News Flash, Lean Is Good — for Fashion

Outsourcing May Be Slowing Down Apparel Firms | Marguerite Rigoglioso | Stanford Graduate School of Business News.

[tweetmeme source=”leanisgood” service=”ow.ly”]  I found an article on the Stanford Graduate School of Business News site written by Marguerite Rigoglioso reviewing research done by Gerard Cachon of Wharton and Robert Swinney of Stanford Graduate School of Business.  The title, Outsourcing May Be Slowing Down Apparel Firms caught my eye because I like to see “outsourcing” and “slowing”in the same sentence anywhere on the web that isn’t a blog about lean.  I found it relevant because it appears to independently support the lean philosophy and it talks about how lean impacts the top line.

The news article is a brief review of this June, 2009 research paper.   The title of the research paper also got me fired up as well (The Value of Fast Fashion: Rapid Production, Enhanced Design, and Strategic Consumer Behavior.)  I like that title because it:

1. mentions fast and rapid production, we know that under the lean paradigm speed and agility beat scale.
2. it implies that speed can be ‘sold.’  It is too easy to get stuck in the mindset that the speed of lean is all about improving the cash efficiency of your business — less cash invested in wasteful inventory, lower carrying costs, and lower opportunity costs (you can free up cash and use it for better purposes than inventory of you flow stuff through your value stream quickly.)  This article claims that the speed of lean can add to your top line (sales), not just improve the bottom by reducing costs.

The article begins:

Most companies in the fashion industry are firmly entrenched in a business model that involves outsourcing production and distributing products through cheaper, “slow boat” channels. New research at Stanford Graduate School of Business, however, suggests that while this approach seems to make economic sense it may actually create gross inefficiencies that cause firms to miss out on significant profits.

Given the recent history of apparel manufacturing it is nice to hear objective, scholarly research pointing out that “slow boat” value streams may create “gross inefficiencies.”  It is especially nice when this comes from academic researchers who don’t talk about Toyota or other lean paradigms.  Smart people are independently validating the lean belief system and talking about it in the general business community.

According to the article fashion firms are best off when they exploit shorter manufacturing and distribution channel lead times –

in many cases producing goods closer to home. By getting goods into shoppers’ closets when they are in demand, and not producing leftover unneeded inventory that will be dumped onto a sale rack, retailers are more likely to get customers to buy early at full retail price. The profit margin increase under this combined scenario is exponential.

Traditional outsourcing requires lead times of 6 to 9 months.  This causes producers to miss the trend (bad thing in the fashion world.)  The article goes on to describe another advantage of “fast fashion” that should be familiar to lean practitioners: better synchronization to demand in order to increase sales in a fickle fashion market and to avoid waste of overproduction – in the form of end of season sales in the case of fashion,

Interestingly the piece claims that being fast to market in the fashion industry is a successful strategy even if costs are higher.  An example is given of a European retailer who manufactures in European and North African factories and often uses expedited shipments to refill clothes racks just in time.  Investigators claim that Zara is more profitable than competitors with manufacturing based in Asia:

“Zara can take a design from the drawing phase to the storefront in a few weeks. If they outsourced, this process would take half a year or more,” says Swinney. “The approach allows them to anticipate, spot, and take advantage of consumer needs and trends, and tag production to actual demand. They do very, very well using this strategy.”

Another interesting claim made in the article is that by coupling “enhanced design” with rapid manufacturing the benefits in terms of profits are not additive.  Professors Swinney and Cachon claim that if a firm would enjoy a 10% increase in profits due to enhanced design or a 10% increase due to the advantages of rapid manufacturing the results would exceed a 20% increase in profits.  Based on the model resultant from their research the increase in profits would be more like 40%.  It sounds like a synergistic interaction between enhanced design and fast manufacturing.

The professors also describe what lean practitioners call value:

“From a social point of view, 75% of the time fast fashion leads to greater overall welfare,” says Swinney. “People get a premier item that they value highly. Because production times are short, they get it when they need it. Plus, there’s less overproduction and waste.”

This post is a quick review of the Stanford GBS News article.  i plan to read the research paper over the weekend.  I may post on it next week if I find anymore neat stuff to talk about.

It’s nice to know that people are finding objective evidence of the power of the lean paradigm.  I did a quick check of both professors academic websites and didn’t find any areas of research or publications about Toyota or lean.  Work like this done by people like Professors Cachon and Swinney will new insights and perspective on lean.  This work, independent of our historical lineage might help build more credibility for our belief system.  At times lean practitioners sound a lot like “true believers.”   I remember a gentlemen that Bryan used to work with called me a “snake oil salesman.”  I don’t know if he was denigrating me as a fraud or writing off lean as worthless medicine that claimed to cure everything.  I assumed that he meant both based on the principal of conservatism (estimating the worst case based on the available evidence).  Having new voices and perspectives codified in the general vernacular of business instead of the lean jargon will help us learn and propagate the knowledge.

Bruce

Disclosure statement:  I don’t know any famous ‘lean’ people, I don’t receive any money from any economic enterprise nor organization associated with lean, and no one has ever asked to be on any type of lean advisory board.  But, i am a huge college football fan who supported Toby Gerhart of the Stanford Cardinal in the race for this Heisman this past season in spite of his tangential connection to that school up north.  I especially admire the 193 yards and 3 TDs he hung on the Trojans.

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