Where Does the Micro-Factory Fit in the Sourcing World???

Micro-Factory at SOURCING at MAGIC built by TUKATECH, Mutoh and Graphics One and integrated by Kai Buskirk   Photo by WDG

Finding a Home for Apparel Micro-Factories

Have you been to an apparel show or textile technology show recently? Seems like every show is enthralled with the "Micro-Factory", the industry’s shiny new object. It is exciting to finally see significant technology changes in the way we design product, color fabric and cut the pieces of apparel and home products. All of these wonderful demonstrations still beg the question: Where does the Micro-Factory fit?

Hundreds of millions of dollars have been spent over the last 20 years to perfect digital printing, visual design, robotic cutting and new technologies for sewing. Yet with all these investments the question of where the Micro-Factory fits and its ultimate purpose is still shrouded in mystery. Is this new paradigm the forerunner of mass customization or is it just a little production site for samples. Now is the time to clear up that mystery and look at the purpose and goal of the Integrated Micro-Factory.

Purpose of the Integrated Micro-Factory

 The primary function of the Integrated Micro-Factory is to convert a digital Virtual Inventory in to a physical inventory on demand. That reality allows a direct connection between the production of product and the demand of the market. This function give sellers the ability to switch sourcing away from the risk of supply searching for demand to a real-time relationship between consumer demand and timely product production. In the simplest of terms the purpose of the integrated Micro-Factory is to create a selling environment that is, “never out of stock, or never overstocked” by removing on-hand inventory risk and cost.

Goal of the Integrated Micro-Factory

 The goal of the integrated Micro-Factory is one simple word profit. The big difference is where the profit comes from. In the traditional sourcing model the profit is determined to a great extent by the cost of goods. The problem with forecasting cost in today’s real time world of instant trends and saturating news is ordering inventory months in advance of sale. Ultimately this time gap leads to high risk of trend shifts and unanticipated over stocked "duds" or under stocked “hot SKU’s”. These common conditions can change the cost to profit ratio dramatically after the product is on hand. Since, most manufacturers offer lower per unit price based on volume, pursuing traditional volume discounts increases the probability of overstocking and the resulting clearance discounts and profit loss. Pressing for lower cost also drives lower labor costs and poor labor conditions that can result in lower quality, environmental disasters and bad press or worse.

The Integrated Micro-Factory deals with each of these profit losses. First, the virtual inventory can be converted to physical product and restocked based on actual sales, which eliminates profit stealing clearance discounts. Second, higher profits based on better sales velocity and sustained retail price can support better labor conditions. Third, the cost of product digitally colored and produced on-demand in an integrated Micro-Factory is always fixed regardless of decoration or color allowing for extraordinary decoration agility and digitally exact quality. In addition, most micro-factories operate with no emissions, no use of water or emission of toxic waste. Another amazing side benefit is that in some multicolored apparel designs digital printing can reduce sewing labor up to 35%.

 A demand-based virtual inventory converted by an Integrated Micro-Factory allows the retailer, e-tailer or brand to produce exactly the required amount to initially stock the shelf and then only replenish what is sold. This positive control of the real-time product life-cycle and the ability to replace a non-selling SKU without a loss from dumping the held inventory usually results in a dramatic multiplication of profit regardless of a slightly higher per unit cost.

Demand Sourcing

Positive real-time control of on-hand inventory by linking it directly to the demand driven Integrated Micro-Factory is the fundamental feature of demand sourcing. In order to construct and demand sourcing infrastructure the selling entity whether it is retail or e-tail needs to complete three basic pre-activation tasks.

Establish real time profit risk analysis tools  

• Product velocity index: point score based on gross profit times SKU turns per week
•  Profit Lifecycle track: Average selling price per unit sold vs total units contracted plotted by week.

Establish period sales forecast for high-risk silhouettes

• Build or source an Integrated Micro-Factory that can provide no minimum replenishment of targeted silhouettes with variable decoration on demand.
• Negotiate a “Style Contract” for the on demand delivery of the total period volume of the targeted silhouette based on SKU’s from the Virtual Inventory.

Establish a Virtual Inventory

• Using high definition visual design software build a silhouette construction and decoration TekPak inventory for the choices available in store and online for the SKU’s. (Note: 10,000 different SKU’s will consume less than a TB of digital storage vs over 100,000 sq. ft. of physical inventory warehouse space.)
• Test the selected greige fabric fit pattern construction of the offered sizes and/or shapes of the physical production silhouette.
• Install the software and communication links to facilitate POS based product lifecycle replenishment.

Micro-Merchandising

The next step is to establish the product in-store and /or online. Using the product information from the TekPaks and the high resolution images from the visual design software build the Augmented Reality (AR) tool needed to portray the product both in-store and online in 3D/360° visualization. It’s likely that your risk analysis tools will lead to the conclusion that printed designs represent the highest risk. These are the products that will eventually have to be put on deep clearance because of sold-out sizes or unpopular decoration. It is important to remember, that integrated Micro-Factory demand production does not fit for all apparel products, therefore; it is important to use the profit risk analysis tools to select just those silhouettes/SKU’s that fit in a demand sourcing profile.

 Micro-Merchandising is shorthand for integrating the advantages of the virtual inventory and demand production to focus on niches that can represent high velocity inventory sales focused on short trends or localized opportunities. Because production can match the velocity of sales trends without the risk of volume buying and long production lead times. Buyers and merchandisers can turn on a dime to take advantage of hot events or subjects that drive the market through today’s instant communication. An additional value of Micro-Merchandising is that retailers can focus on a more timely entry of fashion decorations that match local seasons and events. In this time of wild climate changes spring season and spring fashion do not arrive at every locale right on schedule.

Where Can I Learn About the Technology of Real-Time Demand Sourcing?

 In summary, finding the proper role and location for Micro-Manufacturing is ultimately as important as finding and adopting this new technology. Integrated micro manufacturing depends on building an understanding of virtual inventory and the tools that you use to build the appropriate and efficient demand to support the factory. Many of the vendors who provide the technology for micro-factories are beginning to understand that integrating their technology for demand production with the techniques and software that support demand sourcing is critical to the continued pursuit of domestic production and apparel profitability. In addition, some of the shows and conferences in 2019 are recognizing the importance of demand sourcing along with demand manufacturing. WTiN's Innovate Textile & Apparel Americas 2019 (ITA) on May 1 thru 3 will feature both Micro-Factory and the supporting itegration technology. This August, INFORMA’s SOURCING at MAGIC in Las Vegas will feature both micro-factories and training in the tools for Micro-Merchandising and Demand Sourcing. Attendees will have the opportunity to learn the details of risk assessment methods, style contact structures and AR product visualizations. Support is always available from AM4U, Inc. the leader in Integrated Micro-Factory and Real-time Demand Sourcing development. Contact bgrier@am4u.com check out the Principles of Demand Manufacturing and related videos at AM4U.com.

Rebuilding the Profit Structure of Apparel Sourcing

Reprint of an interview of Bill Grier written by Tansy Fall of WTIN for the new journal Textile 4.0 available at: http://textile40magazine.wtin.com/

Merchandisers can drive on-demand manufacturing

By Tansy Fall 26 February 2019

Moving from a traditional supply chain model to an on-demand workflow is not as easy as flicking a switch. But AM4U CEO Bill Grier believes there is a place in the supply chain for microfactories to make this transition easier. Tansy Fall reports.

Among the biggest challenges facing apparel manufacturers today is shortening time-to-market whilst simultaneously reducing inventory. This issue has risen to prominence thanks to both ecommerce and the changing demands of consumers, which has left the traditional textile and apparel supply chain in a quandary over how to keep up with demand.

On-demand manufacturing has the potential to solve both inventory and time-to-market issues. However, the lack of data sharing in the industry is seen to be stifling brands’ and retailers’ ability to connect orders with production. If businesses could better connect to the rest of the supply chain, brands and retailers would undoubtedly see dramatic improvements in sell-through (the percentage of a product that is sold by a retailer after being shipped by its supplier) and ultimately in-store and online profits.

This is where US-based AM4U (Apparel Made For You) comes in. The company is aiming to position itself as a leading consultant and supplier of microfactories and CEO Bill Grier is confident that there is a way to change the make-up of the supply chain, though admits it will be a gradual process. Grier has long worked in the digital printing space but has also been employed as a technical adviser to American apparel businesses. In 2012, Grier launched AM4U with the goal of demonstrating the capabilities of a demand-based integrated microfactory, for deployment in the apparel sector.

The company has since struggled to on-board the concept with brands and retailers and Grier says this is largely due to the mindset of the industry and its historic structure. “We are still mired in the industrial revolution,” he explains. “The mentality of investment, the mentality of purchase, and the mentality of stocking and inventory. We build factories for capacity […] and capacity is the antithesis of demand. […] The brands were not ready. Everyone visited us but nobody bought because they had no deployment plan.

“We do have three manufacturers right now where we have installed equipment and they have demand-based opportunities. [However] we have to balance the money involved between the manufacturer, the brand and the retailer. Because of the focus on cost, the manufacturer has been left in a position where they can’t make the kind of money they need. […] Once you focus on cost then you focus on labour, and you end up moving production.”

Most recently, the difficulties associated with working in an industry very much set in its ways has led AM4U to partner with event organisers UBM Fashion, to build three integrated microfactories on the show floor of Sourcing at Magic, which took place in February 2019. The company is endeavouring to showcase the customisation possibilities of a digital microfactory and encourage those in sourcing departments to think outside the box.

Away from the exhibition floor, Grier says he has also spent millions of dollars trying to develop a new way of making apparel, with each on-demand factory requiring an average investment of US$650,000 for set-up. From this, he has learnt that there are two key elements for success, which are now driving his business forward: integration across the supply chain and deployment planning.

Driving change

Considering supply chain integration and deployment together, Grier is of the opinion that digital manufacturing processes and microfactories will find their sweet spot if they are remote from traditional sourcing practices. He explains: “Buyers aren’t going to change. Their job description instructs them to find the lowest cost. [However] whilst buyers are responsible for cost, merchandisers are responsible for profit.”

The role of the merchandiser at a brand or retailer is to predict up-and-coming sales trends, and therefore to ensure maximum profitability. Merchandisers make certain that products appear in the right store, or online, at the appropriate time and in the correct quantities. Moreover, the merchandiser directly liaises with the distribution centre and often has access to data from the POS and the supply chain. This enables them to identify production and supply difficulties and deal with any problems or delays as they arise. As a result of this, the merchandiser is also well placed to make decisions about product quantities, however they are often bound by pre-ordered stock and are therefore also responsible for monitoring slow sellers and therefore price reductions.

“There are items where you need to have inventory, so buyers have a role there,” Grier continues. “But merchandisers deal with the distribution centres, not the manufacturers. And, you can drop a pollution-free microfactory into the distribution centre.”

Adding a microfactory to the supply chain at the distribution stage in the process is a relatively new concept for the industry. It is something that ecommerce marketplaces, such as Amazon, are implementing, however, as Grier notes: “Amazon is trying to put things in at their distribution point but it’s direct-to-garment. […] The problem is that Amazon is doing what we used to call just-in-time. This killed American manufacturing because it just moved inventory to the next level down.”

Moving inventory along the supply chain is not a solution. However, adding microfactories to distribution centres, well placed to leverage POS data, could be the appropriate first step towards digitalisation of the industry.

Mitigating risk

This is particularly applicable for high-risk products such as prints. White or black garments still lend themselves to being manufactured in bulk, responsibility for which remains with the buyer. But for those products that are more experimental, be that in colour or design, on-demand production can allow for garments to be bought before they are made; limiting the risk the brand or retailer takes in producing them. If they are successful, manufacturing capacity can then be increased.

AM4U currently has microfactories that are being tested by a handful of brands in the US. The results of this will be first realised in August and this testing will then go on for another year. “It has a direct connection with 2375 stores,” Grier adds. “They are at risk, and they have a huge pain at the moment, so they have to change. They’re therefore willing to try this. Retailers need to develop new technology to evaluate how they calculate product risk.”

This test is an extension of another AM4U project. Grier continues: “We ran 100 of a major retailer’s stores on a test basis. The question was, how many [products] do we have to make to cover their entire licenced design children’s pyjamas? How many did we have to make a day? […] The most we ever had to make in one day was 174.”

This assessment highlights the validity of the microfactory concept, provided retailers and brands can be moved towards an on-demand sourcing structure. “We began to realise that the biggest issue was that nobody was ready to give us [the manufacturer] POS data. […] The manufacturers can’t change until the point where the money enters the system changes.” Therefore, the microfactory needs to be close to the end consumer, where the money enters the value chain.

One AM4U customer based in Los Angeles, US, has embraced this microfactory concept and has successfully set up partnerships with brands. The business is a leggings manufacturer, and the owner is able to pay its workers US$20/hr, Grier says, selling a pair of leggings for US$32. Grier explains that the business has ‘silhouette discipline’ meaning that the design of the leggings can be varied and easily changed whilst the tried and tested shape of the leggings remains the same.

Moreover, Grier highlights the kind of contract the microfactory has with the brands. He says that whilst the brand the microfactory works with commits to buying X number of leggings a year, they do not specify the design at the point of order. The design can therefore be changed at any time, using digital technologies, and the microfactory is given access to the brand’s POS data in order to guide its manufacturing decisions. Grier says that the mircrofactory’s “sell-through rate is 80%, compared to the average sell-through rate for women’s apparel, which is only about 23% at retail.” 

Regarding the importance of the supply chain having access to POS data, Grier draws on experience from his family’s involvement in food company General Foods, which was bought by Kraft in 1990. Grier references the impact the barcode had on the grocery industry, providing the ability to track buying patterns and apply this directly to stock quantities and production needs. He says that this same approach could be applied in the apparel industry if the retailers would release the POS data upstream and that the ‘sell-by dates’ formula that informs inventory in the food sector, should be applied to sourcing and inventory control in the clothing sector. Due to trends in the fashion industry, garments also have a sell-by date and, whilst brands and retailers are aware of this, which often results in them discounting items, they are not currently managing their inventory and supply chains in order to ensure the right number of garments are produced that can be sold by the ‘sell-by date’. Grier adds: “Sales should be based on promotion and not on clearance.”

The future of the factory

In the creation of microfactories, two areas of the supply chain that have been very separate for the majority of the industry’s history are united: “Colouration has been separated from cutting and sewing for so long that they don’t have an understanding of it,” Grier comments.

This poses a big challenge to manufacturers or brands that implement microfactories as processes are being connected that haven’t had to interact with one another before. And, connection between the textile manufacturing element of the supply chain and the apparel manufacturing element is not the only communication problem. The design process needs to better involve information from the manufacturing process as well. Grier says: “Up until the middle of last year, not one design software available could see directly into a RIP [raster image processor, which interprets and renders a design into a pattern of dots for digital printing].”

Technology also clearly needs to advance to achieve the seamless production processes that the implementation of microfactories require to be successful. With the concept of microfactories at the distribution centre, responsibility for investment could finally be brought to the table of those that hold the most capital for investment, the brands.

RETAIL APPAREL TECHNOLOGY AND THE ROAD NOT TAKEN

The time has come to shift the focus of the apparel trades from developing new manufacturing technology to the adoption of today’s technology in a new paradigm of sourcing. 2019 will be a critical year in the adoption of digital textile printing. Hundreds of companies have spent countless millions of dollars developing high-speed digital printing, visual textile cutting, sophisticated production software and now we are even seeing the initial entry of robotic sewing. Although, these companies have reached new heights in technology and sustainability they have done this by climbing the innovation stairway in their own silo. Few of the innovators are concerned with the fact that knitting, weaving, coloring, printing, cutting or sewing are just part of a complex choreography of different technologies required to produce a finished textile or apparel product. Because of this isolation, the companies have often failed to create the integration needed for a complete supply system. Building these significant technological machines and then failing to connect them is much like a village without roads or communications. This lack of internal connection whether in the form of a demand micro-factory or a mass-producing digital factory is but one of the major roadblocks that need to be faced in 2019.

Companies need to seriously invest time and people power in using their attendance and participation in the glut of technology shows and the show-and-tell conferences to talk to each other about seamless integration. Creating communication standards and compatible software along with a holistic view of the entire manufacturing process will allow potential customers to visualize their entire expense and the huge profitability that is clearly on the horizon. Over the last 26 years of advocating demand-based production for individual consumers or replenishing products sold at retail I've seen hundreds of entrepreneurial dreams crushed. Potential customers were sold a piece equipment or software that was not compatible or didn't match their specific plan. There is no blame to attach to this problem companies need to sell what they make but, they must recognize that these products do not stand alone they need to interface in an entire system. Because the technologies at each station in the complex track of production are different, companies need to use shows and conferences as points of cross-communication. Failure to strategically understand this market will extend the time required for companies to realize the return on their investment in digital technologies. Companies that understand this requirement for mechanical integration and the seamless transfer of digital product information will be the first adopted by the industry. Whether companies take this path through M&A or through the much less costly approach of education and cross functional analysis and partnerships, the goal for 2019 is clear, the industry must focus on adoption of digital technologies and it's functional partner of demand manufacturing.

 A second roadblock in the path to adoption is that there is no road to the source of funds. The technology companies have built a beautiful edifice focused on manufacturing, but there is no road for the brands or the retailers to approach this paradigm changing structure. In fact the retailers who deal directly with consumers that generate the funds have been left out of this technology revolution that offers so much promise for the manufacturers. This is more than just a technology disconnect, the players don't even speak the same language. The printer manufacturers are still keeping score in square meters per hour while the retailers only want to hear about sales per square foot. Although consumers have access to inventories through the Internet much of the visual and virtual capabilities of the new technology are not connected to the retailer or e-tailer at the B2C level. If one tenth of the funds that have been expended on the technological developments of digital color, visual recognition and repetitive automation had been spent on AR for the consumers or AI for the buyers, apparel retailers would be thriving today. This year shows like SOURCING at MAGIC will begin the difficult task of bringing together retail, brand and manufacturers to demonstrate the use of AI and AR in integrating demand manufacturing, demand sourcing and demand merchandising to create a profitable domestic enterprise. Our country can only reconstitute domestic manufacturing and revitalize domestic retail by creating more profits in the apparel trades. This will not be accomplished through a focus on finding cheap labor and lowering cost of goods. That can only result in lower quality, poor working conditions and more pollution. The US is still a nation of consumers whether in-store or online the key to greater profits is to make what we sell and sell what we make. Today we risk guessing what will sell 12 months in advance and then selling only about 25% at the retail price projected. There is no way cost-cutting will solve this endemic structural weakness. Import, discount and dump is not a viable business plan. We need to spend dollars and time connecting what sells directly with what we make. The focus needs to be on including the consumer in the visual experience of choosing garments then using AR to try on their choices. This information and the ultimate purchase can be much more accurate than 12 month projections. Feeding an AI system real-time sales data that drives a network of demand manufacturing that produces targeted replenishment is much more profitable than clearance discounting. This is not a dream far off in the future our actual tests show a small micro-factory could deliver five day delivery to replenish the actual sales of licensed printed children's sleepwear to over 200 stores. As the bulk of our clothing gets more casual and more colorful we are at a crossroads to decide whether import, discount and dump or targeted demand merchandising driving demand manufacturing is the path to a sustainable future for this recoverable segment of our economy.

Some companies are trying to bridge the gap between technology silos and a few are even reaching out to add merchandising into their portfolio. Some like EFI and Dover are adding by M&A. Others like Tukatech are building from within and focused on designers and service centers. Gerber Technologies is using both M&A and technology partnerships to connect with both printing RIPs and consumer online software. Retail and brand customers will see some of this merchandising and adoption technology at SOURCING at MAGIC, February 4-7 in the South Hall at the Las Vegas Convention Center.

Squeezing Suppliers for Lower Costs Cannot Make Up For Clearance Losses

Time to Reverse Rules of Supply and Demand

We live in exciting times as the world changes around us and we learn to deal with the fire-hose of information that continues to reshape our lives and decision making institutions. The Information Age is accelerating the replacement of the old maxims

that guided business and the economy through the Industrial Revolution. Many of the standards that were based on the time delays inherent in communications, transportation and manufacturing are disappearing with the revolutionary effects of digital technology and automation. One of the first to go is the age old marketing axiom of the quantitative relationship between supply and demand and market equilibrium. The concept is sound but the order of event needs to be reversed. The relationship is used to create wholesale and retail price targets, plant capacities and financial risk decisions. The ultimate effect is to create an unsustainable price driven retail economy and a cost based sourcing environment. This is an environment that limits entrepreneurs, innovation and ultimately competition. The Internet is providing a window to the product value based retail and manufacturing economy of the Information Age. The collective inventory and comparative shopping screens of agents like Amazon, Alibaba and others have turner shoppers into searchers and made the product’s features into critical factors in purchase decisions. This ability to search unlimited inventories (there are over 30 thousand scarf designs on Amazon alone) leave retailers with their fixed high-risk inventories at a dangerous disadvantage. This supply in search of demand strategy is only viable in an expanding market base. The U.S.A. apparel market base is not an expanding. Solving this inevitable circling of the drain for apparel, fashion and the apparel manufacturing sectors requires a change in the basic paradigm to real time demand based sourcing and production.

Starting this February SOURCING at MAGIC will introduce Demand Sourcing to begin the process of educating the tens of thousands of attendees in the spring and fall MAGIC shows in Las Vegas. Understanding and demonstrating the details of this strategic market change is a goal of SOURCING at MAGIC, the market leader in apparel and fashion opportunity. Demand Sourcing is integrated directly with the Demand Micro-Factories that SOURCING at MAGIC has demonstrated at the 2018 spring and fall shows. Digital

demand design and production is a key ingredient of bringing clean highly profitable manufacturing back to the United States. Demonstrations will feature retail “Endless Aisle” Augmented Reality (AR) kiosks integrated with Virtual Inventories produced on-site by the top 3D design companies. Selected product will then be colored and manufactured and finished on site in an Integrated Micro-Factory using the latest digital technology and currently available equipment from the top manufacturers. SOURCING at MAGIC is uniquely positioned to link Demand Sourcing with Demand Manufacturing since it is the largest retail and brand show in the Americas. This is opportunity for thousands of retailers, e-tailers and brands to witness a demonstration of the new “Demand and Supply” paradigm that is the future of clean high profit apparel manufacturing.

The law of “Supply and Demand” has been the root concept of our economic structure for years. Most business plans, company strategic plans, an even nation’s economic policies have been based on this simple concept. For years demand was considered a product of price and therefore the sourcing the product was dependent on cost. This concept led us to believe that the term was actually supply then demand because the price at retail was going to be determined by the cost of manufacturing. This relationship was understandable because the Industrial Revolution and manufacturing technology was based on efficiency of production and the resulting lower cost per product. At the time, the ability to make product at an efficient and low cost rate was always acceptable because the world markets were ever expanding. In the apparel trades the consumer’s agents the retailer and brand, not the actual consumer, always determine the demand and product feature portion of the supply and demand maximum. The retailers job was to consolidate the demand of all the consumers that they served and to correctly forecast months if not years in advance the products that would satisfy that demand and therefore represent the

supply portion of the equation. The accuracy of that prediction was the key to the success of reaching the magical point of market/price equilibrium or product on hand at the correct price to stimulate sales. The inherent danger of the time gap between the quantification of the supply and the actual sale of the demand created great risk for both the retailer and the supplier. To mitigate this risk brands then agglomerate demand from many retailers and attempt reduce the risk of oversupply and the consequence of losing the price equilibrium and requiring the dumping of product. This concept of third party demand forecast driving a supply first business sourcing decision can cause dangerous inventory constipation like H&M’s reported $4.3 billion pile of unsold inventory and resulting profit loss.

We are now seeing the effect of a new paradigm driven by the change in both the content and speed of information at every level of the supply and demand equation. This change in information is driven by access to huge volumes of product choice available to the consumer. This information directly affects demand and the ability for retailers and brands to consolidate forecast information accurately as a basis for long-range purchases. This increased risk because of the inability to actually quantify demand by store location, product design, local competitive price and availability of competing products has been exacerbated by the change from consumers physically shopping to consumers searching the Internet before purchase whether online or in-store. This change from shoppers to searchers has driven a huge and detrimental impact on the retail apparel market. In an effort to bring the last mass merchandising opportunity out of the antiquated supply and demand concepts of the Industrial Revolution retailers have turned to price as a value determinant to stimulate demand. As we know from reading the news for many retailers have not been able to absorb this artificial incentive for consumers to provide the sales required to save their retail locations.

For second let's examine the side effects of this attempt to use the supply and demand concept in this new age of information. First let's talk about the requirement to drive down cost in order to be able to support lower retail prices driving cost down by finding new suppliers with lower labor costs and lower contract production costs normally has three ultimately detrimental affects. First driving down supplier costs often requires contractors to initiate bad and sometimes inhuman labor practices. Second, suppliers need to lower the cost of raw product often resulting in quality deficiencies in the finished product. Third, suppliers in order to save pennies and nickels often shortcut environmental standards resulting in dangerous working conditions and ultimately damage to the ecosystem. Unfortunately, driving down cost through mass manufacturing efficiencies usually has one or more of these inherent detrimental effects. The real problem is overproduction caused by driving down costs by manufacturing efficiency coupled with the inherent risks of the long lead-time forecasting which is now out of sync with the traditional retailer and brand data-gathering process.

While retailers and brands have been consolidating, closing stores and trimming margins, millions of dollars are being spent in another silo where technology has been developed to produce product on demand without the requirement for long lead times and huge reserve inventories. This digital manufacturing capability has created the opportunity to produce one or many without the expensive preparation costs that have been inherent in traditional mass manufacturing for years. Simply stated the technology is in position to make what we need, when we need it, on demand. In addition to the manufacturing technology 3-D software, printing and design capabilities are now in place to produce huge virtual inventories available to the searching consumer so they can have what they want, when they want it, on demand. This integration of product development and product manufacturing technologies is available today and integrated micro-and macro factories capable of producing both individual product and replenishment at speeds capable of matching consumer take away. In short we are ready to realize the retailer and brand dream of never overstock and never out of stock maximized profits. The commitment to education and demonstration of this important structural change by SOURCING at MAGIC will help hundreds of retailers and brands understand solutions for the changing market environment.

In summary, the fundamental difference between “supply and demand” and “demand and supply” is that supply and demand is based on cost and demand and supply is based on profits. While operating on the antiquated theory that price is the primary driver of value; retailers, e-tailers and brands will continue to fail to address the giant profit eating monsters of oversupply, lack of choice, and damaging profit sucking clearances required in today's cost based structure. The huge technological adaption on the supply side is still gambling on the implementation of the demand side of the equation. We are all waiting for retailers, e-tailers and brands to recognize their responsibility to integrate Demand Sourcing by developing real-time POS, ERP and PLM software. That motivates suppliers to adopt the new technologies and end the cycle of forecast, manufacture, stock, discount and dump. Until then we will continue to follow the supply and demand maxims of the Industrial Revolution while we try to negotiate the opportunities of the Information Revolution.

E-mail me at bgrier@am4u.com for further information or with questions about Demand Sourcing or SOURCING at MAGIC.

Principle 8: Unit Manufacturing Requires Seller and Supplier Integration

Making Big Profits from Demand Sourcing

Real time vertical integration of retail sales, manufacturing and fulfillment is critical.  Reporting sales by SKU in real-time is the key to charting, aggregating and formulating of actual Days-of-Supply requirements to insure maximum sell-through of on-hand inventory for retailers, e-tailers, brands and manufacturers.  Sharing POS information and making it available to the sourcing participants requires technology and tools to guarantee all parties the profit boost available from Demand Manufacturing?

Critical Retail Sales Data History

The first UPC marked item ever scanned at a retail checkout was June 24, 1974, at the Marsh supermarket in Troy, Ohio. At 8:01 that fateful June morning, shopper Clyde Dawson grabbed a 10-pack (50 sticks) of Wrigley's Juicy Fruit gum from his shopping cart at the Marsh supermarket, and cashier Sharon Buchanan made the first UPC scan. The cash register rang up 67 cents (three bucks in today's money). Retail history was made. Before this moment in history every item in the supermarket had to have a price sticker or the price had to be memorized or noted on a large price list available to the cashier at the checkout counter. Although this technology was instituted to automate the checkout process, the real impact was that active sales data and continuous inventory information was now available to store management. The historic pack of Juicy Fruit itself is now displayed at the Smithsonian Institution's National Museum of American History.

Why is a Supermarket Milestone Important to the Apparel World?

Since that historic event in 1974 retailers have had the opportunity to access real time POS information by SKU. Armed with this tool grocery retailers were able to closely manage the over 18,000 SKU’s in the modern supermarket. The grocery retailers knew they had powerful new information that they could use to control their inventory and product sourcing. However, this critical selling information was kept highly confidential for years until a series of merchandising tactics from the brands made it beneficial for the retailers to share real time sales data with their suppliers. The immediate effect of this information integration was the saving of millions of dollars worth of over production and the advent of a level of sourcing efficiency, which increased profits for all the participants. Not all industries understood or participated in the paradigm shift from forecasting to real time sourcing. Some industries like the apparel trades were late to adopt the UPC as an inventory management tool and in most cases retailers still do not share this information in real time. Some companies however have

recognized the value of real-time reporting. Vertical fast fashion brand Zara recognizes the profit value of real time product sales data and provides the UPC code information in the scan on their hangtags. Brands could use the information as a sourcing tool or a stocking placement tool, but instead brand sourcing relies on long-range forecasts for planning and purchasing and brand status for store projections. These forecasts rely on trend analysis, competitor intelligence and luck. Then they use this combination of intuitive data and precognition to ultimately project individual seasonal orders of SKU’s expected in the store in 10-18 months. The problem is that the time gap alone creates massive risk in the age of instant trend setting social media. This inherent risk combined with limited product adjustment flexibility and expensive conventional prepress, labor and transportation costs reduces the number of color and decoration choices available for ultimate sale. This further reduction in choice increases the risk attached to each final choice. Minimum volumes and related surcharges cause buyers to "round up" to larger unit volumes to reduce perceived cost per unit further increasing risk. As purchasing from off-shore sources continues to increase in pursuit of lower costs and better deals the decreasing sell-through of on-hand inventory and resulting clearance at the retail level drive continuing loss of profits. The glut of unsold inventory at retail drives both the profit stealing clearance sales and the overstock availability of lower cost products online. Retailers have no recourse but to regurgitate these losses back up the sourcing path to brands and manufacturers leading to contracted production unshipped and unilateral chargebacks reducing payments. Squeezing costs no matter how tasty a deal is negotiated does not offset the overflowing pool of loss from unsold excess production. In fact, the current sourcing system for apparel is simply not built to operate in the information age. 

Until Demand Sourcing and Demand Manufacturing are fully integrated with real time information the extraordinary technology that allows for the visual design and digital production of apparel is limited to equipment shows, expensive talking heads conferences and textile technology magazines. The current unsustainable business formula is: Savings based on volume causes Losses based on clearance and Profit is the victim.

Demand Sourcing Linked to Demand Manufacturing

Alright, now that we have outlined the problem let’s talk about solutions.
Given that our current sourcing system is just not built to operate in the real time world of the information age. The question is what do we have to do to create the tools that enable actual Demand Sourcing and Demand Manufacturing. First we must understand the two types of Demand Sourcing and manufacturing that are successful in the information age. One type of Demand Sourcing that we see every day is the example provided by direct sales companies like Vista Print and custom garment printers like Custom-T’s and others.

These companies are demonstrations of one type of Demand Sourcing called Purchase Activated Manufacturing, which in the demand world is called PAM. Businesses, which operate in a PAM structure, produce custom orders on demand from an individual customer whether that's business cards, t-shirts or tailored apparel each order is produced individually using digital Demand Manufacturing. The advantage of PAM is the direct relationship with the customer produces a personalized product with higher intrinsic value and generally a higher price. If the product was produced using Demand Manufacturing technology the cost of production compared to consumer value produces much higher profits.

The other type of Demand Sourcing is called Demand Replenishment or DR for short. DR is focused on replenishing the stores on hand inventory based on real-time point-of-sales information also known as POS data. This DR sourcing is currently used by online e-tailers that wish to hold a minimum inventory to promote fast shipment. Many online sellers however are still holding significant on-hand inventory because is often a requirement of selling through large marketers like Amazon or Alibaba. These massive online marketers require their licensed suppliers to hold sufficient inventory to protect the selection and fulfillment advantage that these indirect marketers have over retailers. Online retailers who use these giant marketers generally believe that the exposure and sales velocity they gain through these sites will offset the excess inventory they are required to hold. Developing a direct Demand Sourcing relationship with a supplier can increase profits dramatically while preserving their marketing relationship.

Access to POS data whether it comes from an individual consumer or from a retailer’s replenishment need is the lifeblood of integrated Demand Sourcing and manufacturing. Developing the tools needed to collect and encourage the reporting of this information is a critical missing piece to the adoption of all the digital technology that has been developed to provide Demand Manufacturing. In short Demand Manufacturing cannot operate without real-time Demand Sourcing.

Lessons From Retail History

When the UPC code entered the retail world through the inventory control needs of the modern supermarket, food retailers had no intention of sharing this treasure trove of stocking and positioning information with the grocery brands they stocked everyday. They believed that the brands would share this highly classified information with their competitors. Meanwhile, I can tell you from personal experience, brands continued to produce based on forecasts and plant capacity. They continued to gamble that they had guessed correctly about the retail sales of each of the thousands of SKUs of cereal and dessert and other short shelf life grocery products. This disconnect resulted in hundreds of thousands of cases of grocery products simply buried in the ground when their sell by date was reached. For the brands it was terribly frustrating to know that the data required synchronize sales and production was sitting just out of reach. The question was what could the brands and the manufacturers do to entice the retailers into providing real-time POS information. Food manufacturers and brands came up with three working solutions; the first strategy was to focus on in store promotions with attached wholesale price discounts based on retail sales targets.

End-of-Aisle Promotion

The plan was to encourage retailers to dedicate the end of their aisle or space in their lobby to a specific product which would have a scaled wholesale price discount based on sales performance. This would force the retailer to provide the sales data in order to qualify for the performance price reductions. The second was to create brands that were tied directly to the retail chain. In the apparel industry we call those private labels but, in the grocery industry initially they were generics and they later became house brands. Since the retailer or the chain was receiving a specially labeled product they had to provide sales information and product turns to the manufacturer or the brand producing the product specifically for them. The third solution was to take full responsibility for stocking the product by buying the shelf space in the store and providing the stocking service to fill the shelf based on demand. We see this solution every day in the snack and soda section as well as the bakery section of our local supermarket. This solution is known in the grocery industry as "rack jobbing" since the jobber (usually the delivery driver) buys the product from the manufacturer and fills the shelf based on personal knowledge of the consumer sales. This solution has limited value for brands since it does not provide actual retail POS information to the manufacturer but is based instead on the jobber’s interpretation of how to fill the space in the stores shelf plan-o-gram. The rack job solution however may be viable for direct manufacturer sales to retail; the problem is that this tactic requires a high velocity product with sufficient margin to provide income for the delivery service.

Tools for Demand Sourcing

Based on this history here are some variations on the grocery solution that will work for micro merchandising in the apparel industry. In order for any Demand Sourcing solution to work there must be automated real-time POS information available to both the brand and or the manufacturer. Therefore, the solution must have sufficient incentives to put this information stream in place with a positive impact for the retailer, the brand and the manufacturer.

The first solution requires the development of tools that provide the retailer with low risk and high sales per square foot. The technology must fit a promotional time schedule and provide at least 80% sell-through at retail price. Fast fashion vertical brands tout the traffic building statistic of their constantly rotating product selection and the lean reactive stocking levels that support their product. Meeting these criteria provides high profit to all three parties and because the product is demand manufactured the on hand initial inventory is minimal and replenishment is driven by actual sales. A variation of this stock rotation strategy is the apparel promotional pop-up of the endless aisle kiosk, which can provide

Augmented Reality mirrors are a key technology in Demand Sourcing

a short-term promotion for everything from back-to-school, to local events or recreational programs and teams. It can also be used to promote a seasonal apparel silhouette like swimwear with unlimited size/shape or print and color choices. This is an extremely small dedicated sales space backed up by huge virtual inventory available to the consumer on-demand. For instance, leggings and racer tops with hundreds of different coordinated prints and colors in 50 different shapes and sizes available for store pickup or sent directly to the consumer's residents in just five days.

In the second solution the same endless aisle kiosk could be used to introduce a new private label store brand using real-time sales information to determine popular colors and prints for stocking in different regions or stores. This ability to real-time test or promote store brands requires a dedicated production facility prepared to provide replenishment on demand within five days or less. Currently the tools required to provide the customer a customizable interface are limited to online sales, which for the most part operate from held inventories just like retail stores. This requirement to decide on promotional items so far in advance that they may not be timely in relation to current popular events is one of the reasons that stores avoid the risk of printed apparel tied to certain licensed events like movies or sports events. The ability to create a private-label tied directly to specific events or popular movies and/or sports championships is directly related to the ability to provide purchase activated inventory type by print to such an event. In addition stores can focus private label on local opportunities like schools, clubs or local festivals. The problem has always been that prints are the riskiest of all inventories. Guessing in advance the color and print that will be most popular with participants in a local event is a high-risk gamble if the store must depend on conventional production.

This situation leads us to the third solution in which a retail location partners with a local demand printer to offer direct to garment printed, embroidered and/or appliqué products delivered in less than a day on-site for consumers to pick up. Only the print on demand T-shirt market and other limited specialty products are prepared to provide personally customized product on-site on-demand. In most cases when ordered online this product is pulled from an already printed inventory portrayed in an online catalog and usually takes more than five days to deliver and is normally imprinted on an already sewn apparel item. These direct to garment printing machines are becoming easier and simpler to operate and could easily backup an in-store kiosk to provide on-site customized product. Just as an example, one idea might be to provide a week of “Pet Days” in the store and which customers can bring in their favorite picture of their pet and have it printed on a blanket or a shirt while they wait. This kind of traffic builder can be used without long-term consequence to the inventory situation that the store normally experiences with mass-produced goods. In order for this selling space to be as efficient and financially viable there must be an integrated selling point in the store with the ability to send files to the queue for the printer to produce on site. Personalized athletic wear, yoga wear, and artwork can always be sold for full retail price. The problem is it is almost impossible to stock in advance of the individual custom customer request. Many of the stores that supported this type of printed or unique apparel produced by conventional screen-printing have bankrupted because they were choked to death by excess inventory. This solution can also be used to create on site licensed apparel from a huge choice of pre-approved art.

Current Obstructions to Adopting Demand Sourcing

Many retail/e-tail and Demand Manufacturing solutions are available today in component form the problem is we can't expect retail buyers, focused totally on product cost, to do the work to integrate a new paradigm in the in-store shopping experience. Brands and manufacturers hands are tied unless they can find the tools that motivate retailers to save themselves with Demand Sourcing. Retailers expect brands to supply them with product that sells its self but, in the information age the tables are turned and it's time to find the product that sells and then supply it. The scourge of volume based pricing and the ugly up front inventory cost left over from the industrial revolution limit choice. The longer we encourage mass manufacturing the profit losses and pollution of waste will continue to limit economic growth. Retailers and brands need to see the tools available and understand their use in the current selling environment.

It is very important for the technology, apparel design, digital manufacturing and the online and instore marketing suppliers to demonstrate integrated solutions to the retailers and brands. Currently, the proliferation of shows, workshops, and seminars are limited to theoretical discussions of the strategy of demand manufacturing. The technology shows feature equipment from different suppliers who are only concerned about their specific technology silo. Demonstrating the integrated symbiotic relationship between Demand Sourcing and Demand Manufacturing is critical to both the entrepreneurial and traditional players in the apparel economic sector. Integrating and incubating actual examples of these two key strategies operating together will produce levels of profit in an industry plagued by tiny margins and bad economic strategies. In a free economy profit is the most dependable catalyst for change we just need to demonstrate the profitable impact of using demand has a basic sourcing strategy in the information age.

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