More Americans died in the Civil War than is all wars we have fought in – combined. While the majority of the Civil War deaths were due to disease, the actual battle mortality was carnage an a scale that dwarfs anything else we have experienced. The primary reason was the combination of new weapons and old tactics. Military thinking was based on muskets with an effective range of a few hundred yards, at best; but the war was fought with newly developed rifles with an accurate range of as much as a half mile. Lining men up in broad lines to slowly advance on entrenched foes may have worked in an earlier day but when that entrenched foe was armed with rifles it resulted in slaughter on a horrific scale.
It is not much of a stretch to compare fast fashion with the Civil War consequences of having a new weapon in the hands of yesterday’s thinking.
Zara pioneered the concept of fast fashion, releasing new fashion designs continuously, and having them in stores within two weeks, as well as replenishing inventory in stores with similar speed. Zara, a Spanish firm, accomplished this through a high degree of vertical integration and a regional manufacturing base. Their factories and many suppliers were located mostly in Spain and Portugal. No long lead times – no lengthy transportation lines. Spanish labor costs are relatively high, but the economic benefits of fast fashion lie elsewhere, including …
- Fewer missed sales because they could restock hot items quickly, while their long lead time competitors were largely stuck with the initial quantities they purchased and a supply chain that took too long to respond to higher than expected demand.
- Inversely, fewer sales at less than full price. While competitors were usually stuck with excess inventories resulting from having to commit to quantities long before they knew what the true demand would be, Zara had less inventory and less exposure to excesses.
- The big kicker, however, was that Zara completely changed their store inventories over 17 times a year, compared to 4-6 times for most competitors. Again, with lengthy supply chains and lead times, competitors had to commit to store inventory three months or more in advance. While there was no point in shopping at a Zara competitor more than four times a year, it would pay to visit a Zara store every three weeks or so to see if the new inventory was to a customer’s liking.
- And while the cost per item of clothing may be higher, Zara’’s overall cost was lower and revenues were higher as a result of their fixation on speed.
Fast Fashion was a concept the old guys at Toyota would have loved – blazing cycle times, a holistic economic view, and maximum value for customers. But somewhere along the line the concept went horribly off track.
I suspect it was a victim of faulty accounting – accounting that sees the individual purchase prices of goods with great clarity, but is pretty much blind to the whole, and the costs of high inventory and long cycle times.
In the hands of Swedish H&M, Walmart, The Gap and others stuck in a traditional economic thinking the weapon of fast fashion morphed into a business model that has resulted in abuse of cheap, third world labor on a staggering scale. The critical element of local/regional manufacturing to fuel a short cycle time supply chain was missed entirely. The traditional retailers have attempted to achieve the benefits of fast fashion through their old, cheap labor – but long lead time - supply chains.
These big guys don’t know much about fundamental factory economics, and could care even less about them. Factories operate best with level demand loads. Under the Zara, local manufacturing model, a steady stream of relatively small orders flowed to the factories. Transportation costs were not significant because the factories were local.
But getting fast fashion from a factory in Bangladesh or Vietnam is another matter entirely. The long transportation times are unavoidable but the big retailers thought they could demand fast turnaround from the factory because it was the only ‘controllable’ part of the overall lead time. And they ordered in big quantities because, well they are big companies with big appetites, but also to fill containers and minimize transportation costs per unit.
Fast fashion to the likes of Walmart and H&M meant dropping big orders on third world suppliers with a demand for near immediate turnaround. Rather than the steady flow Zara put on their local suppliers, the third world suppliers had to cope with demand that more resembled a pig flowing through a python. The orders far exceeded factory short term capacity, but the big US and European customers were resolute – fill the order pronto or be dropped as a supplier.
So the third world suppliers did the only thing they could – outsourced much of the production. An order from Walmart or The Gap that required producing several containers with low cost goods in a matter of says was spread out over a dog’s breakfast of fly-by-night operations all over the Vietnamese or Bangladeshi landscape to get the work done on time. When people die in fires or building collapses, and Walmart says they didn’t authorize any work there and don’t really know why their half-made goods were found in the wreckage they are telling the truth. The big retailers have no idea who is making their stuff, or where it is actually being made because they have no idea what has been cobbled together to form the capacity required to meet the demands they make in the name of fast fashion.
While the big guys do a poor enough job looking out for the conditions in which their suppliers operate and subject employees to, the sub-contractors to those third world suppliers are almost completely under everyone’s radar.
The big retailers can sign all of the high moral agreements they want, but the problem will not be solved until they understand the root of the problem – manufacturing capacity. They either pay for excess capacity – a huge gang of cheap laborers standing around doing nothing, but at the ready for whenever the sort turnaround order comes in – or long lead times resulting from short term demand that exceeds manufacturing capacity. Or, of course, they could feed local suppliers a steady stream of short lead times replenishment orders.
Attempting to realize the sales benefits of fast fashion without addressing the factory capacity issue, however, is simply forcing pythons to swallow pigs whole, and that is never a pretty sight.