In the fourth and final instalment of his four-part series of blogs, Thomas Gronbach, Director of Marketing at Lectra Germany, continues to explore the revolution in fashion sourcing. This blog focuses on digital innovations and integration.
The Google, Facebook and Uber giants of the technical world have equivalents in the fashion industry, in the form of Inditex, H&M and Mango – growing companies that make their owners celebrities in the business world. However, if you listen to long-established brands, which shone for generations before this, you hear another story.
How did the fashion industry produce the second richest man in the world (Mr. Ortega, of Inditex)? What is the secret? What has changed in recent decades, or even in just this millennium?
The proclaimed main competitive driver, most discussed in the industry, is ‘cheap labor.’ Chasing low wages has sent fashion companies throughout the world outside their traditional production locations. Fashion companies assumed complexities, such as foreign culture, political risk, travel, gap in skills, sustainability obligations, regulations, transport and shipment of material and goods to squeeze cost. A maximum amount of effort went into targeting low wages in production, which represent about 8-13% of total production cost.
A hot discussion in Fashion sourcing is the wage increase in established outsourcing countries in Eastern Europe such as Poland or Romania. According to an article in the textile network, Romanian wages in Fashion manufacturing were at €2,66/hour in average – a reason to move farther East to the Ukraine where wages are at €1,58/hour – 40% less.
Now, if you have a production cost of €250 million and you consider moving your production from Romania to Ukraine there is a roughly a difference of €15 million (an average of 10% of production cost for wages and 40% savings, thereof), while assuming increased political risk in a currently unstable environment plus initial friction cost while transferring the production skills to the new site. Is this efficient?
What happens with the remaining 85-90% of fashion manufacturing costs? For example, how much does it cost to handle unexpected down-time of a machine in a plant (see my previous blog on European Union Investments & Industry 4.0 here)? Above all, how do fashion companies drive efficiencies and productivity within the value creation process, i.e planning, design, product development, pre-production, fabric use and other cost of production?
The value creation process in fashion has witnessed a subtle influx of digital tools. Around the 1990s planning was meant to improve with spreadsheets, which remained the preferred planning support tool for some time. Design found some support in graphic tools, which were easy to use and transferred some sketches and color experimentation into a digital environment. However, designers in fashion companies held onto the ‘free’ and traditional work utensils – pen and paper – and often exchange copies of sketches on paper with people in the process chain. 2D CAD aided in pattern and marker making.
The pre-production steps were improved with algorithms that targeted maximized fabric consumption, which is identified as the most costly and complex influence in the entire process. Digital tool support was introduced task by task in various ways. Data was optimized for departmental use and often had inaccurate re-entry of information, which skewed visibility in the overall process and calendar and resulted in limited usability. These systems rarely developed into an integrated digital fashion product development process, accompanying planning and design, through to production.
For fashion companies to respond to new market dynamics the value creation process of fashion brands need to enter into a new paradigm. Previously started digitalization of the fashion business needs to find continuation in driving benefits of integration across business tasks such as planning, design, product development, pre-production and integration with production machines. Re-entering of data will need to be limited. Adjustments of the plan caused in product development (because a pattern took 2 weeks longer, fabrics supplier didn’t deliver in time, machine downtime, etc.) need to constantly ripple through the entire process and update the planning sheet centrally while indicating likely slippage of orders and deliveries, immediately. A single, up-to-date information status needs to be centrally available, connected to the collection calendar and pointing to risks due to changes. Also, digital tools need to be updated. For example 2D technology, today, can easily be replaced with 3D technology – not just for visualization but for virtual prototyping – generating benefits of shortening the pattern making process up to 6 weeks.
Software with updated algorithms drive fabric savings to 3-5% and pre-production software can use the results of these algorithms in an integrated process to define markers in an optimal way, without re-entering data. And electronically connected N/C cutters get parameters digitally – again, integrated – to harvest its benefits.
This paradigm describes a digital end-to-end process where business planning data is processed within the same platform as collection or product lifecycle data, its relationships updated for up-to-the-minute visibility in business, calendaring and product creation status.
An integrated process like this can be implemented within one company across different departments fostering their collaboration. This process, too, can also span across partnering companies. Sharing information across company borders in an integrated, digital way of improving partnerships as communication, accuracy, and quality improve. The value creation process is less error prone as any partner in the ecosystem performs on the same platform and data, which becomes the single point of truth.
For many years, much effort was put into defining interchangeable data formats in order to allow communication over application borders in the distinct product development steps. Today, however, the industry is thriving towards integrated processes that allow seamless, bi-directional sharing of the workload, thus creating digital alliances and freeing up huge time, delivering cost savings through joint expertise and skills.
Conceptually, the fashion industry and its ecosystem has to drive productivity and efficiencies, along the value creation process and its principal partner network like the automotive market or fore thinkers such as H&M and Inditex.
The level of process integration via digital innovations within or across companies (alliances) will influence fashion-sourcing decisions significantly stronger than pursuing low-wages in the future.