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Posted Date: 2/1/2003

Sourcing: The Need for Speed

By Thomas Ryan

Apparel sourcing is not just about cheap labor anymore.

The need for faster lead times is looming just as large as the drive for low costs, as apparel vendors and retailers address their supply chain efficiency. As 2002 marked yet another year when retailers ordered later in the selling season to be closer to time of need, shortening cycle time continues to be a major logistics priority in 2003. The need for speed becomes integral as importers look to lower the high cost of holding inventories, and as the ability to quickly replenish goods in season can make or break a selling season.

"Customer orders are being provided to us later and later, including preliminary commitments to purchase merchandise," says Ric Lazarus, vice president of operations at Notations, a women's apparel company.

Some import experts also see a need for greater flexibility in their sourcing networks to react to economic and political upheavals. Last year's West Coast port strike had many importers scrambling to secure product, while efforts to fight terrorism threatened to close key ports and either disrupt or enhance sourcing from certain regions. On the other hand, some apparel makers seized an advantage when quotas were increased and duties reduced in Pakistan.

Moreover, many are preparing for potentially huge changes in 2005, when textiles and clothing quota restrictions are set to be eliminated worldwide. Those positioning themselves well in China, or any of the other Third World regions looking to build apparel production - including Africa, Vietnam and parts of Eastern Europe and the Middle East - stand to gain a competitive advantage.

"The really strong global sourcers are the ones that can anti- cipate those trends and be the first on the block to get there," says Chuck Harris, management consultant, apparel and textiles at Context Group.

Greater collaboration with trading partners, especially apparel factories, is being utilized to reduce costs and lead times. Factories are being asked to store raw materials and reserve production capacity more often than in the past. Some importers are speculatively buying fabric or making product - without orders in hand. Hangtags are being applied at the factory to speed the path to floor-ready merchandise. To better align production schedules, longer lead times are being used for basic stocks, with shorter ones saved for seasonal items. In the United States, multiple warehouses are being set up to handle distribution to stores. A newer trend is shipping directly from the factory to the retailer.

"Any process you can eliminate is a viable step," says Harris.

Overall, the apparel sourcing effort features better planning and adjusting to any delays, and the Internet has been a major tool used to track the status of orders and coordinate with contractors. "The Internet has obviously brought the world closer together," says Greg Mergel, vice president of sourcing operations at HMX Tailored, the moderately priced tailored clothing division of Hartmarx Corp.

Some importers are using sophisticated forecasting methods to read consumer demand in order to make better buys pre-season and react to trends in season. The goal is to be able to respond quicker to market to avoid shortages on desired product and over-stocks on less desired items.

Bruce Berton, an apparel consultant and officer/director at Stonefield Josephson, says the increasing complexities and increasing global span of sourcing calls for a higher level of planning. "The infrastructure must have information, communication with systems and professional people to detect a problem, correct the problem and to put in the needed system to prevent the problem from happening again," says Berton.

"If we do it correctly, we can improve margins, reduce inventory, achieve higher shipping accuracy and improve customer satisfaction," says Robert Zane, senior vice president of manufacturing and sourcing at Liz Claiborne.

Ultimately, the biggest benefit falls to consumers in the form of lower prices and greater variety.

For instance, Notations uses a combination of in-house printing systems and Avery Dennison global service bureaus to shorten cycle time. "As a result, the product the consumer wants will be on the shelves when the consumer wants it," says Mike Shabet, senior account manager at Avery Dennison Retail Information Services.

Marshall Gordon, industry manager of apparel and footwear at SAP, says apparel sourcing is shifting from a supply-based model, in which goods are ordered well ahead of time with hopes that the consumer will buy it, to more of a demand-based model, with orders closely tied to consumer demand.

An abundance of data collected from point-of-sale (POS) registers provides retailers with an ongoing read on consumer demand. Once supply chain systems become fluid enough to react to changes in demand on a daily basis, vendors will be able to capitalize by quickly replenishing best sellers and reducing overstocks that lead to markdowns. "The future is where supply chain execution comes in," says Gordon. "The real windfall is when you take that plan that changes every day and execute against it."

Zane says Claiborne over the past several years has upgraded all of its systems to improve responsiveness. "We're now capable of doing supply/demand balancing," says Zane. "We can look at the goods we have in work-in-progress and the goods we have sold and make adjustments on a real-time basis." This has allowed Claiborne's quick response programs, Liz Quick and Liz Chase, to react faster to demand in season without taking inventory risk, he says.

The Role of the Integrated Vendor

Claiborne has also consolidated its sourcing to fewer contractors in fewer countries. "This enables us to be more important to those we have decided to work with, and we're able to count more on those vendors for a higher level of response," says Zane. "Our long-term vendors also generally understand our needs best."

Claiborne encourages its contractors to take advantage of the latest technological advancements. "They're very much our partners, and they share our values with respect to inventory cost and quick response," says Zane.

Internally, Claiborne has combined manufacturing, logistics and distribution under one department. "The idea is to shorten all elements of the supply chain by achieving total collaboration of all distribution, logistics, sourcing and manufacturing," says Zane.

Ashworth Inc. has shifted from almost 100 percent U.S. sourcing in 1999 to almost entirely offshore sourcing today. Terence Tsang, executive vice president, COO and CFO of the golf apparel company, says the tough part was forming an adept sourcing infrastructure.

"It's easy to go get a factory, but it's difficult to get them to deliver on a daily basis with the right consistency and timing," says Tsang. "You've got to move by steps."

Although reduced labor costs have led to substantial improvement in gross margins, Tsang says Ashworth doesn't look for the lowest cost sourcing alternative. "The reason they [some factories] give you the lowest price is probably [because they] oversubscribe their capacity," says Tsang, adding that Ashworth would rather pay a little premium to get better service.

Ashworth sources many of its fashion-intensive items in Asia because of the high production skills of the region, and uses Central America and South America for many basic items because of the region's lower prices and quicker lead times. However, Tsang says Ashworth is continually reanalyzing sourcing to balance costs against quality and lead times. "Sourcing is really a fine-tuning strategy," says Tsang. "Developing countries can definitely provide a cheaper product, but you have to balance that with the skill set."

Mergel says finding low-price sourcing is important because HMX Tailored competes in the price-sensitive moderate channel. However, he says response time is still critical, and it's why HMX is looking increasingly at vertical situations, in which both the fabric supply and apparel factory are the same source, or at least are in the same country.

Mergel also says HMX Tailored has had to buy fabric speculatively without customer orders, and uses more factories than in the past to deal with shorter cycle times. "You're not using the full 26-week season. Some seasons are eight to 12 weeks," says Mergel. "It's forcing us to maintain a more integrated supply chain."

Eight years ago, Notations began using warehouse operations in California that have allowed it to reduce transit time by one week for goods originating in the Far East, Lazarus says. Notations has realized further efficiencies through a strictly monitored program of shifting floor-ready compliance solutions to the factory floor. Notations relies on a combination of various Avery Dennison global ticket sourcing services to achieve its goal in this regard.

Notations also is upgrading its information systems and leveraging the Internet to enhance global communication and data integration with suppliers and logistics service providers. "We have improved our analytical strategies to the point where every cut is independently reviewed and subject to revision several times during its lifecycle based on continuously updated data," says Lazarus.

Notations conducts a bi-weekly review of all replenishment programs to plan production levels three months to four months down the line, with a goal of having two months' to 2.5 months' worth of merchandise (adjusted for seasonal fluctuation) on hand at all times for each style being replenished. With its fashion merchandise, Notations is careful to balance advance implementation of new fabric and style trends with the need to remain flexible. "With margins always under pressure and demands high, successful companies must learn how to promptly and efficiently fulfill customer needs without prematurely committing resources in an obsolete direction," says Lazarus.

More Solutions Target Sourcing Challenges

Avery Dennison, which has more than 40 printing facilities globally, is one industry supplier that helps customers streamline a step in the sourcing process by managing the application of labels and tags at offshore facilities. This not only saves the time and costs of shipping tickets from outside the source country, but creates floor-ready merchandise at the source.

The company has a new combination tag/label product, which is designed to ensure that information on the garment hangtag matches data on the label on the protective polybag cover. This helps to assure data accuracy and eliminate the need for manufacturers to employ two separate print stations.

"Producing in country allows us to respond very quickly to needs of the contractor," adds Shabet. "You've got merchandise coming into the store floor ready, and our unique proprietary software ensures data integrity."

Many importers are turning to technology to gain better visibility, with a goal of creating what is commonly referred to as a "glass pipeline" through which all players can clearly see up and down the chain. "You have a very short window of opportunity to get the right production," says Elaine Kennedy, senior director of the supply chain management group at Manugistics.

Adds Eric Kertz, director of the supplier relationship management group at Manugistics: "The goal is to get real-time visibility and be able to provide that visibility back into the supply chain so that if the truck isn't going to be there or the purchase order is late, you can employ real-time adaptive planning."

With importers dealing with multiple production sites, countless SKUs, varying label requirements, numerous ship dates, country quotas and tariffs and import documentation, advanced systems allow importers to absorb the massive volume of data to make better planning decisions.

"The complexity of making the right decisions becomes almost impossible to do in your head," says Kennedy. "You want to be able to respond to those situations . and profitably respond to them."

i2 Technologies offers constraint-based solutions designed to help vendors effectively plan raw materials, component requirements, production capacity and transportation with the result of faster cycle times, reduced inventory levels and better utilization of assets, according to Jim Stramm, the firm's senior director of soft goods consulting and solutions. i2 also has products for real-time supply chain coordination.

"You're able to address materials, capacity, labor shortages or overages very quickly, and can build ahead if you need to for strategic purchases or build late," says Stramm. "It allows you a lot of flexibility to maximize your throughput and minimize your in-process inventory."

Supply chain software is often used to "manage by exception," or react to any problems that cause delays in plans. SAP'S Gordon says nearly all problems with sourcing are common, but correcting them is often difficult with parties working in different time zones and cultures. The Internet and accompanying software allow the fabric supplier, sewing factory, logistics/freight provider and importer to communicate continuously so that plans may be - as they often are - adjusted overnight.

"When they're sleeping, we're working and vice versa so you don't have a tremendous opportunity to call and say 'How are these orders going?' . The technology has come a tremendous [way] in the last 10 years," says Gordon.

Thomas Ryan served as a financial writer and editor for 10 years at Fairchild Publications, covering business issues of the apparel/retail industry for Women's Wear Daily (WWD) and Daily News Record (DNR). He is currently a free-lance business writer and columnist, and his work has appeared in Ale Street News, Footwear News, Multex.com, Sporting Goods Business and wwd.com. He can be reached at tel.: 212-598-9902 or e-mail: tomjryan@yahoo.com

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