And then there was Zara …

Learn Spanish and any textbook will tell you that there are four seasons and, for a long time clothes retailers went the same way. Fashion retailers all over the world prepared the Spring, Summer, Autumn and Winter collections with design and colour driving the production cycles to match. Orders would be placed well in advance and that meant forecasts with 30 week horizons.

And then, Zara and affordable fashion hit the scene; cycle time reduced to 8 weeks from sketch to shop and 4 seasons became 6 – in any language. And counting …These days, wool to wardrobe cycles are driven by what is sold in the shops. If it does – the consumer has to make sure to buy during the wearing window and, if an item doesn’t – on to another channel to be sold at a discount. To make this work at speed, a Zara forecast is all about tying up fabrics and production capacity that design has to respond to rather than the other way around. 

Zara changed the rules of the game. Now, Fashion retailing for shoes and apparel has gone global and, with margins around 5%, brands have had to race to the bottom in terms of manufacturing cost. This means footloose production with companies moving to the lowest cost operator for each element of the final product on the rack. Material and accessories are sourced from separate locations (often in different countries) and this flow of product mushrooms into multiple styles, sizes and colours as it reaches the stores synchronised with the latest Advertising campaign.   

Apparel supply or value chains have become extended, dispersed and more complex as material, accessories and production are outsourced to a preferred supplier who, in turn, outsource to tier 1, 2 and 3 sub-contracted suppliers to increase capacity and cater for increasing volatility of demand.

This is a buyer driven network speeded up and given increasing visibility with IT. In fact, information has replaced inventory. Stock is on the move; on trucks, rail, ships and in the air before a brief stopover in the store itself. Stock in a warehouse is viewed as dead money. However, large retailers in the developed world have thousands of suppliers but a study by Supply Chain Standard magazine (February 2009) suggests that they can only collaborate through IT with about 20% of their top suppliers. The others tend to use paper orders etc. Collaborative technology has a long way to go and, imagine what this is like when the supply chain stretches into the informal and under funded economy.  

So much for the end-to-end story. There are many issues that need addressing as we look at how logistics and the supply chain from end-to-end can transform outcomes:

  • Mapping the value chain. Value instead of supply is instructive. Like demand chains or networks, the idea of value moves us away from a linear sequence of moves and into questioning what adds value from end-to-end.
  • Differential productivity. Each node or step of the supply chain is characterised by varying levels of equipment, skills and What is happening to address issues of functional literacy.     
  • Asymetrical investment. The Vietnamese Apparel industry suffers, versus say taht of Malaysia, because of poor infrastructure – the lack of a deep sea port means that all cost savings in production from low wages are lost at sea as Malay product has superior global market access because of its port facilities. Look at the Last Mile Video on this Blog and consider the issues facing the Tamil Nadu footwear and apparel industry.
  • Affordable technology. Mobiles are being used by many micro enterprises where ERP systems have been used in large Corporates. There is much more that can be done.    
  • Gender. WIEGO have done important work defining the characteristics of the informal economy as a whole and the role of women in particular. See: Martha Chen (various articles) and Barabara Harris White (Indian Working).
  • Child Labour. Again, WIEGO have done signficant work on this issue. However, as Martha Chen warns: “we need to be cautious when discriminating against clothes produced by vulnerable groups in developing countries. For example, a US bill against child labour under 15 made thousands of Bangladeshi girls redundant – but they still had to earn a living. “
  • Policies and Quotas. Quotas for apparel have restricted export potential and therefore the earnings vital to sustainable growth. Footwear has had fewer quotas and been an easier market entry product.
  • Green supply chain. Environmental issues and carbon footprint will become increasingly significant. It may check the relentless footloose nature of the race to the bottom of the price issue.  
  • Service Level Agreements. Many companies, like Zara, insist on specific working and ethical practices. In fact, Human Rights have expanded into this area. See this Blog. Other areas include Health & Safety at work. Often this does not explore the benefits to productivity of safe working practices.
  • Simply modal. Elsewhere on this Blog, we highlight the use of bikes and other non motor transport in a simply modal approach. This needs an in-depth review.
  • Regulatory and legal framework. Legal title all along a dispersed supply chains is not an easy issue and requires expert advice.  
  • Trade finance to make the transaction flow as smooth as possible.
  • Free Trade and Fair Trade. The current Recession is triggering a number of protectionist opinions and practices. This will undo many of the gains of the WTO gains of recent years.  

Perhaps the most pressing issue is to explore the footloose nature of this industry and the impact this has on the formal / informal profile of the supply chain. In South East Asia alone apparel is an industry worth $3.9 billion with $2.9 billion coming from India, Pakistan, Sri Lanka and Bangladesh. Imagine what happens if the cost assumptions shift. For example, investment in infrastructure or inner country connectivity can suddenly enable a locked in region to become a low cost option and a threat to the current lowest cost operator. No single producer can become more productive than others that benefit from such macro level investment. This is a massive area to explore.  

So, what happens to a place like, say, Vietnam – with over 2 million people working in clothing and a high proportion sewing on commission only from the informal economy. This is a precarious existence that needs to be examined and understood more closely.  Especially the need for greater understanding of the informal and formal links, synergies and challenges. Take information and collaborative technology. 

Let’s close on the potential link to sponsor a supply chain idea. Any suggestions of regions that can work together on the Fashion agenda?

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4 Responses to And then there was Zara …

  1. Tielman says:

    Interesting post.I am currently working on a article about the supply chain of the Vietnam Fashion industry.

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