The globalization of production in the textile industry is almost complete. According to current estimates, 95 percent of west European clothing manufacturers produce abroad, mostly in China, India, and Bangladesh and also in Romania, Bulgaria, Serbia, Montenegro, and Bosnia. The traditional production countries for American manufacturers include Mexico, Central America, and the Dominican Republic. But even in the United States, things are shifting toward Asia, especially China.
Globalization of production affects large and small companies in the industry in equal measure. The primary significance is that they must monitor the supply chain from Europe or the United States to ensure that the finished goods are in their shops at the beginning of each season. But many companies do not have sufficient technological resources to meet this need. They order raw materials like fabric and deliver them to their producers. The production companies have no way to confirm the status of an order on a regular basis.
If the material is cut incorrectly or if a machine breaks down, the sales and distribution department and the scheduling department of the ordering party receive no information at all or they receive information late. The ordering party then finds it enormously difficult to react and keep to its delivery schedule by switching to another production location or reordering the material. Retail stores expect delivery just in time – they cannot deal with empty shelves.
Two shortcomings among midsize companies
Up-to-date IT can close the resulting information gaps, but midsize companies in the clothing industry face two challenges here.
First, the contractors in the producing countries often have a heterogonous IT infrastructure. They use software solutions from various providers to handle development, accounting, procurement, sales, and warehouse management. That situation creates the familiar problem: a great deal of effort is needed to maintain the interfaces. At the process level, unintegrated software makes it difficult to assign a cost center to production costs that are not related to a product.
In addition to the general problems caused by a lack of integration, clothing companies in Europe and the United States also face industry-specific problems. The IT solutions they commonly use do not always map the required product and seasonal variations in a meaningful manner, they do not manage floor-space well, and they require a great deal of work to maintain master data.
Second, IT in low-wage countries is in even worse condition. Many companies there have only rudimentary IT systems. In the best case, their systems have developed over time and combine insular solutions for production, materials management, and accounting.
In many cases, small production companies perform such tasks manually. They communicate by telephone and fax. The risk of transmitting incorrect orders – because of transcription errors or misunderstandings – is high and the process is slow. That risk can be a decisive disadvantage in an industry with seasonal business.
Seasonal business, floor Management, and master data
The answer? An enterprise resource planning (ERP) solution that integrates all areas (scheduling, production, logistics, reporting, and accounting – including cost accounting and profit center accounting) and also considers the specifics of the industry, such as seasonal business.
The special characteristics of seasonal business in the clothing industry are primarily seen in the colors for each season. Spring and summer show great demand for bright colors; fall and winter show great demand for dark colors. But some colors are in demand all year long. A clothing manufacturer must consider this behavior when placing orders. It must have an adequate supply of items that are never out of stock and still have an adequate supply of seasonal items. Industry-specific software can map the scheduling of seasonal and year-round goods in one solution. Both groups of products often require the same material, thread, and buttons – but in different colors. That enables a company to track warehouse and sales stock separately and to combine both types for scheduling and warehouse management. They can also separate warehouse management completely.
Floor management is another special characteristic of textiles. Manufacturers must organize the floor space of their retailers. Floor management can involve simple scheduling, such as independent resupply, to keep the agreed-upon quantities on the sales floor. It can also involve consignment-based business processes. The use of such processes is increasing important. The goods remain the property of the textile vendor. They become the property of the end customer only upon payment. Support for these variations in floor management requires storage of customer-specific rules in an ERP system, processing of electronic notifications of sales and inventory, and, if needed, mapping of floor-specific assortments.
That’s why the textile industry typically works with huge quantities of data that arise from constant new designs, frequent seasonal and collection changes, and the large number of warehouse quantity units. Adequate industry software must have a flexible structure for master data that considers elements like size, color, and quantity at the level of warehouse management. The software defines properties – color, material, thread, and buttons – along with specification of men’s or women’s clothing, outerwear or underwear, pants, and blouses or shirts. An ERP solution also enables separation of stock into various categories, such as country of origin and quality. Finally, textile manufacturers can use industry software to perform the mass changes of master data that are unavoidable in the industry.
It’s also important that the ERP software be able to map foreign currency accounts. European companies that purchase goods in Asia usually have to pay vendors in U.S. dollars. Using the orders and the supply of foreign currency, a high-performance ERP solution can automatically determine how much of a given currency is needed for a specific customer. A complete ERP solution also supports all the important sales channels for the textile industry and considers current customs regulations, quota rules, and delivery capacities.
Closing the information gaps
Until recently, only large corporations could afford the high costs of such ERP solutions. Today, smaller companies can also afford such solutions, based on qualified SAP All-in-One solutions. Eighty percent of all processes are preconfigured and the software can be implemented rapidly.
For example, these industry-specific solutions enable electronic data interchange (EDI). The support standard formats like PRICAT for price lists, item master data, European article number (EAN), size and quantity specifications, DESADV for delivery notes, INVOICE for invoices, ORDERS for orders, and LSRPT for data on promotional sales.
Generally, such solutions enable midsize clothing manufacturers in Europe and the United States to link their own IT solutions seamlessly to foreign production facilities, subsidiaries, or other firms so that they can control production in real time from their own locations.
Depending on their technical abilities, vendors send status confirmations to the ordering party with an e-mail in EDI format. A communications server converts the e-mails into the data format of the ERP solution, serving as a bridge between human operators and the enterprise software. Larger companies or companies whose suppliers have the right technical foundation can also transfer data in XML format. Normally, exchanging data by EDI or XML is appropriate only for communications between large clothing manufacturers and their own subsidiaries or foreign locations.
Smaller production companies and vendors will find Internet-based confirmation scenarios interesting. Large companies can provide their own ERP solutions to make this option available. An Internet-based scenario can capture status and delivery notifications and drive the required scheduling processes. The Internet connection needs only a low transfer rate because the entry screens are set up only for the concrete transaction. That closes the information gaps between midsize manufacturers and their smaller suppliers.