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On-Demand Insights: Experts Share the Model’s Positives and Pitfalls

The fashion supply chain has typically relied on a push model of production, as retailers ask factories to mass manufacture merchandise before there is definite demand. But there are significant opportunities for companies if they can more closely align production to actual market needs.

On-demand can be more sustainable—from both a business and environmental standpoint—since it weeds out the waste of excess inventory and production. But along with the benefits, companies should be prepared for potential added costs, complexities and long-term commitment.

Sourcing Journal spoke to executives from five companies that have made the on-demand move for their take on the model’s challenges and opportunities.

Gonçalo Cruz, CEO and co-founder, PlatformE

On the benefits of on-demand: Historically, fashion’s biggest challenge has been related to inventory and managing production cycles or methods to optimize all of this. For several decades, we have seen a consistent decrease on the full-price sell-through ratios, which mathematically translates to selling more at a discount and eventually going below positive margins or even assuming full loss, i.e. no sales. For many years, this was somehow conceivable due to generous markups and good margins, and sustainable practices were definitely not on the top of mind. The world has changed much and fortunately the consumer is more knowledgeable: waste or depreciation practices are no longer acceptable.

On-demand and shortening development and production lead-times offers a great opportunity to find a much better balance of risk and reward. It’s likely to expect higher average production costs, yet data shows that margins can be preserved if not improved. This has been quite unexpected, as brands were considering this approach not too viable from a financial point-of-view. For several product categories—fortunately the ones that are more commercial and have bigger volumes—it’s actually scalable, financially viable and far more sustainable.

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On the operational hurdles of on-demand: Installing optimized on-demand processes requires brands and factories to work more as partners rather than client-suppliers. And typically, the relation needs to last at least a couple of years, instead of a season or two. This happens to be quite a departure from the status quo and, therefore, challenging. Many brands see their supply chain actors as disposable and the “fashion caravan” is a well-known phenomenon—looking for the next cheapest region every other season.

Brands that see the upstream part as core, that understand the complete vertical, are more likely to overcome the challenges of setting up processes that operate pretty much in real time, that can scale and benefit all. At PlatformE, we typically see ourselves as bridge makers and we’re happy to apply the best engineering to connect the dots. Yet no connection lasts if the two parts don’t understand each other deeply and work in a collaborative and mid- to long-term way.

On-demand advice: Start with a simple product, easy construction and simple materials. Some product categories might not be viable for on-demand processes at scale. Get the fundamentals right and then apply the learnings to other plays. Expect to lose in the first few pilots, expect to reward your partners more (on average).

Do not do simple margin equations on retail price minus landed cost. It’s fundamental to understand the hidden costs of unsold items—opportunity, operational, social and environmental costs.

Gihan Amarasiriwardena, president and co-founder, Ministry of Supply

On the benefits of on-demand: There are so many trademark benefits of on-demand production. The make-to-demand strategy makes it possible to personalize garments, and leads to less inventory waste. Over the past year, we have truly felt the real benefits of an on-demand strategy at scale. With apparel trends in constant flux, and the fashion calendar pretty much thrown aside, we were able to flex our production capacity in real time. This allowed us not only to respond to consumer spending shifts, but also react in real time to what consumers wanted from their clothing, and allocate our materials and production accordingly.

For example, we re-directed our Kinetic material—intended for suits and dress pants—to support surging demand for joggers and pants with elastic waistbands. If we had been following a traditional fashion production schedule, we would have picked our inventory 12 to 18 months earlier. And we would have been stuck with our best guess for 2020 based on what we knew or thought in 2018. On-demand nearly erases that risk by shrinking the gap between production and purchase.

On the operational hurdles of on-demand: Our on-demand manufacturing strategy is tightly tied to our computerized knitting production. We produce a variety of knit garments using Shima Seiki Wholegarment knitting machines. Surprisingly, the biggest challenge has nothing to do with actual machines, but rather a programming and data layer that enables the process. There is a big upfront investment to integrate your e-commerce, order management and production systems so that they can seamlessly operate on-demand. Because of that investment, we learned you need a certain level of scale to make on-demand manufacturing profitable; it shouldn’t be a one-off endeavor or experiment.

Operating computerized knitting systems is also a very specific skill. There is only a small group of people who are experts in using these machines, which can be a hurdle to optimizing operations.

On-demand advice: On-demand production is a serious endeavor. This is not a gimmick or experiment. For the strategy to truly work, brands should look for opportunities of scale. Instead of starting with a niche or small item, like the ad hoc monogram or custom suiting request, we converted the supply chain of our highest volume products—dress shirts—to enable on-demand. At scale, the new strategy had a huge impact and was well worth the ramp-up costs. This also de-risked the transformation, as we knew there would be enough demand for dress shirts that we didn’t risk creating an entire complex supply chain for an unknown entity.

The other common misconception about on-demand production is that its value is in purely unlocking personalization or customization. This is a fallacy. While we often hear consumers love personalization, in fashion the demand for truly custom garments is fairly limited. Consumers don’t need it to be one of a kind, but rather they want the color and size that they want available. On-demand really unlocks dynamic size and color inventory, and brands can make more options available and flex inventory to demand.

Noah Anders, marketing director, Blacksmith International

On the operational hurdles of on-demand: Blacksmith moved away from the USA on-demand manufacturing arm of our business. It was a very difficult decision to make as we spent nearly three years on that project. We faced a variety of hurdles, and despite testing many production models, we simply could not figure out a way to make on-demand manufacturing in the USA profitable at this time.

Labor costs in the USA are obviously higher than those overseas, which is a major hurdle because the brands we were working with were accustomed to paying less for their products. We were able to turn around orders significantly faster than manufacturing overseas—a matter of days in some cases—which is obviously a huge benefit, but the higher cost was always an issue for our customers.

Companies can overcome these hurdles by understanding that made in USA is more expensive and adjusting their prices to reflect that. If you are a new brand, then it may be easier to set your prices higher from the beginning and as long as you are transparent with your customers about why your costs are higher than some of your competitors, then you should be okay. But when an established brand has customers that are set on paying a certain price, then a price increase may not be well-received—at least for the clients we worked with—and nobody wants to accept lower profit margins. Ultimately, our customers were not able to overcome these pricing hurdles.

On-demand advice: On-demand can work, just not for all products. We found that certain apparel items and upholstery could be done profitably on-demand. We always had part of our line dedicated to on-demand orders for those items, so when we got the call for an on-demand order, we could immediately move people over from the main production line to the on-demand line and get it done. But we could not have workers sitting around not doing anything waiting for on-demand orders to come in. For a factory to be profitable, they need to have consistent orders, which is why we always had our main production line working on a production schedule, not on-demand orders.

Make sure the factory you’re working with has the capacity to fulfill on-demand orders when you need them. Most factories have a production schedule, and unless you are the only brand working with the factory, then it may be impossible to call your factory and say, “I need a small order quantity of these designs in the next three days,” because their production schedule is already booked. The factory floor also has to be readjusted for each specific garment in order to maximize efficiency and reduce cost, so we could not find a way to fit in an order that was needed in two days unless we happened to have an opening at that exact time.

Sydney Badger, co-founder, Public Habit

Sydney Badger Public HabitOn the benefits of on-demand: Less risk. No more guessing what customers will want six to 12 months ahead of time. No more panic around end-of-season sell-throughs and liquidation strategies. When the pandemic hit, we weren’t sitting on a season’s worth of inventory to sell-through. In fact, we weren’t sitting on anything. We can flex up and down our production according to demand in a highly unpredictable world. We were able to adapt to customer demand with categories like loungewear.

Then there’s the financial upside to running a cash-flow positive business. We receive customer cash before anything is made. Instead of tying up capital into inventory, we can invest in marketing, infrastructure or other areas where we could see real-time benefit to the bottom line.

It also reduces waste. One in three garments made are never even sold, on the conservative end. That amounts to over 50 billion garments heading to landfill every year with their tags on. On-demand takes overproduction and unnecessary waste out of the equation, right-sizing supply based on demand.

On the operational hurdles of on-demand: Navigating a global supply chain during the pandemic has been the biggest hurdle. Between the geopolitics of U.S.-China relations to an unpredictable supply chain and logistics, this has not been an easy year for anyone. An on-demand supply chain depends on real-time availability of raw materials, production capacity and reliable logistics. Throughout the pandemic, all of these aspects have been challenged at different points in time.

The most important strategy we employed was to have total transparency with our suppliers about what we were facing and understanding what they were facing. There was a real sense that we were in this together.

Logistics and freight is a whole other topic that still hasn’t normalized.

On-demand advice: Look to your suppliers as key stakeholders in your business. We always consider our suppliers as the production department of our company, without whom we can’t succeed. If we do well, they do well, and vice versa. There isn’t enough attention on the direct brand-supplier relationship.

Take a leap with one of your most reliable, forward-looking suppliers to test real-time production.

When I was starting out, I wish I’d known that there isn’t one clear approach to developing a more flexible, on-demand supply chain. It has taken over two years, 200 supplier conversations, over 35 supplier meetings in Asia and the U.S. to establish our small network of on-demand manufacturers. It was not linear to get here. Also, customers are willing to wait for great products at a great value, with a lesser environmental impact.

Gemma Sole, co-founder and chief operating officer, N.A.bld

Gemma Sole N.A.bldOn the benefits of on-demand: By minimizing financial and inventory exposure, on-demand allows companies to test things like pricing, customization offerings and new design ideas and get new products to market faster. This pre-tail model is one we encourage brands on N.A.bld to use as either a testing mechanism for making data-driven decisions around wholesale orders, or as the main mechanism—and almost risk-free way—of selling, especially in conjunction with a PR-worthy moment like a limited drop or shoppable runway.

There are many benefits to on-demand, but our favorites are supply chain speed and flexibility and the reduction of deadstock waste. N.A.bld focuses primarily on deadstock and localizing production to the end consumer as the starting point for tackling fashion waste. This type of waste arises from trying to sell clothes that customers don’t want—whether from inventory mismanagement, changing customer demand or bad merchandising judgement. On-demand allows brands to test products and react quickly to customers by giving them a way to produce only what sells or as needed in limited quantities with just-in-time manufacturing. By digitizing more components involved in the manufacturing process and enabling localized manufacturing at scale, we can start to address cutting waste and reducing carbon emissions. The global realities of the past year have shown us that both of these are crucial to developing and maintaining a dynamic business now and in the future.

On the operational hurdles of on-demand: The biggest channel for on-demand is sourcing—both manufacturing partners able and willing to produce this way, as well as suppliers who are digitally enabled. Both of these are key to transparency in the process. The on-demand model can be lucrative for manufacturers and suppliers when assisted by automation, particularly because on-demand means a steady supply of orders year-round, which allows them to better forecast and maintain and grow their workforce, but it can be a challenge taking the time to shift to on-demand from their traditional manufacturing model. Technology platforms like N.A.bld with processes and a network of manufacturers already in place can greatly aid in that transition and give manufacturers an organized and proven process

On-demand advice: At N.A.bld, we tell our brands that true on-demand starts at product development and sourcing. On-demand may not work for every product, but it can work for many brands when the supply chain is considered during development. You can also transition to on-demand with localized production slowly, with one product or line, or by starting with sampling, but don’t reinvent the wheel. Why start from scratch building out an on-demand program when there are plug-and-play platforms like N.A.bld that can bring you from sketch to sample in six weeks?