During Christmas season every year the pressure or retailers to deliver goods right today or the next day increases many folds. The case is no different for the apparel industry where the seasonal demands as well as changing fashions make it mandatory for the retailers like Marks & Spenser (M&S) to have extremely robust warehousing arrangements through out the supply chain. Most retailers particularly those who are online, depend on the strength of their supply chain network and warehousing, like logistics, in a vital part of the overall business model. In this note we will delve deeper into application of warehouses in the apparel industry. This is a truly global supply chain is an appropriate case in point from an industry segment that requires the production to synchronize with the demand , with great warehousing methods and right inventory planning. This industry can only fit into the flat world scenario as postulated by Thomas L., Friedman in his book ‘the world is flat’. Supply chain, Friedman (2005) states that is the method of collaborating horizontally between suppliers, retailers and customers is best exemplified by Wal-Mart. He further writes that the concept has flattened the world by forcing the adoption of common standards, which helps lower border friction. While universal adoption of bar-codes across geographies has happened to a large extent but there a lot to standardization that is still to be seen in the retail trade. Shoe sizes, for instance, relate to different size of feet in the US, UK and Europe.
On the customer’s end of the supply-chain are the finished garments at diverse types of retail outlets or those available online. This is the demand side, whereas on the supply side the same style or design or size in many cases is made at different manufacturing facilities with raw material that is procured from different parts of the world. Warehouses in the apparel industry appear in various forms across the supply chain network and perform different roles. I shall describe the range of storage and retrieval facilities, and stock holding scenarios that one would expect to find in this supply chain. We would consider the types of inventory – raw material that is cloth, threads etc; work in progress or unfinished garments at different stages and goods that are ready to pack or ready to ship in our analysis, along with how these different types of inventory should be managed along this supply chain to ensure the perfect balance between service and cost. In the end, we shall explain what methods, techniques, systems and data can be used to ensure there is sufficient stock at each point in this supply chain to satisfy customer demand accurately. The industry can benefit from using these techniques and methods particularly daily dashboards for Minimum, Desirable, Maximum (MDM) to cater to the peek demands that occur during the festive seasons.
Most practioners up to the middle of 20th century did not fully understand the strategic importance of warehousing until they saw the supremacy of the Japanese industry with concepts like ‘just-in-time’ and ‘zero’ inventory. The rise of Asian manufacturing of goods at less than half the cost and quality that is meant for European or American markets, not only increased the importance of logistics but even the need of stocking goods at various places become evident. The twenty-first century has seen further movement towards a globalised economy particularly for the garments trade. As per the trade data majority of yarn travels hundreds of kilometres within India or Sri Lanka to be woven into cloth and further it goes the garment manufacturing facility here within the facility itself there are 4 stock points. 1st is the raw material store where apart from the cloth or fabric, there are stitching threads, any accessories as required like zipper, buttons, laces and embellishments etc. From the Raw material store the material is issued for production to the production shop this is second stocking point. The item become work-in-progress (WIP) from this point onwards this WIP inventory can be as high as two to three days of the production requirement and more if the production process involves a lot of manual work. WIP inventory is sometimes issued to smaller sub vendor for manual jobs say hand embroidery. Each assembly line stocks inventory in the form of cut-cloth, semi-stitched portions of the overall garment or garments that are ready to pack and label. This is the third point when the goods are examined for any defects and only the hundred present quality checked garment are packed for despatch. The fourth or final stock is recorded as finished garments that are again ready to travel thousands of miles before they reach the markets.
The garment industry is very well known for its complexity in terms of number of stock keeping units (SKUs), the structure of the supply chain is almost like any other item in the retail trade only a little more complex due to the ready to wear nature of the garments by people who demands a particular colour, size and style. The stock-out means loss of sale as the customer wants right product right now. The main target of the retailers is to keep all variants of the item in display say a ladies skirt or shirt is on the rack then it must have all the shades, all the sizes in that category. How does it sound when you like a particular style of a shirt by your size is not available. Such instances results not just in loss of sale but also loss of trust in the minds of the customer for the brand. The price of the available stock is lowered discounted. The retail trade has to be sensitive to the needs of the customer and reactive to his demands for delivery. When the promised delivery is within twenty-four hours on an online sale, the customer reserves the right to refuse when the delivery arrives later than a day. Given the above requirements, the warehousing needs of the garment industry are planed at all the levels in the supply chain such that the customer is serviced at all times during the sale period.
Chopra & Meindl (2009) suggest that, there are three basic steps to achieving the strategic fit between requirement for business competitiveness and supply chain, which we outline for the apparel trade. This understanding the customer and supply chain uncertainty is the first and foremost thing a retailer must assess; the needs for each segment ladies’ or gents’ garments and the level of uncertainty these needs impose on the supply chain. These needs help the company define the desired cost and service requirements of the warehouses and their location. The supply chain uncertainty helps the company to identify in advance the extent of the unpredictability of demand and likely delay that the supply chain must be prepared for and therefore have adequate stocks in hind. Second is the understanding the Supply Chain Capabilities itself. Each of the many types of supply chains is designed to perform different tasks well. A company must understand what its supply chain is designed to do well. How much seasonal pressure it can withstand, what are the re-order volumes, minimum order quantity, how many orders can it full-fill per day/per hour etc. and what are the frequencies of orders and supplies with which the stock can be replenished. Achieving strategic fit between supply chain and warehousing and if there is a mismatch the company will either need to restructure the supply chain to support the competitive advantage or alter its competitive strategy itself.
In the case of apparel, warehousing is at the core of the supply chain and directly generates customer value, to satisfy the retail customer there is minimum requirement of stock ‘matched sets’. This level is assessed by the retail outlet; he generally uses the logic that when the stock reaches the minimum threshold for any size or colour – each maintains a different item-code. New stock is ordered in the multiples of ‘minimum order quantity’ and ‘matched sets’ i.e. all sizes or all colours. How much to order and ‘how often’ is defined by the experts who other than the demand pressures also understand the servicing cost on logistics, warehousing and the time it takes for the fresh lot to arrive. These experts have worked out in their minds or on paper a figure of ‘economic order quantity’ and the ‘desirable stock levels’ to be maintained in the store. This desirable level must be available at all times during the sale season. Some experts also define the ‘maximum stock’ which is the stock at which the store can afford the miss a re-order cycle. This method to control inventory is being called MDM or Minimum-Desirable-Maximum. Each store is served by a whole-seller and it in-turn is serviced by the finished goods stores of the buying houses; they pick the inventory from the manufacturer. The Manufacturer within itself maintains inventory at 4 key points. His objective is to produce and pack enough so as to make available ready stock of finished goods to service the need of the buying houses. The manufactured goods are directly shipped by the producer in most cases as per the instructions of the buying house. Large Store like Wal-Mart and M&S maintain their own warehouses across the globe and have buying agents almost in all the parts of the world. The stocking points are summed-up as below (see figure 1 for Overview of Supply chain in the Apparel Indutry) :
Supply Side:
Raw material WIP Garment QC passed (unpacked) Ready to Ship (Finished Goods)
(As detailed in the beginning)
Note: Hereafter inventory items are classified as ‘finished goods’ or FG
Demand Side also have four major inventory points:
1. Retain Store 2. Whole Seller (within country distribution agent’s warehouse) 3. Buying House or Importer (continental hub) 4. Merchandiser/Consolidator/Buying Agent (Exporter stock at the port) or Manufacturer directly ships
Note: Each item in the ‘finished goods register’ has a unique item code and is brocaded as per the retail trade requirements for tracking
‘Centre of Gravity model’ (Waters, 2003) for selection of major warehousing centre applies to the garment industry at the Continental or bigger geographical level i.e. to design the distribution model that is based on one central distribution. In case of smaller towns and states there are other concerns on the demand side so the servicing requirements out-weigh the cost consideration. One large central location when applied to the ‘whole of Europe’ where movement of goods can happen without any hindrances. As most of ready-made material in continental Europe comes from Asia (India and china in particular) the trade of goods happens through sea in full container load. The location of central hub must be close to the sea port.
Separate dedicated or mixed-use warehousing locations are needed in smaller regions, wherever there are trade barriers and international borders that restrict or control the movement of goods across the border. In the smaller regional centres the direct pressures of the retail customer are more profound and visible so warehouses have to be equipped to handle the trade enquiries. This is where the need to maintain stock levels to desirable is the most, the supply chain experts come in to set the MDM levels in the system such that order generating requests or prompts are raised when the stock position touches the minimum level. On the other hand when the stock position of a particular SKU is higher than desirable the prompts are again raised to divert the shipments to locations needing it more or to cancel the orders. The information in the current stocks in form of dashboards must be provided online and with ample clarity on the likely demand and supply position. Visual information and triggers help on both the sides of the supply chain.
The ample weight of academic literature reviewed here suggests that ‘warehousing’ is needed at many levels in the apparel trade at all the four levels of the supply chain, the need is strategic in nature as non delivery on time leads to loss of sales, value and trust with the customer. Strength of supply chain gives strategic and competitive advantage to a company and overall the industry runs around to cater to the seasonal demands of the customer. It is essential to set-up and maintain the desirable levels, set triggers on minimum and maximum as also to update and share the electronic online dashboards with the supply chain partners on both the side. Extra careful watch is needed, specifically during the Christmas buying season. The good retailer keeps his one eye on the customer and the other on the stock while smilingly servicing the merry makers on-time and within-cost.
References
Chopra, S. & Meindl, P. 2009, Supply Chain Management 5th Edition, Pearson, London, UK
Jones, R. 2006, The Apparel Industry, Blackwell, Oxford, UK
Friedman, T. 2005, The World is Flat, Farrar, Straus & Giroux, New York, US
Butler, S. 8 May 2013, Marks & Spencer opens automated warehouse for online sales, The Guardian, London, UK
Shaw. S. 2014, Leadership & Logistics Warehouse and Transport Management (class presentation), University of Hull, Yorkshire, UK
Richards, G & Grinsted, S. 2013, The Logistics and Supply Chain Toolkit, Kogan Page, London
Waters, D. 2009, Supply Chain Management, Palgrave MacMillan, Basingstoke
Figures
Overview of the Supply chain in the Apparel Industry
Figure 1: Source: The Apparel Industry, Chapter 1.
