Supply Chain Management Fast Fashion Industry

MBA 4642 - Products & ProcessesModule Leader: Dr. Louise Boutler

Venkatesh Kumar SubburajAssignment 2 (Individual)

Word Count: 2193M00328327

04.04.2011

Middlesex University Business School

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Contents

ABSTRACT..............................................................................................................................................3

1. Introduction.......................................................................................................................................4

1.1 Nature of fast fashion industry....................................................................................................4

2. Importance of agile supply chain in fast fashion industry..................................................................5

3. Managing the Fashion logistics pipeline............................................................................................6

4. Global Quick Response (GQR) in Fashion Industries..........................................................................7

4.1 The new garment design and development process...................................................................8

4.1.1 New garment development process...................................................................................8

4.1.2 Estimation...........................................................................................................................9

4.1.3 Concurrent Engineering for new product design and development....................................9

4.2 The First volume order................................................................................................................9

4.2.1 Decisions on Appropriate production units.........................................................................9

4.2.2 Learn from the established contracts................................................................................10

4.3 The repeat order process...........................................................................................................10

4.3.1 Dependable and capable network.....................................................................................10

4.3.2 Effective order placing process..........................................................................................10

4.3.3 Effective control Systems..................................................................................................10

4.4 Enablers of GQR.........................................................................................................................10

5. Conclusion.......................................................................................................................................11

6. Recommendations...........................................................................................................................11

7. References.......................................................................................................................................13

8. Appendices......................................................................................................................................14

Appendix 1: Key Operational practices and principles....................................................................14

Appendix 2: Characteristics of Agile Supply Chain..........................................................................15

Appendix 2: Enablers of Global quick response (GQR)....................................................................17

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ABSTRACT

Fashion markets are synonymous with rapid change, global supply and, as a result,

commercial success or failure in those markets is largely determined by the organisation’s

flexibility and quick responsiveness. Responsiveness is characterised by short time-to-

market, the ability to scale up (or down) quickly and the rapid incorporation of consumer

preferences into the design process (Martin Christopher, Robert Lowson, Helen Peck, 2000).

This Report emphasize on new concept - Global Quick Response (GQR), embedded

within an agile supply chain - which strives to combine cost and scale efficiencies by

sourcing globally with quick and accurate response to market requirements. GQR is based

on lead time compression, effective information management, dynamic planning and strong

logistics. This report also examine agile supply chain and GQR in the perspective of the

garment design and development process, the first volume order process and the repeat

order process. We also discuss its requirements with respect to market intelligence and

rapid new product introduction; network planning and staged postponement; and network

capability.

Finally, reviewed and identified the good practice in relation to what other ‘fast

fashion’ retailing companies are doing in this context and made the following

recommendations

a) Creation of agile organisation using an agile supply chain embedded with Global

quick response(GQR)

b) SCOR model to be used as reference model in framing/managing the supply chain

and their network

c) Key operating Principles and Practices

These recommendations will give the edge for the organisation to have a greater chance of

succeeding in a very competitive environment.

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1. IntroductionThe clothing industry has become one of the most mobile industries comprising complex

global supply networks to supply clothing to world markets. The nature of these global networks

poses significant challenges for quick and accurate response. Refer Figure 1 for understanding of

generic high level structure of global clothing industry supply chain. In order to ensure the right

product volume and mix within retail stores from a globally dispersed supply network, it requires

innovative operational strategies and practices.

Figure 1 : Generic high-level structure of the global clothing industry supply chain

Source: MacCarthy B L and Jayarathne P G S A (2009).’Fast Fashion Industry’

1.1 Nature of fast fashion industryFashion industry encompasses any product or market where there is an element of style

which is expected to be short-lived. The demand for fashion products cannot be forecasted and we

need to realise that fashion markets are complex open systems that demonstrates high levels of

irregularity. Refer Figure 2; which clearly exhibits the characteristics of fast fashion industry

In such conditions, the effort must be expended on devising strategies and structures that

enable our products to be created, manufactured and delivered on the basis of ‘real-time’ demand

(Martin Christopher, Robert Lowson, Helen Peck, 2000). This is the context that has called for the

agile supply chain and the concept of Global quick response based on philosophy of Quick Response.

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Figure 2 : Characteristics of fast fashion industry

Source :Primary Research

2. Importance of agile supply chain in fast fashion industryClothing products can take a circuitous route from fabric production, through garment

production and distribution, to reach an end customer. A global supply network will include

designers, buyers and merchandisers, distribution, logistics and warehousing companies and may

include additional finishers that ensure products are ready for display and sale to meet anticipated

demand in specific retail chains and stores. Key issues that need to be addressed comprise the

different participants within the network; the nature of their relationships; ownership, power and

control structures; how the network is managed, coordinated and controlled and how information

flows in the entire supply chain network (Martin Christopher, Robert Lowson, Helen Peck, 2000).

Refer Figure 3 for the suitability of agile chain in fast fashion industry.

Figure 3 : Suitability of agile chain in fast fashion industry

Source :Primary Research

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3. Managing the Fashion logistics pipelineThe volatility of demand and the short life-cycles found in fashion markets make forecasting

highly unfavourable, that can predict sales consistently and accurately. Instead, we can find ways to

reduce the reliance of organisations upon the forecast and focus on lead-time (Martin Christopher,

Robert Lowson, Helen Peck, 2000). The idea of agility in the context of supply chain management

focuses around ‘responsiveness’ emphasising on shorter lead times and thus making forecast

horizon shorter. Refer Figure 4 for the three critical lead-times that must be well managed to

compete successfully in fashion markets.

Figure 4 : Critical lead-times

Source :Primary Research

A further distinction is that conventional supply chains are forecast-driven that implies that

they are inventory-based. Agile supply chains are more likely to be information-based. Fashion

markets are volatile and difficult to predict and hence the need for agility. Agile supply chain has a

number of characteristics. Specifically the agile supply chain is:

• Market sensitive – it is closely connected to end-user trends

• Virtual – it relies on shared information across all supply chain partners

• Network-based – it gains flexibility by using the strengths of specialist players

• Process aligned – it has a high degree of process interconnectivity between the network members

Figure 5 suggests that there are a number of practical ways in which these four key dimensions can

be brought into play. (Refer Appendix 2 for detailed description of these characteristics)

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Figure 5 : Generic process in clothing industry

Source :Harrison, Christopher & Van Hoek (1999)

4. Global Quick Response (GQR) in Fashion IndustriesQuick Response (QR) has been a governing premise in the clothing sector for almost two

decades (Hunter, 1990). QR is premised on understanding precise market demands and on

compressing the three key lead times to meet demands quickly and accurately. However, much of

the emphasis in QR initiatives has been on internal production systems. When the value chain is

geographically distributed with diverse forms of supply chain relationships and ownership patterns,

QR needs a global outlook. As highlighted earlier, here we define a new concept, Global Quick

Response (GQR), which has emerged in buyer-driven global supply networks. GQR can be defined as

follows:

Global Quick Response (GQR) is a strategy that seeks to achieve accurate, rapid and cost

effective response to specific markets dynamically by leveraging the potential of dispersed global

supply and production resources through lead time compression, effective real time information

management, flexible pipeline management and optimal logistics and distribution systems

(MacCarthy B L, Jayarathne, 2009).

Global Quick Response (GQR) must be considered with respect to the generic garment

industry structure and processes (Refer Figure 6 for generic process in garment industry) in the

context of the global supply network and the factors affecting lead time and the ability to respond.

Here we identify three key processes:

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1. The garment design and development process

2. The first volume order process

3. The repeat order process

Figure 6 : Generic process in clothing industry

Source: MacCarthy B L and Jayarathne P G S A (2009).’Fast Fashion Industry’

4.1 The new garment design and development process

4.1.1 New garment development processIt requires more and better market intelligence. Earlier and greater sensitivity to changes are

needed particularly in rapid new product introduction and in specifying repeat orders. This should

require capabilities to extract and utilise relevant market information, leverage design resources,

modify existing designs, logistics and understand what is practicable and realisable with available

manufacturing resources , all focussing on fast turnaround times.

If the design is successful in the market with buyers, merchandisers or retailers then first

volume orders are placed. The process must be capable of ‘ramping up’ to volume production if a

substantial volume order is placed. The flow of garments may then be sustained for a period of time

by repeat orders that will typically vary in mix during the period, i.e. the quantities for each repeat

order may vary in terms of colour, size and style details (MacCarthy B L, Jayarathne, 2009).

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Substantial pre-production stages are needed in order to move from the production of small

scale sample designs for showing or merchandising purposes to large scale volume production

capable of sustaining multiple repeat orders with varying mix over a season. Thus, for each unique

style variant, garment specifications need to be defined, including sizing and pattern making and

providing relevant instructions for cutting, assembling, sewing, finishing and packing.

4.1.2 EstimationPrice estimation is a part of the garment development process. The time taken for cost

estimation for a new design may also have to be factored into the new garment development

process. This should also consider the time and risks associated when it is done by contracting

garment producer (MacCarthy B L, Jayarathne, 2009). It is done before a garment is offered to retail

buyers or merchandisers then decisions on where volume production is to be carried out, as well as

detailed garment engineering and specification details need to be completed.

4.1.3 Concurrent Engineering for new product design and developmentConcurrent engineering is particularly important and challenging when design, development

and production are not co-located but dispersed internationally (MacCarthy B L, Jayarathne, 2009).

Concurrent engineering principles are well developed for engineered products in sectors such as

aerospace and automotive and there is significant potential for the clothing sector to exploit

concurrent product development concepts.

4.2 The First volume order

4.2.1 Decisions on Appropriate production unitsA strong supply network with multiple capabilities that can respond appropriately to diverse

and changing demands is essential in achieving GQR. It requires profound Network planning,

structure and composition.

A key part of ensuring that volume garment production can be initiated for a new style or

range of related styles is the sourcing of the required fabrics and accessories in the required volumes

and with appropriate timings and resources (MacCarthy B L, Jayarathne, 2009). Multiple garment

styles may often be produced from a specific fabric type. Fabric supply is a substantial part of the

overall supply process, with typically substantially longer lead times than garment production cycles.

Having a ready source of fabric that is delivered with the anticipated volume of orders is therefore

important to ensure quick response to volume orders.

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4.2.2 Learn from the established contractsIn a buyer driven network, initial volume orders may also enable significant learning e.g. in

regard to quality and distribution. Lessons learned from a new supply route may well mean changes

for subsequent orders. At the very least there will be learning opportunities for repeat orders or new

styles using the supply route (MacCarthy B L, Jayarathne, 2009).

4.3 The repeat order process

4.3.1 Dependable and capable networkA dependable and capable network is needed for replenishment orders. The network needs

to be capable of working at the required pace for the supply chain and, importantly, be capable of

accommodating changes in volume and mix requirements. Quality and logistics issues need to have

been eliminated to ensure that a supply route can respond to mix changes and costs with the

required speed and responsiveness (MacCarthy B L, Jayarathne, 2009). Fabric sourcing should be

agreed and capable of supplying at the rate required.

4.3.2 Effective order placing processAn effective order placing and confirmation process must be in place. Supply networks

cannot maintain high levels of unutilised capacity in anticipation of demand. The potential downside

of a strongly demand-driven order fulfilment system is that volume sales opportunities that arise

quickly may not be capable of being fulfilled (MacCarthy B L, Jayarathne, 2009).

4.3.3 Effective control SystemsGQR systems must have sufficient supply capacity, accurate market intelligence and effective

controls to deal with both the volume and mix issues. Supply networks need to be able to absorb the

negative effects of volume and mix changes.

4.4 Enablers of GQRGQR needs to incorporate many of the elements of QR systems in the context of globally dispersed

production and supply resources. They are as follows (Refer Appendix 3 for detailed explanation)

• Strive for fast and accurate information transmission:

• Develop flexible production resources:

• Utilise technology and automation where appropriate:

• Develop fast logistics:

• Exploit all opportunities for lead time compression:

• QR must be a key part of an organisations strategy and have a supportive organisational culture:

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5. ConclusionThis report has provided a conceptual focus upon the main supply chain issues involved in

fashion retailing and has recommended GQR embedded within an agile supply chain as the

operational strategy to be followed. The need for agility and Global quick responsiveness in the

Logistics pipeline has been identified and discussed in terms of industry’s volatility, complexity and

dynamism. This report re-examines the concept of Quick response in the context of globally

dispersed production, distribution and retailing networks and have defined and described a new

concept - Global Quick Response (GQR) with respect to Generic chain in fashion industry.

Following this, there are few recommendations illustrating key principles and operational

practices, which are observed from key players like Zara and H&M in the industry. Apart from this,

Supply Chain Operation reference (SCOR) model is recommended to be used as reference model in

framing/managing the supply chain and network.

6. Recommendations1) The SCOR model can be used and referenced for implementing and improving the supply

chain management. It has the ability to sustain an environment that optimizes the entire supply

chain rather than each step. The SCOR model covers the followings levels of abstraction:

- Top level (level 1)

- Configuration level (level 2)

- Process element level (level 3)

- Implementation level

Figure 7 : Supply chain operation reference (SCOM) Model

Source :Supply chain Council

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The SCOR Model can analyze many more levels apart from these. It can go into the core details of

any company and try to bring out the best possible results. Though the SCOR Model speaks of 5

steps to analyze and apply (As shown in figure 7), these 5 steps are further categorized and each sub

level has a different functionality. When they are all added together, the end result is a well

coordinated study which can revamp a company’s supply chain model into a profit making model.

2) Refer Appendix 1 for recommendations illustrating key principles and operational

practices, which are observed from key players like Zara and H&M in the industry.

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7. References MacCarthy B L and Jayarathne P G S A (2009). ‘Fast Fashion: Achieving Global Quick Response

(GQR) in the Internationally Dispersed Clothing Industry’, Nottingham University Business School Research Paper No. 2009-09 (Revised, August 10, 2009). Available at SSRN: http://ssrn.com/abstract=1360684

Kasra Ferdows, Michael A. Lewis, and Jose A.D. Machuca (Nov 2004). ‘Rapid –Fire Fulfilment’,

Harvard Business Review, Available at Web: http://hbr.org/2004/11/rapid-fire-fulfillment/ar/1

Martin Christopher, Robert Lowson & Helen Peck (2000). ‘Creating Agile Supply chain in the Fast

Fashion Industry’. Available at Web:

http://martin-christopher.info/wp-content/uploads/2009/12/CREATING-AGILE-SUPPLY-CHAINS-

IN-THE-FASHION-INDUSTRY.pdf

Christopher, M., (2000), “The Agile Supply Chain: Competing in Volatile Markets”, Industrial

Marketing Management, Available at Web:

http://martin-christopher.info/wpcontent/uploads/2009/12/agile_supply_chain.pdf

Birtwistle G., Fiorito S S, Moore C M (2006), “Supplier Perceptions of Quick Response Systems”,

Journal of Enterprise Information System, Vol. 19, Issue 3, pp. 334-345

Bruce M, Daly L, Towers N (2004), ‘Lean or agile: A solution for supply chain management in the

textiles and clothing industry?’ International Journal of Operations & Production Management,

Vol. 24 No. 2, pp. 151-170

Fernie, J. (1994) ‘Quick Response: an International Perspective’, International Journal of Physical

Distribution and Logistics Management, Vol. 22, Issue 6, pp 38-46.

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8. Appendices

Appendix 1: Key Operational practices and principles

Those are key operational practices and principles observed from key players like Zara and Benetton in the Fast Fashion industry

a) Super Responsive Supply chain: Like how Zara has developed a super responsive supply chain.

The company should be able to design, produce and deliver a new garment and put it on display in

its stores worldwide in a mere 15 days. This constant flow of updated data mitigates the so called

Bullwhip effect.

b) Rigid Time Schedule: The Organisation should hold its retail stores to a rigid timetable for placing

orders and receiving stock.

c) Leverage your capital assets to increase supply chain flexibility: Instead of relying on outside

partners, the company can manage all its major and complex activities in house and can outsource

the simple process outside. In other words, move towards vertical integration.

d) Facility of Prototype Shops: A small proto type shop can be setup in the centralised design

centres, which encourages everyone to comment on new garments as they evolve. The cross-

functional teams can examine prototypes in the hall, choose a design, and commit resources for its

production and introduction in a few hours, if necessary.

e) IT enabled Infrastructure: The organisation can deploy the latest information technology tools to

facilitate storage and transformation of all kinds of data such as hard data as orders and sales trends

and such soft data as customer reactions and even the buzz around a new style.

f) Flat organisational culture: Fast fashion system depends on a constant exchange of information

throughout every part of supply chain - from customers to store managers, from store managers to

market specialists and designers, from designers to production staff, from buyers to subcontractors,

from warehouse managers to distributors, and so on. Most companies insert layers of bureaucracy

that can bog down communication between departments. The organisation should develop

operational procedures, performance measures, and even its office layouts are all designed to make

information transfer easy.

g) JIT systems: Specialized by garment type, the company can use sophisticated just-in-time systems,

which allow the company to customize its processes and exploit innovations.

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h) Staged postponement: The postponement principle delays commitment to final product

attributes until close to the point of real demand (Christopher, 2000). It avoids the risks and costs of

carrying large inventories. For example, like Benetton, Zara uses “postponement” to gain more

speed and flexibility, purchasing more than 50% of its fabrics un-dyed so that it can react faster to

midseason colour changes.

Appendix 2: Characteristics of Agile Supply Chain

These are four specific characteristics of agile supply chain and are briefed as follows

a) Market sensitivity

Being close to the customer is vital for fashion retailing (Martin Christopher, Robert Lowson,

Helen Peck, 2000). Successful fashion retailers capture trends as they emerge using a variety of

means. Point-of-sale data is analysed daily and is used to determine replenishment requirements

and often though the selling season is only intended to be short and product will not be replenished,

in such situations the data is used to analyse trends.

Beyond point-of-sale data are real consumers and identifying their preferences and changing

requirements should be a continuing priority. Zara, the Spanish-based fashion retailer, has teams of

fashion ‘scouts’ who seek out new ideas and trends across the markets in which they compete. They

also use their own salespeople to identify customers’ likes and dislikes and to feed this information

back to the design team. Using computer aided design and computer aided manufacturing

(CAD/CAM), these ideas can quickly be converted into tangible products and be in the marketplace

in a matter of weeks.

b) Virtual integration

The agile supply chain is virtual in the sense that it is connected and integrated through

shared information on real demand so that all the players in the chain, from the fabric

manufacturers to the garment makers to the retailer, are all working to the same set of numbers.

Retailers and their suppliers need to be more closely connected through shared information. Shared

information can enable higher levels of on-the-shelf availability to be achieved with fewer

inventories (Martin Christopher, Robert Lowson, Helen Peck, 2000).

Co-managed inventory (CMI) can be adopted and it is a process through which the supplier

collaborates with the retailer to manage the flow of product into the customer’s distribution system

and can reduce transaction costs simultaneously. The supplier and the customer jointly agree the

desired stock levels that need to be maintained in the retailer’s operation. The customer feedback

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sales data is sent on a regular basis to the supplier who then uses that information to plan

replenishments.

c) Network based

A distinguishing feature of agile companies is their use of flexible arrangements with a wide

supply base. Zara and Benetton are two fashion companies that have achieved high levels of

customer responsiveness by working closely with specialist, often small, manufacturers.

The strategy at Zara is that only those operations which enhance cost efficiency through

economies of scale are conducted in-house (such as dyeing, cutting, labelling and packaging). All

other manufacturing activities, including the labour intensive finishing stages, are completed by

networks of more than 300 small subcontractors, each specialising in one particular part of the

production process or garment type (Martin Christopher, Robert Lowson, Helen Peck, 2000). These

subcontractors work exclusively for Zara’s parent, Inditex S.A. In return, they receive the necessary

technological, financial and logistical support required to achieve stringent time and quality targets.

The system is flexible enough to cope with sudden changes in demand.

Benetton, likewise, have long used a numerous of small manufacturers to give them

additional capacity in activities such as knitting and final assembly. The principle behind an agile

network in some ways runs counter to the prevailing idea that organisations should work with a

smaller number of suppliers, but on a longer term basis. Instead in an agile network there is a

tendency for the focal firm to act as the ‘orchestrator’ of the network, the membership of which will

change according to requirements.

d) Process alignment

Process alignment is meant the ability to create ‘seamless’ connections, in other words there

are no delays caused by hand-offs or buffers between the different stages in the chain and

transactions are likely to be paperless. The underpinning processes are probably managed by

‘horizontal’ and cross-functional teams. In an agile network, process alignment is critical and is

enabled by the new generation of web-based software that enables different entities with different

internal systems, geographically dispersed and independent of each other in terms of ownership to

act as if they were one business (Martin Christopher, Robert Lowson, Helen Peck, 2000). In the

fashion business there can often be many different entities involved in the process that begins with

product design and ends with the physical movement of the product onto the retailer’s shelf. Co-

ordinating and integrating the flow of information and material is critical if quick response to

changing fashion is to be achieved. Creating ‘virtual teams’ across the network where information is

shared in real-time, a much higher degree of synchronisation can be achieved.

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Appendix 2: Enablers of Global quick response (GQR)

GQR needs to incorporate many of the elements of QR systems in the context of globally

dispersed production and supply resources. Enablers of GQR as follows:

a) Strive for fast and accurate information transmission

The processes and speed of transmission of both product and order information need to be

analysed. The formats for design and garment specifications need to facilitate both rapid

transmission of design requirements and the rapid production of new designs (MacCarthy B L,

Jayarathne, 2009). Speed and accuracy are also important in the transmission of order information,

particularly for replenishment orders where time is of the essence.

b) Develop flexible production resources

Traditional garment manufacturing uses batch production methods. Many opportunities

exist to reconsider layouts and organisation of factory processes, particularly cellular manufacturing

where whole garments or parts of garments are produced or assembled in flow driven cellular

processes (MacCarthy B L, Jayarathne, 2009). If such cells are rapidly reconfigurable then advantages

can be gained in quickly responding to the required mix changes. In addition, flexible human skills

are valuable in responding to changing garment designs (MacCarthy B L, Jayarathne, 2009). This is

critical, particularly in the time consuming making up processes in garment production. When

flexible skills are combined with cellular team based production, then rapid response to design and

mix changes can be enacted without incurring significant set up costs.

c) Utilise technology and automation where appropriate

Human skills perform much of the value adding activities in garment production. However,

every opportunity needs to taken to adopt new technology in areas such as laying up and marking of

fabric, cutting, sewing, pressing and packing (MacCarthy B L, Jayarathne, 2009). Also technologies

that assist in rapid material identification, material handling and material flow and technologies that

enable flexibility need to be adopted, particularly for quick changeovers and set ups processes.

d) Develop fast logistics

Rapid material flow needs to be encouraged and enabled in any QR system. The corollary to

this is that stationary material and large inventory buffers should be avoided. The entire distribution

channel from production to the retail floor needs to be considered. Implementing fast logistics for in

bound fabric supply, for material flow within plants and outbound into the distribution channels is

important (MacCarthy B L, Jayarathne, 2009). The technologies noted above can assist in achieving

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this. The last ‘50 metres’ of the supply chain should not be ignored; hence the importance of ‘floor

ready’ garments that are appropriately tagged and packaged for immediate display once delivered.

e) Exploit all opportunities for lead time compression

The combination of the above initiatives reduces many of the time delays affecting overall

response times. All aspects of processes, systems and procedures for gathering and transmitting

demand information and for the design, production and distribution of garments must be looked at

for opportunities to compress lead times. One of the keys to compressing overall response times is

to ensure fabric availability. In addition, QR initiatives will try to identify specific opportunities for

lead time compression in the systems and processes of any specific producer or supply chain prime

partner and those aspects of the system that need close management and control.

f) QR must be a key part of an organisations strategy and have a supportive organisational culture

An organisation that seeks to pursue QR must see it as a fundamental part of its business

strategy. Not all organisations should attempt or will be successful at QR. In pursuing a QR strategy,

every effort needs to be made to develop a supportive organisational culture. Strong QR basics are

needed in GQR systems.

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