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Sourcing Journal / November 15, 2017

On-Demand Manufacturing is on the Way - if the Industry Can Get Out of Its Own Way

You’ve heard the saying before: the higher the risk, the higher the reward. Well, if that’s true then the converse must also hold. Low risk yields few rewards. Not convinced? Just look at the earnings reports for these risk-averse apparel companies that are clinging to long lead time processes in the face of dwindling upsides.

Meanwhile, fast-fashion houses are creating a different fate for themselves—and their shareholders—by moving toward an on-demand manufacturing model, which reads and reacts in near real-time. It’s a break-neck pace that sometimes leads to missteps but the risks are actually lower than the traditional approach while the rewards are much more plentiful.

What they’ve developed in terms of supply chains can be mimicked. What’s harder to emulate—even for companies that have hired former Zara executives as consultants—is the true secret weapon: a mindset that rejects the deliberations and second guessing that often grind fashion businesses to a near halt.

Put another way: “Culture eats strategy for breakfast.”

Gregory Schlegel, executive in residence at Lehigh University’s Supply Chain Risk Management program and found of The Supply Chain Risk Management Consortium, uses the saying to illustrate how fast fashion’s willingness to make mistakes is a bigger asset than any technological advancement could ever provide. “Those companies have obviously done serious risk/reward scenarios to say, ‘I’d rather gain the margin as opposed to having the attrition.’”

Embracing that mentality is a high hurdle for the fashion industry, which for so long has been focused on lowest cost of goods, labor and transportation as a means to profitability. These days though the biggest payoffs aren’t going to come from the penny-pinchers. They’re going to come from those that can maintain a big-picture perspective.

That’s why Mark Burstein, president and chief strategy officer of NGC Software, says it’s actually fear not the length and complexity of the supply chain that’s holding the industry back. And one could say there’s plenty reason to fret. With huge orders placed many months in advance, a misstep could mean a terrible quarter.

It’s enough to make any retail exec cower in a corner.

For Burstein, it’s a visual that brings to mind the 90’s New York Times bestseller, “Who Moved My Cheese?” The motivational book chronicles two mice in a maze who are surprised one day when their daily allotment of cheese isn’t waiting for them in the usual spot. Day after day, the one mouse opts to keep vigil over the original food drop location, while the other finally screws up the courage to go looking for alternatives. The brave mouse has to turn a few scary corners but ultimately discovers there’s actually plenty to eat, just in different places in the maze. Meanwhile his fearful friend ultimately starves in his steadfast belief that things will return to normal.

“I would ask each fashion CEO, ‘Which mouse are you?’,” Burstein said.

The payoff

Not to belabor the analogy but in our scenario, the consumer is definitely the cheese. Today’s shoppers are liberated, educated and unwilling to be dictated to.

Gone are the days when designers set the direction, magazines conveyed the trends and consumers dutifully followed behind months later. Now, retail must follow shoppers—and to do so, it had better pick up the pace.

The script, as they say, has been flipped. And we have Dell to thank.

Schlegel said the computer giant was among the first to allow consumers to take the lead by customizing their purchases, which they then received within three days. It took competitors like IBM years to figure out how to move from the old push system, which dictated what each configuration would be, to a pull approach that put the consumer in the driver’s seat.

Now apparel has to make the same shift.

Burstein said on-demand manufacturing worked for Dell because it figured out how to use common parts that could be easily configured based on customer specs. Applied to apparel, that means having inputs in place and delaying production until the last minute, allowing brands to read what’s happening in the market and react accordingly, Burstein said.

NGC’s customer Xcel Brands is employing these tactics in what it calls a 52-season year in which ships new product to stores weekly. “If something is selling, they’ve overdeveloped. Their adoption rate isn’t great but if the first version sells, they have version two or three coming behind it,” he said. “You overdevelop up front to give yourself a pipeline into more product.”

With this approach, Xcel Brands has slashed lead times from purchase orders from 17 weeks to 4 weeks. “This is the Zara model, and many fashion companies, large and small, both wholesale and retail, are starting to develop into core materials,” he said. “The rest need to change their thinking.”

Instead of worrying about the costs associated with develop/adopt ratio or being nervous about making fabric commitments in advance, brands need to recognize there’s more to be gained by shipping smaller orders more frequently because even if a delivery is a flop, the small misstep is easily outweighed by the sales generated from all of the other on time, on trend merchandise throughout the year.

“That’s the culture issue that may or may not break the industry,” Schlegel said. “Get over incremental cost versus agile capability.”

The playbook

For the brave souls willing to adopt a new mindset, Burstein said positioning your company to embrace a nearly on-demand manufacturing model is a three step process.

First, everyone needs to get on board. “There has to be a single corporate goal,” he said. “The goal for every fashion company is get the product to the customer who wants to buy it.”

The second is the closest to Burstein’s heart: Eliminate silos. “All information needed for the digital supply chain to run smoothly should reside in a single platform that everyone can access,” he said. “All information needs to be in one place for clarity and visibility.”

NGC’s cloud-based Andromeda platform layers on top of PLM systems centralizes information, giving everyone along the supply chain access to all information for faster, better informed decision making. Armed with the knowledge that your red circle skirts are blowing out of stores and sell-throughs on the patchwork letterman jackets are slowing, your factory knows to cut more skirts and your product development team knows to switch gears to the bomber or jean jackets.

For Schlegel, this step is paramount. While he applauds efforts to shorten the supply chain, he says companies must address visibility first because “what you don’t know will hurt you.” Picture racks full of letterman jackets on deep discount.

Finally, Burstein said companies must streamline their corporate structures. “The organization has to become flatter and the decision making process is faster,” he said. “If that’s the mantra, then you get the teams moving.”

He said the slate of restructurings happening across department stores today are a direct result of them trying to move faster. Technology is actually making these changes possible that making some roles redundant as visibility extends beyond a chosen few at the top. “Once you start providing information and the vision extends to the lower level, the higher level is obsolete,” he said.