One good turn
Today more than ever the apparel industry is bound by quotas and duties and the need to bring perishable commodities — garments that come into and out of style — quickly to market. Margins are extremely thin in the industry and a major driver is the cost of labor, a reason many suppliers have moved production out of the U.S.
Major fashion designer names seen in retail shops every day aren’t labeled until a finished garment shows up in a distribution center (DC) or directly from abroad into retail stores. One company serving the industry from design through manufacture to shop delivery is Fashion Links. John McKelvey, director of the company’s U.S. operations, notes that while headquarters are in Shanghai, Fashion Links operates in 11 locations across the world with offices in Southeast Asia, the Middle East, Asia, Central America and the U.S.
The company’s target markets in the U.S. are chain stores with their own private brands or those in the process of converting to a private brand. “We seek to help each customer define its customers or target market and then design into it,” says McKelvey. “Being full service, we can manufacture the products globally. Being global — at least in our industry — refers to taking advantage of lower cost opportunities in a variety of locations. Cost is relative to how well you do something from start to finish and your success rate.”
Fashion Links defines what each of its regions is good at to maximize on their strengths. The company identifies “raw materials forward” regions as those in which cotton and other materials are grown. Pakistan and China are two such countries.
The next step in the production process involves “yarn forward” regions. Yarn may be produced in one country, then moved to another country to be milled into fabric.
There are “fabric forward” countries as well. For Fashion Links, Jordan is a prime example, since it helped establish the industry in that country. A number of Jordanian factories are in fact cooperative efforts with Pakistan.
Finally fabric is cut and sewn. Besides China, which has become a major producer of final goods, several Central American countries are used by Fashion Links.
Central American countries have a trade advantage based on the U.S.-Caribbean Basin Trade Partnership Act of 2000 (CBTPA), which extends preferential tariff and quota benefits to apparel produced in the area from U.S.-produced cotton and yarn.
McKelvey observes that industry-wide management of logistics movements are generally centralized. Although he believes in maintaining control, McKelvey does use third parties when they are appropriate. One example is ICICI Infotech. ICICI’s solutions handle all events within the apparel supply chain.
ICICI’s primary customer is the brand owner. “We start from concept — product design — and manage all events until the goods hit the warehouse,” says Vincent Candela, ICICI’s vice president of fashion technology. “Once product is in the warehouse, it’s handled by the customer’s ERP [enterprise resource planning] software for order fulfillment.”
While most handling of information has been done using Excel spreadsheets, ICICI has a scanning system that creates a packing list from a printed label, which is followed through the entire workflow. The system has the ability to do pre-distribution. Cartons may be pre-defined for delivery to specific stores or other locations, a value Candela sees as a major trend in retail. When the carton reaches the U.S., they may move directly to retailer stores.
With finished product at the port of export, Fashion Links has its own exam site where every carton is opened to assure quality control. At that point the company will consolidate shipments for one or multiple customers. When product reaches the U.S. West Coast it is deconsolidated and routed according to customer and their carrier needs.
The Fashion Links supply chain provides customers a marketing edge, enabling them to test products in-season.
“Take a basic five-pocket denim jean, for example,” says McKelvey. “We’ll test five styles, using the same fabrication, sending 120 pieces to a retailer just prior to the season so they can test. Out of those styles they’ll determine which perform best. Meantime, based on customer demand information, we’ve already positioned raw materials in our sewing factory. We can turn a 40,000-50,000 piece run in two weeks, and if our manufacturing is handled in Asia, it’s another 22 days on a boat to the U.S. So, generally speaking, we are 35-40 days out from port. Then we clear the merchandise and either send it directly to retailer stores or their DCs.”
Barney Michela, vice president of purchasing and logistics for Koret of California Inc., faces the same problems as Fashion Links’ retailers, along with some extra challenges.
“We are what is referred to as a coordinate manufacturer,” he explains. “We make apparel collections — com-binations of tops and bottoms, wovens and knits, sweaters. These are related packages in which sweaters match pants, jackets match blouses, and so forth. They are sourced in many parts of the world.”
As with the rest of the industry, besides intense competition, duty and quota restrictions play a key part in Koret’s sourcing considerations. Basic to apparel manufacturing is fabric and today no other country can compete with China in its production, Michela asserts. At the same time, present quota and duty restrictions make China less competitive than other countries. However, in 2005, when recent World Trade Organization trade agreements take effect, much of the gerrymandering of where companies are producing garments will change dramatically, and China will have the opportunity to produce as much as it can and ship it into the U.S.
Today for Koret, some fabric will go to Jordan, Mexico and Central America because of lead-time differentials and price differences. “Right now Peru is a duty- and quota-free country, and we are looking at it as an opportunity,” says Michela. “Kenya and Madagascar are of interest as well.” (When CBTPA was signed, special trade provisions were offered as well to sub-Saharan Africa in the Africa Growth and Opportunity Act of 2000.)
For Koret, Michela’s department positions fabric around the world, making sure it meets the company’s quality standards and is actually being shipped and monitored and is reaching the factories on time.
The trend in the apparel industry is to push logistics operations as far back as possible to the manufacturer.
“Koret, Liz Claibourne and even Levi Strauss aren’t in the manufacturing business any more,” notes Michela. “We’re in the marketing and merchandising and sales business. The ultimate objective is to have all of our factories purchase the fabric, sew and manufacture it according to our patterns and bring it into this country as the importer of record, then deliver it to our warehouse and let us pay for it 10 days later. It’s what’s referred to as finished package purchasing.”
In some instances Koret remains the importer of record, having to make sure that when its containers hit the port, paperwork is already on hand and that goods are claimed on a timely basis. Ideally, most product moves by ocean, although it is occasionally necessary to move garments by air — which can add as much as $1.25 per unit to the final cost.
“A small portion of our goods may have to be air shipped to catch up with demand,” says Michela. “We might have forecast sweaters and blouses correctly and they are being made in Asia. But pants being made in Indonesia were underforecast. If we don’t balance our collections, we’re going to end up with tops and sweaters with no pants. Potentially we have to ship fabric into Indonesia and then air ship the garments to catch up with the rest of the collection.”
Koret uses a third party, U-Freight, to air ship the portion of inventory needed to get its offerings into balance. U-Freight has locations in 17 countries and works directly with manufacturers to monitor schedule performance. At the other end of the supply chain — offshore — is where U-Freight may perform value-added services since labor costs there are lower.
According to Michela, “If you don’t deliver on time, a $20 garment can become a $10 garment in a week. And if you don’t sell it the following week, it’s almost worthless. If you don’t make the first sale, you don’t recover your cost. You can’t afford to carry inventory for too long. In the fashion business, you really have to turn your merchandise.” LT
Koret of California Inc.