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Today, apparel companies continue to experience margin pressures caused by a number of market and geo-political factors. On the market side, the rise of ‘fast fashion’ and the increasing influence of efficient online powerhouses, such as Amazon and Zappos, make it difficult to charge premium prices for all but the most coveted brands and innovations. Additionally, consumers have been conditioned to pay less for apparel in recent years, particularly by Walmart and Target. Take a pair of men’s Levi’s 501 original-fit jeans which traditionally rose in price every year for two decades. These 501’s cost $64 in 2012 but fell to $59.50 last year. [1] Retailers that have adapted, like H&M, serve up runway-styled fashions for $35 and generic men’s jeans for $25.

Significant geo-political shifts make cheap, outsourced manufacturing more difficult to achieve. In Cambodia, for example, the monthly wage for garment workers was set to rise by 11.1 percent in January 2018, forcing apparel companies to pay more or shift sourcing elsewhere. [2] Yet, shifting to manufacture in other places, like China, will not necessarily save money. According to Jack W. Plunkett, CEO of Plunkett Research Ltd., “China is changing, thanks to a slightly smaller workforce and rising demands for better wages and working conditions…China is finding itself paying more and more to workers, and therefore manufacturing in China has become less and less competitive.” [3]


Outsourcing Challenges

Outsourced Manufacturing Challenges

More and more companies are finding it difficult to win with outsourced manufacturing. With traditional outsource locations like China and Cambodia getting more expensive, apparel companies must now look to less stable nations such as Bangladesh, Pakistan, and parts of Africa. Political instability, banning of imports, piracy, corruption, and other one-off supply chain disruptions can disrupt operations. These disruptions can really weigh disproportionately on SMB apparel companies. Moreover, consumer awareness regarding workers’ rights in low-cost nations puts an entire brand at risk in the event of a social media rebellion against products labeled with a certain country of origin. Which country falls victim to this backlash can change fast and frequently.

Outsourced Distribution Challenges

Consumers are now used to having great choice at low prices, making outsourced distribution less attractive. First, inventory has become more complex. Styles and SKUs have multiple sizes that appear the same, and many fulfillment companies find these difficult to manage. Second, fast returns processing impacts margins. Yet, few distribution partners are strong at knowing when to consider returned product ‘damaged’ versus ‘discarded’ versus ‘resalable.’ Considering that online sales can experience 20% return rates, the ability to process returns fast and correctly is vital to margin efficiency. Third, packaging quality and efficiency partially define your brand. It is rare to find outsourced fulfillment companies that have strict cleanliness policies, understand the value of how your products need to be presented, and can fold, bag, re-bag, kit, or package exactly as you need for every customer scenario.


Better Technology Helps Your Apparel Company Manage It All with Greater Margins

With the right technology in place, apparel companies can overcome the challenges of outsourcing by reducing manual work, leading to less mistakes caused by human error and increased work efficiency. For example, with an integrated vendor portal and ERP system, you can collaborate with suppliers effectively, allowing you to optimize decisions regarding what you make, when you make it, and the price you will charge.

With all the changes impacting the apparel industry, labor costs are just one factor. Managing your business operations, innovating designs, and leveraging data to service customer preferences better will reduce costs and raise revenues. That’s exactly what Nike did with their "Flyknit" footwear.  Recently, Deutsche Bank noted how Nike's manufacturing for the product represented a transformation from labor-intensive methods to highly automated technology that would reduce labor costs by 50% per unit and decrease material usage by 20%.

To succeed in your own transformation, you need to have an integrated information and business process system that enables all functions in your apparel company to work hand-in-hand. What trends do you see in orders? Based on those trends, what new designs can earn premium prices? Which customers don’t need new designs, just new ways of getting products or new package bundles? How can you optimize inventory levels or perform just-in-time manufacturing of new, trendy items?

By having an integrated business information and operational backbone system, like modern ERP, apparel companies can shift away from the tactical world of a low-margin business. Instead, you can increase business efficiency and gain a competitive edge by better managing all aspects of your business with a system that tightly integrates their finances with their entire product life cycle.

Isn’t it time your apparel company stopped spending so much energy on manual processes and struggling to work with your suppliers, and instead, put that energy into permanently making your business better and more profitable? If your answer is ‘Yes,’ then we are ready to help you identify how to do just that. Contact us today.

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