The environment of the case – a need for changes
This case study looks at the global apparel supply chain (SC), more precisely the supply chain for men’s suit fashion. The end market can be divided in three main segments: ready-to-wear (RTW, by far the vast majority of the market), bespoke models that are fully tailored to the individual and made-to-measure where a standard size is the base which is altered according to several key measurements. Both, bespoke and made-to-measure (MTM) offer a wide variety of fabrics, patterns, colors, fittings, and accessories. While bespoke is the most expensive part of the market, made-to-measure typically offers the widest variety.
This case presentation centers on Richmart, the Bulgarian contract manufacturer for RTW and a pioneer of MTM suits for men.
On a general level, the current reality is characterized by significant UDEs and issues for most participants, including the following:
- Highly volatile supply and demand environments make planning cumbersome and often futile
- Long lead times due to material availability (wool), global reach, and fashion cycles
- The ready-to-wear (RTW) market is dominated by global companies that rely heavily on subcontractors for low cost sewing and assembly while controlling design, material and styles
- The (global) RTW brands also “dictate” styles so that articles like suits tend to become more and more uniform. Brands are trying to improve their margins by pushing towards higher sales price (often limited by the buying power of large trading groups) and lower production cost (at the expense of the contract manufacturers and raw material suppliers).
- The contract manufacturers are driven into a primarily price-based competition. This has a lead to a near-complete disappearance of the industry in the EU16 (as well as other industrialized countries). While most of the work has been moved to Asia, some is still undertaken closed to the EU markets, e.g., Turkey, Northern Africa, but also in Bulgaria. Although the latter is a member of the EU, it is the country in the EU that has the lowest
- Contract manufacturers that want to escape this situation need to develop an alternative business model.
- Formal dressing is less important in professional settings than it used to be. For many men suits are becoming less of a necessity to wear (and buy).
- The global market for men’s suits has hit a plateau around 2013/14 (source Euromonitor)
- Even when offering salaries that exceed the average in the industry and their local area, Richmart has difficulties finding enough adequately trained and motivated workers.
- For Richmart this means that the current situation with an undifferentiated offering of both, RTW and MTM leads to a loss of focus poses a significant financial and strategic threat for medium to long term prosperity and even survival.
On the other hand the market offers significant opportunities:
- Men are becoming increasingly fashion sensitive and trends become tend to move faster
- While the overall market stagnates, the share of custom-menswear continues to grow
- The low level of labor cost in Bulgaria (the country ranks lowest in the EU’GDP per capita and the labor cost in the textile industry is lower than in China or Malaysia), together with the country’s EU membership offers the opportunity to combine affordable prices, without tariff hurdles but with short delivery times to the main markets in the European Union and the EFTA.
What to change to?
On this background, Richmart, the Bulgarian contract manufacturer of men’s suits, decided it was time to break out of this dead end and look for a different model in order to ensure the long term survival profitability. It was also clear that this new model would need to include other critical links in their supply chain.
Richmart set for a goal of creating an “integrated supply chain from sheep to consumer to offer a luxury product at affordable prices, generating a growing flow of profits for all actors in the supply chain.” Using a Goal Tree, several Critical Success factors were identified:
- Actors from all SC links actively participate. This starts with the wool suppliers in Australia and includes fabric mills, designers, and makers, manufacturers of accessories (e.g., buttons, zippers), suppliers of machinery, technology, software, and other equipment for garment manufacturing, sewing factories and fashion consultants.
- There is an attractive product. The final product will be a made-to-measure men’s outfit, including suits and shirts.
- The target market perceives the product as being very luxurious and exclusive. This indicates Necessary Conditions around an extremely large variety high quality materials that are manufactures and assembled on high quality machines and technology by skilled workers. It must be possible to create
- The SC is very efficient and fast flowing, without necessary steps. The customer orders decoupling point must be as late in the process as possible with high flow throughout the chain. This requires a market driven pull and an integrated planning approach. Unnecessary steps should be eliminated (e.g., by being able to sell directly to the end consumer).
- For all actors Throughput must grow continuously at a higher rate than Operating Expenses.
How to cause the change?
The implementation of the Goal Tree’s Necessary Conditions is underway and in the process several challenges have surfaced, i.a.:
- Where (and how) to focus in order to ensure long term success? (Leading to a core conflict cloud with several actors in the chain)
- How to make such an ambitious target reality? (Leading to intense TOC training)
- How to obtain the collaboration from other actors?
- How to enable actors to safely move from legacy operations to participation in the new supply chain?
First results include the following:
- A reduction of the cycle time from 6 months for RTW suit to 2 weeks for a MTM suit.
- An increase of about 500% in the demand for wool and fabric coming for this particular supply chain.
- The first moves saved a supplier in a time of economic downturn
- Allowing for about 200 million different configurations in suits (fabric, design, size)
- Moving away from the traditional season-oriented model in fashion
- Securing and creation of jobs in garment manufacturing at higher wages than the (often criticized) low level in the industry
- Creation of the new role/job of a “fashion consultant”