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Posted Date: 5/11/2009


contributed by Mickey North Rizza, Research Director  & Janet Suleski, Research Director, Retail, AMR Research Inc.

Without question, private brand retailers and national branded suppliers of soft goods (apparel, footwear and home fashions) are heavily focused on improving their ability to deliver new products to the market as quickly as possible.

Changing consumer dynamics and the competitive retail landscape are increasing the pressure on suppliers to reduce lead times for new products and introduce fresh and in vogue, trendy fashions. Yet the operations required to deliver these new offerings have become more complex with the expansion of global sourcing, increasing global operations designed to facilitate collaboration with strategic trading partners, and the need for more specialized materials and products. Enabling this complexity is technology. In this article we discuss what apparel and brand retailers want, the enabling technology requirements, return on investment (ROI) of product lifecycle management (PLM) and sourcing technologies, and obtaining competitive advantage.

What apparel brand and retailers want

Apparel organizations want to be smarter, leaner and lower cost. They also have a continued focus on capturing the market share of a potentially shrinking consumer pie through introducing new products/categories (68 percent); expanding internationally (35 percent); and driving growth in existing product groups (69 percent). To support increasingly global and complex businesses, apparel companies continue to invest in technology, even under challenging financial conditions. According to an Apparel magazine/AMR Research study conducted in November 2008, 40 percent of apparel companies expected their IT budgets to increase in 2009, up from 36 percent that expected their budgets to increase in 2008 over 2007 (see Figure 1).

(change in the IT budget in the next fiscal year)

These broad tactics speak volumes for the integrated PLM and sourcing applications apparel and footwear companies are considering. Companies recognize the need to tightly connect product development with their supply chains to achieve these business goals. Nearly half (44 percent) of apparel organizations state they will integrate direct materials sourcing into their PLM footprints over the next 12 to 18 months (see Figure 2).

The bulk of retailers and apparel companies would prefer to get their PLM and sourcing functionality from the same software provider, if possible (see Figure 3).

Retailers and apparel companies require visibility and workflow across the entire PLM and sourcing process in order to closely manage cost and quality as products are designed, sourced and delivered. Product costing and cost management have become key drivers in companies' search for combined PLM and sourcing functionality in 2009; based on a recent Apparel magazine/AMR Research study in PLM spending in apparel, 61 percent of companies would most like to see their PLM providers enhance costing functionality in the coming year.

Speed to market remains the single largest benefit apparel companies hope to achieve with the adoption of combined PLM and sourcing technology. In a down economy, faster time to market has a direct and measurable impact on both the top and bottom lines. Unified PLM and sourcing capabilities can improve precision and efficiency in the creation, sourcing and launch of products, giving apparel companies a better management tool for managing increasingly global and diverse supply bases. And expanding inclusion of granular demand signals can be shared up and down the supply chain to capture emerging customer needs and preferences at a time when capturing every customer dollar has added weight for retailers and brand manufacturers.

Return on investment

Apparel companies have high expectations from their PLM and sourcing technology providers on many different fronts, including time to ROI and total ROI. Patience is still the partner of successful long-tern deployments, however, as judged by a drop in expectations for time to benefit, and a better understanding of sources of immediate versus long-term benefits.

Infrastructure savings is the largest source of ROI in the six-to-nine month timeframe for many companies. Indeed, some benefits can accrue almost immediately after go-live with a new sourcing and PLM system. With older, siloed environments spanning many separate systems in both process areas, and with much of the interaction between the two areas currently supported with manual or near-manual (read: Excel) systems, the first gating factor to ROI is the replacement of existing systems, delivering a lower total cost of ownership (TCO) in the near term.

On the heels of lowered infrastructure costs, improvements in operating metrics accrue, generally within 12 to 16 months, if not sooner, after go-live. Benchmarking initial metrics prior to replacing sourcing and PLM systems takes time and is complicated by the siloed environments that most companies have today. But any organization intent on performance improvement in areas associated with product development, sourcing and introduction should be able to identify several such metrics and tie PLM projects and owners explicitly to them.

In the long term, every company evaluating joint sourcing and PLM capabilities has their eye on the strategic competitive impacts a shared business process and environment can have. These benefits begin to accrue with the first season where products can be planned and sourced in the new environment, and solid benefits are clearly visible three to five years after go-live.

AMR Research finds apparel industry leaders reporting compelling benefits from improved speed to market enabled through improved sourcing and PLM functionality. Some key metrics from fashion-oriented apparel companies include:
  • Higher inventory turnover: five to seven times better
  • Net margin improvement: 15 percent to 20 percent over current levels
  • Greater full price sell through: more than 80 percent of product
  • Comparable store sales increase: 10 percent to 12 percent increases
  • Shopper frequency increase: 12 to 17 times per year more

As the market for apparel PLM and sourcing technology has matured, so have expectations for time to ROI. In 2007, 58 percent of apparel companies participating in the annual Apparel magazine/AMR Research study on PLM investments expected to achieve a return on investment from their PLM/sourcing initiatives in a year or less. That number dropped sharply to 36 percent in 2008, a number which appears to be holding steady in 2009. As software vendors sharpen their deployment skills and round out product suites across an ever-expanding sourcing and PLM footprint, they are much better positioned to deliver within the expected timeframes than they were two or three years ago.

ROI also includes supply chain

The benefits from the use of PLM, sourcing and supply chain applications accrue not only to a single department or group, but to the entire company. Improvements to metrics such as gross margin percent, gross margin ROI (GMROI), inventory turns, and days of supply can be measured at the level of specific products, but can ultimately be used to reinforce the powerful relationship between product design and supply chain, pricing, inventory, brand and company strategy (see Figure 4).

Gaining Competitive Advantage

Research indicates that as apparel and brand retailers move forward with enabling technology, they need to focus on integrating and simplifying their product development, design and sourcing work flows. Greater visibility and collaboration across multiple functional areas will lead to faster time to value.

Best-in-class organizations such as Zara have design, manufacturing and execution for vast swaths of their products in approximately 14 to 15 days. Compare this with an average of approximately 270 days for seasonal products at other apparel companies. In addition, retailers such as JCPenney, Kohl's and Macy's are reaping the benefits of a more strategic approach to direct materials sourcing, including more relevant on-time merchandise, reduced inventory turns and improved financial performance. These and similar benefits can accrue to any apparel company that steps forward to assess their current sourcing and PLM capabilities with a critical eye and a willingness to invest.


Figures 5 and 6 outline your peers' plans for investment in sourcing and product development technologies. How do your company's plans compare? If your plans seem to lag in comparison, it's time to take a close look at the need for technology investment. A sense of urgency must come from the fact that every day spent without appropriate enabling technology means that product freshness and innovation lag, margins erode, and profit margins suffer. This urgency combined with the likelihood of meaningful ROI achieved within six to twelve months means that there are few excuses for companies to continue to avoid PLM and sourcing technology initiatives in 2009.


About Mickey North Rizza

Mickey North Rizza has 22 years of supply chain management and global sourcing experience. She is a research director in the supply management practice at AMR Research Inc. and a key member of the supply chain team, working to communicate effective supply chain, procurement and sourcing strategies to AMR Research's clients.

Prior to joining AMR Research, Mickey worked at Moduslink Corp., where she held the positions of vice president of global supply base management and director of procurement and sourcing. At Moduslink, she was responsible for implementing strategic sourcing programs, driving strategic positioning of materials in Europe and the Americas, and introducing new procurement technology.

Mickey also worked as a materials manager at M/A-Com Inc., a division of Tyco International. While at M/A-Com, Mickey developed and implemented strategic plans and integrated roadmaps to accompany the strategic supply chain model. In addition she introduced a pilot manufacturing resource management system.

During her career, Mickey has aided many companies as they built their supply chain strategies including as a purchasing manager of Advanced Techcom Inc., Innova Corporation and Motorola.

Mickey earned a B.A. in Material Logistic Management from Michigan State University, is a member of Institute for Supply Management, a member of Cambridge Who's Who and serves as a Board of Trustee on the Delta Gamma Foundation.

About Janet Suleski

Janet Suleski brings over 14 years of experience working with retailers and software vendors to her role as a senior research analyst at AMR Research, and is a founding member of the retail advisory practice. Janet is primarily responsible for researching, analyzing, and writing about the technologies, best practices, and trends in key retail software segments, including retail ERP, product lifecycle management, and business intelligence applications.

Prior to her current role at AMR Research, Janet's research and analysis focused on fresh item management, point-of-sale, price optimization, and customer loyalty software and business processes. She has also covered inventory optimization, strategic sourcing and procurement, collaborative planning, forecasting, and replenishment (CPFR), supplier collaboration, and supply chain event management.

Before joining AMR Research in 1997, Janet worked as a research analyst at Benchmarking Partners, Inc. She has also held several positions at Boston-area software application firms.

Janet holds a BS in applied economics and business management from Cornell University. She earned an MBA with a concentration in marketing and business strategy from the F.W. Olin Graduate School of Business at Babson College.

About AMR Research Inc.

AMR Research Inc. is a Boston, MA-based company that advises manufacturers, retailers and technology executives on operational decisions. Visit AMR Research Inc. at AMRResearch.com.


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