What do Hello Kitty, Minnie Mouse, Disney Princess, Peppa Pig, Hasbro My Little Pony and a score of other iconic characters have in common? They’ve all chosen Evy of California to design their clothes — and so have the millions of children who wear Evy’s branded collections and the adults who shop for them. Evy has been designing children’s clothes since 1948, starting with girls’ dresses and branching out to include a wide range of apparel for juniors, girls, boys and infants. Today it sells close to 30 million units a year, primarily to such mass-market stores as Wal-Mart, Kmart, Target, The Children’s Place and Macy’s.
Evy has followed a trajectory familiar to many in the apparel industry: It began by manufacturing all its products in its own factory, ultimately employing about 2,000 sewers in factories in and around Los Angeles. By the start of this century, however, the company’s “Produced in the USA” strategy had become uncompetitive. “We were no longer a viable supplier to the Wal-Marts and Kmarts of the world,” says Kurt Krieser, Evy’s CEO.
Seeking to lower costs, Evy shipped its equipment to Mexico and opened a factory there, soon adding production in Central America. Though Evy still maintains a presence in that region, primarily to manufacture t-shirts under NAFTA and CAFTA rules of origin, it found that, to remain competitive, it had to expand to other locations. Since the mid-2000s, it has contracted with Asian suppliers for about 80 percent of its production. At first, most of this production was centered in eastern China, but during the past two years, much of it migrated to Indonesia and Southeast Asia. Currently, China accounts for about 40 percent of Evy’s Asian sourcing, and Indonesia accounts for 30 percent.
Pricing, though essential in allowing Evy to remain competitive, is only one of many factors that govern the choice of suppliers (and that determine where those suppliers locate their production, given that many suppliers themselves have multinational operations). Factories must make enough profit to stay in business, Krieser says, and “we have to work together to create balance” between pricing and other considerations.
First, as a matter of policy, Evy prefers to spread its business among multiple contractors. “We don’t want all our eggs in one basket,” Krieser says. “We need to have options and keep our suppliers competitive.”
The choice of supplier also depends on the timing of the order. About a third of Evy’s business consists of replenishment, which requires a five- to six-week turn, compared with the three- to four-month turn required for ordinary seasonal orders. Factories can meet this fast turnaround requirement only if they have ready access to fabrics, among other things. If delivering fabric to the factory takes a month, the retailer won’t be able to keep up with the demand for hot items. Thus, restocking orders are often placed with factories different from those that fulfilled the original orders. For example, Mexico has a greater competitive advantage for fast-turn orders than for orders with longer lead times.
In addition to lead times, specialized experience also counts for a great deal. Certain factories — and even certain countries — specialize in different kinds of apparel, and Evy prefers dealing with specialists. “Pant factories are designed to make pants, and that’s where they’re good,” Krieser explains. “A sleepwear factory should only do sleepwear. We need a trusted vendor who’s good at flame retardancy. Others aren’t necessarily experienced in that.” Specialization isn’t only important in production; Evy relies on vendors’ expertise during the product development phase as well. Vendors often travel to California to meet with the design team and collaborate on developing new products.
Raising the bar
By far the most important sourcing criterion, however, is competence. Over the past decade, Evy has increasingly shifted its production to larger, more professionally managed factories — some of these factories have as many as 30,000 employees. There are two reasons for this.
One reason is that both Evy and its major customers place a strong emphasis on social responsibility. To stay “ahead of the curve” on issues of employee rights, environmental impact and product safety, Evy requires factories to certify their compliance with various global standards, and it stations quality-control staff in Asia to monitor the factories’ adherence to these standards. As a practical matter, becoming certified by independent testing organizations and maintaining consistent performance levels requires significant overhead and infrastructure. “For a small factory to supervise and authenticate [restrooms, lighting quality, overtime hours, and so forth] would be too expensive,” Krieser says.
The second reason is that over time, Evy’s orders have become larger and more complex and its requirements more exacting. And when the production of a coordinate group is split up among different countries based on their specialized experience and import-duty rates, “all those garments have to come back to the warehouse in California, and their colors have to match,” Krieser says. “Hello Kitty can’t have a yellow face on the hoodie and a white one on the pants.” Light pink can’t be interpreted in two different ways by two different factories. A fabric’s yarn size, stitch count and stretchability must be the same regardless of its country of origin.
At Evy’s scale, with production volumes ranging from 10,000 to 100,000 units per style, any mistake is a big mistake, and big mistakes are virtually unthinkable for the supplier, for Evy or for the retail customer. “We can’t say to our retailers that their back-to-school group will be delayed by a month and a half,” Krieser says. “They’d have empty racks.”
He adds, “Once a supplier gets it right, it’s very advantageous for us to give them more work. … We’ve grown by 20 percent to 30 percent a year over the last few years, and we’re relying on our suppliers to grow along with us. That’s not to say we’re not looking at other possibilities, but if you want to replace [a supplier that is making] four and a half million hoodies, it’s not like you’re going to find some guy you never heard of and he’s going to be able to hit the prices and standards.
“So there’s a long-term investment between us and our suppliers — not normally a financial investment, but a significant commitment in long-term orders on our part and consistent production on their part.”
The role of IT
Managing all this complexity would be impossible without powerful IT systems. To keep its processes on track from product development through delivery, and to make sure all its vendors have access to current information, Evy has relied since 2006 on the integrated software suite from New Generation Computing (NGC), which includes product lifecycle management, supply chain management and global sourcing, and enterprise resource planning.
Krieser says one advantage of the NGC product suite is that it adds new capabilities faster than Evy can implement them. As a result, Evy expands its use of the system each year and still has room to become more efficient.
In 2013, Evy will begin requiring some factories to enter their information directly into the NGC database, along with photos of their work, so it can reduce its reliance on emails and on the shipping of samples. This will help it create exception reports that identify what hasn’t been done, and also reject incorrect work without incurring the delay or expense of shipping physical samples.
A second, even more ambitious project — one that may also take several years to complete — is to reduce the turn time for a third of Asian production to 100 days. This would greatly benefit Evy’s customers because the later they can commit to purchasing goods, the more accurate their forecasts will be and the lower their overall costs will be. Achieving this goal may require Evy to stockpile yarn, gray goods or even unornamented garments to enable it to respond more quickly to orders. It will also involve entering much more detailed data and specifications into the system during the design phase, so that production can start up two to four weeks sooner.
“If we can use product lifecycle management to shorten the specification cycle, then we will be able to tell our suppliers what we need from them much faster,” says Krieser. “So we’ll be specifying all the components at the design level rather than the production level.”
Masha Zager is a New York-based Apparel contributing writer specializing in business and technology.