Material Aggregation: Unleash the Hidden Value in Your Supply Chain

The textile industry is mature and cost-sensitive. It operates on low margins, and consumer demand for more variety and lower prices pressure organizations into searching for new sources or making their existing supply chain more efficient. At the same time, the global market is highly volatile, with the supply side constantly shifting prices and availability.

In the challenging apparel industry, fabrics constitute 50 percent to 65 percent of the total cost of manufacturing. Therefore, getting the lowest price from the best source is imperative to keep manufacturing costs below target. On top of that, sourcing from vendors often results in hidden costs because planning, sourcing and product development processes within an organization usually are not optimally synchronized. While sourcing from various locations allows retailers to sell at competitive prices yielding attractive margins, these margins can substantially erode once hidden costs are quantified.

Here’s how hidden costs pan out in apparel sourcing in their order of importance:

As illustrated above, 62 percent of the hidden costs are directly related to internal season management and sourcing. Currently, in the area of sourcing, the apparel industry operates on manual collation of data from multiple spreadsheets across divisions, categories and brands. Due to this tedious manual process, collating data becomes extremely challenging during various stages of product development.

As a result, retailers often fail to leverage economies of scale. 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 with the organization or it is manually collated at the end of the season.

Given this scenario, to stay ahead in the game, apparel companies need a technological solution that facilitates their aggregation and advance sourcing tasks, enabling them to lower material costs and earn higher margins. PLM has thus far offered certain functionalities that address the problem partially.

However, as the industry gets more challenging, buyers are trying to explore ways to connect the entire value chain, including sourcing of fabrics and accessories. This calls for a material aggregation solution that increases efficiency and transparency during product development.

Currently, companies do not have a single platform that allows 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. The need of the hour is a solution that seamlessly plugs in with the PLM or ERP data and enables easy access to useful information on a dashboard.

Apparel companies can benefit from a solution that is capable of addressing all the above problems with  end-to-end process optimization for the apparel industry, providing linkages across all activities from initial material planning to line planning, design and development, and commitment to the supplier. A solution aimed at eliminating hidden inefficiencies in material sourcing and providing benefits of scale through greater visibility and collaboration within the organization can eliminate many of those hidden costs.

Benefits of material aggregation:
  • Facilitates visibility of total material consumption in the early stages of product development by collating the previous season’s data
  • Shows the gap between forecasted fabric quantities and actual requirement, leading to more accurate forecasts
  • Helps designers choose fabrics judiciously during the early design stage
  • Helps improve the buyer’s relationship with the mills, giving them power to better negotiate fabric prices
  • Minimizes development lead time and cost
  • Minimizes fabric cost disparity across departments with the availability of a single platform across multiple users
  • Increases the efficiency of production planning and in-season management and assures delivery of fabric on time at pre-negotiated prices
Organizations can create superior value for their customers and an edge over competitors by better managing their core processes, including product development and supplier management. Proper management of these activities can increase operational efficiencies by unlocking hidden values in the supply chain.

It is interesting to note that competition exists not so much among organizations, but within their supply chains. An effective global sourcing strategy helps companies harness the true potential of different sourcing markets across the globe - be it in the form of skilled or low-cost labor, sustainable advantage in proximity, or cost of raw material. The material aggregation solution is a great way to enhance, support and achieve this very important organizational objective.

Rajnish Kumar is global head, softlines, and L N Balaji is president – North American Operations, ITC Infotech.

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