The way apparel organization embraces superior serviceability in shaping its appropriate supply chain configuration, will determine value of future business. Apparel supply chain exists primarily in three configurations to suit overall business environment. Effective management of supply chain by responding quickly to market-demand while keeping optimum inventory, is more preferable to only efficient management of supply chain by minimizing inventory without fast response to consumers demand.
Key Words: Supply Chain, Basic Product, Fashion-basic product, Fashion product, Push and Pull supply Chain.
Many apparel organizations worldwide have restructured themselves from vertically integrated composite set-up to horizontally aligned configuration. Among the various reasons gravitated the transition from vertical to horizontal structure, there are the emphasis on greater organizational and process flexibility to cater volatile market demand. Also, remarkable improvement in productivity and cost of machinery make it increasingly risky to underutilize the entire range of production equipments-from spinning to processing machines kept under one roof. Cost cutting, arising out of heavy debt associated with increasing acquisition, also influences management to keep organization lean and horizontally aligned.
However, this splitting-up of once vertically aligned organizations into many independently working apparel companies, each having a separate operation, makes efficient coordination among them a must to sustain increased competition. Also large, vertically oriented organizations, which still exist, need to coordinate their entire supply in light of growing inter-unit competition for productivity, often disregarding market priority. This stimulates apparel organizations to manage their various activities under a new paradigm, supply chain management (1).
Increasing market competition forces apparel companies become efficient in managing their supply chain by reducing inventory, yet maintain the super-responsiveness to volatile market demand. Effective supply chain management, cutting across functional silos and organizations boundaries has provided integrated solution to this challenge (2).
The article describes different types of demand patterns and inventory found in apparel sector, and a typical apparel supply chain. Different types of supply chains are discussed with reference to historical perspective and their current practice among leading apparel organizations in India. The key findings from these practices are analyzed. Prime feature of any supply chain is the balancing the flow of demand by strategically positioning inventory at various nodes of supply chain. Therefore, two major components of supply chain-demand and inventory are discussed with respect to demand variability and inventory characteristics, before explaining various types of supply chain.
Types of Demand and Inventory:
The consumer has all kinds of demands for apparel-apparel, as manifested in fig-1. The consumer demand can be broadly trifurcated into three segments-basic, basic-fashion and fashion apparel. Basic apparel consists of highest volume with moderate demand uncertainty and is priced relatively low. On the other hand, fashionable attire comprises lowest volume with volatile demand, but is highly priced. Mass-product is the feature of basic-product segment and customized merchandise becomes the hallmark of fashion-product category. Therefore, depending to which demand-segment they cater to, apparel organization needs to formulate suitable supply strategy.
Types of inventory:
- Cycle Stock: Apparel operation usually is carried out in batches, which results into accumulated stock before and after a work-center unless the entire batch is completed. This kind of cycle inventory is direct manifestation of any batch process. Its level depends on batch-size and production rate.
- Work in Process Stock: This is common to all kind of operation- batch and continuous. To keep running, every machine needs certain inventory, which is fallen under the present category. Type and productivity of machinery determine the level of this type of inventory.
- Decoupling Stock: In apparel operation, seldom it is possible to balance productivity of every workstation. Differential productivity between work-centers creates bottle-neck area across apparel manufacturing chain. Decoupling stock is created to nullify this bottleneck effect and to maintain smooth material flow. Its level is in proportion to the rate of differences in productivity between two work-centers.
- Safety Stock: This is a result of supply or/and demand variability. To efficiently carrying out operation and satisfying consumer demand, organization needs to maintain stock at certain level, which depends on firms policy and on fluctuation in supply/demand.
Therefore, there exist a wide gamut of demand and broad spectrum of inventory in the Indian apparel industry, which influence the types of supply chain management generally practiced in the industry.
Brief description of apparel supply chain:
Definition of supply chain management as developed and used by The Global Supply Chain Forum (3): Supply Chain Management is the integration of key business processes from end user to original suppliers that provides products, services, and information that add value for customers and other stakeholders.
The above definition is reflected in the configuration of a typical apparel supply, shown in fig-2. As evident, the entire apparel supply chain consists of every organization starting from initial fibre supplier to consumer purchasing apparel products for final consumption. Each organization comprises various functional domains, as manufacturing, planning, marketing etc. as shown in the fig-2. Effective supply chain manages flow of demand and supply, which are moving in the opposite direction to each other, in an efficient way at every node of supply chain.
Depending on types of demand and supply, the apparel supply
chain can be categorized principally into three kinds: Push, Pull and
Description of variants of Apparel Supply Chain:
Push Supply Chains:
Push oriented supply chain caters to stable demand of homogenized products. In this type of supply chain, production and distribution decisions are based on long-term forecasts, as demand is stable. Push supply chain was characteristic of apparel organizations during the period from 1950 to 1970, when they had vertical organization structures and optimized activities focused on functions as companies were manufacturing oriented in a demand surplus environment of mass-products (4).
However, many present apparel organizations still have push oriented supply chain. Arvind Mills Ltd., one of the largest denim manufacturers in the world, has configured its supply chain based on push system. Typically, Arvind manufactures denim sorts based on monthly forecast to stock at various warehouses. As Arvind Mills pushes its products (sorts) to ware-houses, actual selling takes place on an ongoing basis with the sold sorts being replaced subsequently. Push system operates under make-to-stock environment.
While the system works efficiently at Arvind for years, it becomes difficult for a company to follow the same where high fluctuation in market demand exists. A Push-based supply chain accumulates excessive inventory (cycle stock and work-in-process) by the time it responds to the changing demand. In addition, since long-term forecast plays an important role, it is difficult to match supply with variable demand. Push supply chain also entails larger production batches, incompatible for catering demand of short quantity.
Moreover, the push supply chain generates more buffer/safety stock at every node of supply chain due to bull whip effect (5). This is due to inability of individual manufacturer of fibre, yarn, fabric and garment to access the actual demand. The bull whip effect shows increasing demand variability in the upstream direction of supply chain. Due to poor visibility of actual demand by respective manufacturers in the apparel supply chain, each tries to build buffer against unforeseen demand-variability. As each member superimposes its own guess on the demand forwarded by its immediate next organization, this amplifies the demand variability in a progressive manner in the upstream direction of supply chain.
Pull Supply Chains:
In the timeframe from 1970 to 1990, corporations were of both vertically and horizontally aligned, but apparel companies increasingly oriented towards market to sustain increasing competition. (6). With the emergence of more volatile market-demand and powerful retailers, like Wal-Mart, K-Mart, apparel organizations unable to supply competitively small orders that seldom repeat. Long forecast-based production results into huge stocks piling up at every stage of supply chain. This accumulation of inventory is further aggravated due to bullwhip effect.
To survive in this competitive scenario, organizations fine-tune their production and distribution as per actual demand given by customer in a pull oriented supply chain. This enables reduction of unnecessary buffer stock, improvement in service level to supply what consumer wants, not what company makes.
Raymond Ltd., the prominent apparel organization in India, has configured its supply chain based on pull system (7). The customers pull what they want from the manufacturing-base of Raymond through dealer-based distribution network. Entire supply chain of Raymond, which has vertically integrated composite network of different operations, produces only as per demand of customers.
However, as the entire supply chain is driven by actual demand, the time to market becomes long, depending on type of supply chain and number of players involved in it. Typical cycle time from order to market is 60 to 90 days in a pull or make-to-order system. This long lead-time fails to address the other challenge of the market, i.e. quick response to customer demand. Also in a pull strategy, it is not possible to get advantage of economies of scale, since batch production or truckloads are hard to achieve. Another disadvantage is proliferation of product mix. Moreover, as consumers demand drives manufacturing, it is normal for management to introduce as many variants as possible to capture market share. However, increasing product diversity spawns significant operational problems and reduces the responsiveness of the supply chain (8).
Push-Pull Supply Chains:
Starting from 90s, apparel corporations all over the world have experienced increasing national and international competition and have initiated horizontal alignment with leaner structure to better address dynamic demand situation in a capacity surplus environment. (9). The shift has taken place in the marketplace from mass products to customized products. In distribution channel, giant retailers like Wall Mart, K-Mart exercise even more power to the supply chain (10).
As mentioned in previous sections, the disadvantages of Push and Pull supply chains along with changes in global business landscape have forced companies to look for a new supply chain strategy that takes advantage of the best of both world. This results into a hybrid of the two systems Push-Pull supply chain system.
Push-Pull is also termed as synchronous supply chain. In this strategy, the initial stages of the supply chain are operated based on Push system, and the final stages are operated on Pull strategy. The interface between the Push-based stages and the Pull-based stages is referred as the Push-Pull boundary.
Consider the case of Morarjee Brembana Ltd., the leader in 100 percent cotton high-value shirting fabric manufacturer, which out-sources greige yarn based on forecast, and weaves and processes to produce qualities as per actual demand of customers. This implies that supply chain of Morarjee Brembana is divided into two parts. The Push part is the part of the Morarjee supply chain prior to weaving, while the Pull part is the part of the supply chain that starts with weaving and is based on actual customer demand. Indeed, demand for yarn is an aggregation of demand of all finished products that use this component. Since aggregate forecasts are more accurate, uncertainty in component demand is much smaller than uncertainty in finished goods demand. This, of course, leads to safety stock reduction.
Postponement, or delayed differentiation, in product design is also an excellent example of a Push-Pull strategy. In postponement, the firm designs the product and the manufacturing process so that actual product differentiation can be deferred as much as possible down the pipeline when actual demand is known. Thus, the portion of the supply chain prior to product differentiation is typically based on push strategy, and the portion of the supply chain starting from the time of differentiation is based on Pull system. Postponement can be done based on time, place and form.
Following insights are arrived at from the above discussions:
- Design of supply chain configuration depends on clock-speed of organization. Clock-speed of organization is the speed with which the product-portfolio and process change in response to market demand. So, organization having low clock-speed, i.e. with relatively stable demand may have push oriented supply chain. On the other hand, a high clock-speed organization with variable market demand may have pull oriented supply chain.
- In the Push portion of a Push-Pull supply chain strategy the focus is on cost while in the Pull portion of the strategy, the focus is on service levels.
- In a Push-Pull strategy, the Push part is applied to the portion of the supply chain where long-term forecasts have small uncertainty and variability. On the other hand, the Pull part is applied to the portion of the supply chain where uncertainty and variability are high and therefore decisions are made only in response to real demand.
- In a Push-Pull supply chain, inventory is minimized as it is designed to eliminate the safety stock by make-to-order and long cycle-time is reduced by pre-arranging/ pre-manufacturing part of the supply.
- It is found that management of apparel supply chain moves from push to pull and finally to synchronous system. However, all three kinds of supply chain management co-exist in apparel industry as appropriate supply chain strategy depends on the industry, the company, and individual products. The higher the uncertainty in customer demand, the better to manage that part through Pull strategy
- Internet and related technology bring apparel manufacturer closure to actual consumer, with a need to cater individual choice in short time. This coupled with the variable demand of consumer makes it mandatory for organization to handle single item in short quantity in place of multiple items each in large quantity. This shift also increased the importance and the complexity of reverse logistics to efficiently handle customer-return.
Supply chain efficiency is about minimizing inventory, while responsiveness is about increased customer service. In a volatile market driven by flickering consumers moods, these two dimensions of supply chain management are often irreconcilable. Conflict between efficient supply chain and responsive supply chain has driven the evolution of supply chain configuration to better addresses both inventory and serviceability issue. By choosing right kind of supply chain with respect to market demand, infrastructure etc., apparel organization can address both issues effectively and maximize the value offering.
The way apparel organization embraces superior serviceability in shaping its appropriate supply chain configuration, will determine value of future business. Supply chain management deals with not only supply from manufacturers, but also demand from consumers filtered through various agencies. More than efficiently manage the supply chain, apparel organizations need to effectively manage the entire supply chain keeping both optimization of inventory level and fast responsiveness to market demand in mind.
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4) David Rigby, David Rigby Associates; APPAREL SUPPLY CHAIN MANAGEMENT: NEW PROBLEMS, NEW SOLUTIONS, A paper presented to the International Conference of the Society of Dyers and Colourists at Buxton, Derbyshire, UK on 1 October 1992.
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About the Author:
The author is senior supply chain professional with experience in leading multinationals like Arvind, Raymond and KDS group. He is currently with KDS Group, Bangladesh as vice president, supply chain & operation for its accessory business.
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