NEW YORK, United States — Between 1948 and 1975, Japanese carmaker Toyota channelled its obsession with efficiency towards the creation of the official “Toyota Production System,” a management philosophy and practice designed to deliver the best quality, lowest cost and shortest lead time through the elimination of waste. Critical to the system was the concept of Kanban (which means “billboard” in Japanese), an inventory-management system that uses signalling to better align supply and demand.
Instead of backstocking materials, requiring Toyota to guess how many units of a particular car would be sold over a period of time, the system — which tracks each step in the production process, from raw materials procurement to the showroom floor — sends out a signal when it is low on inventory of a certain part (or the material to make that part) so that it can quickly be replenished.
Over the years, Toyota has continued to refine its production system, often referred to as “lean manufacturing” or “just-in-time manufacturing,” layering on localised production and other strategies that aid in agility and speed to market. Outside of Japan, Toyota has 53 bases in 28 different countries and regions, working to make good on the company’s policy of “producing vehicles where the demand exists.”
So, what do cars have to do with clothes? Toyota’s “pull”-based supply chain, where procurement and production are demand driven rather than calibrated to a forecast, has delivered phenomenal results for the company, which for years was the world’s largest automobile manufacturer. But traditionally, the apparel industry has worked in precisely the opposite way, employing a “push”-based supply chain: producing inventory in accordance with historical consumption patterns, then pushing product on the customer through marketing and, if necessary, discounting.
While there was a crusade to bring “just-in-time manufacturing” methods to fashion in a significant way in the early 1990s, it never really materialised. A few companies — most notably Zara parent Inditex, which, tellingly, is now the world’s largest fashion company — have adopted elements of the Toyota method, but not all.
“Just in time” was not widely adopted in apparel because, unlike automobile brands, which debut new models on a yearly basis, fashion brands traditionally produce dozens, sometimes hundreds, of different styles each season. This means sourcing “parts” for each new piece — such as the pattern for a bell sleeve on a shirt or a sweat-wicking fabric — takes time and organisation. (While one car has many more parts than one blouse, most car makers only release one or two models a year, while a fashion brand may release hundreds of new styles each year.) The traditional wholesale retail model — in which store buyers place orders six months before a product hits the sales floor — further complicates matters.
An irreversible shift in consumer behaviours forcing apparel companies across the price spectrum to change their way of working — or risk being left behind.
However, an irreversible shift in consumer behaviour, from what they buy to where they buy to how much they’re willing to spend, is forcing apparel companies across the price spectrum to change their way of working — or risk being left behind. Online consumption has disrupted the apparel industry. Not only are consumers more informed about the brands that are available to them thanks to direct marketing and social media, they can easily shop across retailers in one sitting. This access to endless information means that consumers are also comparing prices more, which means retailers discount earlier and earlier in the sales cycle in order to stave off competition. Your competition is no longer the store down the road, it’s every store across the globe.
Egged on by what John S. Thorbeck, chairman of Chainge Capital, a supply chain advisory firm, calls “the new and the few” — the “new” brands that are nimble and iterative in their approach (think Stitch Fix or Allbirds) and the “few” companies that directly control their own production (such as Zara or Nike) — fashion manufacturing is finally seeking transformation.
Zara alone has irrevocably transformed the industry. It’s on-point fashions, inspired by the runways and often on the floor long before the traditional ready-to-wear pieces they mimic, have made it almost impossible to build a substantial upscale apparel business. Zara achieves this speed to market through a supply chain that looks very different to nearly all of its competitors. Inditex plans just a sliver of its production in advance. Over half of its 1,500 suppliers are based close to its Spanish distribution centres in countries such as Spain, Portugal and Morocco, which means Inditex can design, manufacture and ship product to its stores in less than three weeks. (Read BoF’s 2015 report on the Zara system for more insights.)
Few other apparel makers have taken strides to adopt the practices of Zara. “Only now is retail being forced to deal further upstream in manufacturing,” Thorbeck says. “They can’t go out and sell more, can’t find a cheaper country to manufacture in, and they can’t lower prices any further.”
Agility, however, requires a change in thinking for many designers, regardless of whether they work on the ready-to-wear level or for a mall retailer. This often means abandoning “development” in the traditional sense: i.e., designing collections and concepts ahead of time, then buying fabric to make those concepts come to life. Instead, Zara buys the fabric first and then has teams design “into” the fabric or unfinished “greige” goods that can be processed and manipulated in whichever way the designer desires later in the cycle. Zara’s highly automated production allows for short turnaround time. (For instance, if hunter-green culottes are suddenly trending, Zara can create them out of greige goods and deliver them to retail in a matter of days.)
Only now is retail being forced to deal further upstream in manufacturing. They can’t sell more, can’t find a cheaper country to manufacture in, and can’t lower prices any further.
But it’s not just behemoths like Zara adopting this strategy. Upscale upstart Arjé sells “see now, buy now” product by investing in fabric and then designing into such fabric. While founders Bessie Afnaim Corral and Oliver Corral must make a bet on fabric up front, there is less risk involved than with back-stocking inventory. (Excess fabric can be used intermittently over the years unlike overstock, which must be offloaded and costs more to produce.) Arjé produces a set amount of units each season at their partner factory in Italy, some of which are sold to retailers and the rest of which are sold via direct channels. While that first run is limited, Arjé can produce new units with a turnaround of six-to-10 days.
For New York-based designer Misha Nonoo, who switched to a direct-to-consumer model in August 2016, the key to unlocking greater efficiency in her production process was to establish a core collection of styles that, much like a car, are only updated every year or so. However, it took Nonoo months to find a factory in China willing to manufacture piece by piece. (She searched Los Angeles and New York first, but the costs were too high.) When she finally began operating in this capacity in August 2017, the factory owner fronted the money for raw materials — in this case, fabric — which meant that the risk was on the factory, not Nonoo. The shift has resulted in what Nonoo estimates is at least a 35 percent reduction of overall waste produced by the label.
For many brands, the next step is to localise production in order to shave off shipping and duty fees and shrink turnaround time even further. This is happening at the high end of the market as well. Louis Vuitton, for instance, operates factories across Europe, but also in Southern California, where products for local stores are made and significant repairs take place. The leather goods maker is reportedly breaking ground on a Texas factory in 2018.
But increased localisation of manufacturing is only one part of the strategy. More than a decade ago, inspired by Toyota’s practises, Louis Vuitton set out to streamline its supply chain. According to a 2006 report in the Wall Street Journal, it once took 20 to 30 craftspeople to make one LV handbag. By adopting “just-in-time” methods, including clustering craftspeople in groups that work on several different things at once instead of setting up an assembly line, the brand was able to shrink its production time of a handbag from eight days to one.
Gucci, which has also been working to tighten up its process during the same period, also plans to invest in its supply chain this year by opening the Gucci Art Lab, a new 33,000-square-metre production centre for leather goods and shoes that Kering chief financial officer Jean-Marc Duplaix called “the pillar of our new industrial platform.” Gucci has also streamlined its development process. Jacopo Venturini, Gucci’s chief merchandising officer, begins conceiving the commercial product lines when creative director Alessandro Michele is still designing runway looks. Working in tandem has given Gucci a leg up, as the commercial product feels reactionary and more in line with Michele’s vision.
Trends are happening a lot faster now and you want to be able to react quickly, so you’ve got to be technically faster in your lead times, in your ability to launch products.
Adidas’ “speed” factories — robot-powered shoe production facilities in places like Ansbach, Germany and Atlanta, Georgia, which recently opened — allow customisation, speedy production and delivery all under one close-to-the-consumer roof. The emphasis on speed across the board has been key to Adidas’ recent success, especially in the US, where it has gained market share from category leader Nike. “Trends are happening a lot faster now and you want to be able to react quickly and bring your spin on a certain trend or happening or cultural moment, so you’ve got to be technically faster in your lead times, in your ability to launch products,” Torben Schumacher, general manager of Adidas Originals and Style, told BoF in 2017. “It’s about learning to make decisions faster in constant interaction with the consumer.” Adidas expects 50 percent of its overall sales to come from “speed-enabled” products by 2020.
But the most ambitious of these projects may be Nike’s partnership with Flex, the Silicon Valley-based firm that manufactures everything from electronics to automobile parts. It represents what the company calls its “manufacturing revolution,” using fewer, better factories that will afford speed-to-market on a significant scale. "We believe it is not enough to adapt to what the future may bring. We're creating the future we want to see through sustainable innovation," chief executive Mark Parker said in 2016. "Today our teams are advancing ambitious new business models and partnerships that can scale unprecedented change across our business and the industry."
During an investor meeting in October 2017, Nike said Flex would deliver more than 3 million pairs of sneakers to North American stores in its 2018 fiscal year, and “10s of millions of pairs” by 2023. With Flex, the production time for Flyknit sneakers can be shortened by 12 weeks, and Nike can deliver customised Flyknit sneakers to a customer within 10 days of an order, although some are reporting a turnaround of 3 to 4 days.
But Nike’s partnership with Flex is just the beginning. Nike is shortening production cycles across its manufacturing base. Feng Tay, its Taiwanese partner that produces select Air Jordans, used 30 percent less labour manufacturing the Air JordanX111, which was produced 50 percent faster in some circumstances. Nike continues to struggle to maintain market share in the US: in the second quarter of its 2018 fiscal year, North American sales declined 5 percent overall, and 4 percent during the first half of the year. However, analysts are bullish on the fiscal benefits of Nike’s supply-chain advancements.
“The company now has the ability to respond to insights faster than ever, with ideas to shelf reducing to six months,” John D. Kernan, an analyst at Cowen and Co., noted in a recent report. “Even within its Asian manufacturing base, manufacturing revolution is underway.”
What’s clear is that in order to be one of the “few” remaining, or to create something “new” that truly resonates, fashion brands must think about what steps they can take to incorporate the new fundamentals of manufacturing into their processes. It’s not simply about supply chain, it’s also about being fresh: creating the sort of newness and novelty that the customer now expects. “It’s still going to be a long road for these companies to develop that process,” Thorbeck says. “Those that do will be able to achieve real cultural change.”