The Role of Product Development in the Apparel Supply Chain 1/10/12. Beyond Design. Chapter 1. By Sandra J. Keiser and Myrna B.

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1 1/10/12 Beyond Design By Sandra J. Keiser and Myrna B. Garner PowerPoint developed by Elizabeth Law 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 1 Copyright 2009 Fairchild Books All rights reserved. No part of this presentation covered by the copyright hereon may be reproduced or used in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, or information storage and retrieval systems without written permission of the publisher. ISBN: GST R The Role of Product Chapter 1 1

2 Chapter Objectives Examine changing dynamics of apparel supply chain Understand growth strategies employed within apparel supply chain Understand impact of globalization on apparel product development, manufacturing, and distribution 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 4 Chapter Objectives Define product development process and differentiate it from design process Identify various types of product development Understand how information technology systems speed up processes and enhance decision-making within apparel supply chain 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 5 Managing Perpetual Change Businesses today must manage perpetual change In technology, business climate, world order In consumer demands and expectations To remain competitive Choose among variety of information and telecommunication technologies Integrate them with emerging product technologies, knowledge of customer preferences, and global marketplace resources 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 6 2

3 Managing Perpetual Change Product development Strategic, creative, technical, production, and distribution planning of goods Having a perceived value for a well-defined consumer group Designed to reach the marketplace when that group is ready to buy 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 7 Apparel Network of suppliers, apparel product developers, manufacturers and contractors and all the channels of apparel distribution that work together to bring apparel product to the ultimate users Also includes auxiliary businesses which improve the efficiency of the entire chain 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 8 History Roles of each industry segment were distinct, each with its own product and customer 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 9 3

4 Today s Virtual New competitive global environment Members function as integrated units, not independent businesses Companies must compete with products geared to niche markets defined by customer preferences and delivered through multiple distribution channels (stores, catalogs, Internet) 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 10 Today s Virtual Broader product ranges, produced in smaller lot sizes, available for shorter time Must respond quickly to constantly changing consumer preferences 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 11 Today s Virtual Agile Manufacturing Environment Comprehensive response to the business challenges of profiting from rapidly changing, continually fragmenting, global markets for high-quality, high-performance, customerconfigured goods and services Companies identify core competencies and partner with other specialists to meet consumer wants 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 12 4

5 Today s Virtual Virtual Interactive network of manufacturing specialists that integrate complimentary resources to make a product Synergy of computer networking and telecommunication technologies deliver products at Internet speed Achieve powerful competitive advantages 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 13 Today s Virtual Insert Figure Fairchild Books, a division of Condé Nast Publications, Inc. 14 Growth vs. Mature Industries Growth industries produce products that have not yet saturated the marketplace Emerging technology commands relatively high price Potential to grow through increased market saturation or penetration as technology comes down in price 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 15 5

6 Growth vs. Mature Industries Mature industries produce products with relatively stable sales year to year Businesses that make up the domestic apparel supply chain are classified as mature industries 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 16 Brand Growth Differential advantage competitive edge (lower price, superior quality, unique features) Sneakerization transforming inexpensive commodity product into cutting edge specialty product (Nike Burberry) 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 17 Measuring Success in a Mature Business Volume Market share Profit margins Capital investment Capacity utilization Inventory levels 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 18 6

7 Corporate Growth Strategies Acquisitions and mergers purchasing another company or brand to increase market share or competitive advantage 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 19 Vertical Integration Strategy that consolidates supply chain by acquiring a company at another stage in the supply chain Retailers developing private brands Zara s fast fashion model Full package sourcing (contractors supply design, fabric, patterns, and manufacturing) 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 20 Deverticalization Counter trend to vertical integration Companies divest themselves of processes that other companies may perform better 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 21 7

8 Horizontal Integration Acquisition of companies that make or sell similar products to expand market penetration and reduce competition Acquire brands at same price point or penetrate multiple price points 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 22 Diversification A firm expands its product mix to capitalize on brand recognition, increase sales, and enhance efficiencies for greater profit Achieved through licensing or by acquisition of related or unrelated companies Capitalize on widespread name and quality recognition in the apparel industry (Ralph Lauren) 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 23 Globalization Enabled by digital technology 90% or more of apparel sold in US is produced offshore Product may be: Developed here, production contracted offshore Purchased directly from foreign producers or foreign sourcing agents Produced in U.S.-owned/operated plants in foreign countries 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 24 8

9 Product Development in An Agile Manufacturing Environment Companies vary in size, managing a single brand or many Value lies in developing and promoting brands rather than manufacturing Supply chain partnerships vary by: Brand Fabric Style pricepoint 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 25 Product Development in An Agile Manufacturing Environment If not a match to its core competencies, company contracts out to: Trend services Design bureaus and patternmaking services Factors Agents Testing labs 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 26 The Role of Product Development Consumer driven Eliminates steps that do not add value to the end product Defines desired product through detailed standards and specifications Partners share responsibility and risk for producing a quality product 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 27 9

10 The Role of Product Development Dependent on each partner s ability to meet schedules Must lend itself to distribution through multiple channels (e.g., stores, Internet, and catalog) 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 28 Product Development Variations Wholesale Brands proprietary label, sold at wholesale to retailers that also carry other wholesale brands Carried by department stores, specialty stores, chain stores, and discount stores Distribute products online, signature or outlet stores 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 29 Wholesale Brands Wholesale Brands May own manufacturing facilities or use contractors Increasing focus on development, sales, and marketing, relying on sourcing partners for manufacturing 2009 Fairchild Books, a division of Condé Nast Publications, Inc

11 Private Label and Store Brands Private brand products developed and merchandised for exclusive distribution by particular retailer Store brands developed for stores that sell only private brands (the Gap, Limited) Private label private brands developed to compete with wholesale brands; most developed by retailer s own product development team 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 31 Private Label and Store Brands May buy exclusive merchandise from wholesale brand companies and replace the brand label with their own private label Buy the right to a brand (Sears/Land s End) Licensing agreement exclusive rights to a brand for an agreed-upon time 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 32 Licensed Products Brand Extentions Brands or designers expand their reach by contracting with companies that can add new products to their well-known brand (jewelry, shoes) Character licensing e.g., Sponge Bob Squarepants, college mascots Co-branded products feel of designer, but modified for price point e.g., BCBG Exclusively for Nordstrom International Licensing Protects brand trademark abroad and facilitates products modification for global distribution 2009 Fairchild Books, a division of Condé Nast Publications, Inc

12 Customized Products Mass customization mass production technology to create products and services for individuals Gives customers limited options in finished length, fabric, or styling details 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 34 Management Tools Quick Response (QR) Getting the right product to the right place at the right time at the right price Identifies tools to help domestic manufacturers capitalize on knowledge and proximity to shorten lead times 2009 Fairchild Books, a division of Condé Nast Publications, Inc. 35 Management Tools Just-in-time (JIT) inventory prioritizes to eliminate warehousing Specification ordering Bar Coding Electronic date interchange (EDI) Computer-aided design (CAD) Automatic replenishment systems eliminate stockouts 2009 Fairchild Books, a division of Condé Nast Publications, Inc

13 Technology Investments The best technology investments: Offer open architecture facilitating communication between various systems Adaptable as web-based exchanges Require minimal customization Offer excellent training and online support Are kept current with frequent updates and option to add capacity 2009 Fairchild Books, a division of Condé Nast Publications, Inc