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What is
innovation in
the apparel industry
?
Consulting-Outsourcing-Capability Building
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Innovation can be translated into 4 major segments
Science based innovation
• R&D driven
• Example: Biogenedeveloped treatments to cancer and other diseases
Engineering based
• Large scale transformation
• Example: High Speed Rail, China owning ~40% of the global railroad equipment
Customer focused
• Explore niche in the market
• Example: Xiaomi developed cheaper mobile phone to penetrate the large untapped Chinese mass market
Efficiency based innovations
• Ecosystem based/ Industry 4.0
• Example: Everstar launched automated manufacturing connected to online design and customer customization solutions
Source: McKinsey Quarterly- gauging the strength of Chine innovation. Oct 2015
Weave Services Limited
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Service level
>90%
In store availabilityIn-store availability through VMI models
Warehousing cost
$0.30 USD
Direct to store model with cross-docking
Manufacturing cost
-10%FOB
Lean model factories with high automation
Competitive advantage
Speed of supply
Vertically integrated supply chain
Lead time reduction
72 hrs
design to marketOrder to ship, online customizable services
Why does Efficiency Innovation matter?
Top line
Warehousing cost
Bottom line
Manufacturing cost
Lead time reduction Service level Competitive advantage
Fabric colour compliance
Rejects %
Increase colour matching IQC compliance
Fabric colour compliance
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Efficiency Innovation solves the core problems faced by your business
Top line
Bottom line
Lead time reduction
72 hrs
design to marketOrder to ship, online customizable services
Service level
>90%
In store availabilityIn-store availability through VMI models
Warehousing cost
$0.30 USD
Direct to store model with cross-docking
Manufacturing cost
-10%FOB
Lean model factories with high automation
Competitive advantage
Speed of supply
Vertically integrated supply chain
Fabric colour compliance
Rejects %
Increase colour matching IQC compliance
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0%
5%
10%
15%
20%
25%
30%
35%
40%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Productivity change %
Real wage change %
US footwear productivity is 4 times higher than China
“(In China) the average is 0.5 pair per labor hour,
compared with more than 2 pairs in North
America. This difference is NOT primarily due to
automation, but to smart industrial engineering.”
Renaud AnjoranQualityInspection.org
0
100
200
300
400
500
600
700
Malaysia
Thailand
China
Philippines
Indonesia
Monthly Wages in China have risen dramaticallyAvg. Monthly Wages, 2010 prices $
Source: The Economist Intelligence Unit, https://qualityinspection.org/asian-countries-comparison/
Outside of the big players, the industry has invested very little in Efficiency Driven innovations
Labor productivity has not seen comparative growth over the past years % change of Manufacturing labor productivity and real wages from 2001 - 2012
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The manufacturers who don’t, are in danger of becoming low value-add factory landlord
of VF products are produced by VF, with the remainder sourced from third parties
24%Of VF products are produced by VF, with the remainder sourced from third parties
30K+ Associates supporting Supply Chain activities
VF owns production facilities in the Americas & EMEA
125 Inventory-to-cash days, one of the best for the industry
New Balance reduces lead time by 95%
NB Contra.
Productivity of its own factories is 4X that of contractors
FOB cost difference is only <10%
+400%
The productivity of NB’s own facilities is much higher
<10%
NB Contra.
"We've taken our process—from cutting raw materials to shipping finished shoes — from eight days down to three hours"
Brendan MellyDirector of U.S. operations
Red Wing demonstrates a vertically integrated company
Tanneries
ProcesseingRaw Materials
Producing parts of shoes
Final Assembly
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Where do you suppliers rank on the maturity curveM
atu
rity
cu
rve
Value-add to customers
Manufacturing capabilities
Sourcing capabilities
Product development capabilities
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Transactional
Collaborative
Strategic
Supplier maturity model 3 lenses of observations
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Efficiency innovations enable manufacturers to grow along the maturity curve
Maturity matrix- core competencies
Low value add High value add
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Manufacturing
Sourcing
Product development/design
- +
Planning capabilities Basic schedulingTimely pulling of forward orders
Integration to Master planning
Joint-forecast with customers
Replenishment to customer sales
Integrated systems EDI PO’s ASN capable Integrated production plans
Integrated forecast and order plans
Joint Analytics
Fabric library Driven by customer
Fabric library on core styles
Fabric library on new colors/yarn
Extensive and avant-garde range
Joint-development
Quality controls Non-systematic QC-AQL by customer Machine based QA- Priority based TQM
Innovation management Customer led/market led
Sales led Dedicated team Innovation targets and budget allocated
Integrated to customers
Customer collaboration Transactional Sales team based Planning team based
Joint project team Joint investments
Market intelligence No source available Product based on market release
Competitors SWOT
Customer/ demand analysis
Advanced trend projections
MTO MTF VMIReplenishment models
Lean controls Warehouse inventory control
WIP targets Set TAKT time JIT inventory MRP consolidation
Procurement practicesLarge vendor base/relationship based
Structured negotiation practices
Based on supplier performance
Integrated network with customers
Based on market fact sheet
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Focus the maturity curve on 3 major areas
Replenishment methodologies
Lean practices Customer intelligence
Speed replenishment End-2-End integrated lean operations
Insight driven collaboration
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Fashion retailers are hungry for speed, but at what cost?
Fast fashion brand and retailers are faced with a conundrum
Client example
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Brands leverage calculated risk models…
• Risk 1: lost sales
• Risk 2: end of season stock + material commitment
Speed programs…it “takes 2 to tango”
• Identification of quick replenishment programs
• Joint end-2-end planning through T&A
• Increased liability level on trims and fabric
• Effective tracking and decision making processes
…and develop tight collabo-ration with manufacturers
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Focus the maturity curve on 3 major areas
Replenishment methodologies
Lean practices Customer intelligence
Speed replenishment End-2-End integrated lean operations
Insight driven collaboration
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Fashion brands are hungry for speed
We expect first output
production coming within the
1st day of production
55-65
5
25-30
15-20
10
Lead time in days
Leading manufacturers leverage Lead Time as a competitive weapon or USP
Receiving Cutting Sewing Packing
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End-2-end line
flow is now
talked about in
hoursSewing WIP and production time
30-50%
Packing Accuracy and processing time
10-20%
CuttingDefects and change over time
n/a
ReceivingIn-full, On Time performance, Quality
20-30%
InefficienciesManufacturing stages Opportunities
End-2-end TAKT time
20-50%Idle time between production stages
Leaning out operations requires Efficiency based innovations
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Focus the maturity curve on 3 major areas
Replenishment methodologies
Lean practices Customer intelligence
Speed replenishment End-2-End integrated lean operations
Insight driven collaboration
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Data management and market intelligence
• Historically the apparel industry
has lagged behind in market-
research-led innovations
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Data management and market intelligence
• Historically the apparel industry has lagged
behind in market research led innovations
• Large brands are by-and-large
leading the fabric innovation
through advanced R&D
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Data management and market intelligence
• Historically the apparel industry has lagged
behind in market research led innovations
• Large brands are by-an-large leading the
fabric innovation through advanced R&D
• This is the opposite end of the
spectrum to the FMCG industry
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Data management and market intelligence
• Historically the apparel industry has lagged
behind in market research led innovations
• Large brands are by-an-large leading the
fabric innovation through advanced R&D
• This is the opposite end of the spectrum to
the FMCG industry
• Leading organization split
merchandising functions to demand
and sales management team
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Manufacturers are revisiting their organization structure to provide stronger market led information
Leading firms invest in sales and marketing Traditional merchandising remains but it is evolving
Traditional merchandising
New operating model
• Sales/ market data driven
• Product development, PLM and product costing
• Product
development
• Fabric sourcing
• Product costing
McKinsey- Sales and Marketing
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• Baby steps make huge difference
• Insight: Greater integration of production planning and support model to assist transformation
Key enablers
Role of retailers and brands
Manufacturers mindset
Private investors
• Catch the opportunity
• Insight: TAU Investments invests in mid-cap manufacturers and alleviate their position along the maturity curve
Mindset change of manufacturers
Role of Government
• From intuition to data
• Insight: Patriarchal model to data driven company culture, embracing continuous improvement and risk taking
• China 2025 vs German model
• Insight: The Fraunhofer centerin German offer SME access to R&D facilities
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In turbulent times,
Efficiency based
innovation
should be considered as a
core part of retailers and
manufacturers’ strategies…
…it will require more
collaboration, joint-efforts
and mutual understanding
from retailers and
manufacturers to unleash
the next level of efficiency!
Last words
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Weave Services LimitedTAL Building, 5th Floor, 49 Austin RoadKowloon, Hong KongPhone: +852 27386211Email: [email protected]
Consulting-Outsourcing-Capability Building