A Stitch In Time
Jeremy N. Smith
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
industry consultants, Bill Cantrell, Managing Director of
Logistics, and Monica Isbell, principal of Starboard Alliance Company,
to learn how successful companies can focus on logistics fundamentals
without falling behind on new developments.
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
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-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 as possible."
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
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
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
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
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
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
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