Of Evolving Demands in Logistics and SCM
The fashion logistics industry is likely to get a boost in the days to come, if forecasts and present market trends are taken into account. According to recent researches, the domestic apparel industry in India grew at a CAGR of 10 per cent from ` 1,260 billion in FY-07 to ` 2,026 billion in FY-12. There will also be policy reforms, an expected revival in economy and entry of new brands to support the recovery of apparel demand in FY-14. The export sector, on the other hand, is also witnessing a reasonable growth. Cargotalk presents an industry perspective…
RATAN KR PAUL
According to Revati Kasture, Chief General Manager & Head-CARE Research, the Indian apparel industry will witness a revival in FY-14. The factors like changing fashion trends, a growing consumer class and rising urbanisation together, have contributed to the growth in the apparel industry. Additionally, growing differentiation in the party-wear, office-wear and semi-formals, increasing retail penetration, increasing share of designer-wear and a growing service class have also been the drivers for growth.
However, on the account of an overall slowdown in the economy, the apparel industry also witnessed lower growth in the past couple of years. The industry is estimated to grow at a lower rate of about 4-5 per cent on a YoY basis in FY-13. CARE Research expects the impact of recent slowdown to persist in the industry, and that the demand would recover gradually. The domestic Indian apparel market can be divided into five broad segments – men’s, women’s, kids,and unisex apparels, and uniforms. CARE Research estimates the domestic apparel industry to grow at a CAGR of about 8 per cent from ` 2,026 billion in FY12 to ` 2,746 billion in FY16. Within the men’s apparels segment, the subsegment of shirts will remain the biggest. CARE Research expects the men’s shirts segment to grow at a CAGR of 7.5 per cent up to FY16.
Kasture argued that measures, which are expected to aid the recovery in apparel demand in FY-14 include resumption of zero-excise duty on readymade garments and made ups announced in the Union Budget 2013-14, an expected improvement in the economy and faster clearance of investment proposal of foreign retail brands.
It also estimates the Indian apparel exports to grow at a CAGR of 9 per cent to about ` 928 billion in FY16. The growth would primarily be driven by increasing shift of the apparel industry from developed Western nations (traditional exporting destinations) to the other non-traditional markets. Currently, India’s exports are mainly directed to the traditional markets – US and EU. And now, with these regions turning into matured markets, the growth in apparel imports is expected to slow down.
“India needs to look at other potential markets for apparel exports. Remarkably, Indian exporters are promoting their apparel by participating in trade shows and also by holding road-shows in new markets like Latin America, Russia, Japan, Israel and South Africa,” Kasture pointed out.
She also underlined that, with the growing concern over rising production costs in China; India stands a good opportunity to increase its share in the global apparel market. Abundant raw material availability, a well-integrated textile industry and good designing skills are key attributes, which if utilised efficiently, can help India to consolidate and grow its position in the global apparel market.
Critical factors that need to be addressed by India to remain competitive in the global markets
Kasture maintained that though India is one of the largest producers of cotton yarn and fabric, the productivity of cotton in India in terms of yield per hectare is found to be too low in comparison with other countries. The productivity of cotton in countries like China, Brazil and Turkey is above 1 tonne per hectare per annum whereas in India it stands at around 0.5 tonne per hectare per annum.
According to CARE Research, India needs to bring down high labor costs. Apparel, being a labour intensive industry, labour-costs play a key role in determining the profitability of an industry. India, with a labor cost of about US $ 0.6 per hour, ranks fourth compared to other Asian countries (higher by 100 percent, 28 per cent and 20 per cent compared to Bangladesh, Cambodia and Pakistan, respectively). Bangladesh, which enjoys duty benefit in EU, has an edge over other Asian countries. Considering various costs involved in the exports of garments, the landed cost at EU markets works out to be the cheapest for Bangladesh, followed by Pakistan.
Kasture also observed that, apparel manufacturers should aim at shorter delivery lead times. The apparel industry in India is plagued with a high degree of fragmentation with only a handful of fully-integrated players. This, coupled with infrastructure bottlenecks, leads to longer lead times. An order in India takes approximately 45-60 days to execute
from procurement-fabrication-delivery, as against a global average of 30-35 days.
New sales and supply chain Model: Madura Fashion and lifestyle
Speaking to Cargotalk on the present trends and initiatives from apparel manufacturers Satish Karunakaran, Head Supply Chain & Sourcing , Madura Fashion & Lifestyle, said that most companies in the Indian Fashion & Lifestyle industry used to follow make & sell model a few years back. This model had disadvantages in terms of higher inventory of slow and non-moving stocks, and stock-outs in case of best-sellers on the other hand. But now, almost all big players have moved to the trade show model, which is conducted twice a year. “The Madura Fashion & Lifestyle was a pioneer of such trade shows in India and has followed this model religiously over the last 7-8 years,” he maintained.
However, the trade show model has put enormous pressure on the supply chain of apparel companies. The OTIF (on time in full) performance, indicator for the customer-order fulfillment as per the original month of offering in trade show, has gone down. The uncertainties and inefficiencies in the long supply chain, which is almost 8-9 months long, has a direct bearing on the customer-service level. In earlier sell & make model, since the brand used to accept orders only to the extent of stocks produced, the customer service level was obviously higher.
“Madura Fashion & Lifestyle has tackled this issue very well and perfected the trade show execution model to a large extent. It has invested heavily in order management, demand planning and supply planning tools and processes to improve OTIF dramatically over the last two years compared to its competition, ”Karunakaran added.
Another major growing trend is to optimise the inventory at the front end (seen across all channels) to control cash flow and to improve retail experience by optimising the stock density. Due to this, managing efficient and fast replenishment of right stocks at right time at right store has become an area of paramount importance.
“As far as new markets are concerned, clearly two trends have evolved dramatically over the last two years the first being e-commerce, and the second being expansion of exclusive brand outlets (EBOs) in Tier -II towns. Supply-chain functions play a vital role in both these new markets and will be a key differentiator. E-commerce business, though a small channel for large apparel companies like ours, is of significant strategic importance. For e-commerce companies, apparel is one of the fastest-growing categories,” Karunakaran pointed out.
In his opinion, the fashion industry is going through lot of swift changes. Most brands are venturing into multiple new categories (no more only shirts or trousers brands) and increasing the number of style codes offered to cater to different regional needs, wearing occasions and price points. This has resulted in high number of SKUs in the supply chain compared to any other industry. In addition to these products offering related complexities, particularly in case of MFL; almost all brands have launched sub-brands and expanded their distribution rapidly. At the same time in the competitive environment, almost all customers demands on service level and cost efficiency has gone up.
To handle these challenges, MFL has been investing in developing supply chain processes, systems and people over the years. “Today, supply chain is the heart of our company. Once the orders are booked in the trade show for a season, the baton is handled over to the sourcing and supply chain team. The supply chain has to deliver the targeted OTIF service-level at the targeted closing inventory every month. It’s an ongoing challenge to improve service level and improve inventory turns at lower costs,” added Karunakaran.
Madura is a multichannel company; and each channel has different requirements on stocking and deployment process. The company has designed order management processes, demand planning systems and warehouses to suit specific needs of every channel. MFL’s logistics and order management team is quite agile, and is able to consistently make improvements in the service level, while adapting to the new requirements of the customers.
As far as distribution strategy is concerned, Madura Fashion has a mix of self-managed distribution centres (DCs) and outsourced to 3rd party logistics service providers. Its two large DCs (2.7 lakh sq ft & 1.8 lakh sq ft) in Bengaluru are selfmanaged. The company has recently set up a North DC to cater to seasonal products, which are primarily produced in North region. The North DC is outsourced to a 3rd Party LSP.
In addition to the above three DCs, Madura Fashion also has 10 small-format warehouses to cater to the demand of bigger markets and to service customers in permit states. These are again outsourced to 3rd Party LSPs.
Abhik Saha, Director-Supply Chain, Benetton India, felt that customers are
increasingly becoming more discerning based on the purchase occasions.This often leads to the same consumer behaving differently, based on different purchase usage. And, logistics and supply chain plays the critical role of meeting customers’ aspirations. Accordingly, logistics and supply chain is increasingly shifting from focussing just on cost to adding value to the company’s success. Benetton manages the same through co-sourcing, wherein the company staffs managerial positions and manages the balance through 3PL service partners. “The logistics industry in India today is highly fragmented and skilled manpower at every level is at a premium. We are working along with our 3PL service partners to incorporate the latest trends in this space into our business,” he said.
logistics Needs: warehousing outshines transportation
“We see lot of action happening on the warehousing side. There is spurt in good quality warehousing infrastructure & LSPs in the last few years. But on the transportation side, particularly on the national routes, there is very little improvement to be seen. For companies like us, who service most of their customers directly from their centralised DC and not through the state-level CFAs and warehouses, this becomes a bug hurdle,” Karunakaran said.
“As an example, MFL services close to 4,000 customers directly from Bangalore, as well as its North DC. The average dispatch frequency per customer is twice a week. So we ride on the infrastructure of the express distribution service providers to service these small shipments to our customers. There are not enough options in this segment, and very few new players have entered this segment in the last decade. Plus, the success rate of new entrants has not been encouraging,” he further added.
When it comes to smaller towns (which are the growth markets), the hub-andspoke model of these national carriers or express distribution service providers has its limitations due to low volume, rigid systems, infrastructure issues and costs. There is an impact on the product quality and customer experience, as well due to multiple handling and handshakes.
He however maintained that the performance of 3PL companies, when it comes to small-format warehouses (less than 20,000 sq ft) has been very good, and they consistently achieve and exceed the KPIs of the customers.
“However, on the medium (20,000100,000 sq ft) and large DC (more than 100,000 sq ft) management side, there is a need for significant improvement from 3PL to partner. Right now, most 3PL companies are able to match the service requirements of the customers, after an initial teething period of anywhere between 8-10 months (in some cases going up to a year). The customer cannot afford such high stabilisation periods. Moreover, he expects continuous improvement in KPI and aligning the DC operations to changing needs of his customers,” he added.
He also argued that the logistics of fashion industry is complex, due to large number of SKUs, shrinking duration of full-price window, shelf-life of products and direct shipping to retailers in most cases. To handle this complexity, the 3PL company has to invest in disproportionately higher management attention in such customers not only in the beginning, but also on a continuous basis. So, the 3PL companies entering to service this industry should be prepared for this eventuality. Also it is extremely important to study customer processes, technology and software used, capital investments required, KPI targets particularly on cost, inventory accuracy and service delivery.
According to Saha, the quality of services offered by logistics companies is still at a nascent stage, and it is trying to keep up with increased customer requirements of consistency of deliverables and regulatory compliance. “Keep pace with the changing demands of customers, especially in a scenario where MNC service providers are entering the country with significant experience in operational efficiencies and value addition to the organisation,” he suggested.
Major challenges & bottlenecks in logistics
Optimising the warehousing space, considering the seasonality of businesses. Higher safety stock impact due to fluctuations in sales and uncertainties in supply network. Slower speed of trucks on Indian roads compared to international standards, increasing the cost of transportation. Faster reach to smaller towns, particularly in big states like Maharashtra, UP & MP and the entire North-East region. Limited air-cargo capacity available and high cost of air-freight (Air-freight cost in domestic sector is too high compared to international routes). Shipments getting offloaded. Growing state-level regulatory requirements in terms of permits and documentation. Poor infrastructure and stringent government policies. Delays in customs examinations and formalities (certifications, testing, etc). High power and transaction costs, increased costs of raw material, labour and other input costs.
Increase the capacity of cargo handling at ports to remove congestion. Increase rail network and capacity. Introduce VPH service on more trains and increase capacity. Remove / relax state level permits requirement for goods movement. Improve road infrastructure to reduce national routes lead time by minimum 25 per cent and increase connectivity to smaller towns. Debottlenecking the check-posts in the road network and make travel across India seamless. Implementation of GST at the earliest. Attract investments and speed up infrastructure projects in warehousing / roads / railways / ports / inland waterways. Fast and effective approval process can improve the time duration for overall implementation of project in retail and fashion industry.
third party lsps: services in place
Commenting on the growth potential of fashion logistics business from freight forwarders and 3PLSPs point of view, Sanjay Goel, COO, SDV India said, “The Indian Fashion industry is at its infancy at the moment, though it has great potential to make its mark on the world stage. Fashion in India has thousands of years of tradition behind it, and it’s growing at a rapid pace with international developments. As a freight forwarder, our business depends on country’s exports and imports, and garments are one of the biggest export commodities out of India.”
Goel maintained that being a French multinational, SDV has an excellent understanding for handling fashion and luxury brands worldwide. The company offers a wide range of made-to-measure services, especially for the fashion industry
which includes PO management, QC platform, warehousing, distribution and multimodal transport across the globe with JIT approach. SDV recently launched a new concept called iD solution for its customers, based on RFID tagging. Once the RFID tag is fitted, each item of clothing has its own identity, and the information on the tag can be read remotely across the entire supply chain all the way to the shop. It will help to collect maximum amount of data, read remotely off the tag. So, making an inventory in the minimum amount of time, whenever necessary, will preventing handling errors.
“We have also created a vertical dedicated to the fashion industry. The emergence of local Indian consumer base for fashion and luxury is a good opportunity for us, as we have been established ourselves as a key player in the recent years on this vertical,” he stressed.
Ajay Sharma, Sr. Manager —Vertical Markets, Retail & Fashion and Rammi Anand, Dy. General Manager – Vertical Markets India, Schenker India noted that the fashion industry presently is passing through an interesting phase. “While footfalls in the stores are going down, the
As a freight forwarder, our business depends on country’s exports and imports, and garments are one of the biggest export commodities”
Sanjay Goel COO, SDV India
‘clicks’ on online portals are increasing. The end customers are exploring options to feel/touch/wear even through on-line stores, such initiatives being driven by the fashion industry. With the production centres shifting mainly to APAC countries, the options of multi-country consolidation is increasing. Thus, FTWZ facilities will be important for future growth and consolidation of business,” they observed.
They also maintained that with the Indian Government’s approval to allow foreign direct investments in Retail, foreign brands are expected to enter into Indian market more easily. This will result in growth of the organised retail, can compensate for the negative effects of the devaluation of the Indian Rupee and thus, the opportunities in end-to-end logistics services within the countries.
Referring to the new markets, Sharma and Anand were of the view that, while traditional fashion markets from USA and EU are seeing a downward trend, there has been an upsurge in emerging markets from Asia-Pacific e.g. India and China. The emerging markets are becoming fashion conscious and with the increase in earnings, these emerging markets are now seen as fashion consumption markets as well. People in India have become more sensitive towards the brands they wear. This is also reflected with an upsurge in luxury brands spreading in the country. However, the trend is presently limited to Tier-I Cities. Therefore, there is untapped potential in Tier -II and Tier-III Cities within the country, which gives confidence in long-term sustainable growth in India.
“DB Schenker understands the changing dynamics of fashion industry in India and its evolving requirements. This is reflected in the wide range of services that DB Schenker renders, which can be customised as per its customers’ requirements,” they said. The company’s services include PO Management, ICM Tool to give complete visibility to supply chain as well as production, Quality Check, Labeling and Tagging, Pick and Pack, Palletisation, In-house Customs Clearance, Assistance from a strong global network, Customised IT Solutions, Warehousing and Distribution, Multi-Modal Solution and Dedicated Key Account Management Structure.
Satish Karunakaran Head Supply Chain & Sourcing , Madura Fashion
Abhik Saha Director-Supply Chain,
Revati Kasture Chief General Manager &
Rammi Anand Dy. General Manager – Vertical Markets India
Ajay Sharma Sr. Manager —Vertical Markets, Retail & Fashion
Sanjay Goel COO, SDV India