A Stitch In Time
Jeremy N. Smith
(A Stitch In Time)
The window of opportunity
slams shut fast in the world of retail fashion.
Few sectors of the American economy rely more on modern logistics than the
apparel industry. Fashion cycles have compressed
from the year and season to the month and day even as supply chains stretch
ever further across the globe. Major changes this year in international
sourcing rules and regulations make managing those supply chains potentially
more perilous-and more profitable-than ever. World Trade talked to two clothing
industry consultants, Bill Cantrell, Managing Director of
Apparel Search Logistics, and Monica
Isbell, principal of Starboard Alliance Company, to learn how successful
companies can focus on logistics fundamentals without falling behind on
Follow that sub-contractor
Today's American apparel leaders act more as importers rather than manufacturers. "Most
apparel companies don't own their manufacturing," says Isbell. "They
are contracting out to third-party factories and importing their product."
Since such fashion products require considerable human contact in their
assembly, testing, and packaging, industry manufacturing follows low-cost
labor above all. Major clothing makers have all but disappeared from the
mainland United States. "If you go shopping in almost any major U.S.
retailer, you're going to be hard-pressed to find 'Made in USA' items that
were once prevalent," says Cantrell.
"Twenty years ago, the sourcing of apparels started in Japan and Korea,"
Isbell outlines. "Their economies developed and manufacturing shifted
to China and Southeast Asia, then the Caribbean basin, Latin America, and
Inexpensive labor comes at the price of more expensive arrangements for
transportation, distribution, and storage. "Whereas supply chain costs
across sectors make up about ten percent of the cost of goods sold within
the United States, if you start looking to source that product from Latin
America, that cost goes up to fifteen to seventeen
percent," says Cantrell. "Once you get to China, you're talking
about twenty-two to twenty-six percent. And in the apparel industry, those
costs are actually quite a bit higher."
The costs are higher because the timing is tighter. "Apparel importers
operate under very tight windows," says Isbell. "If their vendor
isn't on time, if it's a high-end item, or if it's trendy, they're going
to have to use air freight to get their products to the store." From
simple cotton shirts to thousand-dollar business suits, the cost to fly
fashion items is ten times that of ocean freight. Yet not flying a hot seller
ultimately costs companies more. "Every day it's not in the store,
it can't be sold," Isbell summarizes the bottom line.
"The best way to gain a competitive edge is to be as efficient
To ensure that efficiency, both Isbell and Cantrell strongly recommend vendor
compliance programs that actively monitor performance in a variety of categories. "Beyond
on-time performance, for example," asks Isbell, "how full are
they loading shipping containers? If an importer doesn't pay attention to
things like that, they'll be spending more money than they should."
In this area, Cantrell cites major merchants such as Wal-Mart as apparel
industry leaders. "It's much like the auto industry now, in that they've
pushed much of the logistics work out on their suppliers," he says. "If
you don't get a part to General Motors in time, you're fined $15,000 an
hour that line is down. In the case of a Wal-Mart, if you don't get them
the blue argyle sweater, nothing is going to shut down, but there are still
repercussions. If you don't label garments properly or don't capture information
in a certain way, they have the option of rejecting that shipment."
Isbell agrees: "Put teeth into your penalties and you quickly get compliance
from your vendors."
Life after quotas
Though its emphasis on labor costs make apparel industry sourcing appear
a model of an international open market, trade agreements have long restricted
from where and in what quantity companies could import. No
longer. As negotiated
in the 1995 Uruguay round of World Trade Organization talks, quotas end
for clothing imports February 1, 2004 (restrictions remain on China until
2008). Developing countries are likely to benefit most from the dismantling
of textile quotas. However, some fear that the U.S. will erect new trade
barriers toreplace quotas. The barriers could consist of antidumping and/or
countervailing duties. And while the U.S. has been identified by developing
countries as one of the most likely countries to use such
schemes, it is not alone. Last February, a coalition of developing
countries reported to the WTO that the EU is "by far the biggest user
of antidumping cases in the textile sector, targeting it for as many as
53 new initiatives during 1994-2001."
This shift, says Isbell, is "going to change the whole industry."
"At the moment, quotas govern the whole import process for apparels,"
she says. "People in the apparel industry are very nervous about what's
going to happen with the end of a system that's been in place for forty
years. " As few countries have reduced trade
restrictions gradually over time, borders worldwide will open dramatically
in tandem. "With a real open market," Isbell argues, "companies
are going to have to determine where they're going to produce all over again."
In an industry already obsessed with low sourcing costs, this means an ever
greater emphasis on logistics. "Trade agreements usually give preferential
treatment to garments," says Isbell, and offers the example of an African
growth initiative. "To take advantage of this imitative, sourcing people
have to answer how much it is going to cost to get to the U.S from Kenya
rather than Hong Kong. The logistics challenge is to find a carrier who
can move the product on time at an acceptable cost from these outlying areas."
Though Isbell and Cantrell agree China will continue to increase its share
of apparel manufacture, both discount claims the country will swallow the
entire industry. "There are significant infrastructure constraints
on logistics systems in China," says Isbell. "They're expanding
their ports and beefing up their throughput, but you'll see more and more
congestion as apparel production increases." Modern factories and roads,
notes Cantrell, cluster almost entirely around the country's coastal area. "Once
you get 100 miles inland," he says, "manufacturing is not very
profitable because the quality of logistics services drops off dramatically."
Regardless of where U.S. clothing companies ultimately source, reduced regulations
mean lower costs far beyond the beginning of the supply chain. Isbell cites
new packaging efficiencies as a prime example. "Right now, most importers
do not load apparel with other products," she says. "Footwear
and apparel ship separately, for instance, since footwear can be pre-cleared
through customs and apparel can not. With the elimination of quotas, apparel
can be pre-cleared, and there won't be that risk of footwear being held
up. Those importers or retailers are going to reap the benefits from better
loadability and quicker customs access. Because they're going to reduce
their costs, they're going to reduce their pricing to the consumer."
Showing their strength
At the same time more open markets promise to reduce costs for American
clothing companies and lower prices for their consumers, some analysts worry
that they threaten domestic security. The terrorist attacks of September
11, 2001, exposed the vulnerabilities of an open society, not least a storage
and distribution system reliant on the free flow of goods across borders.
"So much of the apparel industry is based on international sourcing and manufacturing,"
says Cantrell. "The effects of 9/11 have thrown up additional barriers
and checkpoints. It's gotten more expensive to move goods back and forth
across borders. In the United States, we are probably fortifying our borders
more than any other country. The hope is that it makes it harder for terrorists
to move in and out of the country. The other side is it makes it that much
harder for freight to be delivered."
The first step for apparel importers to address their own security concerns
and that of their clients is to join the voluntary United States'
Customs-Trade Partnership Against Terrorism
(C-TPAT) program. Participating members follow Customs' guidelines to develop
and implement security policies and procedures across their supply chain
of manufacturers, warehouse operators, brokers, carriers, and importers.
However costly to obtain and implement, Customs' certification distinguishes
apparel companies following the best security standards and practices. That,
says Cantrell, is a competitive edge. "If you're working with other
partners in the program and you're not certified," he emphasizes, "you're
the weakest link."
Because the program supplements existing government inspections with rigorous
self-assessment, participants may find more sympathetic audiences in the
event of unintended security breaches. "If there is a fine against
your organization, having that certification is about the only thing that
mitigates it," Cantrell notes. "Your participation in the program
can turn a fifty thousand dollar fine into a five thousand dollar fine."
Of course, apparel companies would prefer to avoid such breaches altogether,
not minimize their expense. Here, as with ensuring the efficiency of their
third-party manufacturers and responding to the opportunities of eliminated
quotas, there's no substitute for a full logistics review.
"It's important that they take the time to step back from the day to day activity
and analyze their processes from issuance of product orders all the way
to the delivery to their customers," says Isbell. "If they don't,
they're just going to be plodding along and another apparel manufacturer
is going to eat their lunch."
"It's really about getting control of their business and processes," Cantrell
concludes. "So many companies we work with have never documented the
way their business runs. How do they manage their transportation? How do
they measure their suppliers? Until you can measure it, how can you improve
it, and if you do improve it, how will you know?"
Jeremy N. Smith is based in Missoula, Montana ww.worldtrademag.com/cDA/articleInformation/features/bNP__features__item/0,3483,114075,00.html
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