Showing posts with label supply chain. Show all posts
Showing posts with label supply chain. Show all posts

Monday, July 19, 2010

The World of Fashion Evolves

Designs Aren't the Only Thing That's Changing in the Apparel Industry

According to a story in the July 16 Wall Street Journal (link), the apparel industry is facing a number of challenges that are affecting the entire supply chain.  After three years of excess inventories and idle labor, companies throughout the industry are taking steps to reduce the risk of similar exposure in the future.  Instead of reinventing themselves, though, it appears that the companies are dealing with the changes by attempting to push the risk to their customers and/or suppliers.

When industries face a changing environment, companies throughout the supply chain need to work together to respond to the change in a positive manner.  The immediate reaction to drive risks to customers or suppliers has effects that, although not immediately visible, have longer-term effects that are destructive to everyone involved.  It does not help a company to improve its own profitability at the expense of its suppliers or customers.

The New World of Fashion

Among the issues faced by the apparel industry include:
  • Smaller orders placed by retailers to test demand before committing to larger runs;
     
  • Increased material, freight, and labor costs;
     
  • Delays in ramping up production capacity because of a lack of confidence in long-term demand.
If smaller runs and increased costs sound familiar, it's because these are issues that have been faced by many industries over the last 30 years.  Change happens in every industry, and those companies that are flexible and able to adapt to (or drive) the changes quickly will be the most successful in the years ahead.

The Focus Still Needs to be the Customer

One of the problems I noticed from the information in the article is that the impetus for change within the industry is profitability rather than the consumer.  As has been proven over and over again in business, changes made without regard to the end customer can have devastating effects.  While a focus on value can increase profits for the company, a focus on profitability will not lead to increased value for the customer.

Two key areas that companies in the apparel industry need to investigate in order to survive and grow in the years ahead include:
  1. Lean Manufacturing  Smaller production runs require improvements in quality, setups, and changeovers.  Lean (when done correctly) gets everyone focused on eliminating the waste that forces longer leadtimes and larger lot sizes.  Lean will also address the issue of increased labor costs;
     
  2. Closer Factories  Increased freight costs and leadtimes will force retailers to have production capabilities closer to the point of sale.  Although oil prices have leveled out since the initial drop at the start of the recession, it is only a matter of time before they start rising again.  As a result, the benefits of having factories in areas with low labor costs will be offset by increased freight costs.
In an industry that thrives on change at the consumer level, one would think that the fashion retailers and producers would have no problem adapting to changes themselves.  Unfortunately, this does not appear to be the case.  The environment has changed and, as has been the case in so many industries over the years, it's time for a new business model.  The sooner the apparel companies realize this and make the necessary changes to adapt, the sooner they can once again turn their designs into financial success.

Monday, May 3, 2010

Supply Chain Management: Misunderstood & Misapplied

Like so many excellent concepts in business over the years, supply chain management (SCM) will probably never live up to its potential.  Too many people are unable to broaden their understanding beyond basic procurement and move toward a more systems approach required to truly optimize a company's supply chain.

What is Supply Chain Management?

The American Production & Inventory Control Society (APICS) defines supply chain management as the design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally.  This definition inherently assumes that a systems thinking approach is necessary to be successful.

The suppliers that provide materials, products, and services to a company should be managed and optimized just as if they were internal to the operation.  Since they represent the starting point for a company's operation, they potentially affect everything throughout the value stream and ultimately what is provided to the customer.

To be truly effective, SCM should focus on improving quality, cycle times, and total costs in dealings with suppliers.  In theory, the process should involve understanding and optimizing the entire value chain from the very first level suppliers (those in which the company may never deal with directly) to the end customer.  Since it can be overwhelming to fully understand and take the time to build relationships with a lengthy supply chain, a more practical application of SCM involves working with a company's first tier suppliers and customers.

The way that SCM is approached in most companies, however, is to solely focus on negotiations with first tier suppliers on price and payment terms, which have very little, if any, effect on quality and cycle times, and only barely addresses the subject of total costs.

Total Costs

The total cost of dealing with suppliers involves so much more than price and payment terms.  Far too often, though, companies - even those that claim they follow an SCM approach - focus only on these aspects of the relationship while virtually ignoring the other factors that can have a much greater effect on costs (see table below).



Improving the total costs associated with the supply chain involves:
  • building close relationships with suppliers (based on trust, mutual benefit, and clear communications);
  • continually working on the factors that reduce total cost (see above table);
  • understanding and optimizing the systems of logistics for products and services procured (inbound) as well as those provided to customers (outbound) that are consistent with the company's operational and marketing strategy;
  • working with customers to understand how the supply chain affects their operations.
Once the supply chain strategy is developed, implementation begins initially with the first tier and slowly and continually expands to cover more of the supply chain.  How much of the chain depends on many factors, including the size and complexity of the supply chain and how much of it can be effectively managed.

A Generalist Approach

The topic of SCM is far too complex to adequately cover in a relatively short blog post.  The point is, though, that effective supply chain management involves so much more than negotiating price and payment terms with key suppliers.  It requires developing close relationships with customers to understand how the supply chain contributes to their needs, and systematically implementing improvements throughout the system to reduced waste and improve performance.  Those directing an organization's SCM efforts need to be systems thinkers who are much more adept at leading improvement efforts than negotiating contracts with individual suppliers.