Monday, April 2, 2018

Profit Building Demand Sourcing Strategies for Today's Retail Apparel Market


Principle 7: Retail Profit is Based on Cost per Units Sold NOT Cost per Unit Made
What is the future of apparel marketing and manufacturing in the digital age? Where is the solution to the loss of over 97% of jobs in one of the countries largest manufacturing sectors?  It’s obvious after decades of “Buy American” political platitudes, questionable sourcing promises and bogus promotions, that the answer has evaded the current establishment.  In fact, importing overseas manufactured apparel continues to increase and U.S. retail sales are up, so what could be wrong with this picture?  This makes no sense, how can sales be up yet, retail stores are closing at record rates?  The popular answer is to blame on-line sales even though they represent only about 15% of sales.  Article after article on the “retail apocalypse” blames the demise of malls and traditional retail on the impact of on-line purchases but if sales are hitting records how can stores be failing.  Blaming online sales for this situation, simply ignores the glut of excess inventory caused by the pursuit of lower cost of goods in an economically unsustainable sourcing system.

Inventory Kills Profit

Although supply versus demand may be a viable predictor of future economic sourcing trends it is no longer a viable maxim for predicting profits.  Citing mass production efficiencies and negotiating a requirement for lower costs to support profit projections, is old school logic with disastrous results.  The disconnect between sourcing and selling causes merchandisers have to compensate with excessive retail pricing markups, to allow for the deep discount clearance sales required to clear the excess inventory. The systemic problem is maintaining any retail margin, since according to Accelerated Analytics, less than 25% of the inventory is actually sold at the retail price.  When wholesale buying decisions have to be made and financed months in advance the odds of matching inventory to sales are not good.  When you factor in inventory multipliers like color, print and size variables the chances of selling out an entire line of apparel at the projected profit are probably only slightly better than actually winning the lottery.

Fix the System

The greatest difficulty in the world is not for people to accept new ideas, but to make them forget about old ideas
   John Maynard Keynes
Every day new “next big ideas” are touted as the biggest opportunity to capture the future.  Most of the time this brilliant break through is tied to a stratospheric idea like cell regeneration or artificial intelligence.  This future enterprise is soul stirring and often wallet building for the one-percent club, but it does little today for building the working base of our economy.  Jobs in today’s economy have been under assault by big business for years through the constant pursuit of bigger and bigger market share and market sector competitive control.  The top financial tier’s rationalization of ambition as an acceptable definition of greed has exacerbated the divide between Wall Street and Main Street.
Big business and big finance have made a huge error that ultimately could swing control back to local entrepreneurs and domestic manufacturing.  That error of cost based leveraging of mass manufacturing is almost totally dependent on business’s outdated concept of the industrial revolution.  The out dated maxim that if you can make it cheaper based on efficient mass production and the belief that the market will always expand to match production is over.  Today’s version of market expansion is to make it cheap and discount the price to create perceived consumer value.  Ultimately this strategy erodes profits and creates waste.  The retail truth is discounts raise sales but lower profits, higher sales at lower profit directly affect store operating margins and eventually close stores.  Sooner or later, less selling locations causes lower volumes and drives up manufacturing costs.  This trend looses jobs and further inhibits bringing back manufacturing.

Consumers are Driving a Paradigm Change

Article after article reinforces the change that a consumer driven formula of product/value is replacing the risky merchandising formula of price/value.  As consumer’s closets fill up from sale priced deals, product selectivity replaces price seduction and value shifts from price to product.  This shift in consumer purchasing paradigm is shifting the sourcing model to smaller orders and faster style shifts. Why should a shopper search their local store when the entire product universe is available online? Ultimately, this merchandising shift is further accelerated by the speed and selection offered on line.  The path of change is defined by the statistics that illuminate the decision to buy process for consumers. Although consumers still purchase about 85% of their apparel in stores and only about 15% online, the decision on where and what to purchase is influenced by a web search over 80% of the time, a trend that is growing every year.  This multi-channel purchase approach forces retailers to offer greater choice, theoretically increasing the number of SKU’s in the store’s floor space.  Retailers and brands that still buy based on the mass production principle of “volume = lower cost” are doomed to a “buy-stock-discount-dump” merchandising cycle.  Current strategies of “lean” inventory volume or selection are just band-aids since the influence of online choice continues to expand.  Under the current structure of mass manufacturing, reducing inventory volume increases production cost and increasing inventory choice can explode the pre-manufacturing and merchandising costs and drive higher manufacturing contract minimums.

Finding a Profit Sustainable Solution

Is there a “silver bullet”? Sure, there is always a silver bullet, solution.  The trouble is that everyone’s definition of their silver bullet is in the mind of the beholder.  However, there is one common denominator that seems to meet the definition of a solution that spans the economic goals of both Wall Street and Main Street.  That common goal is sustainable profits.  Years of experience and leadership responsibility have taught me that the simplest path to a common goal is to find the intersection of common tasks.  Reviewing the paths of retail stores, apparel brands and product manufacturing the task intersection required by all three is the holding of inventory.  So what happens if we get rid of the common requirement of holding inventory, does this create profits?  What if every product manufactured was already sold?  What if every product a retailer sold was replaced in real-time from a virtual inventory instead of warehouse full of mass produced apparel ordered months in advance, financed by factors and ultimately sold at discount or dumped in a landfill. 

The Profit Guarantee of the Virtual Inventory

Selling, ordering, manufacturing and fulfilling orders in real time from a digital SKU in a Virtual Inventory (VI) is no longer a technological reach.  We can now design, visualize, color, customize, sell, pick, produce and fulfill in hours or days depending on the SKU.  AM4U and its predecessors have spent 18 years and millions of dollars learning how to design, build and integrate demand factories capable of producing finished permanently colored apparel from a roll of greige fabric in just hours.  These Integrated Micro-Factories (IMF’s) use a customer’s purchase information to pull a digital SKU from a VI cloud and convert binary code into a finished custom retail apparel garment that matches the shopper’s selection.

Applications for Increased Retail Profits from Virtual Inventory

The Virtual Inventory dramatically affects the profits of all three tiers of the supply chain.  The Manufacturer sells and ships everything he makes, the Brand gets full mark-up and avoids tariffs and warehouse charges and the Retailer sells more goods at full price.  Here are examples of the impact at the manufacturing, brand and consumer retail levels.  Each tier of the sourcing and merchandising path has multiple concurrent strategies that can be used to balance production and to optimize profits for manufacturing and integrate multiple merchandising paths for brands and retail. 

Integrated Micro Factory Income/Profit Applications

Each of the four basic production strategies creates a different balance between volume and income.  This is because of the variation in production speeds for each station.  Balancing the productivity of the stations is a critical factor in optimizing both operational cost and maintaining customer deadlines.  Once the SKU is selected from the VI the digital printers and the heat press stations can produce the highest volume while the cutting and sewing stations produce the lowest volume per hour but the highest value added per unit.  

            Self Branded Online Sales

The highest profit application of the VI in manufacturing is self branded online sales, however this is also the highest risk application since it requires a manufacturing entity to design, market and fulfill it’s own product line.  These skills, cost and risk are not usually core capabilities of a production facility.

            Purchase Activated Manufactured Product Fulfillment

Partnering with an established product marketer in the retail and/or the online selling space can reduce risk and cost while increasing profit substantially.  Care is required to maintain silhouette discipline and to adopt other longer lead or partial production products to level the demand on internal sewing assets.  This relationship is a true profit sharing agreement with the marketing partner because of assurance of sell-through at retail price since the manufacturer is only producing pre sold product.  Two of the best apparel products to start are fast food uniforms and athletic wear.

            Roll 2 Roll Demand Fabric

This application is most often used to balance the load between coloring and cut/sewing.  The profit available is determined by the speed differential between the digital coloring station and production’s cut and sew stations.  Since the speed and labor cost of fabric coloring using digital technology is continuing to improve the disparity between digital print and dye productivity and the productivity of custom cutting and sewing continues to be a major roadblock to full purchase activated integration.  The most successful strategy to capitalize on this growing speed gap is to focus the additional productivity of the coloration station by producing printed fabric for traditional cut and sew contractors.  These contractors will increase their income by providing their clients with higher quality prints with no required minimums or expensive setup charges.  Since this service has more flexible deadlines that one-off pre-paid production it can be used to balance the production stations in the micro-factory.  Even though the profit level difference between PAM and demand fabric is often eight times higher for PAM the volume for demand roll 2 roll can produce income to at least cover operations and G&A costs.

            Wholesale Demand Replenishment

This income stream is the ultimate Demand Sourcing strategy, it is also the most difficult to employ.  Demand replenishment is the real time production of finished goods based on actual sales transactions at retail and online outlets.  Daily production is based on the quantity and velocity of goods needed to maintain the Days of Supply (DOS) projected by the retail customer.  This strategy is most effectively employed at the brand level or at retail and online sellers that can make consolidated daily inventory projections.  The biggest risk in this income source is the accuracy of the POS data that drives the calculation of the DOS daily production.  The key to deploying this strategy is to build from a single cut pattern that depends on decoration to define customer value.  Licensed character products like children’s pajamas and entertainment promotional item are a good place to start.  The value of this strategy is the ability of digital production to change prints on the fly to support hot items or change slow movers to a new image with out dumping non-selling conventional overproduction.

Demand Sourcing Brand Profit Applications

Brand level demand strategies are designed increase the percentage of sell through by creating a vertical control path between the retailer and the manufacturer or the consumer and the brand acting as a retailer.  These strategies free the brand to design and test many different prints and colors without risk.  The brand can also offer the retailer a number of high profit low risk “store within a store” options like the Endless Aisle.

             Brand Store Demand Replenishment

True Brand stores and Factory Outlet locations have the advantage of levels of operational control and reporting transparency.  This relationship can provide some measure of real time inventory management, the key ingredient for Demand Sourcing.   With some brands these locations are the perfect site for on site customizing with Direct-to-Garment (DTG) printing.

            Purchase Activated Direct Online Sales

Brand operated online sites which are now often used to clear excess inventory are much more profitable as custom fitted and custom decorated consumer sites.  They can also be used to reality test new products and designs using actual consumer transactions to measure sales potential.  Using a Virtual Inventory to support this site and products removes the risk and cost of development and preproduction costs and minimums.

            Wholesale Demand Replenishment

Demand replenishment of the brand’s retail locations allows a number of new relationships to be developed.  One such contractual change is the a “Style purchase” contract which allows the retailer to change the decoration and color of a product that is not selling while still offering the entire style selection on line or through the “Endless Aisle”.  The Style contract take advantage of digital printing’s key opportunity, the ability to change colors and designs on the fly.  The Style contract limits the pattern to the cuts and grades in production but allows for real time changes in print or colors based on POS results. Currently the biggest risk to DR is the inability of retailers to collect and report daily sales by SKU and to predict DOS and style corrections based on actual sales.  Brand verticality and POS data consolidation and prediction algorithms in PLM software can resolve this risk.  Style contract integrated with real time product sales history can optimize individual store offerings to fit local demand.

Demand Sourcing Consumer Sales Profit Applications

Purchase Activated Manufacturing (PAM) and POS based Demand Replenishment (DR) can replace risky single mass purchase forecast based sourcing for high-risk print based apparel.  Now that the technology is in place and production ready the missing piece to working demand sourcing is consolidated daily POS reporting.  The addition of sales DOS algorithms to PLM software can add this missing piece.  Demand Sourcing allows retailers to efficiently focus on customer product value by offering unlimited choice and/or personal customization. 

            Demand Replenishment

The demand replenishment strategy allows retailers and online sellers to use actual sales data to establish a product life path for each SKU.  By using algorithms based on test market and actual sales.  Weekly replenishment allows for constant adjustment and even product revision or replacement.  The sourcing team becomes much more of an inventory manager than a purchase negotiator.  The ultimate goal of “Never overstocked and never out of stock” becomes a retail reality.

            Purchase Activated Direct Online Sales

Purchase Activated Manufacturing (PAM) is an integrated sourcing and merchandising strategy that allows retailers to compete with online sellers with the advantage of previous live personal contact and huge virtual inventories. Retailers are able to offer customized and personally fitted product with almost no inventory risk as compared to online only stores which can face up to a 35% return rate.  Since retailers can establish a customer’s previous in store try-on purchase record they can customize previous purchases to new colors or prints or use sizes to offer new product to member customers.

            The “Endless Aisle” Merchandising Solution

The “endless aisle” (EA) is a term for the integration of the Virtual Inventory with consumer merchandising.  In an EA scenario the consumer can directly pick and customize product in a 3D/360° visualization from a vast inventory of production ready products stored in digital form.  To simplify the scale of this concept think of a hundred thousand square foot warehouse packed with apparel that can be digitally replicated on your laptop.  The EA cannot stand alone, it only functions if the VI is directly linked to a PAM factory that can produce and fulfill the consumer’s purchase on demand. The EA however has the advantage of both a physical in store consumer experience for local shoppers and an unlimited online choice for remote shoppers anywhere on the Internet.  Boutiques and store-within-a-store specialty retailers depend on consumer loyalty to produce the repeat customers they need to exist. The ability of the EA to provide choice and personal experience can ultimately be used to morph the virtual inventory into a personally tailored set of custom choices for each store patron.

 Summary
These sustainable profit strategies allow retailers and brands to compete in the world wide market while retaining the advantage of the customer reach in their geographic location.  These strategies require a level of cross-functional integration that is not currently the norm in most retail organizations, therefore it is recommended that the implementation should be specific to product lines that have the highest history of clearance discounts or overstock risk.  Many brands and retailers have tried to implement programs using digital printing or visual design software without complete integration of merchandising and sourcing so far most have been spectacularly unsuccessful.  AM4U has spent almost twenty years and millions of dollars developing the integration bridges, physical equipment and factory trials that have allowed us to experience most of the roadblocks and incorporate most of the successes of the Demand Revolution.  We are available to share that knowledge at bgrier@am4u.com.

Wednesday, February 28, 2018

Learn the Vocabulsry of Demand Manufacturing


Demand Manufacturing Glossary


The most important aspect of today’s evolutionary shift from the mass manufacturing of the “Industrial Age” to the advent of the “Digital Age” is the promise of Demand Manufacturing and Sourcing which captures sustainable high profits through a digital “Virtual Inventory” (VI). This opportunity to tie production directly to sales minimizes wasteful over production and the resulting environmental impact while providing a quantum jump in product choice and wholesale and retail profits.
Demand Manufacturing is divided into two production paths that are defined by the customer. Individual pre-paid consumer custom products are produced using Purchase Activated Manufacturing (PAM) and wholesale production that replaces actual retail product sales in store or on line is called Demand Sourcing (DS). 
An Integrated Mini-Factory (IMF) is capable of both manufacturing paths. Demand Sourcing allows the online or brick and mortar retailer to operate in the dream state of "never out of stock and never over stock"

Now that the technology is tested and available it's time to define the terms used to describe the elements of Demand Manufacturing:


Active Tunnel Infusion (ATI)

A permanent coloring process developed and patented by AM4U, Inc. that uses clean physics with no water instead of chemistry to dye and/or print fabric.

Color Space

Display monitor screens are portrayed in pixel based Red Blue Green (RGB) color space. Digital printing appears as dot arrays of Cyan, Magenta, Yellow and Black (CMYK) color space.

Color Cone

A graphic representation of all the factors required to be in alignment to reproduce matching colors job to job and/or between digital printers.

Color Profile

An ICC profile is a RIP translation table that provides RGB, CMYK or Lab color values directions to the nearest CMYK printable value for each color. Profiles are not used for color correction on a file-by-file basis.

Configurator

Software used online to modify an image or product. Usually used to change the color and/or embellishment on an item pictured in a catalog or customizing display.

Cost of Goods Sold (COGS)

The cost of product is calculated as the total cost of wholesale products actually sold and shipped or retail products actually purchased at full or promotional price. “Cost of goods sold” replaces “cost of goods”

Cost of Units Sold (COUS)

In demand manufacturing units are not produced until after they have been sold. Since there is no pre-financed physical inventory the cumulative cost per unit is calculated as product is produced. “Cost of units sold” replaces “cost per unit”

Custom Stock Unit (CSU)

This inventory designation represents a personalized product appropriate for sale to a specific individual or individuals. In unit manufacturing there are very few situations where a CSU exists without the actual sale already in place. Forecast based CSU’s that remain unsold represent the largest risk of inventory liability.         

Days of Supply (DOS)

The speed of product throughput and shipping determines how many days of supply the production line needs to manufacture to successfully manage the consumer available inventory so that at least one of every offered SKU is available during the selling cycle. DOS replaces “inventory levels”

Demand Sourcing (DS)

Buyer’s restocking order caused by retail sales rate and DOS

Digital Core

The digital core of a product is the descriptive binary data that never changes whatever process; assembly or logistics instructions are attached as variable instructions to the digital core. This is part of the Tech Pack for apparel.

Digital SKU

Once products have completed the design and development process they are registered with a design number and stored in a digital folder of SKU marker sizes. Once a production style is in the digital inventory it is ready to be assign a search path and added to the Virtual Inventory (VI) for production on demand.

Digital Support Instruction (DSI)

The DSI for a product is all the supporting materials inventory information required to produce one or many of that particular SKU. In order for the DSI to be to quickly available to the active scheduling roster, the integrated GSU status and ERP (see below) must be current.

Digital Twin

The “Digital Twin” is a sophisticated virtualization model developed by Black Swan Textiles to compare and facilitate existing systems. A factory utilizing the Digital Twin methodology has modeled all manufacturing equipment, operators, and processes, enabling it to simulate the operations necessary to assemble any particular product.

Direct to Garment (DTG) & Direct to Fabric (DTF)

Printing machines that print directly on finished garments (DTG) or directly on fabric roll goods (DTF).

“Endless Aisle” Retailing

A retail display using a touch screen, body scanner and video mirror to offer endless VI choices to a consumer. Displays can include a try-on product that can be visually customized and produced for delivery through store pickup or home.

Generic Stock Unit (GSU)

This inventory designation is normally used for items that can be assembled into a number of different products. Although GSU's are usually roll goods or parts in their basic form (greige or PFP fabric) the designation is also used for items, which are partially assembled but still may be used for many products.

“Grays”

The sewn and finished blanks used to confirm the fabric, fit, production speed and process steps for a specific silhouette. Grays are often part of an “endless aisle” display or are used as a merchandising tool to reduce returns in swimwear

Integrated Mini Factory (IMF)

One of the key features of an Integrated Mini Factory is that all of the coloring, printing, cutting, sewing and fulfillment are under one roof. This allows for the ultimate in “lean” manufacturing because the minimum can be one custom unit or a multi unit retail replenishment order that matches consumer sales.

Job Tracker

An optical reader and / or a RFID signal track each job and piece through the production path.

Landed/Duty/Paid Cost (LDP) 

Actual cost of imported products including: materials, labor, transportation, duties, forwarding, warehousing and internal distribution.

Linearization

Linearization is an iterative process used to control dot placement for each color for a particular device, ink and substrate using software and press settings. This process balances the primary colors and dot placement. It is performed before ICC color profiling.

Micro Merchandising

Using social media and other online aggregation tools to identify and target specific silhouettes, colors, fabric and decorations at special interest individuals and groups.

Point of Asset (POA)

Point in the production path when a GSU is transformed into an irreversible SKU awaiting sale. Items passing this point are a liability until finished and shipped even if they are pre-purchased.

Purchase Activated Manufacturing (PAM)

A pre-paid purchase order, usually individualized, that triggers a production event.

Process Integration

Building the bridges between separate technologies to produce a demand-based seamless path between product design, sales and marketing, coloration, cutting, assembly, finishing and fulfillment. Connecting these developed products requires technology, technique and field experience.

Product Cycle

Once a style folder is registered, the product cycle can begin, usually with sales samples followed by initial stocking orders. Replenishment orders follow based on actual consumer “take away” until the product can no longer sustain the merchandise turns to maintain its place in the retail store inventory.  Depending on the terms of the replenishment contract the style may remain in a digital catalog for individual ordering.

Product Performance Index (PPI)

The predetermined index of product velocity (turns) times gross profit that a current product must meet to remain active (e-tail) or on the shelf (retail). If a product does not meet this index its “digital instruction” in the Virtual Inventory is retired but still available on order. Maintaining a continuous table of PPI tracking by SKU is the key to increasing sell-through and maximizing profits.

Raster Image Processor (RIP)

The RIP is the Raster Image Processor software that translates the pixel based RGB color on the display screen to printable CMYK color and resolution for actual production.

Replenishment Contract

The basic document that describes the criteria for production of a particular style is the replenishment contract. This document sets the DOS standards for order content and logistics timing as well as finishing, packaging and order fulfillment.

Style Cycle

Design and development of a Style Group (see below) involves the traditional process of pattern making and new process of fabric building. Pattern making is the traditional process of determining the shape and look of the garment and then the grading and reduction of the garment to a digital cutting marker for production. Fabric building is the selection of the white fabric style (silhouette) and the printing of decorations and colors to determine the print choices, which will comprise the style group.

Style Group

A Style Group is a single or group of garment silhouettes that occur in preset graded sizes on the same white fabric. The customer can choose from preset or custom print or color. Since process color cost is constant, one of the key merchandising advantages of digital production is the ability to change colors and prints on the fly without additional cost in a single style group. This allows the brand sales force to offer exclusive prints to each retail buyer.

Style Contract

A Style Contract set a total purchase volume then allows a buyer to change the decoration and color of a SKU within the Style Group on short notice without penalty. This flexibility allows merchandisers to correct for a slow or non-selling SKU.

Stock Keeping Unit (SKU)

This inventory designation is the first product cost point on the consumer side of the POA (see above). Products at the SKU stage can represent assets if they still can be customized to add significant value, but they generally represent the first level of inventory liability.

Selling Cycle

The period of time a retail product is on the shelf before it is retired because it cannot maintain the predetermined PPI.

SMART Book

The Style Marker ART (SMART) book is a manufacturing quality control tool that contains all the customer approved process samples needed to check the production quality at each station in the manufacturing value chain.

Tracking ID (TID)

The TID is an order number assigned by the ERP or PLM schedule software that appears on each piece of a garment and is removed when sewn. The TID creates a continuous reference to the VI data (see below) and the product tracking dashboard.

Virtual Inventory (VI)

The VI is the searchable digital warehouse of SKU's and configurator resources.

For more detail and information click: http://virtualinventorymanufacturing.blogspot.com/2017/03/building-domestic-apparel-manufacturing.html

Wednesday, November 8, 2017

Saving U.S. Apparel Jobs: Automation or Integration???


Today's Solution is Integrated Virtual Inventory


Almost every day we see articles, releases and product features about the automated future of the apparel and textile manufacturing.  Magazines and PR articles regale the industry with breakthroughs and future technology announcing the “digital revolution”.  Meanwhile, retailers and brands disappear at record rates, labor abuses migrate from country to country and the deadly pollution of streams and rivers continues.  As an industry innovator and holder of a number of technology patents I can say without any equivocation, “There is no single magic bullet technology solution”. There is however a strategic business solution.
Millions of dollars are spent every year on everything from digital design platforms to robotic sewing but nothing really changes.  Sure automation, 3D printing, sew bots and AI may be in the future, but what can we do today to rebuild jobs and manufacturing. We are inundated by propaganda about the growth of American manufacturing and other patriotic come-ons while reality is that off shore apparel purchases increase every year.  Retailer, brands and manufacturers so terrified of change that they cling to the belief that third world mass manufacturing labor costs will create profits at home.  August 2017 imports of $42.6 billion were up 1.7% year on year according to OTEXA at the U.S. Dept. of Commerce.  Meanwhile, the country lost over 5,000 retail outlets and tens of thousands of jobs, while billions of dollars in new imports flooded the system.  Even though retail unit sales are increasing monthly (according to AcceleratedAnalytics, September Update) the clearance sale discounts required to move this growing surplus are destroying the profits needed to operate stores.  The consumers will soon fill their closets with these bargains and the inventory backup will reach an intolerable level of constipation that will cripple brands and manufacturers that will loose more retail selling outlets every day.  Online sales will relieve the glut ache for a while, but it can’t solve the overall problem of dependence on the out dated “industrial revolution” philosophy of leveraged volume efficiency.  Waiting for politicians or automation to solve today’s pain is a fool’s errand.  The question is what can we do TODAY!

Why Can’t the Apparel Industry Catch-Up to Reality?

It can, and here’s how!  Take the technology we have today and concentrate our efforts and money on integration.  Over the past 18 years our team has built and rebuilt demand factories in attempt to create the efficient ability to convert inventory data directly into physical apparel.  We found that building bridges of integration between the technology “silos” was the most efficient and immediate path to returning sustainable profit to the apparel industry.  The integrated focus of all the available technology clearly was to connect the risky physical inventory directly to sales at both the retail and online level.  This pursuit of the “Virtual Inventory” that literally guarantees profit on every sale represents the key to individual customization and thousands of localized apparel manufacturing jobs. 
The goal is now attainable and here are the technology integration steps required to start bringing back jobs and profits product by product:

1. Technology Integration: Adopt Modern Coloration Technology

The single most important technology requirement is shifting the sampling and production coloration of fabric from traditional mass production spot color to modern digital process color.  Mass production requires the man hours and cost of color separations, custom color mix, dip approval, screen making, registration, and production printing and drying, which, cannot match the change-on-the-fly instant capability to change the print and colors on a digital printing unit. 
The textile industry and its research organizations are focused on tuning old technology. The time and money they have wasted on mass spot coloration has blocked much of the integration required for change-on-the-fly coloration.  If they had spent one percent of those resources on process color we would be changing colors and prints on the fly just like the color printer on your desk.  Digital process color printers, like the printing units that businesses’ use every day, operate with four or six fixed colors and create visual colors by adjusting the density of the dots of each color.  The variations in density allow your eyes to process different colors from the reflections of light from the different concentrations of dots.  This is how everything from magazines to labels are printed today it is even how your television and smart phone send you images. The problem is, this is not how 99% of apparel is colored today, that process hasn’t changed in hundreds of years.  Digital process color can remove the pre press costs and press preparation labor as well as the post-printing cleanup that drives minimum inventory purchase requirements.
Example:  The critical criteria for matching colors and
 multi location output using digital Active Tunnel Infusion 
permanent dye and print coloration.
The transition isn’t easy it requires a detail understanding of the basic colors and their distribution and dot density as well as how the colorant reacts to each fiber type and construction.  Unfortunately the “help” landscape is not populated with many experienced practitioners.  The color experts are generally ink makers or printer makers and neither have experience with the multitude of fabric and fiber combinations or the multitude of care and wash tests required.  The fabric and industry experts have little experience with RIP’s and dot placement so they often have little hope of color matching.  This lack of integrated end-to-end knowledge can be a real bump in the road. But then, learning how to use process color is not any more difficult than learning how to use e-mail or a smart phone.  Skills most of us have conquered over the last few years.
 

 

2. Financial Integration: Understanding Physical Inventory Risk and Virtual Inventory Opportunity

A Virtual Inventory (VI) is a digital warehouse of SKU’s that exists in binary form and is ready to convert to physical product on demand.  In VI form a hundred thousand square foot physical warehouse of products in all sizes and prints fits in one TB of storage on a standard computer.  A fully complete VI contains all images needed for retail merchandising and online presentation of the product in 3D/360° and all 2D nests and TekPak data needed to print/dye, sew, label and finish the product on demand.  The savings in inventory management, reduced shrinkage loss, and storage space costs are obvious but minor compared to the savings from avoiding over production.  Over production and the resulting surplus inventory is the largest single contributor to the profit erosion plaguing retailers, brands and producers today. According to “AcceleratedAnalytics.com” retailers are selling less than 25% of products at retail price in the first 8 weeks on display and less than 30% after 13 weeks.  As a result of clearance discounts unit sales are up but gross profits are down.  Closing locations may improve corporate G&A but it does nothing for individual store operating costs, in fact it increases the inventory pressure by reducing selling outlets. 
The inventory glut of off-shore mass manufacturing is eroding
 profits used to operate stores and pay employees.
This systemic glut of inventory and the accompanying financial risk spreads up the supply chain to the brands and manufacturers, who order or produce volume to leverage cost, then have to absorb charge-backs and shipping order cancellations. At this level no amount of “Brand Outlet Stores” will provide anything but temporary relief for this unsustainable economic system of “Over Produce-Discount-Dump” apparel marketing.

3. Communication Integration: Adopt Real-time Sales and Ordering Data, Analysis and Communication

Since there is no demand manufacturing without demand, it is critical for manufacturing to have direct access to consolidated POS data.  This data needs to include distribution path protocols and transit times as well as status of retail on hand sales inventory.  One of the biggest problems with demand manufacturing becoming a reliable source for retail replenishment is POS systems that do not consolidate and order in real time.  The speed and accuracy of inventory movement data is a basic component of building an effective and efficient virtual inventory.  Knowing the characteristics and trends of a products movement is critical to establishing a safe and appropriate on hand inventory and a consolidated Days-of-Supply (DOS) for production scheduling.  Product movement mapping is critical for manufacturing and distribution scheduling, as well as establishing on-hand DOS inventory safety levels at every product movement stop between raw materials sourcing and final customer fulfillment.
Technologies like RFID and enhanced PAM and ERP software are available but must be expanded to process and order product on a much more timely basis to support demand manufacturing and weekly store replenishments store by store and SKU by SKU.

4. Process Integration: Embrace Fully Integrated Solutions Connecting; Merchandising to Inventory to Production to Fulfillment

The apparel and textile industry was historically built as an interrelated system of independent companies or cottages and for the most part that system remains.  The industrial revolution only increased the size and production volume of the cottages, but not the structure of the independent stations along the supply track.  The connections between the farm, factory, brand and store stations were working until the train was required to travel at a much faster speed than the tracks could sustain.
Now that the technology is available to sustain the demanded processing speed at each station we need to fix the tracks and bridges to sustain the new digital system.
One bridge must be built between digital design platforms and consumer product 3D/360° display devices that provide customization and fitting both on the Internet and in-store.  The same software must produce a corresponding 2D pattern and TekPak suitable for storage, search and printing.  Another bridge that needs to be built is between consolidated POS data and the Virtual Inventory to provide scheduling and logistics input for all the stations down the line to the store or online transaction.  Until all the stations are connected and the supply and sale are linked a light speed the system will be as efficient as its slowest link.  The biggest opportunity however is that brands and retailers can set up a test mini-factory to focus on a small decoration sensitive product group like leggings or children’s pajamas and profit from demand manufacturing immediately.

Summary

There are specific differences between a demand manufacturing plant and a traditional assembly line mass manufacturing plant. The primary profit approaches are very different. A demand plant is built to deliver product from a virtual inventory and to assure a profit by replacing product that has been sold at retail price, preventing clearance dumping. In mass manufacturing the buyer produces profit by leveraging the cost through volume and manufacturing efficiency.  The basic personnel organization of the demand plant is in integrated independent modules that move variable product traffic through a series of control and quality check points. The mass manufacturing plant, on the other hand, produces a continuous line of fixed identical production ending in the final inspection of the product.  In demand manufacturing the emphasis is on individually addressable customer value instead of cost leverage of volume efficiency of mass manufacturing.  


Wednesday, October 25, 2017

Principle 6: Building A True Demand Manufacturing Factory


Manufacturing Capacity is Set by Distribution Path

There are specific differences between a demand manufacturing plant and a traditional assembly line mass manufacturing plant. The primary profit approaches are very different. A demand plant is built to deliver product from a virtual inventory and to assure a profit by replacing product that is presold at retail price, preventing clearance dumping. In mass manufacturing the buyer produces profit by leveraging the cost through volume and manufacturing efficiency.  The basic personnel organization of the demand plant is in integrated independent modules that move product traffic through a series of control and quality check points. The mass manufacturing plant, on the other hand, produces a continuous line of production ending in the final inspection of a finished product.  In demand manufacturing the emphasis is on individually addressable accuracy instead of common factor volume efficiency.

Product Discipline

After over twenty years of experience and many painful learning moments the AM4U team has generated a flexible blueprint for true demand production. For years the apparel industry product design has been limited by the cost and risk of decoration because of the minimums and technology of traditional printing and dying.  New technologies like Direct-to-Garment (DTG) and Active Tunnel Infusion (ATI) have enhanced digital printing and dying to virtually remove minimums and time to market risks, enabling unlimited apparel decoration. This ability to print or dye whatever and wherever the designer wants reduces sew in colors and can create thousands of designs from the same blank silhouette or common print.
Silhouette discipline can help with easier adoption of demand manufacturing
changes by limiting the number of pattern and sewing issues and expanding
the opportunities for print and color designs that can be tested without risk.
One of the first rules in designing a demand facility is to understand the range of items each production line is expected to customize on demand. The ability to customize on the fly does not open the opportunity to re-purpose production from shoes to dresses for instance but the modular station structure does allows for the ability to use common functions to create a custom product path.  The demand product path and its modular station structure allow ultimate flexibility to adapt to changing demand volume and customize a range of generic product production; however, product silhouette/print discipline is a fundamental key to quality assurance. The production paths below illustrate this inherent flexibility.

Production Flexibility

This ability to rapidly adapt to changes in specific product demand or product category addresses the key structural danger inherent in demand manufacturing.  Since every level of production ultimately depends on consumer demand the structure of the factory must embrace the peaks and valleys of production at a capital equipment and personnel level.  During the research and design period of our development of a fully integrated PAM site we anticipated the possibility of personnel flex based on demand cycles, however the flexibility required after we began actual production required significant additional creativity. It took years of adjustment and trial and error to develop the structure, technology and techniques to deal with the new challenges of leaving the production schedule in the hands of the consumer.  The critical requirements needed for multi dimensional flexibility described in the next pages will provide a path through the minefield that transforms high risk forecast driven mass manufacturing into a high profit, virtual inventory, purchase activated system.

Critical Requirement One: Flexible Coloring Technology

The single most important technology requirement is shifting the sampling and production coloration from traditional mass production spot color to modern digital process color.  Mass production requires the man hours and cost of color separations, custom color mix, dip approval, screen making, registration, and production printing and drying, which, cannot match the change-on-the-fly instant capability to change the print and colors on a digital printing unit.  

Rotary Screen Presses require color separation, special ink mixes, individual
ink mixes for each color, screens are then constructed and installed, then
registered.  Fabric is then printed in repeat based on cylinder size.  When
complete the press is broken down cleaned and the process repeated.




The textile industry and it’s research organizations focus on tuning old technology and the time and money they have wasted on mass spot coloration has blocked much of the integration required for change-on-the-fly coloration.  If they had spent one percent of those resources on process color we would be changing colors and prints on the fly just like the color printer on your desk.  Digital process color printing, like the printing units that businesses use every day, operates with four or six fixed colors and creates color by adjusting the density of the dots of each color.  The variations in density allow your eyes to process different colors from the reflections of light from the different concentrations of dots.  This is how everything from magazines to labels are printed today it is even how your television and smart phone send you images. The problem is this is not how 99% of apparel is colored today, that process hasn’t changed in hundreds of years.  Digital process color can remove the pre press costs and press preparation labor as well as post-printing cleanup. Process color can make a significant difference in throughput capacity as well as cutting and sewing time.  For instance, digital process color can reduce the number of pieces and seams and sewing steps because colors could now be printed in rather than cut and sewn-in.  In addition the ability to change-on-the-fly reduced the employee headcount and the production waste to a minimum. Financially, the impact of producing daily inventory matching demand created weekly billing and a steady stream of cash flow from customers.  One method of balancing the workflow was to create a second stream of income by producing a house brand product for direct consumer orders and capturing retail income for a flexible shift of B2C online business.  This second channel requires a merchandising staff and may require extra head count in the fulfillment section.  A secondary e-tail channel should only be attempted if the demand facility is linked with an online marketing service and product graphics sources.
Digital inkjet have great versatility to print on fabric, donor paper for sublimation
and even directly on shoes and other accessories.  They change colors on the fly
and can have a color pallet of millions of colors.

Other technologies like optical recognition cutting, piece and automated garment handling systems are important but change-on-the-fly digital coloration is the primary technology adoption that enables a virtual inventory and the associated increase in profits.  The shift to process color is will be very difficult, there is hundreds of years of “we do it this way” mentality to overcome, in addition retraining separators, screen makers, printers, designers and merchandisers to a new more efficient streamlined system will encounter more gate keepers, rules, resistance and more delays than getting a five year old to eat their veggies.  In addition to these roadblocks the performance and color durability test procedures designed by the current authorities are not designed to evaluate, support and create care labels for process color and there seems to be little interest in change.
This is a detailed list of the prep and labor actions that drive print providers to
charge surcharges or require minimums.  Ultimately causing clearances
and dumping losses and operating funds risks for retail and brands.

Critical Requirement Two: Accurate and Timely POS Data

Since there is no demand manufacturing without demand, it is critical for manufacturing to have direct access to consolidated POS data.  This data needs to include distribution path protocols and transit times as well as status of retail on hand sales inventory.  One of the biggest problems with demand manufacturing becoming a reliable source for retail replenishment is POS systems that do not consolidate and order in real time.  The speed and accuracy of inventory movement data is a basic component of building an effective and efficient virtual inventory.  Knowing the characteristics and trends of a products movement is critical to establishing a safe and appropriate on hand inventory and a consolidated Days-of-Supply (DOS) for production scheduling.  Product movement mapping is critical for manufacturing and distribution scheduling, as well as establishing on-hand DOS inventory safety levels at every product movement stop between raw materials sourcing and final customer fulfillment.

Logistics Track

Working backward from the retail consumer transaction POS data is used to build two integrated tracks of information.  The first and critical short-term track is logistics.  This track controls, distribution and transportation in the traditional mass manufacturing structure, however; in a demand structure with a virtual inventory the purchase information actually drives the real time manufacturing of the product and all the associated generic stock unit (GSU) inventory levels and supplies.  The critical accuracy of this information and its timely processing and consolidation will determine everything from manufacturing error rates to the matching of on hand inventory with actual product movement and retail profits.  Expanding current ERP, PLM and EDI capabilities will determine the scope of change and retail recovery over the next few years.

Forecast Track

The second track for POS information is planning.  This track is less immediate but just as important for long term profitability.  The difference between a planning track and a traditional forecasting track is mostly about extending real transactional information as a planning tool versus using associated trend projections as a planning tool.  Forecast models in DM are built on formulas derived and populated with actual sale information.  These extensions include details like sizes and search information as well as micro merchandising preference projections.  Demand assumptions are based on much smaller purchase populations when you are operating from a virtual inventory in a DR or PAM environment.  Forecasting will not disappear but it will be reduced in importance as an actual ordering and financing tool. This occurs because of two factors; first the ability to test market real product in real sales transactions is available through PAM and the customizability of a virtual inventory.  Products and trends can therefore be pretested in store or online without the cost of minimums and with the ability to tweak designs on the fly.  Second, the time from manufacturing order to retail sale can be reduced to ten days or less without minimums or large order stocking requirements.  
Currently apparel retailers are averaging selling
about 27% of a products on hand inventory before
clearance pricing begins.  The inventory glut discount robs
their transactions of the after COGS profits
needed to operate their stores.


 This significantly reduces the risk of overstock or under stock which trend forecasting was supposed to predict but, long manufacturing lead times and the additional inventory cost of short adjustment runs has made forecasting a tool to only predict trends but not to set inventory levels. This was further exacerbated by the focus of software producers on reducing the time of design through sophisticated pattern and 3D visualization software.  This availability of fast product development seduced brands and retailers into more offerings produced through the old mass production system.  This glut of product choice without the development of virtual inventories has constipated the retail track, which is forced to sell more products at greater discounts.  This increase in sales without corresponding profits has created an unsustainable retail environment resulting in todays cascade of retail failures.  Monthly apparel sales data from www.acceleratedanalytics.com shows retail sales volume up year over year in August 2017 while clearance sales of price reduced inventory drive gross profits down below sustainable operating cost levels.  

Critical Requirement Three: Strategic Physical Structure

The third critical level of flexibility is the manufacturing structure.  The assembly path of the product defines most manufacturing layouts.  In demand manufacturing the assembly path is a major factor but the quality control system is an equally important design requirement.  The importance of efficient quality management is simple math.  A production error in mass manufacturing when the minimum is 3,000 is an acceptable 03% error rate, but when the minimum is one, any error is a 100% error rate.  It’s important to remember there are no “production seconds” in Purchase Activated Manufacturing (PAM).  An efficient assembly path and no product quality rejections define manufacturing efficiency equally.
AM4U developed a team quality control system, which combined assembly path “stations” with quality oversight to produce an efficient and accurate production model. The product and the physical surrounding structure influence all manufacturing layouts and training, but the essential difference between mass and unit production must be designed into the production structure of the factory or the outcome will not be sustainable.  Further detail of the “station” production structure, technology and training will be discussed in Principle 10.Total Quality Manufacturing Depends on Team Building”.

Setting the Production Output

To be successful, Purchase Activated Manufacturing (PAM) for the individual consumer and Demand Replenishment (DR) for wholesale inventory replenishment depends on one key feature, delivery on time.  Sustained quality delivery depends on detailed prior planning and timely accurate purchase information.  In this section the focus will be on the elements of planning and startup.
Planning starts with the marketing plan instead of the traditional business plan.  This sequence is crucial because almost all the decisions about cost, timelines and production are driven by demand.   Establishing a consistent demand structure is critical to a stable manufacturing structure.  Dramatic changes in demand cause dramatic changes in workload and efficiency.  Fluctuations in demand will affect the manning table directly and the sewing module specifically.  Mixing the customer base with both PAM and DR orders allows for the continuous employment of quality sewing in both modular and progressive sewing production lines.  Modular (sample sewing level) skills are more expensive and are usually required for PAM production, but since PAM sales are retail direct-to-consumer they produce a much higher profit margin that absorbs the higher labor cost.  Progressive sewing lines are used to produce DR products at higher volumes, but at lower wholesale price levels.  Progressive sewing skills are determined by machine type and are task specific, and increased volume at lower labor costs offsets income per unit that is significantly lower.  Factory scale is set by balancing enough digital output of parts in one day to match 2-4 days of output in sewing and fulfillment.  The line personnel ratio is 5 in digital production (coloring, printing, cutting) to 11 in sewing (8 progressive, 3 modular) and 3 Supervisors (Station Manager Digital, Station Manager Sewing and Fulfillment, Production Mgr.) total 19 employees per production line.  Production of standard woman’s leggings per 8hr shift is DR 125-150 and PAM 45-55. Since the digital stations are capable of producing up to1000 individual custom leggings unit bundles per 8-hour shift the total production of the integrated mini factory is based primarily on the number of sewing lines.  This is a standard DR/PAM configuration there are a number of variations like manual cutting, piece drops, outside sewing contracting that AM4U staff tested with varying benefits and results.

The Starting Point

Because this is demand manufacturing not traditional capital intensive mass manufacturing the starting point is a single manufacturing line.  One of the differences between a demand plant and a traditional plant is the agility of the capital equipment.  With the exception of a few pieces of dedicated equipment (like specialized sewing machines) all the manufacturing machines and software are capable of change-on-the-fly task orientation.  This means that the capital equipment outlay and footprint specifications for a complete Integrated Mini-Factory (IMF) are a fixed cost no matter what the product offering.  For instance an IMF to demand manufacture fashion dresses is the same cost as an IMF that makes bicycle clothing.  This feature makes the starting point for building a DR and PAM capability and the resulting profit from a Virtual Inventory tied more to the demand level of the marketing plan than the traditional cost and projections of a traditional business plan.  The IMF is constructed based on actual demand and the scaled by adding appropriate modules based on actual purchase volume.  Each independent module can be tasked to produce a different product or can be attached to a different line to support a spike in demand or a technical interruption in production.

Building the Key Modules

Construction of the Customer Demand and Digital Production modules is a function of identifying and connecting tasks by priority.  For instance, not all of the functions listed in the Consumer Demand Module are required to complete Level 1, Catalog Level, of the Micro Merchandising Plan detailed in Principle Three.  Based on the overall marketing plan the acquisition of functions is a progression based on growth.  Some functions and acquisitions shown in red are critical to the initial planning.  By looking at the entire list however, planners can avoid costly back tracking as they progress to level 3, the Individualization Level or the highest merchandising profit level.

The Consumer Demand Module

The Consumer/Buyer module is the source of the demand information that drives the entire IMF.  The accurate and seamless functioning of SKU, volume, schedule and location information will determine the success of the entire system.  Managing information and graphics from diverse retail ordering systems is the most critical and difficult transition point in adoption of demand manufacturing.
Some brand and retail gatekeepers will use color matching
to resist changes to their current seasonal order routines. 
Establishing an initial color match can help reduce
friction to change.
One shortcut that has worked in the past is to work with brands to identify which fabric, design and garments they want pick to begin building the catalog.  Establishing this color and image base allows the manufacturing module to deal with the inevitable little disconnects that occur during startups. Watercolor Flamingo below is an example of the extension of a print and design across a number of garment and fabrics. 
This approach allows POS and buying functions to sync with virtual inventory, scheduling, production and fulfillment to establish efficiency and confidence in a Demand Replenishment (DR) system.

The Digital Production Module

The Production Module is the most difficult to build, because the development of the equipment and expertise has occurred without any cross pollination of overall direction.  For instance the inkjet companies are not concerned with dot gain and situation because their profit comes from selling ink.  The digital design companies are not concerned with feeding the RIP which translates their visual RGB color into printable CMYK color a key component of color matching.  Remember the single overall goal is a working Virtual Inventory, if any vendor or “expert” does not understand that… find someone else!

Taking full advantage of the Virtual Inventory and Digital Demand production still takes some graphics skills in the conversion of design files to printable nested garment layouts.  However, once the graded parts outlines are nested the task of filling with different prints and colors and storing the SKU in the virtual Inventory  is not difficult.  Finding a SKU in the inventory for production can be difficult if you have not established a uniform naming convention in advance.  Just for reference the normal physical to digital inventory comparison is 1TB of digital equals a full 100,000 sq. ft. warehouse of finished apparel inventory.  A key shortcut for building an efficient and accurate virtual inventory is to build a least one white version of every new SKU and size to check the Tekpak and fit before filling the digital version with color and print designs.

Key Planning Questions

What are you making?
Manufacturing scale, path and fulfillment speed is a function of product type, customer interface and distribution lead-time.  Over the years AM4U has developed a dynamic model that calculates capital cost (purchase or lease), manning table, break-even, and profitability risk based on daily projected capacities, sell-through and fulfillment/distribution speeds for different apparel products.  Once you determine what your primary product will be and the secondary products that the production technology and marketing synergy can support the model is easy load.  The process flexibility of virtual inventory, process color and digital cutting allows wide, no minimum, product selection in the fast section of production.  The slower task and machine specific sewing and finishing sections can be fed from a hub of coloration and cutting.  Matching the output per shift of the faster coloration and cutting modules with the slower sewing and fulfillment modules sets the production integration levels between modules. The fixed capital, materials and labor cost of the coloration and cutting modules compared with the variable capital and labor costs of the sewing and finishing modules makes the gross profit and delivery calculation for each order easy to compute, quote and schedule. 

Who are you selling to and How are you selling?

Integrating the production planning with both promotional PAM merchandising and seasonal DR retail customer promotions can both level production and sustained growth.  Balancing planning for hot PAM selling periods like Mother’s Day, Christmas or “back to school” when selling direct to the consumer may require additional personnel, first in fulfillment and finishing and then in the sewing module.  When scheduling overlapping PAM and DR a key feature of planning manufacturing volume based scheduling is the seamless transition between the production period required for DR distribution to retail customers (3-5 weeks) and the production lead times (5-10 days) for PAM orders.  This DR lead time allows part time and/or overtime employees to have the highest level experience and cross-training competence when individual and rush orders arrive.

Summary

In short, virtual inventory demand manufacturing integrates retail, brand and manufacturer growth and profit goal into one unified plan.  High profit Integrated Mini-Factories (IMF’s) using clean digital coloration and cutting while pulling product from vast virtual inventories is available today.  Brands are already feeling the pressure retailer’s are feeling today from the unsustainable pursuit of profit through volume leverage versus customer valued product customization and clean manufacturing.  Integrated Mini-factories will impact the apparel and textile segment just like micro brewers and vintners are impacting the beer and wine market.  
AM4U has spent the dollars and time to build the bridges, techniques and technology required to integrate visual design, digital merchandising, virtual inventories, demand driven production, and real time testing of the critical concepts of PAM and DR integrated factories.  
E-mail me at “bgrier@am4u.com” and we will help you test demand manufacturing for yourself.