Mr. Rajnish Kumar, Global Practice Head of Retail Consulting at ITC Infotech, explores here the importance of Material aggregation to our industry. This is the first in a news series of blogs by ITC.
The multi-faceted impact that the global sourcing strategy has created over the last decade makes it one of the most essential contributors, or rather determinants, of success in the apparel industry. While an effective sourcing strategy can help companies harness the true potential of sourcing markets, failing to secure a robust and streamlined system to govern the sourcing process could prove detrimental. Smart global sourcing can enable companies to leverage skilled or low cost labor, proximity to selling market or cost of raw material and other economic factors and gain a profitable stand. Interestingly, competition today breeds more in the supply chains than within organizations themselves.
Being in a mature and cost-sensitive industry, apparel companies generally operate on low margins, dealing with consumer expectation for more choice at low prices. In the apparel eco-system, being the Primary Material, fabrics alone constitute 50% to 60% of the total cost of product. Getting the lowest price from the best sources is therefore imperative to keep the manufacturing costs below target – and the foremost mandate of sourcing strategy. However, more often than not, companies end up facing several hidden costs in their sourcing cycle due to unsynchronized planning, sourcing and product development processes within the organization. While global sourcing does allow retailers to achieve competitive prices with attractive margins, the hidden costs when quantified can substantially erode these so-claimed margins.
The below figure illustrates hidden costs in supply chain in order of importance:
Currently, sourcing in the apparel industry mostly operates on manual collation of data from multiple spreadsheets across divisions, categories and brands. This is a tedious process, subject to human error, and extremely challenging at various stages of product development. Understandably, It constrains retailers from leveraging economies of scale to their advantage. For instance, different divisions of one parent company can pay different amounts for the same fabric sourced from the same factory, because either the data is not available within the organization or is manually collated at the end of the season. Working in silos is not exactly by choice and collaboration is often limited due to lack of system enablers.
The game changer in this context is a technology that facilitates material aggregation and advances sourcing tasks, enabling lower material costs and higher margins. While Product Lifecycle Management (PLM) offers certain functionalities that address the problem partially on a broader product development level, the ever-growing industry challenges call for ways to connect the entire value chain, including sourcing of fabrics and accessories. The industry needs a material aggregation solution that increases efficiency and transparency in the sourcing strategy throughout the product development process.
Currently, companies lack a single platform for easy access to total material consumption in a particular season or even across seasons. Material resource planning (MRP) is scattered. As manually collating data requires a lot of effort and time, it is often ignored. Material aggregation is a method to seamlessly plug in the PLM or ERP data and enable easy access to useful information on a single platform.
Material Aggregation can help a company benefit in multiple ways, including:
- Facilitate visibility of total material consumption in the early stages of product development by collating the previous season’s data
- Show the gap between forecasted fabric quantities and actual requirement, leading to more accurate forecasts
- Help designers choose fabrics judiciously during the early design stage
- Help improve the buyer’s relationship with the mills, giving them power to negotiate lower fabric prices
- Minimize development lead time and cost
- Minimize fabric cost disparity across departments with the availability of a single platform across multiple users
- Increase the efficiency of production planning and in-season management and assured delivery of fabric on time at pre-negotiated prices.
Improving operational efficiency is the key to profitability for an apparel business. PLM has reached far and across in providing end-to-end process optimization and linkages across all activities from initial material planning to line planning, design and development, and commitment to the supplier. PLM coupled with a solution that eliminates hidden inefficiencies in material sourcing and unlocks benefits of scale through greater visibility and collaboration, organizations can create superior value for their customers and an edge over competitors. Material aggregation solution is a great way to enhance, support and achieve this very important organizational objective.
With more and more organizations implementing PLM solutions to streamline and enhance their product development processes , we will soon see a trend towards solutions such as Material aggregation that help companies to secure delivery and costs in an uncertain environment.