COMING OF AGE WITH THE INTERNET

As a student of history I’ve often wondered if people that were alive during the transition between one cultural/economic age and the next realized they were witnessing a critical evolution in the human experience. Did Johannes Gutenberg realize that even though he would be given the credit for the first use of movable type (a technology that had been developed years before). His marketing choice to print the Bible encouraged church to sponsor widespread literacy that ultimately led to individual property ownership and the science and technology of the Age of Enlightenment. History can be very obscure if you happen to be living in the middle of it. Now as we stand at the twilight of the Industrial Age and the rising Information Age, can we use our historical experience to choose the smoothest transition.

Product development in the information age

 Starting with the fundamentals, what’s the difference between the industrial age and the transition we are now in to the information age. In its simplest form products developed for the industrial age were generally focused on capacity and manufacturing efficiency in a specific technology. In the information age product development has to focus on the integration of critical data and functional translation across technology lines. Sometimes that concept is a little difficult to visualize but in the information age everything from pictures, to airplanes, to cars, to fashion is visualized, stored and manufactured in digital form. So in the information age the synergy of products, manufacturing, marketing and purchasing occurs in real time in a digital stream.

Integration vs Specialization

Dealing with this transition means that ideas, concepts and physical products have to focus not so much by building barriers to entry for their competition but, to create market power and profits by integration with manufacturing and communications systems. This means that any product development needs to be aware and if possible to embrace all four pillars of the information age. Let’s examine those four pillars one by one; first, the one we are all familiar with, is the real-time instant communication over the Internet. This ability to communicate, influence, decide, transact and even harm individuals and organizations anywhere in the world in real time is a dimension of our life that most of us have not yet learned how to safely and effectively use. The second pillar of the information age AR is just coming into its own, whether you call it Augmented Reality or virtual reality it is the ability to communicate at personal sensory level that transmits imagination and future reality in real time. How we use this requested or intrusive sensory experience has yet to be determined. There is no question however that represents a fundamental tool for marketing ideas, influence and products in the information age. The third pillar of the information age is Artificial Intelligence (AI) or the ability for digital machines to remember, learn, infer and ultimately decide based on more information than most humans can process in real time. In other words, AI allows us to distill and use much more information than we can normally process in the human time continuum. Most of us who visit the Internet have experienced websites that help us decide we want to buy, who we want to talk to or even which “ facts” we want to believe. As we’ve all experienced in the last few years weighted AI can drive huge herds of individuals and the direction of specific products, ideas or actions. Finding a way to understand and control the weights that are applied to this elementary use of AI is one of the first conundrums of the information age. As AI becomes more sophisticated it will drive even the machines that we make that in turn, make the things we buy. This ability leads us to the fourth pillar of the information age, the sophistication of Digital Manufacturing. Digital manufacturing is not limited to the antiquated industrial age concepts of automation. Traditional factories were built primarily based on efficiency and capacity so the idea of automation was to do individual tasks more accurately and efficiently than humans.  Digital manufacturing is the integration of AR, AI and Internet communication to transform Virtual Inventories into individual physical products.  Products can be customized, individualized by order or focused by demand and are manufactured in real time from a virtual inventory of digital information.

The Unintended Effect

If we examine the impacts and imbalance of the development of each of the basic components of the information age it is easy to see why the development of integration technology is more important at this point than the development of individual technology. One of the clearest examples is the development of the Internet as an economic engine without the co-development of the matching digital manufacturing technology. Even though digital printing has developed a rapid rate the integration of digital coloration of apparel and textiles or the integrated development of 3-D printing of toys, auto parts and tools has lagged behind as a viable economic engine. The economic focus of the Internet has been in support of traditional manufacturing, outsourcing and the search for cost savings. In the future this omnipresent communication tool has much to offer including the increase in marketing reach, product focus and merchandising and manufacturing consumer customization. Today's reality is however, growth of the Internet without synchronization with the other pillars of the Information Age has in turn increased the waste, pollution and labor abuse caused by the stockpiling, clearance and dumping of traditional mass-produced inventories.

Using the new digital tools

Synchronizing individualized offerings through micro merchandising, while limiting on hand inventory through demand sourcing and matching production with sales through digital manufacturing will become the profit ensuring norm of the information age. Using AI to offer targeted product over the Internet, while offering the augmented AR experience of visual try on and tailoring measurement in store will begin to restore personal value instead of just tolerating almost the right product based on price value. For the basic products that the store must stock in order to preserve its market positioning merchandisers and buyers will use AI-based learning algorithms to predict the individual on hand inventory lifecycle of each SKU by store location. This demands sourcing will take advantage of the pollution free 3 to 5 day replenishment available through the close proximity digital manufacturing. Using these new tools to create a seamless path synchronizing selling and manufacturing will create smaller, but responsive on hand inventories through distributed micro-factories tied directly to profit making products.

Introducing the Future Factory Models of Demand Sourcing 4.0

Choosing A Digital Factory Footprint

Digital factories have one common mission… they transform a digital virtual inventory of SKUs into physical product. It doesn’t matter if the factory is making furniture parts with CNC cutters or assembling cars using robots the mission is the same.  However, the concept of a Micro-Factory as a stand alone structure is misleading at best and doomed to fail at worst.

Integrated demand sourcing digital factories can be tasked an unlimited array of dedicated factory footprints organized for specific profit and sustainability goals. How the symphony of different technologies is integrated to efficiently complete each individual quality product and deliver it on time, at a profit, environmentally and economically sustainable is a highly complex orchestration.

Digital apparel factories tend to fit in four different general structures.  Each of these generic types is based on production segment of the market or the supply chain.  Each factory is specifically tuned to support an individual business plan.  The experience gained by building each of the factory types and their variations since 1996 has provided a wealth of lessons that are available at AM4U.com or through direct contact with AM4U consulting at bgrier@am4u.com.

The demonstration of different factory configurations at SOURCING at MAGIC created a substantial buzz and sales for the exhibitors. Demonstrating the integration of the role of Digital Manufacturing and the impact of real time sourcing on the financial well-being and future global sustainability is a mission of SOURCING at MAGIC. Joining these factory types together with the 3D of visual design, the Augmented Reality (AR), retail/online merchandising, social marketing software and Virtual Inventory (VI) is the next step in online and retail consumer marketing.

The Direct-2-Garment (DTG) Demand Factory

This factory custom prints, imprints and/or embroiders decoration directly on athletic and leisure finished apparel.

It can be placed almost anywhere and provides outputs from 100 to 600 units per eight-hour shift depending on the printer output. The thousands of small to large DTG T-shirt factories reside in garages and small and large factories throughout the country.

Some of the key characteristics of the DTG production sites are:

• The small factories require no special power or air service, they operate at normal house power and a small commercial compressor can handle any air requirements.
• Most DTG operations do not require sewing capability because they are normally operating with blank pre-sewn garments.
• These facilities also can operate using either direct to garment printers or images applied to the garment through sublimation or transfer.
•  In most states DTG operations do not require either regulatory labor permits or expenses to dispose of toxic waste chemicals or water. This is because the printers used do not require dangerous chemicals or significant post-operational cleaning or garment washouts.

The downside of the DTG opportunity is oddly a byproduct of the low cost of entry and easy operation. Since there is very little barrier to entry the nationwide proliferation of DTG sources has created overwhelming competition and price pressure for small operations. Focusing on very short run custom printing has provided some relief but eventually DTT factories will have to expand from printed T-shirt blanks to additional cuts of athleisure apparel and accessories.

Because of the high level of competition DTG providers need to find a space in the sourcing path for local boutiques and small specialty retailers this opportunity will come as a result of the expansion of the product line beyond T-shirts.

 As stated, these factories are used to produce the initial stocking order for large multi-location retail chains and brands. This technology allows sourcing systems to become extremely lean because there is no requirement for time-consuming prepress or multi-location transportation of product. These factories also allow buyers to take full advantage of the digital design systems that can provide virtual inventories with wide ranges of choice and the ability to create multiple SKUs dedicated to various locations and fast-changing Internet trends.

Some of the key characteristics of the Digital Production factory sites are:

• The DP factories require special power or air service, including a minimum of 800 amp electrical service, numerous transformers and a complex compressed air delivery system.
• Most DP operations can require significant sewing capability based on their structured capacity.
• These facilities also can operate using either direct to fabric printers or images applied through sublimation.
• With the proper additional equipment DP’s are capable of permanently spot color dyeing fabric using change-on-the-fly technology without the use of any water.
• In most locations DP operations do not require either regulatory labor permits or expenses to dispose of toxic waste chemicals or water. This is because the printers and dying technology used do not require dangerous chemicals or significant post-operational cleaning or garment washouts.

 Unfortunately the downside of the adoption of digital production has been an industry that has a legendary resistance to change. This resistance coupled with significant requirement for capital investment and a microscopic supply of technically trained interdisciplinary workers and management will cause this necessary change to be roughly the equivalent pushing a brick in the mud.  Currently, the lack of integration between the digital technologies of merchandising, design, coloration, cutting and sewing are making the seamless vertical combination of these multiple technologies extremely difficult.

The Forecast Based High Volume Digital Production (DP) Factory

This high-volume factory design is used primarily for Retail and Brand initial stocking orders it included overhead sewing delivery systems, multi-ply digital cutting and high volume printing. This design requires at least 400-800 amp service and compressed air distribution and multiple transformer power supplies.  These factories can output 3000- 6000 m² per hour of fabric with no minimums or pollution.

High-volume digital production is the likely replacement for current coloring, printing and cutting technology. DP factories are still likely to be overseas or at least in areas with lower labor costs. This type of factory still demands huge sewing facilities with hundreds if not thousands of product handlers, sewers and other support individuals. Until sewing is sufficiently automated high-volume factories are likely to remain offshore.

 As stated, these factories are used to produce the initial stocking order for large multi-location retail chains and brands. This technology allows sourcing systems to become extremely lean because there is no requirement for time-consuming prepress or multi-location transportation of product. These factories also allow buyers to take full advantage of the digital design systems that can provide virtual inventories with wide ranges of choice and the ability to create multiple SKUs dedicated to various locations and fast-changing Internet trends.

Some of the key characteristics of the Digital Production factory sites are:

• The DP factories require special power or air service, including a minimum of 800 amp electrical service, numerous transformers and a complex compressed air delivery system.
• Most DP operations can require significant sewing capability based on their structured capacity.
• These facilities also can operate using either direct to fabric printers or images applied through sublimation.
• With the proper additional equipment DP’s are capable of permanently spot color dyeing fabric using change-on-the-fly technology without the use of any water.
• In most locations DP operations do not require either regulatory labor permits or expenses to dispose of toxic waste chemicals or water. This is because the printers and dying technology used do not require dangerous chemicals or significant post-operational cleaning or garment washouts.

 Unfortunately the downside of the adoption of digital production has been an industry that has a legendary resistance to change. This resistance coupled with significant requirement for capital investment and a microscopic supply of technically trained interdisciplinary workers and management will cause this necessary change to be roughly the equivalent pushing a brick in the mud.  Currently, the lack of integration between the digital technologies of merchandising, design, coloration, cutting and sewing are making the seamless vertical combination of these multiple technologies extremely difficult.

The Demand Based Integrated Micro-Factory

This factory design works directly with the point-of-sale information from retail and online clients to replenish only what is sold or required to maintain proper shelf stock. The Integrated Micro-Factory (IMF) represents the most significant change in the traditional sourcing structure.  The IMF is a substitute for the projected on-hand inventory of product in excess of the initial stocking order.  The IMF allows merchandisers/buyers to replenish in-store or online sales as they occur rather than purchasing the entire forecast and holding finished product awaiting sales.  The IMF’s mission is to increase product offering while removing inventory risk. The IMF is best placed in or near the distribution center and can operate on 3 to 5 day delivery directly from consolidated POS data.

Some of the key characteristics of the Integrated Micro-Factory sites are:

• This factory requires a minimum of 5,000 sq. ft. in a dedicated space with compressed air distribution and 400amp service.  An IMF can output 300—1500 units per 8-hour shift depending on sewing capacity.
• IMF’s can operate using either direct to fabric printers or images applied through sublimation.
• With the proper additional equipment IMF’s are capable of permanently spot color dyeing fabric using change-on-the-fly technology without the use of any water.
• The IMF with the proper additional equipment is capable of full dye and print in the same pass as well as art composite placement and piece drop dying production technology.
• The IMF configuration is also the best suited for higher volume (more than 200 units per day) Purchase Activated Manufacturing (PAM) or custom one off production.
• In most locations IMF operations do not require either regulatory labor permits or expenses to dispose of toxic waste chemicals or water. This is because the coloration technology used does not require dangerous chemicals or significant post-operational cleaning or garment washouts.

The Mobile Project/Event Micro-Factory

 The Mobile Micro-Factory (MMF) design is specifically built to fit on a single truck and be installed in a 200amp facility within 3 to 5 days. Its purpose is to provide provisional production for license products and other apparel and accessories, which may have a specific lifespan. It is also used to support events like concerts and fairs. It can produce up to 1000 units per eight-hour shift depending on configuration.

Some of the key characteristics of the MMF sites are:

• The MMF can operate from a truck, tent (with a 40kw generator) or a space with 200amp service.
• The mobile factory normally requires 3-5 days for installation and product testing.
• MMF’s are designed to convert a pre-established Virtual Inventory of multiple designs to finished product on demand.
• These facilities also can operate using either direct to fabric printers, images applied through sublimation or embroidered patches.
•  In most locations IMF operations do not require either regulatory labor permits or expenses to dispose of toxic waste chemicals or water. This is because the printers and decoration technology used does not require dangerous chemicals or significant post-operational cleaning or garment washouts.

Summary

Virtual inventories, digital manufacturing and real-time demand sourcing are here to stay.  Ten years ago 50m² was a top speed for printing fabric today inkjets can operate 100+ times faster and change images and colors on the fly.  Today, we can transform a digital file into a pair of shoes.  Today, a picture of the Internet can shift a fashion trend 180° in just hours while a style forecasts still takes months of prep and conventional production.  Today, the World Bank says that 20% of the world’s water pollution comes from coloring and processing textiles while the digital manufacturing technology is available to dye and print using no w

3D Digital Design and Demand Sourcing

Over and over we hear the mantra “ time-to-market” is the key selling point for the exciting new technology of 3-D design. Although time-to-market can be an important function of digitizing the design development pattern making and other functions of 3-D, it’s not the most important result of the adoption of this technology. The incredibly complex development that reduces a complex product including design, machinery, process and colorization to a packet of binary code that represents a product in its entirety is a fundamental building block of the information age. The real impact point of 3-D design is not its function but the form of its output. In this vision of the real future, hundreds of thousands of square feet of warehouse space and billions of dollars in inventory are reduced to tiny computer files accessed from a digital cloud through your phone, tablet or laptop. Millions of products accessible on-demand through digital manufacturing and ready for purchase when the consumer is ready to buy. Tons of waste and pollution disappear because products are produced on demand from local factories from vast virtual inventories available online or at your local store. Stores that using AR to provide the opportunity for shoppers to browse through hundreds more products than were ever available from racks and shelves. Products that are available digitally manufactured on-site or in a nearby Micro-Factory. These successful retailers no longer have to risk inventories built from long-range forecasts and rendered outdated by ethereal trends that shift with the speed of the Internet.

The Seismic Impact of Virtual Inventories
Building virtual inventories is the most important eventual output of digital 3-D design. As the companies who create this fantastic software begin to understand their overall role in the commerce of the information age they are extending their software to include both merchandising and manufacturing links. The ability of the virtual inventory to connect directly with digital manufacturing allows it to become a true infinite warehouse of products. Even more important is the demand link between virtual design and the retail and e-tail merchandising of products.  Providing visual link that allows retail stores and e-tail providers to increase their selection through a highly efficient AR experience that allow the consumer to efficiently find exactly the product they want is the critical part of the extension of the 3-D digital design function. Using 3-D software as the initial point, vast inventories of products can be created through virtual design, sold through AR’s virtual sensory experiences and digitally manufactured on demand. In addition the further development of real-time digital design will allow consumers and buyers to customize product to fit their specific needs guaranteeing higher value and by extension higher profits. The digital design information handshake between virtual inventory and digital manufacturing will allow high levels of efficiency and accuracy while reducing waste and pollution in providing these custom products.

Pursuing Profit Not Just Lower Costs
In reality ” speed to sale” will always trump “speed to market” as the ultimate goal for visual design software. Creating an efficient path with intrinsic value as a path to the ultimate source of funds, the consumer, will always be a winning hand. Unfortunately, very few of the strategic planners in the visual design category are clearly pursuing the virtual inventory solution as their ultimate goal. In the end the ability to create more designs faster without linking them directly to merchandising technologies is likely to increase the risk of overproduction and possibly lower the sell-through rate at retail.
Is understandable why the software companies have focused on the process of design and development because these areas were both time-consuming and often the source of confusing or inefficient communication. Solving these problems could create a clear and quicker path through an expensive and difficult period of physical product development. Since cost savings was the focus of buyers at every level creating technology, which focused on saving time, and reducing confusion was a logical path. Now is the time for the visual software companies to begin to shift their target from just cost savings to increased measurable profits at the money generating end of the supply chain. Creating, digitizing and storing product in a form that can be easily manufactured and merchandised on demand puts virtual design software in the key role of generating profits. Capitalizing on this change in direction will put these companies in a leadership role as consumer goods commerce shifts from “supply and demand” to ”demand and supply” a paradigm which is the key to sustainability in the information age.

SOURCING at MAGIC Pioneers Integrated Purchase to Fulfillment Technology
Beginning next month SOURCING AT MAGIC will introduce brands and buyers to a new section on the floor dedicated to the evolution of technologies that create an integrated demand sourcing path from consumer merchandising through demand manufacturing and back to consumer fulfillment. This new fashion technology area will feature software and equipment dedicated to the new era of individualized high-value consumer merchandising. SOURCING AT MAGIC will continue to grow this section featuring new merchandising inventory and design technology twice year in February and August at MAGIC in Las Vegas.

Integrated Merchandising and Manufacturing is the First Step to Sustained Profits

Merchandising and Manufacturing become one at SOURCING AT MAGIC this August

The Zund Cutter is one of the technologies featured in the Merchandising Integrated Micro-Factory in SOURCING AT MAGIC

August 12th thru the 15th, the Made in USA section of SOURCING AT MAGIC in the North Hall of the Las Vegas Convention Center will introduce a working model of the world’s first Merchandising Integrated Micro-Factory on the convention floor. This factory developed by AM4U, Inc. enables Demand Manufacturing for instant in-season replenishment of hot fashion sellers or replacement of slow movers. Real-time merchandising adjustments that long lead times from foreign suppliers make impossible. "No out of stock and no overstock" is a merchandiser’s dream! Featuring equipment from the top digital manufacturing vendors integrated by AM4U, Inc. the factory will produce apparel on demand displayed and ordered from an Endless Aisle merchandising kiosk.  SOURCING AT MAGIC attendees can select apparel or accessories from a Virtual Inventory displayed in high definition.  The digital SKU’s appearing on the screen in 3D will then be transformed from white fabric into colored actual finished apparel using the on site Integrated Micro-Factory.  

The Integrated Micro-Factory is one of the new technologies developed by AM4U to revitalize the apparel sector of the US economy by providing product choice, increased profitability and thousands of sustainable jobs. Risk free product choice from "change-on-the-fly" digital manufacturing technology, increased profitability by reducing the almost 60% overproduction driven by overseas lead times and sustainable jobs as demonstrated by the reproducible non-polluting Integrated Micro-Factories on the convention center floor.  

Witness History

For the first time anywhere, SOURCING AT MAGIC will link actual working Integrated Micro Factories to a Retail “Endless Aisle” virtual inventory merchandising portal. The Endless Aisle merchandising pop-up allows brands and retailers the ability to offer a massive a Virtual Inventory with the additional on-site benefits of fabric feel and trial fitting. Connecting merchandising to manufacturing in a real-time model is the key factor in creating profitability of the new era of Demand Sourcing.  The ability to tie retail product merchandising movement directly to replenishment product manufacturing can increase retail sell-through to levels that assure profitability at normal mark-ups.  SOURCING AT MAGIC understands that for many product groups and retailers the technology and application of Virtual Inventories and digital manufacturing is ready for commercial application.  In addition this environmentally clean technology with its ability to change colors and prints on the fly without minimums or long lead times is the ultimate in lean manufacturing.  One of the impediments to implementation is that many brands and retailers have not seen an Integrated Micro-Factory in operation and those that have seen a working factory are still unclear about the integrated merchandising strategies available.

Linking the retail “Endless Aisle” kiosk with a Virtual Inventory filled with SKU’s from on site state of the art visual design systems creates and risk free unlimited inventory.  These SKU’s exist only in digital form until selected from the Endless Aisle visual catalog and transformed into physical high quality apparel in the Integrated Micro-Factory.  The integration of manufacturing with replenishment based on actual sales allows the retailer to operate with a minimum of actual product in a localized distribution pipeline while drawing from an endless aisle of virtual product stored a no risk in digital form.

SOURCING AT MAGIC Plans to Provide a Path for Made in USA Apparel Recovery

SOURCING AT MAGIC a part of UBM’s biannual MAGIC Apparel Show the largest apparel show in the western hemisphere is unveiling a plan to return apparel manufacturing to the U.S.  The plan is based on sustainable digital manufacturing technology integrated with Demand Sourcing based on real-time point of sale replenishment.  The proven manufacturing technology will be driven by actual product sales with change-on-the-fly adjustment and or replacement for fast selling or non-selling items. SOURCING AT MAGIC will begin in August to feature more and more U.S. companies using digital manufacturing and Integrated Micro-Factories to provide this next generation of merchandising to brands and retailers.

The Plan will have the overall goal of raising full retail price sell through above an average of 60% of on hand inventory.  Since current sell through at retail price is less than 25% this increase will allow the lowering of average consumer price while almost doubling the gross sales profit for manufacturers, brands and retailers.  In addition since the inventory is stored digitally until sold the upfront costs of factoring or financing and the cost and risk of warehousing are eliminated.  SOURCING AT MAGIC understands that the only incentives for change that work in a market driven economy are profit and risk reduction, which are the principal goals of this project.  SOURCING AT MAGIC believes that pursuing this growth plan will provide needed financial incentive to the popular “Buy American” and “Made in the USA” programs we hear about every day.

More information about the key Principals of Demand Manufacturing can be found at AM4U.com

Principle 7: Retail Profit is Based on Cost per Units Sold NOT Cost per Unit Made

The New Sourcing Paradigm "Demand and Supply" NOT "Supply and Demand"

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.