sourcing maturity with plm

4 Sourcing Maturity: Apparel Companies Reach a New Stage Integrating Sourcing and PLM

PUBLISHER

Susan S. [email protected]

EDITOR IN CHIEF

Jordan [email protected]

ART DIRECTOR

Robin [email protected]

SALES MANAGER

Cindy [email protected]

ACCOUNT EXECUTIVE

Marla [email protected]

GARTNER ANALYSTS & AUTHORS

Janet SuleskiResearch Director, Supply Chain & Apparel

Lucie DraperSenior Researcher, ResearchData & Analytics

CHAIRMAN & CEO

Gabriele A. Edgell

PRESIDENT

Gerald C. Ryerson

VICE PRESIDENT

John M. Chiego

VP, MEDIA INTEGRATION

Rob Keenan

FOUNDER

Douglas C. Edgell 1951-1998

AN Apparel EXCLUSIVE REPORT

Apparel has joined with Gartner Inc. to survey apparel companies on the adoptionand integration of sourcing technology and the maturity of business processes linkingapparel product design and development with sourcing activities.

The pace of change in apparel supply chains, from sourcing strategies to prod-ucts’ total life spans, continues to pick up speed and add layers of complexity asfashion apparel and footwear companies add new geographies, sales formats, andproducts all in the name of satisfying customers and consumers. At the fulcrum ofthis change sit the design, sourcing and production engines run by globally-active,increasingly collaborative and understandably wary apparel companies. The com-plexity to feed progressively more consumer-driven and locally-tuned retail strate-gies requires expanded synchronization between new product design teams andsourcing teams. With these teams assuming a more vocal role in sales and opera-tions planning and merchandising, inventory and operations execution, the needfor cohesive sourcing and PLM functions, data, and execution becomes ever moreimportant. It’s this math that is requiring apparel companies to drive sourcing andPLM linkages harder than ever before.

Apparel and Gartner conducted the survey in August 2012 to assess currentactivities and the outlook for sourcing practices, as well as the level of integrationbetween sourcing and PLM processes and platforms in the apparel industry.Sixty-nine companies participated in the survey. Of the companies responding,49 percent were apparel or home goods manufacturers; 23 percent were vertically-integrated retailers that design and procure/produce their own apparel and softgoods brands; 18 percent were retailers that sell multiple brands, inclusive of theirown; and 10 percent reported themselves as belonging to the “other”category.

Companies of all sizes participated, with 18 percent having annual revenues ofmore than $1 billion; 45 percent with annual revenues of $10 million to $999 mil-lion and 30 percent having annual sales of under $10 million. The remaining sevenpercent of respondents did not provide revenue numbers. Approximately 90 per-cent of respondents were from the line of business. Fifty percent of respondentswere supply chain practitioners.

The data in this report is meant to provide a perspective on your company’ssourcing maturity as well as to measure the maturity of sourcing and PLM integra-tion relative to your industry peers. As always, we welcome your feedback.

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The pace of change in apparel supply chains, fromsourcing strategies to products’ total life spans,continues to pick up speed and add layers of com-

plexity as fashion apparel and footwear companies addnew geographies, sales formats, and products all in thename of satisfying customers and consumers.

Simultaneously, the conversations about offshoringvs. near-shoring vs. on-shoring sourcing, connectingsupplier segmentation activities to customer segmenta-tion activities to create end-to-end supply chain seg-mentation, and localizing assortments are pushing com-panies to consider innovative ways to increase the flexi-bility of their supply networks.

At the fulcrum of this change sit the design, sourcingand production engines run by globally-active, increas-ingly collaborative and understandably wary apparelcompanies. With a continued emphasis on cost manage-ment, the direct and indirect supply chain costs and risksare leading apparel and retail companies to reassess theirsourcing strategies. The ripple effects on lead time, prod-uct quality, and consumer-centric merchandising strate-gies mean that integrated PLM and sourcing processesare under pressure to balance the tradeoffs in the largercorporate context.

To deliver rapid and profitable decisions about thesetradeoffs, the apparel industry continues to move quick-ly to align and synchronize sourcing and PLM strategiesand technology platforms. In this year’s study, 18 percentof respondents reported having optimally integratedproduct development and sourcing business processes,

up sharply from the 8 percent reporting this level of inte-gration in 2011 and the five percent who reported opti-mal business process integration in 2010. Budget con-straints, building the business case, and lack of uppermanagement support as barriers to integrating PLM andsourcing activities continued to trend downward. Forcompanies still working to improve integration, the mostsignificant challenge is lack of staffing resources and timeto research and plan tighter integration. For these com-panies, an underlying challenge is likely getting integra-tion between the functions recognized as a top businesspriority. Continuing to place product development andsourcing integration in the context of larger corporateinitiatives to improve cost management, create morelocalized products, and respond more quickly to chang-ing demand signals for fast-fashion products will helpbuild the business case for prioritizing integration.

Matching demand to supply in the apparel supply chain

Control of product cost, quality and lead time hasnever been more important to apparel companies’ suc-cess, and dominates apparel executives’ sourcing deci-sions. Increasingly, however, having visibility to currentraw materials positions, the ability to predict expectedraw materials needs based on forecasted consumerdemand, and having a clear picture of suppliers’availableproduction capacity and how that matches the expectedconsumer demand patterns have become increasinglyimportant control mechanisms for companies.

An Apparel Research Study & Analysis December 2012

The complexity to feed progressively more consumer-driven and locally-tuned retail strategies is requiring apparel companies to drive sourcing and

PLM linkages harder and faster than ever before.

By Janet Suleski & Lucie Draper, Gartner

Sourcing Maturity:Apparel Companies Reach

a New Stage Integrating Sourcing and PLM

http://www.gerbertechnology.com

Apparel Research Study & Analysis


Accessing raw materials at target prices remained theprimary concern in this year’s survey, with 46 percent ofsurvey respondents naming it as their greatest concernover the next 12 months and 51 percent noting it as hav-ing been the top challenge in the past 12 months andexpected to be an ongoing challenge for the next year.Energy price fluctuations have driven cost variability aswell as influenced consumer spending patterns andavailable budget dollars for apparel. Use of agile sourcingstrategies, such as dual-sourcing, continues to draw con-sideration from apparel companies to mitigate exposureto risk, but these strategies come at a cost. Segmentingsupply chains based on consumer demand patternsallows apparel companies to apply such strategies selec-tively where needed, and where profitable.

In 2012, 29 percent of survey respondents pointed topredicting future demand as their greatest concern forthe coming 12 months; nine percent named it as oneconcern, and 25 percent named it as a challenge in thepast 12 months and an expected issue for the comingyear. Effective demand forecasting in the apparel indus-try has been notoriously difficult, due in part to the com-bination of apparel basics, seasonal and fast-fashioncombinations that most apparel companies design, pro-duce and/or sell. Rather than tackle demand forecastinghead-on, some apparel companies have recently taken acloser look at intelligent allocation strategies. Thesestrategies allow companies to plan quantities of product

well in advance, lock in the materials and productionrequired to produce the finished goods, and put them inthe locations where they will experience the greatest full-price sell through. While not addressing sourcing chal-lenges directly, intelligent allocation holds out the prom-ise of making the most of the up-front sourcing and sup-ply chain control that apparel companies seek.

Snapshot of sourcing technology adoption and process maturity

To support the increased level of supply chain vigilancerequired by apparel companies, enterprise-scale sourcingcapabilities are being deployed. In many companies, exist-ing sourcing technology deployments are being expandedto encompass functionality to allow better decision-making when it comes to the tradeoffs to be made amongcost, lead time, inventory and production capacity avail-ability, and customer and consumer expectations.

When compared to 2011’s survey results, apparelcompanies reported substantial expansions to theirdeployments of core sourcing functionality. Fully 61 per-cent have purchase order creation deployed; 56 percenthave total landed cost calculation functionality in place;and 53 percent have RFI/RFQ capabilities deployed.Supplier performance tracking and capacity planning,two cornerstones to expanded visibility and control, arepoised to join these core functions as being deployed athalf of apparel companies by late 2013.

<Greatest concern over the next 12 months

<Concerns over the next 12 months

<Challenges in the past 12 months and ongoing

Figure 1: Past and expected challenges about raw materials acquisition for apparel companies

46%1%

51%

7%0%

42%

4%9%

33%

29%9%

25%

11%10%

22%

4%10%

13%

4%0%0%

0%0%

4%

Pricing

Inventory availability

Location

Predicting future demand

Visibility to raw materials position

Geo-environmental issues

Not applicable to our organization

We have not encountered any issues or challenges in sourcing raw materials in the past 12 months

http://www.tradestonesoftware.com

Even as these more advanced capabilities beckon toapparel companies, many continue to improve or replacethe fundamentals of their existing sourcing functionality.While 61 percent of survey respondents report havingpurchase order creation deployed, 60 percent have plansto deploy, add to or replace this same set of capabilities.The same is true for total landed cost calculations andRFI/RFQ functionality.

Among newer functionality, survey respondents indi-cated that automated settlement and payment and con-tract negotiation and creation will be two of the pieces ofthe extended sourcing process that will be on their to-dolists for 2013. And, as apparel companies fine-tune theirsourcing strategies as risk-mitigation mechanisms, addi-tional capabilities such as supply chain inventory visibil-ity and event management, what-if simulation for cost-ing and scenario management, and other areas requiringgreater use of analytics and predictive technology can beexpected to roll out. Groundwork will be laid at manyapparel companies in 2013 for expanded rollouts in 2014and beyond.

The functions that apparel companies would like tosee sourcing software vendors make enhancements todiffer depending on whether the company identifiesitself as an apparel retailer or as an apparel manufactur-er. Retailers have higher hopes to see expanded function-ality for total landed cost calculations, compliance work-flow and tracking, RFI/RFQ processes, and supply chaininventory and event management. Manufacturers, on theother hand, would like to see more functionality to sup-port costing or supply chain/supply network simulationand analysis, supplier-facing performance managementand tracking, and capacity planning.

Advances in functionality for both industry sectors areessential to creating the agile and transparent supplychains desired by all groups, in a cohesive and end-to-end manner. As this unfolds over coming years, compa-nies should understand that uneven technology deploy-ments in the other apparel industry segment could slowthe achievement of their own business goals.

An Apparel Research Study & Analysis


Figure 2: Functions encompassed in sourcing technology deployments, 2012 vs. 2011Which functions are currently encompassed in your sourcing technology capabilities?

<2011 <2012

6%

61%13%

56%17%

53%17%

33%19%

32%17%

27%21%

24%19%

21%8%

20%8%

17%17%

33%5%

4%6%

4%4%

Automated settlement/payment(not included in 2011)

Purchase order creation

Total landed cost calculations

Request for information/Request for quotes

Supplier performance management tracking and reporting/scorecarding

Capacity planning

Supply chain inventory visibility and event management

Costing or supply chain scenario simulation (“what-if”) and analysis

Negotiation and contract creation

Bid analysis

Workflow and tracking for certificate collection,verification, and storage for environmental,

health, and consumer safety compliance

Application deployment on mobile devices

Other

None of the above


Advances in creating a unified productdevelopment and sourcing workflow

Product design and development and product sourc-ing are two of the most important levers for managingcosts and lead times that any company has. Creating thekind of business agility required by trading partners andthe competitive and economic environment in theapparel supply/demand chains requires that activities inthese two areas be well-orchestrated, regardless ofwhether the orchestration comes from consciously-linked technology platforms, business processes or both.

Among this year’s survey respondents, 18 percentreport having optimally integrated business processes,and eight percent report optimally integrated technolo-gy platforms. Substantially more survey respondentsreport having systematically integrated businessprocesses than have systematically integrated sourcingand PLM technology platforms. Just 13 percent of sur-vey respondents have sourcing applications supplied bythe same software vendor as supplies their PLM tech-nology.

The effective integration among applications regard-less of their origins remains a barrier to further accelerat-ing the speed of sharing information and making jointdecisions between sourcing and product developmentteams. Recognizing this fact, 46 percent of surveyrespondents plan to more closely integrate PLM andsourcing technologies in the coming 12 months.Additionally, 43 percent of survey respondents plan tomore closely integrate business processes in 2013. Whiletight integration is not always the goal, assuring thesharing of information in a timely and accurate mannerto improve the overall success of the product commer-cialization and launch process and to improve tradingrelationships keeps companies moving forward on theseintegration initiatives.

Making the business case for integration betweensourcing and PLM appears to be getting easier for com-panies. This year, a remarkable 23 percent of surveyrespondents reported no significant barriers preventingthem from further integrating product design and devel-opment and sourcing activities. Among the remaining 78

Sourcing Maturity: Apparel Companies Reach a New Stage Integrating Sourcing and PLM 11

Figure 3: Functions apparel companies plan to add to sourcing technology deployments, 2012 vs. 2011Which sourcing functions does your organization plan to adopt or add to its existing technology capabilities in the next 12 months?

<2011 <2012

26%

5%60%

14%51%

12%46%

29%31%

21%42%

29%27%

27%26%

23%26%

21%15%

20%20%

11%2%

26%13%

4%17%

Automated settlement/payment(not included in 2011)



Request for information/Request for quotes

Supplier performance management tracking and reporting/scorecarding

Capacity planning

Supply chain inventory visibility and event management

Costing or supply chain scenario simulation (“what-if”) and analysis

Negotiation and contract creation

Bid analysis

Workflow and tracking for certificate collection,verification, and storage for environmental,

health, and consumer safety compliance


Other

None of the above

Apparel Research Study & Analysis


Figure 4: Sourcing software enhancements desired, by apparel industry sectorWhich capabilities would you most like to see your sourcing software provider or service partner add to or

enhance within its applications in the coming year?

<Total <Manufacturer <Retailer

34%35%

40%

32%35%

33%

32%31%

40%

32%23%

53%

25%23%

33%

23%19%

33%

Costing or supply chain scenario simulation (“what-if”) & analysis

Supplier performance management tracking & reporting/scorecarding

Capacity planning


Workflow & tracking for certificate collection, verification & storagefor environmental, health, and consumer safety compliance

Request for information or quotes


Negotiation & contract creation


Bid analysis

Supply chain inventory visibility & event management

Automated settlement/payment

Other

None of the above

23%23%

20%

23%27%

20%

23%31%

13%

18%15%

20%

18%15%

27%

11%15%

7%

2%0%

7%

25%27%

20%

percent of companies reporting challenges, the lack ofresources to research and plan tighter integration wasmost often cited as the primary barrier, with the secondbarrier, budget constraints, likely reinforcing difficultiesmaking time and assets available to support research andplanning. Apparel companies that Gartner works withreport that finding skilled talent to lead and support inte-gration initiatives can be a challenge. Measuring and

understanding the current talent level and identifyinggaps between the skills needed and the ones that cur-rently exist inside an organization is an essential step formany strategic sourcing realignment initiatives. As notedin last year’s report, strategic hiring may need to precedesuch initiatives. Failure to invest upfront in talent mayresult in slower-than-expected progress on closing busi-ness process and technology gaps.

http://www.lectra.com



Figure 5: Origins of sourcing and PLM software applications deployed todayWhich of the following models is your organization primarily using for PLM technology?

Which of the following models is your organization primarily using for sourcing technology?

PLM Technology Sourcing Technology

Outsourcedmanagement of

chosen technology to a consulting

service provider firm

3%

Custom PLM app developed in-houseusing internal resources or

consultants/ contractors

52%

Packaged PLMapp from a

software vendor28%

A SaaS provider orhosted approach

10%

None

4%Other

4%

None

7%Other

10%

A SaaS provider fromthe same companythat provides our

product development/PLM technology

5%

Outsourced managementof chosen technology to a consulting service

provider firm

5%

Custom sourcing app developedin-house using internal resources

or consultants/contractors

47%

Packaged sourcing app

from the samesoftware company

that provides our product

development/ PLM technology

13%Packaging sourcing appfrom a different softwarecompany than the one

that provides our productdevelopment/PLM

technology

13%

By PLM technology we mean product specification management, storyboarding,line planning, project calendaring and any other product development technologies.

Integration ofBusiness

Processes

Figure 6: Product design/development and sourcing integration levelsHow integrated do you consider your internal product design/development and

product sourcing business processes/technologies to be today?

Does your company plan to more closely integrate internal product design/ development and product sourcing business processes/technologies in the next 12 months?

36%10% 37% 18%

43% Plan to more closely integrate business processes in the next 12 months (47% in 2011)*

Integration ofTechnology

53%16% 23% 8%

46% Plan to more closely integrate technologies in the next 12 months (50% in 2011)*<Not integrated at all

<Loosely integrated withlargely manual technologies

<Systematically integratedwith largely automatedtechnologies

<Optimally integratedtechnologies

<Not integrated at all

<Loosely integrated

<Systematically integrated

<Optimally integrated withcollaborative businessprocesses

* Among those currently not optimally integrated

http://www.bluecherry.com


Figure 7: Barriers to product design/development and sourcing integration, 2012 vs. 2011What significant barriers to further integrating product design and development with sourcing activities is your organization facing?

<2011 <2012

43%29%

28%18%

32%11%

14%7%

15%2%

16%5%

9%9%

0%23%

Don’t have staffing resources to research& plan tighter integration

No budget

We don’t know what the benefit/ROI would be

Organization does not see the value in bringing the two functions closer together

Don’t have the support of upper management

Not our top priority now/under review

Other

No barriers

Figure 8: Barriers to product design/development and sourcing integration, by apparel industry sector

<2012 Manufacturer <2012 Retailer

23%40%

16%15%

10%10%

7%0%

3%0%

0%

25%26%

16%

10%25%

Don’t have staffing resources to research & plan tighter integration

No budget

We don’t know what the benefit/ROI would be

Organization does not see the value in bringing thetwo functions closertogether

Don’t have the support of upper management

No significant barriers

Other

Integration is not a priority at this time


Looking ahead

As strongly indicated by the jump in the percent of sur-vey respondents that believe they have optimally integrat-ed sourcing and product design and development activi-ties to 18 percent, the apparel industry is rapidly makingthe shift to treating these integrated activities as central tosuccess. With business cycles accelerating, the escalatingchallenge is to rapidly and profitably deliver products tomarket that keep your apparel brand fresh and relevantacross seasons, geographies, channels and changinghousehold economics. In a growing number of apparelcompanies, barriers to creating optimal integrations havebeen overcome, resulting in shorter product development

cycles, faster time-to-market, and a clear view to rawmaterials risk balance with sourcing opportunities.

Fundamentally, the use of sourcing technology hasallowed companies to make better sourcing decisionsfaster, and to link design changes and sourcing decisionsso that there are fewer supply chain surprises — andfewer disappointed consumers — down the road.Opportunities for functional improvements, use of mobilecapabilities and expanded use of analytics and predictivetechnologies such as scenario simulation will keep thetechnologists supporting sourcing and PLM processesbusy in 2013 and beyond, even as apparel industry lead-ers put the shadow of siloed sourcing and product designand development more definitively behind them.

Sourcing Maturity: Apparel Companies Reach a New Stage Integrating Sourcing and PLM 17


Janet Suleski, Research Director, Supply Chain & Apparel, Gartner

Janet Suleski brings more than 14 years of experience working with retailers andsoftware vendors to her role at Gartner,and is a founding member of the retail

supply chain advisory practice. Janet is primarilyresponsible for researching, analyzing and writingabout the best practices, technologies, and trends inkey retail and apparel business processes, includingproduct lifecycle management, lead time/cycle timereduction and retail ERP.

Prior to her current role at Gartner, Janet’s researchand analysis focused on fresh item management,point-of-sale, price optimization and customer loyaltysoftware and business processes. She has alsocovered inventory optimization, strategic sourcing andprocurement, collaborative planning, forecasting, andreplenishment (CPFR), supplier collaboration andsupply chain event management.

Lucie Draper, Senior Researcher,Research Data & Analytics, Gartner

Lucie Draper brings more than 20 yearsof deep domain expertise to her role assenior researcher at Gartner. She isresponsible for conducting quantitative

market research, which includes designingquestionnaires and samples, conducting fieldinterviews and surveys, and performing statisticalanalysis of research data and reports. Lucie worksclosely with Gartner clients on custom primaryresearch-based engagements that help those clientswith their product and marketing strategies.

Lucie has written extensively about trends in ITadoption and IT budgets and worked with clients suchas SAP, IBM, Microsoft, Oracle and EMC. Her researchhas been quoted and published in many business andtechnology publications.

ABOUT THE AUTHORS

ABOUT GARTNER INC.

Gartner Inc. (NYSE: IT) is the world’s leading IT and supplychain research and advisory company. We deliver thetechnology and supply chain–related insight necessary for ourclients to make the right decisions, every day. From CIOs andsenior IT and supply chain leaders in corporations andgovernment agencies, to business leaders in high-tech andtelecom enterprises and professional services firms, totechnology investors, we are the indispensable partner to60,000 clients in 10,000 distinct organizations. Through theresources of Gartner Research, Gartner Executive Programs,Gartner Consulting and Gartner Events, we work with everyclient within the context of their individual role, to help themmove their key initiatives forward. Founded in 1979, Gartner isheadquartered in Stamford, Connecticut, U.S.A., and has4,000 associates, including 1,200 research analysts andconsultants serving clients in 80 countries.

ABOUT APPAREL MAGAZINE

Apparel magazine has been the industry’s leading publicationfor more than 50 years. It offers technology and businessinsight from concept to consumer, providing competitive,actionable information to executives representing the world’smost successful apparel brands, retailers and manufacturers.Apparel’s targeted content addresses Retail Intelligence,Supply Chain, Sourcing & Logistics, Concept-to-Spec andFiber-to-Fabric. An Edgell Communications publication,Apparel also produces Apparel’s Sourcing Summit, theApparel Executive Forum, Apparel’s Business & TechnologyLeadership Conference, Apparel’s Tech Conference West,numerous web seminars, research supplements andnewsletters and apparelmag.com.

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Copyright© 2012 by Edgell Communications Inc.All rights reserved.

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