Reading this I learned that on Dec. 31 there will be some celebrating other than just at Times Square
No longer restricted in where they manufacture clothes, many big apparel companies are now preparing to consolidate operations, cutting down the time and expense of producing in various parts of the world. The liberalization of trade is expected to shutter small textile industries in countries like Mauritius, and result in a massive migration of jobs to low-cost, high-efficiency centers like China. It is also expected to lead to accelerated deflation in the industry, and cheaper garment prices.
Over the past year, apparel companies have been trying to figure out just how to prepare for the new post-quota landscape. Many in the industry are watching the progress of Liz Claiborne and Luen Thai to see whether supply chain cities will become a model in the future.
Liz Claiborne, for example, currently has 250 suppliers in 35 countries as diverse as Saipan, Mexico and Cambodia. Currently, its designers in New York come up with a concept for a clothing line, which they then ship to their sourcing team in Hong Kong.
The teams confer with Luen Thai employees in Dongguan on what modifications need to be made in order to produce the line at the right cost. Luen Thai then goes looking for the right fabric. Any modifications that are made need to be checked all the way back up the line.
"Right now, there is a lot of duplication," says Chris Chan, Liz Claiborne's vice president for Asia. When prototypes come out of the factory they are sent back to New York to be inspected and possibly modified, then shipped back again to the factory in China. "When it's all finished, it gets checked again," Mr. Chan says. The process sucks up precious time and requires additional staff.
Instead of having 100 people spread between New York and Asia doing the same job, the new supply-chain city will enable the two companies to reduce staff to 60 people in China, concentrating all functions closer to the factory floor, Mr. Chan said. By moving all but the most critical designers and trend spotters to Asia, the company can dispense with the tedious back and forth, slashing precious weeks off production times and getting up-to-minute fashions into stores sooner.
After quotas are removed, Liz Claiborne expects to eventually consolidate sourcing in just a few countries from 35 now, says Mr. Chan. Its 250 suppliers will be reduced to about half that number within five years, vastly streamlining its supply chain.
This means convincing a lot of New York-based designers and product development staff to move to China. Of course, many of the core fashion functions will always stay in New York, close to the end market. But many other jobs, especially on the technical level, don't have to be.
The more production a company like Liz Claiborne moves to China, the more it can reap economies of scale. Under the current quota system, Liz Claiborne clothes arrive in the U.S. from factories all over the world. But in its stores, Liz Claiborne doesn't just tout a single skirt, it tries to sell customers an entire outfit -- a skirt, a top and maybe a matching handbag.
The only way to get all those different pieces to the right stores in the right quantities is to have them shipped to three distribution centers it maintains in Ohio, New York and New Jersey. There the garments are repacked and sent off to individual stores -- at a cost between 80 cents and $1.20 a garment.
In the new supply-chain city, everyone from the fabric mill to the store will use the same scan-and-track inventory system. Goods can roll off the factory floor and go straight to a store in Seattle, reducing the unit cost to as little as 20 cents, Mr. Tan says.
(8-13-04 wsj; email if want full.)