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Do Companies Know How to Use Micro Factories for Sourcing Product?

One of the questions that vexes anyone interested in building or using an apparel micro-factory is: “where exactly does it fit?”

Hundreds of millions of dollars have been spent perfecting the technologies that go into a micro-factory, but very little money has been spent on the application of the micro-factory to the process of sourcing product.

There are four current practical applications of the micro-factory. The first, is as a sampling site that allows brands to physically produce a product for fit, production modeling or real-time consumer testing. The second, application is a print for pay model that usually uses direct to garment printing on T-shirts or other casual wear. Third, there is one-off production for online customized apparel sales.

The fourth application, the conversion of virtual inventory to physical inventory, is by far the most important application for returning domestic production of apparel to the U.S. market. The use of micro-factory integrated technologies to replace risky print and licensed products reduces the losses from unsold inventory that plague the retail market and, to some extent, the online market. Having to make decisions for large inventory investments in print and licensed products in the age of the Internet, fashion influencers, instant trend promotion and tribal identification has caused huge unsold inventories and the resulting profit-stealing clearances.

The forecast gap

Remarkable advances in the technology of design and visualization have allowed apparel designers, brands and product developers to reduce the time required to visualize and prepare a new apparel design or decoration. However, these advances, despite being portrayed as reducing time-to-market, really only reduce time to production. Coloring/printing the fabric, the cutting, sewing and transportation and distribution of product still creates a huge time gap between the initial concept and the presentation of the product for consumer sale.

Decisions about color and print that occur this far in advance represent the huge risk that a market shift will cause a volume stocking order to go mostly unsold at retail price. Unfortunately, that retail price is what planning and profits are often based on. This gap in time and money is what we call the “forecast gap.” Placing an integrated micro-factory directly in the supply chain as a replenishment source after a minimal initial stocking order, can reduce risk and, in fact, guarantee both profits and appropriate product stocking. Using a micro-factory for direct point-of-sale replenishment allows each retailer or online site in the distribution system to match its product availability with local demand. This means on-hand inventory can be calibrated to avoid inventory clearances but still provide accurate product availability.

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Merchandising agility

Placing the integrated micro-factory in position between the general production sources and the consumer creates a level of sourcing agility that allows merchandising to react to out of stock situations by size, gender or color and to avoid overstock clearances by location. For the highest efficient use of the integrated micro-factory in a replenishment role, the factory (which produces no pollution) should be placed in or near the appropriate distribution center. It is important to remember that the physical space taken up by the factory can be designed to match the space that was previously taken up by the physical inventory. As a rule of thumb, 100,000 square feet of inventory storage equals about 1 terabyte (TB) of space in the virtual inventory.

It is also important to remember that the cost of the micro-factory is probably less than the initial stocking cost and discount losses on product in a period of less than a year. So, if you’re going to employ an integrated micro-factory to fill the forecast gap, the sourcing paradigm for some products may have to change from forecasting to demand sourcing.

Demand sourcing

The key ingredients of demand sourcing are: product profit index, risk assessment, real-time POS replenishment and negotiating a flexible style contract. Positive real-time control of on-hand inventory by linking it directly to the demand driven micro-factory is the fundamental feature of demand sourcing. In order to construct demand sourcing infrastructure, the selling entity, whether it is retail or e-tail, needs to complete basic pre-activation tasks.

Establish real time profit risk analysis tools

  • Profit velocity index (PVI): point score based on gross profit times turns per week
  • Profit lifecycle track: Average selling price per unit sold vs total units contracted plotted by week

Establish period sales production for high-risk silhouettes

  • Build or source an integrated micro-factory that can provide no minimum replenishment of targeted silhouettes with variable decoration on demand.
  • Negotiate a “style contract” for the on demand delivery of the total period volume of the targeted silhouette based on SKUs from the virtual inventory (VI). Establish a virtual inventory.
  • Using high definition visual design software build a silhouette construction and decoration TekPak virtual inventories for the choices available in store and online for all the SKUs. (Note: 10,000 different decoration VI SKUs will consume less than a TB of digital storage versus over 100,000 square feet of physical SKU inventory warehouse space).
  • Test the selected greige fabric fit pattern construction of the offered sizes and/or shapes of the physical production silhouette.
  • Install the software, communication and transportation links to facilitate POS based product lifecycle replenishment.

Profit velocity index

Two of the newest elements in creating a demand-sourcing paradigm are the Profit Velocity Index and the flexible Style Contract.

The PVI is a competitive point index between products, which determines both the replenishment level, and, ultimately, SKU stocking life. In merchandising, whether online or in-store, the velocity of product movement is the key ingredient in determining on-hand inventory, product lifecycle and ultimately product profitability. The PVI is calculated by simply multiplying the concurrent percentage of gross profit by the turns of on-hand inventory over the period of the week. Comparing the PVI to the scores of other like product, or products in a particular size or lifestyle area, will determine the risk and, ultimately, the level of replenishment required to realize the highest possible profit levels from that particular SKU. When the PVI for a particular product dips below a predetermined minimum score the product is replaced or discontinued.

Style contract

The flexible Style Contract works directly with a progression of products that are driven by the replenishment lifecycle described by the PVI. The flexible Style Contract depends on digital coloration or printing, which allows the integrated micro-factory to change color and/or decoration without any additional cost. In its simplest form, the flexible style contract is a total volume of a particular silhouette, regardless of color or print that the brand, the retailer or the e-tailer is contracting over a specific period of time. Once the contract is in place, the buyer can determine a progression of decorations based on a real-time evaluation of current trends. Whenever a product is determined by the PVI to be ready for replacement, the micro-factory moves to the next decoration or colors in the progressive list and replaces the product in the store that requires it. This allows the buyer and the merchandisers to work together to offer the appropriate product with the maximum PVI store by store within the distribution area. In the case of online, since the product may not be made in the micro factory until after it has been purchased, all of the products in the priority list of decorations can be displayed for sale since they only reside in the virtual inventory.

All of these applications technologies and merchandising tools will be on display and detailed in the Fashion Technology section of SOURCING at MAGIC in the unified MAGIC show Aug. 11-14 in Las Vegas.

Bill Grier is a pioneer in the digital print industry. As the inventor of numerous international and U.S. patents, Bill currently holds the position of CEO of AM4U, Inc. in Highland, CA.