The growing competition in the domestic and exports sectors, many companies have realised the need to expand more strategic approaches for managing supply chain management. "Contribution of the textile sector to India economy is reflected in terms of industrial production, employment generation and foreign exchange earnings. It contributes about 4% to the GDP (Gross domestic product), 14% to industrial production, and 16% to India's country export earnings. It also provides direct employment around 35 million people, making second largest provider of employment after agriculture. Thus this industry plays an important role and is one of the key engines of the economy." Adapted by site http://www.cygnusindia.com/images/textiles_TOC.pdf (citation on June 19th, 2010). The research study is about the issues of supply chain management in apparel industry. In this chapter we can see the process of supply chain management and its issues in general and also related to apparel industry. The issues of apparel industry are explained with the help of example of ZARA and also with help of references which support this study.
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Supply chain management consists of all the channels involved directly or indirectly in order to accomplish a customer's request keeping the quality, cost and lead time in the priority list. The purpose of supply chain management is not only limited to buying and selling but also to produce the product development, marketing of the product the company sells, distribution, finance, operations management, follow ups till the product reaches its destination and customer services.
Lee and Billington (1995, Vol. 25) define a supply chain as "An association of amenities that acquire raw materials, alter them into intermediate goods and then into the finished products, and transport the products to clientele through a supply system." The management and the flow of such set of connections require the full utilization of logistics, quality of goods and most important lead time. The relationship between suppliers and buyer that makes the successful set of connections to fulfil a task is a successful supply chain management.
Supply chain management is about managing the smooth flow of resources and also to get the best outcome in the lowest price. Supply chain management includes the planning with regard the management of all the action concerned in sourcing, supplier evaluation, procurement and logistics. It also includes coordination and good relationship with related partners such as suppliers, third party auditors or customers. It also put together the demand and supply management within the organisation and crossways the organization.
The supply chain management has stages included in the process. The stages are as below: (adapted by Chopra.S and Meindl.P, 2007, pp. 21-23)
Raw material suppliers
Fig 3: Supply Chain Process
Source: Chopra.S and Meindl.P, 2007 (pp 21-22)
Every stage in the process of supply chain management is linked through the flow of products, in sequence and finance. The suitable supply chain management process depends on the customer and the channels to provide the service required by each stage. In the case of apparel industry the supply chain process may also include the wholesaler in between the manufacturer and the retailer; it is needed when the merchandise is asked to be shipped at destination centre of the buyer.
Business Environment role in supply chain
The apparel business association works in a dynamic work environment, it goes through both the internal and external changes in the atmosphere of occupation, external are when the industry trades globally for example foreign exchange, taxes etc which helps in maintain the cost. It is very important for an organization to understand the environment of the business for its survival. The changes in environment have huge impact on business for example foreign exchange, quota system, etc. The efficiency of both buyer and supplier relationship has a positive relation with the organization. In business marketing the price of the product is less fluctuative, it has more of technical products, it has different promotional media and it has more professional buyers to deal with which supply chain management takes care of. It is important to understand the needs of thy buyer as in when, where, how and why buyer purchase also the usage and set out the products or services in order to maintain the supply and demand management of the company.
Always on Time
Marked to Standard
Johnson. M and Pyke. D, 1999 states that "Supply chain management has engendered a large amount of interest in recent years for a numeral of reasons. Many supervisors now apprehend that actions taken by one associate of the chain can persuade the profitability of all others in the chain." The flow of resources can be abstracted when the shortage of raw material, excess stock, late in deliveries or any problems occurs which blemish the flow of management information and sources."
Basic Issues of Supply Chain Management
The most important apparatus for management in supply chain is the flow of information amongst the channels of supply chain process. The flow of information is directly related to production planning, inventory inhouse planning (inhouse is when the inventory is in the factory), and delivery date planning of each member of all departments in supply chain.
"The mail goal of each member of the supply chain process is to reduce unwanted inventory levels and increase rate of interest." Says Holweg, Matthias, Disney. S, Holmstrom. J and Smaros. J 2005, Vol 23.
Bull whip effect
There are many issues to maintain the inventory and to avoid the excess and shortage of inventories in the firm. The main issue of this process is where the orders to the supplier have a big difference in numbers as compared to the sales to the buyer which is known as demand distortion. "Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies such as excessive inventory investment, poor customer services, lost revenues, misguided capacity plans, inactive transportation and missed production schedules." Lee.H, Padmanabhan .V and Whang. S, 1997, pp. 93-102
The changes or unpredictability increases in supply chain from consumer to supplier to manufacturer or logistics, this is an occurrence which is often called the bullwhip effect. The bullwhip effect is the enlargement of the demand fluctuations and the not the demand. The bullwhip effect is apparent in supply chain management when the demand is increased or decreased. It has been recognized in many markets. The effect of this is that it increases or decreases the supply chain.
The reasons for bullwhip effect are as follows:
Little or no course of information between manufacturers, suppliers and distributors.
Postponement in order dealing out, demand and receiving of goods.
Limitation in order size: for e.g. when a buyer wants goods quantity to be 100 pieces and the supplier doesn't take below the order of 500 pieces.
The imprecise demand forecast
The very important reason is when the supplier is only aware of demand of retailer whereas he has no idea about the demand of end consumer, so the increase in demand of end consumer automatically increases the demand of retailer which supplier is unaware of. The supplier has no picture about the external demand.
The last minute purchasing of raw material increases the cost of product as the last minute decision is taken to accommodate an unplanned raise in demand.
The major problem in Supply chain management is the limited visibility of demand.
Issues of Supply Chain Management in Apparel Industry
Fashion apparel is a highly competitive industry where the product life cycle is short as every brand has got four seasons to make the collection in a year i.e. autumn, winter, summer and spring so the manufacturers needs to be very quick with their supplies as per their customer request and also the style can be quickly imitated. The competition is very high in regard to cost, quantity and quality. Lower the cost of production of merchandise attracts the buyers to the business with suppliers. High quantity and quality of merchandise also attracts the more business with the buyers. The conventional cycle of producing apparels orbits around the sale in each season of clothing. The products are designed months before the production takes place. The production for the expected season is completed months before. The retailer have a preference of having different and variety of collection in the store at the initial stage of the season and according to the customer purchasing preference more orders are given to the manufacturer for the further production of that particular style, then the reorder are based on sales. The manufacturers dealing with initial order, reorders and after sales services depends on the relationship and incentives given by the buyer or retailer.
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The competition in the field of cost and quality has step up over the last few years. Low cost production in developing countries was given good opportunities from the large fashion apparel companies. Now days the competition is shifted to lead times, as in the companies which provide quick response to the product development and manufacturing the entire collection for the customer. The innovation of the product is most wanted in this industry. The more shorten is the product cycle the more buyers are attracted towards it. "A set of process innovations is known as quick response" says Hunter, Hammon, Blackburn 1991.
"Recently competition has shifted to the arena of timing and know how where vertically integrated firms gained the lead in implementing a set of process innovations to shorten the production cycle." Says Richardson. J (1996). Vertical integrated firms generally are beneficial for implementing quick response to varying market demands.
The vertical integrated firms have the better capabilities as the do the fibre to finish and they need not depend on the third party suppliers, with this they reduce the cost of production, lead time also they have a good follow up for the best quality to deliver it to the customer. For example "GAP used backward integration to transform itself from one of Levis largest customers to one of its strongest competitor, while doing so it dealt Levi's a serious blow." says Richardson. J 1996. On the otherhand forward integration is also helpful for the firm. Harrigan (1983) and Porter (1980) noted that the forward integration can present product differentiations benefit that is almost impossible to imitate. For apparels, the retail environment appears to be significant factor in product differentiations. Store ambiance, merchandise assortment, services etc. Are all major essentials of apparel industry.
The following diagram explains the supply chain management in apparel industry:
Fig 4: Supply Chain Management in Apparel Industry
Source: http://www.fibre2fashion.com/_resources/industry-articles/11/1067/2_files/image001.jpg (cited on July 10th, 2010)
Johnson and Pyke (2000a) have divided the supply chain management into twelve areas which are as follows:
Table 3: Supply Chain Management at different areas
This involves the geographical areas, taxes and custom duty payments, transportation cost (FOB or CIF prices), government incentives (for e.g. economic free zone or SEZ), exchange rates etc. This helps for taking more strategic or planned decisions in supply chain.
Transportation and Logistics
It is related to all issues like the flow of goods, transportation, warehousing, and inventory management. It also includes the procedure of documentation if it's an air shipment or shipment by sea.
In apparel it is very important to calculate the demand for raw materials to end product. One can cut the cost of product if the demand for inventory is calculated accurately; it can be easily done with sharing information with supply chain partners. It is important for a supplier to know not only the internal demand but also he is supposed to have the knowledge of external demand.
Marketing and channel restructuring
"It includes the fundamental thinking on supply chain and covers the interface with marketing that emerges when dealing with downstream customer is required" says Fisher, 1997. This area covers all the relationship, cost and lead time negotiations and also legal extents.
Sourcing and Supplier Management
The right procurement of the raw material helps the organisation to lower the cost of the product providing consumers with good quality. If the quality of the raw material is not good then the quality of final product will be definitely affected. The supplier evaluation is a very important factor for the supplier management, as the right sourcing of material helps in cost cutting, shortening lead time and also providing customers a quality product. There are many methods to evaluate the supplier; it can be on the basis of price, quality, lead time or personal relations
Information and electronic mediated environments
Smooth information flow and updated techniques helps to reduce inventory and also helps in meeting the lead time. Many organisations use the ERP software for the correct and smooth information flow.
Product design or product development
With increasing supply chain demands of product variety the right product planning or development for a particular buyer gives a business to the company. The product designers works on the forecast and also include the preferences of buyers, the mixture of two gives the product required by the market.
Service and after sales support
Reverse logistics and green issues
Outsourcing and strategic alliances
This area covers the outsourcing to manufacture goods till third party logistics. Also some companies have third party audits that are responsible for the quality management and lead times, this is how the company shares the burden and is able to give well required by the company.
Metrics and Incentives
"This category includes both measurement within supply chain and industry benchmarking" argues Meyer 1997. The metrics is the basis of any business management.
This area covers when the organization is widely spread in different countries. It makes sure that all the above steps are taken into consideration for all the parts of organization widely spread. Also global issues includes the external environment of the supply chain of the organization for example government rules and regulations, exchange rates, custom issues etc.
"The apparel business is experiencing difficulties in the supply chain for the reason that there is informal association connecting the retailer and supplier. Demand uncertainty in the supply chain, known as the "bullwhip effect," results in excess inventory and inefficiencies in the supply chain. Demand forecasts and orders are often distorted unless they are developed jointly by the partners."-stated Thangamuthu. K (paper 353-2008). The apparel industry consist of functions like product development, marketing, logistics, management flow of information, finance, suppliers, manufacturers and consumer service. The supplier is only aware of the demand of the retailer whilst he has no further knowledge of the demand of the end consumer. The supplier works as per the purchase order issued by the buyer/retailer. As there is no information about ht external demand to the supplier the inventory levels can fluctuate at every stage of supply chain. Matthias, Disney. S, Holmstrom. J and Smaros. J argues that "the main goal of each member of the supply chain is to reduce unwanted inventory levels and increase rate of interest." There are many brands which work through supply chain management some concentrate on quick change in trend, some on cost, brand value and others on quality. For example Zara is known for setting trend, Armani exchange is known for brand value, GANT for its quality and Primark for its Price.
Role of Just in time, Technology and Total quality management is supply chain
Just in Time
In the sphere of supply chain management, Just in time demotes to an inventory approach that is used to progress a business ROI (return on investment) in the course of inventory process and all related cost. JIT, if implemented in a correct manner can help the manufacturer to improve in quality, efficiency and ROI. Just in time manufacture is producing value which reduces waste linked with time, labour and storeroom. The basic concept of JIT is to manufacture the merchandise in right quality, quantity and lead time. The calculation of efficiency is required to take out the daily production of the company. Once the daily output is calculated the production planning is complete and then only the manufacturers proceed with stitching, the idea is to meet the daily targeted output. "The company produces only what customer wants, to real orders, not to foresee. Just in time can also be described as generating the essential units, with required excellence in quality, in the essential quantities, at the final protected moment. Says Radisic. M pp. 3-4. JIT helps the inventory to flow smooth, production on time and also helps reducing the cost of production in supply chain management.
It includes all the channels who are directly or indirectly concerned from fibre to finish in supply chain. It helps in transferring information from one channel to the entire related channels; this saves lot of cost and time. "For constructing up a capable supply chain association, an effectual information technology system is very significant. Information is one of the fundamental ingredients of supply chain management. Without information, the supervisors will not be acquainted with the demand of the customers, the stock of inventory obtainable with him and when to order, how much to direct and when it should be shipped." Says Azad. P (2008). The supply chain frequently works best in combination with an enterprise resource planning (ERP), it involves massive amount of business activities such as customer service, production planning, supplier assessment, supplier records, inventory management and many more. It helps in organising lot of information in supply chain which helps in improving efficiency of the organisation. In the course of electronic data interchange, the employees of the organisation can develop good relationships amongst themselves and also with buyers and suppliers. One of the Enterprise Resource Planning software used by Madura Garments is SAP software. "By engaging the SAP Global Delivery model, we had the opportunity to work with solution expert's day in and day out. SAP's personalised services ensure delivery accountability and customized solutions to fulfil our specific business requirements." Says Singh, N, Vice president of IT, Madura Garments. RFID (Radio frequency identification device) is another technology which is generating a commotion in the world of technology. RFID tags are tiny, wireless devices attached to the garments which help in identifying them. It is generally attached to the object or on a package that resembles a common adhesive sticker. RFID tag track the objects in supply chain which makes the merchandisers to track their shipment and helps in keeping them informed about the delivery at destination centre. It before hand tells the sales of the merchandise in the stores. The merchandisers in the factory keep tracking the sales and reorder the fabric and other raw material depending n the sale. This helps in shortening the lead time and delivering the goods of the buyer on time.
Total Quality Management
TQM is progressively more being adopted by apparel industries, as the buyers are getting more conscious for the merchandise they sell. TQM is the technique of managing people and business procedures to make certain complete satisfaction at every phase of supply chain internally and externally. The system aspires at achieving accomplishment and consumer satisfaction by implanting consciousness of quality in all the channels of supply chain, through scheduling and feedback. One of the well known methods in apparel industry of TQM is AQL (Acceptable quality level). It refers to the maximum number of defects acceptable during the random sampling of an inspection. The defects are categoreised into 2 sections i.e critical, major and minor. The method can be explained as follows:
ACCEPTABLE QUALITY LEVEL
Table 4: AQL format
Source: Raja. K, HOD of H&M, Madura Garments
No critical defect is accepted
Table 5: Quality assessment format
Source: Raja. K, HOD of H&M, Madura Garments
The buyers assess the shipment mostly on the basis of AQL 2.5 or AQL 4.0, if the shipment is below the buyers standards, then the whole shipment is cancelled or picked on discount. Below with the help of example the management of supply in apparel is explained in detail. ZARA's example has been taken for this study, as this brand has the fastest movement in supply chain management as compared to other fashion brands.
About the Brands in Apparel in Industry and its Supply Chain Management
Many industries like consumer products, FMCG, IT and apparels is going through a tough competition in the market in terms of cost, quantity and quality and its difficult to create and maintain competitive advantage. Updated technologies, new overseas competitors and more forceful competitors are forcing industry to produce innovative products more frequently to survive in the market.
It is evidently stated that ZARA is riding two of the attractive retail trends that is being in fashion and low price merchandise with good quality. Zara is the flagship brand of the Spanish retail group, Inditex SA, which is one of the most wanted performers in recent years in apparel market. "The middle aged mother buys clothes at ZARA chain because they are cheap, while her daughter buys Zara because it is fashionable." states Dutta. D (citation on May 25, 2010 http://thirdeyesight.in/articles/ImagesFashion_Zara_Part_I.pdf) ZARA's 80% sales concentrates on the three winning formula which is as follows says Dutta. D:
Short lead time = More fashionable clothes - Zara can have the shortest procedure of identifying trend to getting the merchandise in retail outlets within 30 days whilst other brands do it in the time spam of 4-12 months
Lower quantity = Scarce supply
More styles = More choice, and more chances of hitting it right
Zara produces less quantity around 1200 pieces per style. It delivers a product to its stores twice in one week. By reducing the quantity of manufacturers Zara not only trims down its introduction to a single product but also creates the false scarcity of product. Now a day's generation doesn't want to see the same product for a longer time in stores so as Zara keeps changing its merchandise to keep up the innovation and trend. Zara carries out its production in Europe unlike most of the other brands who get it outsource their production in factories around the world, through this they cut the transportation time and cost in supply chain. Inditex is a vertically integrated firm so the Brand like doesn't have to depend on the outsourced suppliers as they have their own fabrications, dyeing, cutting and manufacturing.
Designing and product development needs lot of forecasting about trends, silhouettes, colour forecasting etc. Zara creates 1000 new styles every month which is managed by the team of 200 hundred people. The innovation in a product keeps the demand high in the market. The entire product development cycle starts from the market research. Zara has invested majorly on information, technology and communication to keep a good flow of up to date trend information
The store managers in Zara stores order on computers and send it to Zara headquarters to represent the sales turn over, also they tell the headquarters for what the consumers are looking or demanding for. According to the consumers wants the Zara headquarters spreads over the information to its manufacturing which reduces its styling and designing lead time.
The other brands than Zara, if they have to produce a collection for a certain season they go through procedure like forecasting, trade shows etc. This process takes around four to five months and further then they develop it into physical samples from the design samples to size sets. It involves multiple meetings like pre production meeting, product design meeting, top of the sample meetings etc within the buyer, supplier, product technologist, sourcing team etc. Based on the meeting the lead time, quantity, quality issues and vendor placement is decided. "The whole process takes around nine to twelve months for a typical retailer."-says Tuteja. K
Zara on the other hand largely focuses on forecasting the effort on the kind of fabrics they will use for its merchandise as the same fabric can be manufactured in different type of garment styles. Zara buy's greige fabric (semi processed and undyed fabric) so that they produces the style and the garment can be coloured into the colour according to the demand in the market for the immediate selling.
Fig 5: Supply chain management of ZARA
By analysing the major researches undertaken for the supply chain management in apparel industry, it states that SCM plays a vital role in apparel industry as it helps the industry to perform in the most effectual mode. SCM helps the organisation to reduce the production of cost, increases the level of quality and delivery time. SCM in permutation with technology giver far better results in productivity and maintaining level of standard with buyer. For better understanding and to make this research more practical the case study was done in the next chapter for three brands in an organisation. The supply chain management is shown for the brands undertaken.