You would have to work on the Mintmelon farm for an entire year without knowing whether anybody in the world would actually like or want to buy Mintmelons. So, does becoming a Mintmelon-farmer sound like a good idea to you? The fashion industry has a lot in common with the cultivation of Mintmelons. Its main supply chain challenges are exceptional in their combination. Few industries are to such an extent subject to change, insecurity and external influence like the fashion industry. Recent developments caused a great rise in pace and instability.
The development and implementation of modern supply chain approaches is becoming increasingly inevitable. In the last decades a set of strategies emerged that may have the capabilities to address these challenges and even turn them into competitive advantages. All of them essentially aim at increasing responsiveness and agility. The purpose of this paper is to explain how Fast Fashion evolved, what sub-strategies constitute it and how it can solve the problems of the industry.
The focus hereby is on strategic aspects of Supply Chain Management. To highlight as many facets as possible a wide range of literature was reviewed, from highly theoretical articles and quantitative models to rather practical papers and case studies. Firstly, specific challenges of the fashion industry will be discussed. After that, Fast Fashion and the way it functions is explained in detail. In the end, a short case study is presented to illustrate how Fast Fashion works in practice and what results it can generate.
Due to the nature of its product and market the fashion industry faces a set of supply chain challenges which in such combination are of rather unique severity. This chapter discusses the three main issues when dealing with fashion supply chains. Christopher et al. This advantage does only exist as long as the product corresponds to the latest trend and has certain uniqueness, meaning demand is not already saturated by knock-offs. A study in the U. Fashion moves in cycles that are crucial for the success of a product.
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The main trends are created by high-end designer brands and presented at fashion shows more than half a year before the season starts. These trends are then translated into mass market products by the design departments of the apparel companies. However, nowadays these two common seasons are diverged into as much as twelve sub-seasons 4. Along with the erosion of the traditional two seasons, the importance of high-end fashion shows diminishes.
Many inter-seasonal shows launched 5 , often being more commercial than the traditional ones, meaning they show apparel closer to the actual mass product. Possibly even more important than upstart fashion shows are the changes brought by the widespread use of social media. Everybody can start his or her own fashion blog and reach an unlimited audience. The latest styles are exchanged all over the world in real time and reach the remotest places without any delay. As soon as the corresponding products are on the market, the older ones become obsolete and lose their value-advantage.
The break-up of pre-defined cycles makes it much more difficult to estimate the point in time a certain product will perish. A fashion product is, by definition, new to the market.
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There is no experience and no sales data for this particular product. This renders reliable sales forecasts nearly impossible for fashion products. Demand uncertainty is one of the largest cost factors in the apparel industry. Underestimated demand causes lost sales and leaves unhappy customers.
Lost sales are especially problematic for fashion products, because a great portion of fashion sales are impulse purchases. The impulsive customer is impatient and unlikely to return when the product becomes available 6. Overestimated demand leads to excess stock. Thus, excess stock can only be sold for a relatively low salvage price.
Such demand uncertainty is one of the largest cost factors in the apparel industry. According to Fisher and Raman losses incurred by demand misjudgement exceed the cost of manufacturing 7.
Haines estimates that more than 33 per cent of all fashion items have to be sold at mark-down price. Pashigian discovered that mark-downs amounted to as much as 20 per cent of total fashion sales in Fisher states that the average margin of error in sales forecasts for innovative products, including fashion apparel, is between 40 and per cent across all industries 8.
Not only is the quantity of demand difficult to predict, but also its development. A great portion of fashion sales is incited by extrinsic factors that are impossible to anticipate. These are especially any kinds of cultural phenomenon, such as movies, concerts, celebrities. As has been stated in the previous section, fashion can perish and new trends can be born at virtually any time, resulting in dramatic shifts in demand. Overall uncertainty is likely to aggravate, because the share of fashion products in total apparel sales tends to grow, along with the share of markdowns2.
This suggests that conventional supply chains are becoming increasingly inept to cope with the challenges of demand uncertainty. Starting in the early s there has been a massive shift of clothing and textile manufacturing away from the main fashion markets Western Europe and North America towards offshore, low-wage economies.
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Initially, the relocation focused on regions nearby such as Turkey, North Africa, Mexico. More recently, manufacturing started to move to the Far East where labour costs are even lower, with USD 0. China became the biggest exporter of clothing to the European Union 10 and the United States Increasing cost-pressure throughout the industry led to a bias towards physical supply chain costs. A detailed discussion of this topic will follow in section 3. The single most important driver of market costs are higher lead times incurred by greater distance, lower productivity and flexibility in East Asian low-wage countries.
It defines the time an enterprise needs from recognizing an opportunity to converting it into a product, to offering it to their customers on the market 1. Haines expects the average total Time-to-Market for a traditional apparel company seeking lowest manufacturing price to be between 20 and 29 weeks 4. Given a life- cycle of 10 weeks for fashion and 20 weeks for seasonal products, this means that the traditional enterprise has to decide two to three cycles in advance what fashion products they want to offer. As has been stated before, fashion is highly perishable.
Quicker competitors with a shorter Time-to- Market can deliver the latest trends much earlier, skimming the price premium for having exclusively the most up-to-date merchandise. The slower enterprise will then find itself in the position of a late entrant.
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In subsequent cycles, these products are neither very fashionable nor exclusive anymore. There will be numerous knock-offs on the market and a fashion-premium will not be achievable. Quickness is essential in the apparel business and is becoming more so with the growing overall-share of fashion products, shortening life-cycles and increasing demand volatility.
The fashion apparel supply chain faces a remarkably unfavourable combination of challenges. The common fashion company decides half a year beforehand to offer a product that is supposed to capture the latest trend of that future period. This trend may only last a couple of weeks. Nonetheless, exact timing is crucial. To gain the fashion price premium the product must possess exclusiveness, so the company has to be among the first movers. There is no reliable method to forecast whether or not anyone will actually want to buy a particular fashion-product and what the total demand will be.
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Consequences of wrong forecasts are rather severe. Excess stock blocks shelve space and perishes quickly, being worth next to nothing after its season ends. Shortages, on the other hand drive off the impulsive and impatient consumers of fashion. It is obvious that these challenges exacerbate each other, leaving a vast potential for supply chain optimization.
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It does not make much sense to tackle every issue on its own. An integrated approach is needed to align the entire supply chain with the fitting strategy regarding product and market conditions. It rather evolved in common usage since the beginning of the noughties with companies such as Zara being its pioneers 4. Fast Fashion was not simply invented, but rather developed and composed from a number of earlier concepts.
It particularly focused on manufacturing price as the largest factor of physical costs. Thus, the industry moved manufacturing to low-wage regions far away from the actual fashion markets. The increased physical costs of logistics and storage were dwarfed by the savings in manufacturing.
These are expenses incurred by demand misjudgement, product shortages, excess stock and obsolete products. Hidden costs can be increased administrative, transaction- and search-expenses. In the fashion industry, non-physical costs usually exceed savings in labour if relying solely on efficient manufacturing. Hence, the first step towards Fast Fashion was realizing the value of responsiveness and the impact of specific market costs in the fashion industry.
This led to the partial return of manufacturing from faraway places back to regions close to the main fashion markets, at the expense of higher labour cost. The benefit of producing in factories close to the markets is that demanded product can be transported to the stores in much less time. But this is only one part of the solution.
If solely manufacturing location is chosen according to the responsiveness paradigm to accelerate logistics, but other steps such as buying, development and production are designed to be as cheap as possible, the entire supply chain will still remain rather unresponsive. To obtain higher responsiveness it is necessary to achieve flexibility in manufacturing capacity and product type to properly serve a volatile demand. A supply chain can be partly agile and partly lean, with a so-called decoupling point separating the cheap from the flexible system.
An agile supply chain provides the ability to alter product type and quantity on short notice according to the latest information from both market and supplier side.
It makes use of new technologies that allow the collection, processing and distribution of large amounts of data in real-time. Quick Response emphasizes a collaborative approach between supply chain partners to make use of this data. Quick Response capability is one of the two key elements of a Fast Fashion system.
The other element of Fast Fashion, Enhanced Design, comes from a different angle.
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It focuses on product development. Partly it achieves this by innovative methods to actually design a better product, offering higher value to the customer. Enhanced Design aims to accelerate fashion-cycles, frequently bringing the latest products to the market, thus exploiting the weaknesses of traditional, slower apparel companies.