Fashion Supply Chains and Changing Consumer Demands
There are few industries where ‘product design’ or ‘make’ plays as an important role as the Fashion or Apparel Industry. Traditionally, fashion industry was a vertically integrated industry. Procurement of raw material, spinning, weaving, dyeing, processing, designing and manufacturing was all done under a single entity. However, globalization – with its varied trade policies, subsidies and restrictions – opened up countries to international competition which initiated the need for a horizontal alignment. Apparel companies started contract manufacturing from third-world countries to cash-in on the savings due to extremely cheap labor. And this is how majority of the sourcing and manufacturing in the apparel industry occurs today. Recollect all the “Made in China” tags!? But horizontal alignment across continents means longer lead times, which in the apparel industry can range anywhere between 6-8 months. So then what do you do about sudden demand changes? That jacket which was a rage last month but has absolutely no demand today! Is horizontal integration compatible in an industry where demand is highly uneven and cannot be forecast accurately? The answer is both – yes and no.
In this article about variants in the apparel supply chain, the author gives a basic delineation among the different types of fashion products (basic, basic-fashion and high-fashion) and their demand uncertainty.
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The assertion of these three broad types of products and their demand uncertainty make a lot of sense in terms of how the supply chain should adapt. Think about how high-fashion brands like Zara react lightning-fast to changing consumer demands. Zara has, compared to the industry norms, a very quick turnaround time – from receiving demand changes to having actuated a response to them (reducing or increasing a particular fashion range in its stores). In fact, their fast-fashion apparel can reach the store shelves within two weeks of design conceptualization. How do they do it? Zara does it by having a right mix of vertical integration and horizontal integration. In its supply chain upstream Zara does extensive horizontal integration. It sources its fabrics from as far wide as Italy, India, Turkey, China and Korea[i]. After that, everything downstream is in-house. It has its own factories in Spain where it designs, processes and finally manufactures the finished product. Though this involves significantly higher labor costs compared to third world countries, it makes up part of the cost by ensuring quality and speed. Other part is recovered by two things:
i. The ability to have up to 20 seasons in a year (and, thus, possible 20 different fashion ranges)
ii. Not having to advertise or have clearance sales. This can be done because it produces small batches of products which eliminates inventory costs and also these batches can be easily quantity-controlled depending on the demand (since the processing time is so less)
Compare this to how Uniqlo does it. They are totally opposite to Zara’s ways. They outsource almost everything. They also ensure that all their stores have all the different colors and sizes[ii]. This is done to never lose out on a customer. They do not follow fashion fads but built up steady capacity all year round. This is also partly because they work on the bottom of the demand pyramid shown above. They do not need to follow fashion fads because their customers do not expect them to. So they do it the Wal-Mart way: they commit 80-90% of the season’s inventory to its suppliers 6 months in advance (depending on the season), keep prices extremely low by having low production costs, and ensure that their prices mean that the demand for their products is always steady.
In-house vs Outsource?
Bulk vs Lean?
Inventive product designs vs standard designs?
So, which is the better way to do it?
Actually, there’s no right answer. The answer depends on who your target customers are and how do you want to price, promote and sell your products to them. This also leads to two important questions:
1 1. Does Zara’s model restrict it in terms of scalability?
2 2. Can companies like Uniqlo account for geographic recycling in their supply chain? (i.e., a batch of summer dresses that were not consumed in country A in June be transferred to a nearby country B where winter doesn’t set in up until 3 months away)
[i] Richard Yim, Bradley. “High-Fashion, Low Price Logistics of Apparel Industry”. MIT Publications. Published June, 2003. Accessed 9/14/2012. Web. <http://dspace.mit.edu/bitstream/handle/1721.1/28572/57467675.pdf >
[ii] http://www.cbsnews.com/8301-505123_162-42440326/what-walmart-can-learn-from-uniqlo-to-boost-apparel-profits/
[iii] Demand Pyramid image source: http://www.fibre2fashion.com/industry-article/11/1067/apparel-supply-chain-and-its-variants1.asp
[iv] ZARA and UNIQLO images source: Under Free Licence from Creative Commons
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