the industry is focusing on product lifecycle management

1

The industry is focusing on Product Lifecycle Management

The last few years have seen a heavy focus on improving the product development process in the apparel vertical. This has been driven by:

Desire to improve gross margin through faster speed to market and greater responsiveness enabling more market “right” product

Need to gain better leverage on overhead costs through more efficient processes

Consolidation in the offshore sourcing end of the supply chain, catalyzed by the loosening of quotas

Entrance of new product development & PLM software vendors from other industries who now enable product development process and organizational transformations; these vendors are significant in size, dedicate large funding to R&D, and bring experience from other industries that have complicated products and global, multi-party supply networks

BUT now as fashion retail evolves, the REAL competitive advantage our

clients seek through PLM is SPEED

2

Speed has taken on a new meaning…

GREATER RESPONSIVENESS AND CYCLE TIME…

New process models

Strategic vendor partnerships

Geographical shifts in “where” activities are performed in supply chain

FLEXIBILITY AND FLEXIBILITY AND RESPONSIVENESSRESPONSIVENESS

GREATER VISIBILITY TO INFORMATION…

Collaborative Design and Development

Product Lifecycle Management tools (PLM)

Exception based management

NEWNESS AND NEWNESS AND EXCLUSIVITYEXCLUSIVITY

“FAST FASHION” BECOMING A “REQUIREMENT”..

More frequent product introductions

Greater perception of freshness

More innovation

SPEED

GROWTH IN PRIVATE LABEL…

Consumer need for uniqueness

Retailers are competing with brands

Retailers becoming Value Chain leaders

3

The Bar Is Rising: The Industry Keeps Getting Faster

Days-360 -270 -180 -90

In Store0

Today

Yesterday 2-4

4-6

6-8

10-12

Next Generation

Seasons/Year

4

Leaders are Using Blended Process Models

Standard

In-StoreDate

What is different?

Operational differences per track

More product thru speed track

Potential for multiple sourcing tracks

Strategic, dedicated resources

Vendors dedicated to speed

Metrics monitored by track

Infusion

Speed

Results

Stronger capabilities

50% reduction in cycle times

Stronger execution and timeliness

More sustainable

Accountability

Greater profitability in speed tracks

5

Leaders think in weeks not months

Concept 2 weeks

Sales 1 week

Manufacturing8 weeks

Logistics3 weeks

From 19 to 2 weeks

Concept boards as selling tools

Restructured color and fabric approvals

From 6 to 1 week

Sell virtually with boards and swatches

No sales samples

No changes to line during sales process

From 12 to 8 weeks

RM and mfg are done in same country

Source criteria is speed not margin

Approvals in the field for color

Inventory some raw materials (basics – denim, etc.)

2 strike rule for vendors

From 9 to 3 weeks

100% airship

Separate DC

5 day turn in DC

Liz-Quik (Liz Claiborne’s 14 week PD model)

Success Factors: Dedicated teams, decisions made without senior involvement, final decisions only made when they have to be, meet weekly to review trends and sales and make new decisions, upper mgt support, strict adherence to operating guidelines, clear roles, enhanced technology

Liz-Quik (Liz Claiborne’s 14 week PD model)Moving to 14 weeks changed the way they design and sell in to retail

Removes market week barriers to

speed

Creates accountability for

success

Eliminates useless tweaking of recommended

assortments

Source: Liz Claiborne speaking notes, AAFA Conference

6

Net Profit Margin (Pre-Tax Income / Revenues)Inventory Turns (COGS / 2 Yr. Avg. Inventory)NotesSource: 10-K, Hoovers, News Articles, Press Releases, and Earnings Conference Call TranscriptsInditex financials used for Zara. All financials represent FY 2004 (except Inditex financials are FY2003), with average income and inventory for FY 2003-20041 One year same-store comp

H&M: “…a garment can move from design to hanger in just 20 days…” ”…every store is restocked daily…”

Zara: “…design, produce, and deliver a new garment and put it on display in stores worldwide in a mere 15 days…”

Chico’s: “…been able to sustain stellar sales growth because of its reputation for flowing in new merchandise…”

“Future” Supply Chain

Cabela’s

Coldwater Creek

Talbot’s

Dick’s Sporting

Sears

J. Crew

Gap

PacSun

Limited

Timberland

H&M

A&F

Zara (Inditex)

Chico’s

Amer. Eagle

3.0x / 6%

5.3x / 6%

4.7x / 9%

3.6x / 8%

4.8x / 8%

5.9x / -10%

5.3x / 11%

4.2x / 13%

5.3x / 12%

5.8x / 15%

4.3x / 20%

5.1x / 19%

5.1x / 15%

5.5x / 21%

7.6x / 14%

Company Turns / Net Margin Like-for-like sales 1

4.3

7.4%

5.3

5.5

17.8%

8.2%

0%

n/a

2%

3%

n/a

17%

0%

7%

4%

3%

n/a

2%

9%

13%

21%

Like-for-like sales (1 year)

2%

6%

11%

The benefits of speed can be significant

TraditionalModel

Sears: “…will introduce new apparel items and accessories in stores every 4-8 weeks, rather than at the start of each season…”

Coldwater Creek: “… because inventory levels are cleaner and more current, we have also realized higher margins…”

Talbot’s: “…want customers to know that if they see something they love, they should buy it now, because it may not be here in a few weeks…”

“Updated” Model

Gap: “…new product flow strategies at each brand are helping drive traffic and regular-price selling, which has resulted in improved inventory turns…”

Limited: “…the lean inventory position achieved has ensured maintenance of fresh stock…”

7

PLM helps to achieve these benefits

PLM is a critical part of any product development effort aimed at achieving real and lasting benefits. However, you must extend PLM beyond PDM and

manage the entire process for speed

link with merchandise planning

integrate with supply chain partners

8

The Benefits are Compelling

Companies can expect to see dramatic results; indeed we regularly see 5 year ROI models for PLM projects with IRR’s in excess of 100%. Common sources of “hard” benefits for can be found in:

Reduction of finished goods air freight to 10% to 20% of shipments, resulting in 1% to 3% reduction in COGS

Labor cost avoidance, as fewer new employees will be necessary to support added business due to streamlining of processes and elimination of clerical tasks. In fact we find that, on average, 30% of design and development labor is wasted on clerical and other redundant tasks related to lack of information.

Raw material aggregation across styles and even divisions, resulting in 3% to 5% reduction in materials costs

Shortened lead times causing a reduction in working capital and increased service levels.

9

The Benefits are Compelling

There are additional benefits that are more difficult to quantify:

Developing product closer to market for more “fashion-right” assortment. We have seen clients measure anywhere from 1 to 3 points of additional maintained margin from product developed on their fast track programs.

Having a full collection / delivery arrive on time and together at retail,to maximize full price sell through

Disciplined handoffs, freeing people to focus on their job, not having to remain involved further along the process

Standardized systems, reducing support and infrastructure costs

“Being on the same page”, with all parties, from design through sourcing, and including 3rd party agents, raw material suppliers, and contract manufacturers, working from the same set of dates, the same understanding of the product line, and the same product specifications

Reduce SKU proliferation and over-development

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PLM easily replaces the functions of a “Spec Package”

Spec/PDM

Product Information – Style, colors, sizes

Sketches / Graphics

Construction Details, Measurement & Grading

Bill of Materials, Initial Costing

Version control & revision history

Prior season styles, bodies/silhouettes, colors

Developed, tested, certified, and negotiated fabrics and trims and “where used” history

Lab Dip Tracking

Fabric Testing

Proto / Sample Tracking

Approval History

Product hierarchy

Top down assortment plan

Metrics and seasonal targets

Units, Price, Gross Margin / Intake Margin, Cost, Projected Sales

Style Adoption Status and Add/Drop tracking

Sourcing and QA tracking and definition

Spec/PDM

Concept Initiation &

Development

Design &

Material Library

Proto/Fit Iterations

Spec/PDM


Development

Design &

Material Library

Sourcing & QA

Line Planning


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But many implementations stop far short of full workflow

Task definition and duration

Flexible, comprehensive task / product hierarchy relationship

Working schedule configuration by location

Multi-task predecessor / successor relationships

Task responsibility assignment by role

Automatic workflow template / product association

Lead time variations (e.g. Complexity, Geography)

Task status tracking

Workflow notifications and alerts

Development cycle status “dashboard”

In order to be effective, this capability should: Be completely integrated with the core “Spec”, Iteration, and Line Planning functionality

Provide an accurate, daily (or even hourly), prioritized “to do” list for each role in the organization

Drive the organization toward achieving key milestones (e.g. Retail Deliveries, Sales Shows)

Consider the seasonal and product hierarchies in defining tasks and inter-related schedules

Simple, linear merchandise calendars by style do not address the need adequately. Detailed functionality includes:

Spec/PDM


Development

Design &

Material Library

Sourcing & QA

Line Planning


Workflow &Event Tracking

Collaboration

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PLM Definition and Requirements Help Prioritize Needs

A PLM Framework helps define requirements and set implementation priorities.

PLM can include many components: Product Data Libraries of information Line planning and range optimization Vendor partnerships and management Workflow and process management Collaboration

Spec/PDM


Development

Design &

Material Library

Sourcing & QA

Line Planning



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Spec/PDM


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Many companies start with a subset of the framework and add on as they meet with success.

13

Barriers to Speed

Product development (concept to PO) typically makes up about 70% of the overall cycle from concept to shelf. If you’re going to reduce the overall cycle, starting with the product development cycle is imperative.

Typical barriers to speed in product development.

Delayed Decision Making

Poorly defined consumer & brand proposition, causing second guessing of designs

Lack of a properly structured & communicated merchandise or line plan to keep people working on the right products. No flow and delivery plans prioritizing decisions.

Low levels of employee – and partner – empowerment, causing management bottlenecks

Process Friction

Late or incomplete process handoffs

Designers that stay involved far too long

Re-keying of product data from system to spreadsheet and vice-versa

Aggregated decision points and overly generic processes and timelines

Lack of Management

Little information on the effectiveness and efficiency of the development process

No ability to manage by exception and proactively focus on problem resolution

Generally inadequate information on products and their status

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Integrated PLM eliminates Barriers to Speed





Process Friction





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Does your System Coverage Look Like This?


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Software Vendors

There are many vendors providing apparel and footwear-specific PLM solutions. The following is a list of vendors that KSA have most often appeared as part of client software selections over the past year.

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Sourcing & QA

Line Planning



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Vendors that have always been apparel/footwear specific

Freeborders (not to be confused with AI / Karat)

GEAC Qwest Runtime

Gerber WebPDM (FLM)

Lectra

NGC

Vendors that have migrated from other industries to apparel/footwear

MatrixOne (now owned by Dassault)

PTC Flex PLM

UGS

Other smaller startups to be aware of:

MSC, Vertex, Yunique PLMon, zweave

24

Key Factors for a Successful “Speed” Initiative

Define the product strategy. Are you a fast follower? A fashion leader? The low price option? All have a great impact on what your product development process should become.

Start with the Process. The process needs to be re-thought, not tweaked, in order to achieve quantum leaps in speed.

Align the Organization. Ensure that incentive systems, reporting relationships, and training are part of the implementation plan.

Implement a PLM System. The process integration and management required for success in today’s complex retail-apparel supply chain can only be accomplished with robust systems support.

the industry is focusing on product lifecycle management

Business

speed tracks

product development

speed metrics

benefits of speed

weeks logistics

weeks rm

new decisions

sales process