘out of fashion’ fabrics is likely. Unless a retailer has a different market segment to flush out the excess fabrics, the risk can be significant.  <h2>A new paradigm in fabric manufacturing</h2>The lead time for fabric manufacturing is the most significant part of the supply chain. The weavers’ lead time, which ranges from 45 to 60 days (from yarn to fabric), determines the entire supply chain’s reaction time. If it is cut in half, the garment can be reintroduced in the store well within the four-month season.  Although the lead time for production – from yarn to finished garment – is approximately 45-60 days, the actual processing time (touch time) on the machines is only 1.5-2 weeks. The gap between touch time and lead time is due to the waiting time required at each resource. The waiting time is either due to a long queue in front of a resource, to the unavailability of all components to start processing (desynchronisation of the arrival of parts for the assembly), or to waiting in the finished goods warehouse for the complete kit of all products. The waiting time can be reduced by: <ul style="list-style-type:disc;"><li>Limiting the visibility of orders on the shop floor prevents cherry-picking across many orders (for larger batches of a component). This prevents desynchronisation of the flow between garment components.</li><li>Having a priority system that forces the synchronisation. </li></ul> The lead time for manufacturing an order will be reduced to about half i.e. three weeks.  Not all orders have to be promised such low lead times. The first placements by the brands, anyway, are done with adequate lead times. These shorter lead times are only available for repeat orders.  For example, a large brand’s shirt category it could generate ₹150 crore worth of sales. Typically, 30% of this is contributed by winners. A repeat of ₹30 crore worth of winners can add ₹15 crore to the brand’s bottom line. This is significant for the brand because, as a company, it could be making a total profit of ₹30 crore (3% PBT on ₹1,000 crore sales).  A brand that generates such substantial profits due to the efforts of a fabric supplier should not hesitate to offer a premium for rapid repeats. A 10% premium on the fabric price, for a garment sold with a 100% markup, decreases the gross contribution by around 3%. When the brand gives up 3%, it gains the remaining 47%.  This not only creates a win-win situation for both parties but also relieves the industry chain of the constant pressure to maintain margins. The brand gains additional profit from the sales of winners. The possibility of rapid repeats enables the brand to ‘buy shallow’ across the whole range. This decreases surplus stocks, leading to a 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 on repeat orders.  The implementation requires a few paradigm shifts for both parties. Most mills want to ensure that their capacity is booked well into the future. Even if the production lead time of an order is reduced to three weeks, the total lead time must still be assessed, taking into account the queue of all orders committed to by the mill. Attempting to push an order through as a ‘chase order’ will create chaos in planning and ultimately lead to a loss of capacity due to increased set-up times. This may also, at times, jeopardise orders of rapid repeats.  Unless some capacity is allocated for rapid repeats, it is not possible to deliver them reliably in three weeks. If orders received do not fully utilise the allocated capacity, it does not mean that the capacity is wasted. It can still be used for other orders.  The brand, on the other hand, must understand the dilemma faced by 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 to make repeat purchases is based on the sales rate. Some OTB will have to be kept unutilised 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.  <h2>Case of a leading shirting fabric manufacturing mill</h2>The 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 have garments manufactured for sale in their stores or to franchisees. In eight months of implementing this new method, the company achieved the following results:<figure class="image"><img style="aspect-ratio:4000/3792;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//tg-article-8-img-5-1736144609_1777299205.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 repeat orders in a short period. The retail chain has modified its buying process to leverage the mill’s advantages.  <h2>The last word</h2>The various entities that comprise the fashion supply chain operate with individual objectives. If all entities are to flourish, they ensure a ‘big win’ for everyone. This can be achieved if each appreciates the other’s challenges.

Everyone can win!

Published: Images Business of Fashion, November 2013<h2>Fashion should be trendy!</h2>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’. <h5> </h5><h2>The chain</h2>Now, predicting trends is not easy. The apparel supply chain is a complex system that involves numerous stakeholders. It starts with yarn manufacturers who use different types of fibres as raw materials to produce yarns of varying qualities and counts. They weave the yarn to produce a variety of fabric qualities. 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 essential. <figure class="image"><img style="aspect-ratio:1600/444;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1781340604.png" width="1600" height="444"></figure>Fabric manufacturers are suppliers to brands which generally outsource apparel manufacturing. To create a particular fashion line, this entire process must be synchronised, as operations at every stage are specific to the garment’s particular qualities and designs. Generally, it takes the fabric manufacturer 60-90 days to deliver the processed fabric. Including designing and garment production, it takes nearly six months to produce the offering for a season.  Thus, to remain relevant in the ‘current trend’, brands always have to predict future trends. By future, we mean at least six months to one year. The colourful Chinos in stores today must have been at the designer’s desk at least six months before! <h5> </h5><h2>The issue</h2>Brands sell through various channels and entities. These entities book the designs that the brands develop well in advance. Based on these bookings, brands determine the demand for each design and return to their suppliers and apparel manufacturers to secure their capacities. Essentially, buyers must forecast the demand and decide 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 also an opportunity for flash introductions. If a brand copies the design of another, develops it and introduces it in its chain within the same season, it is considered a flash introduction.<figure class="image"><img style="aspect-ratio:3996/2412;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1781340692.png" width="3996" height="2412"></figure>When the season starts, not everything sells at the same rate. Some designs are winners, selling out in the first 2-3 weeks, and then disappearing 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 and store them in the back end.  Every placement generates a few winners. Buyers would love to get the winners back on the shelf by the end of the season. Most often, they refrain from placing an order for the winners. The supply lead time for fabric is 45-60 days, and for garments, it is around 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 concerned about remnant inventory because it affects his Open-to-Buy (OTB) budget for future purchases. Hence, most of the time, the buyer does not order repeats.  For the same reason, even flash introductions for identified winners are also avoided. <h2>Results</h2><figure class="image"><img style="aspect-ratio:3998/2667;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1781340924.png" width="3998" height="2667"></figure>Brands are compelled to flush surplus inventory at marked-down prices at the end of the season (End-of-Season Sale or EOSS) for two major reasons: <ul style="list-style-type:disc;"><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, management reviews similar data and blames failure to identify winners correctly. So, even if the outlets had good footfalls, the brands make very low profits.  <h2>Does the vicious cycle end?</h2>Apparel brands have taken various measures over the years to address this issue:<ul style="list-style-type:disc;"><li>Better forecasting: Focus on improving the buyer’s capabilities to ‘sense’ the future fashion trends.</li><li>Partnering with garment manufacturers: The speed of garment manufacturing lines has significantly improved. </li></ul> When required, the transfer batch size between work centres has been reduced to practically one to expedite garments production out in record time. However, the core problem of higher lead times throughout the entire supply chain remains unchanged. Many companies have also attempted forward and backward integration. However, even when the entire chain is under a single owner, the challenges persist. 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:4000/2084;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1781340982.png" width="4000" height="2084"></figure>The industry must introduce new offerings every season; this is a constant requirement. The ‘buy deep’ route is not an option, as surplus can kill the company. Therefore, the only option available is to ‘buy shallow’, and to react well within the seasons to maintain a steady supply of winners. Keeping stock of fabric and converting it into garments based on an SKU’s sales rate in the store will significantly improve reaction time. The aggregation at a fabric level (using the same fabric to create different styles and sizes) will surely help reduce the surplus of garments. However, a surplus of ‘out of fashion’ fabrics is likely. Unless a retailer has a different market segment to flush out the excess fabrics, the risk can be significant.  <h2>A new paradigm in fabric manufacturing</h2>The lead time for fabric manufacturing is the most significant part of the supply chain. The weavers’ lead time, which ranges from 45 to 60 days (from yarn to fabric), determines the entire supply chain’s reaction time. If it is cut in half, the garment can be reintroduced in the store well within the four-month season.  Although the lead time for production – from yarn to finished garment – is approximately 45-60 days, the actual processing time (touch time) on the machines is only 1.5-2 weeks. The gap between touch time and lead time is due to the waiting time required at each resource. The waiting time is either due to a long queue in front of a resource, to the unavailability of all components to start processing (desynchronisation of the arrival of parts for the assembly), or to waiting in the finished goods warehouse for the complete kit of all products. The waiting time can be reduced by: <ul style="list-style-type:disc;"><li>Limiting the visibility of orders on the shop floor prevents cherry-picking across many orders (for larger batches of a component). This prevents desynchronisation of the flow between garment components.</li><li>Having a priority system that forces the synchronisation. </li></ul> The lead time for manufacturing an order will be reduced to about half i.e. three weeks.  Not all orders have to be promised such low lead times. The first placements by the brands, anyway, are done with adequate lead times. These shorter lead times are only available for repeat orders.  For example, a large brand’s shirt category it could generate ₹150 crore worth of sales. Typically, 30% of this is contributed by winners. A repeat of ₹30 crore worth of winners can add ₹15 crore to the brand’s bottom line. This is significant for the brand because, as a company, it could be making a total profit of ₹30 crore (3% PBT on ₹1,000 crore sales).  A brand that generates such substantial profits due to the efforts of a fabric supplier should not hesitate to offer a premium for rapid repeats. A 10% premium on the fabric price, for a garment sold with a 100% markup, decreases the gross contribution by around 3%. When the brand gives up 3%, it gains the remaining 47%.  This not only creates a win-win situation for both parties but also relieves the industry chain of the constant pressure to maintain margins. The brand gains additional profit from the sales of winners. The possibility of rapid repeats enables the brand to ‘buy shallow’ across the whole range. This decreases surplus stocks, leading to a 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 on repeat orders.  The implementation requires a few paradigm shifts for both parties. Most mills want to ensure that their capacity is booked well into the future. Even if the production lead time of an order is reduced to three weeks, the total lead time must still be assessed, taking into account the queue of all orders committed to by the mill. Attempting to push an order through as a ‘chase order’ will create chaos in planning and ultimately lead to a loss of capacity due to increased set-up times. This may also, at times, jeopardise orders of rapid repeats.  Unless some capacity is allocated for rapid repeats, it is not possible to deliver them reliably in three weeks. If orders received do not fully utilise the allocated capacity, it does not mean that the capacity is wasted. It can still be used for other orders.  The brand, on the other hand, must understand the dilemma faced by 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 to make repeat purchases is based on the sales rate. Some OTB will have to be kept unutilised 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.  <h2>Case of a leading shirting fabric manufacturing mill</h2>The 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 have garments manufactured for sale in their stores or to franchisees. In eight months of implementing this new method, the company achieved the following results:<figure class="image"><img style="aspect-ratio:3977/3398;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1781341103.png" width="3977" height="3398"></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 repeat orders in a short period. The retail chain has modified its buying process to leverage the mill’s advantages.  <h2>The last word</h2>The various entities that comprise the fashion supply chain operate with individual objectives. If all entities are to flourish, they ensure a ‘big win’ for everyone. This can be achieved if each appreciates the other’s challenges.

Key Takeaways

<h5>Everyone can win!</h5>

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Discover how reducing fabric manufacturing lead times allows fashion brands to 'buy shallow', rapidly reorder winners, and eliminate surplus inventory waste.