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Order Sizes Are Shrinking. How Can Factories Adapt?

Factories have traditionally chased big orders from big brands. But as fashion faces up to its excess inventory problem, brands and retailers will increasingly be on the hunt for lower minimum order quantities.

Since larger retailers have pulled back on their orders during the pandemic, factories cannot afford to miss out on any opportunities. And the numerous direct-to-consumer and niche labels cropping up demand more streamlined order quantities than traditional brick-and-mortar brands.

Big opportunities for low MOQ

“Millennial and Gen Z customers are turning towards more purpose-driven niche brands that align with their personal values,” said Kunal Amalean, co-founder of manufacturer Runway Kit. “Forming an emotional bond with a brand, going beyond mere consumption of a product has become the norm. The dynamics of trends and styles are changing over faster and seasons have become rapid. This has all pushed manufacturers to understand how to cater to lower production quantities.”

It’s not just the smaller labels that are courting smaller production runs. E-commerce has changed the game for product testing. Whereas national retailers like Target and Walmart used to require tens of thousands of units to test product across the country, they can now buy 600 or 1,200 units and gauge consumers’ response online before committing to a bigger run.

“Because of the movement of the big people in smaller test orders, before they commit to their giant numbers, it means that the factories that are serving them have to accommodate that or not get any business,” said Chris Bryer, president of Selective World Sourcing. “So the whole market is getting more willing for low MOQ. They have to—no choice—whether it’s big or small.”

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Fashion’s persistent pursuit of large volumes comes down to numbers. The process that happens pre-production—from sample making to invoicing—comes with a set cost regardless of number of units. Rodrigo Lines, commercial director at apparel trading firm World Textile Sourcing (WTS), estimates that these pre-production activities are about 15 to 20 percent of the total cost of manufacturing an order. In larger orders, this cost can be spread out over more items, but a smaller order means this amount is not as easily absorbed and pre-production accounts for a more significant portion of the total cost to make each unit.

Another reason that smaller orders haven’t traditionally been as appealing is tied to efficiency. When garments are mass produced, each person on a production line can have a set task that they become particularly skilled at. In contrast, to complete smaller orders, factories need to take the time to cross train employees in different skills.

“As team members have the skill and capability to do both [small and large orders], an important factor to consider is how they can be incentivized accordingly to switch between, when needed,” said Amalean.

While factories can make money on high-volume orders by streamlining costs through extreme production efficiency, this also means that low costs become a competitive advantage, to factories’ detriment. “With the big brands, because so many factories want to get those big orders, prices get bid down all the time,” said Stanley Szeto, executive chairman of manufacturer Lever Style.

Smaller orders offer an alternative approach to profitability, since buyers can be charged a premium per unit. The higher costs for small runs raise margins, making it financially viable. However, manufacturers have to court clients with retail prices that can support the added costs that come with small batches.

Bryer has seen sample-making firms struggle to align with customers that are a financial fit. “It’s a challenge because they consistently go after the wrong customers, and people that really could never afford them, and they don’t make a lot of progress,” he said. “But when they do go after the right customers, they can find a way to make a profit on every order they sell.”

Why small can be better than big

About five years ago, Lever Style was working with large brands like Banana Republic, American Eagle and J. Crew. But after seeing that direct-to-consumer players like Everlane and Stitch Fix were underserved, the manufacturer decided to make a switch to specialize in smaller orders with shorter lead times. As a result, Szeto notes the company now has healthier margins and financial results. The firm is also adding dozens of new customers per year, compared to gaining at most one new client when it was geared toward larger retailers.

While Lever Style went full throttle into small batch, chasing low MOQ opportunities doesn’t need to mean giving up lucrative large customers. One option for large factories to add the flexibility to produce smaller minimum order quantities is to use their sample room as a small-scale production facility. These studios tend to be set up in a way that is more conducive to creating smaller batches since workers already take on multiple tasks.

“Some of our factories are building modular lines,” said Luis Antonio Aspillaga, founder and CEO of WTS. “So you’re going to have the regular lines to make the big cuts and you’re going to have one section of your factory doing smaller test orders…And if those orders come back with bigger requests for reorders, you can then move them to the regular lines.” While he sees an opening for large factories to temporarily offer smaller minimums to clients in this moment to avoid discounting, Aspillaga is skeptical that a factory set up for tens of thousands of units can survive by switching solely to lower volumes on a more permanent basis.

Factories can also dip into the small order game through partnerships, acquisitions or the creation of services catering to smaller customers. For instance, MAS Holdings, a Sri Lanka-based large intimate apparel manufacturer, entered the low MOQ market by creating the subsidiary Runway Kit. This online platform enables new and established small brands to design, sample and manufacture swimwear and activewear.

Runway Kit’s approach points to the importance of technology in making small batch production possible. Innovations including 3D design and virtual samples can take some of the cost and time out of product development, as can communication and data sharing via product lifecycle management systems. Digital tools also have sales implications, enabling representatives to show virtual garments to multiple prospective clients in one day via video chat in the same time that it would take to physically visit just one or two.

“With all the 3D technology that’s coming to the forefront right now, this won’t happen immediately, but over a little period of time I think they’ll bring efficiencies to the process that may help to mitigate some of [these] small order pain points,” said Elayne Masterson, vice president of sales and business development at WTS. “So that’s something I think everybody is looking at seriously to ramp up as quickly as possible over the course of the next six months, a year.”

Beyond design, smaller order sizes call for reduced overhead, such as trimming steps in invoice creation. “If the overhead is small, then you can amortize it over 100 units and it’s not going to be prohibitive,” Szeto said.

The materials challenge

Even if a factory sets up its own production line to be able to handle smaller orders, there is still an issue surrounding materials. The minimum amounts offered by mills may be larger than the fabric needed for a small batch production run. And these minimums are set because of the constraints of the machines to prevent damage or quality issues in the material. “At the end, this is not a will issue, it’s a technical issue,” said Aspillaga.

One solution would be to have multiple non-competitive clients share the same fabric, allowing factories to meet the mill’s minimums without leftovers. Another option that WTS has deployed is repurposing material for the same client. For instance, one customer had a test run that didn’t sell through, so the rest of the yardage was turned into basics or merchandise for off-price channels. While both parties lost some margin, neither was left with extra stock to store.

Even if a factory recognizes the business opportunity in offering lower minimums, making the transition to cater to small batch production is a long-term transformation.

“The first thing that the factory needs to do is to have a mindset change: ‘Hey, we think that’s the future. And we’ve got to maybe not give up all of the large volume orders, but at least reconfigure some of the production lines to cater to the smaller volume orders, and then learn from there,’” said Szeto. “It’s a learning process. You’re not going to get there in one day.”