The apparel industry has seen seismic changes in the last couple of years, from swinging demand, to the shift to direct sales, to supply breakdowns.
To talk about some of these changes, I invited Steve Riordan, Global Directo of Supply Chain at Kalypso to come on the podcast to discuss them.
We had a great conversation discussing the challenges facing the apparel industry, how sustainability is becoming a far more important factor in this space, and the growing importance of digitisation.
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Thanks for listening.
But the big change for the people we tend to work with is that that information that was being shared with people in E commerce and in marketing and at the stores is now quickly making it over to the people in supply chain and the people that are doing design and development of the products and so it's gone from a you know, sustainability and social responsibility. You know, it's a nice to have to being it's pretty darn mandatory right now.Tom Raftery:
Good morning, good afternoon, or good evening, wherever you are in the world. This is the digital supply chain podcast, the number one podcast focusing on the digitization of supply chain. And I'm your host, global vice president of SAP. Tom Raftery. Hi, everyone. Welcome to the digital supply chain podcast. My name is Tom Raftery with SAP. And with me on the podcast today I have my special guest, Steve. Steve, would you like to introduce yourself?Unknown:
Sure, happy to Tom. Hello, everybody. My name is Steve Reardon. Mike is my background. My formative years of my career were spent in department store retailing, that I like to say I turned to the dark side of management consulting then, after business school in about 1988 or so. Since then, I kind of rose to the ranks and have been a partner in several prominent consulting firms. And then most recently, I joined a specialty management consulting firm called Kalypso with a K. And as of May 2020, we are now part of rock automation. In my time at Kalypso, I guess for the first nine years I was a global director of our consumer vertical. And then in the last several months, I shifted roles and I know global director over our supply chain business.Tom Raftery:
Yeah, so you're in the ideal place. In that case, given the digital supply chain podcast. So what is it that Calypso concentrates on? And you know, what kind of problems are you solving for people?Unknown:
We're considered especially firm because we are I would say functionally specialized. So we don't do all things for all CXOs. We like, like to help clients that are in what we call the digital thread. So the digital thread is what we think is the discovery, create, make and sell of new products. So you think about the functional leaders that lead that we help them with strategy, technology, organization and process work. And that's really, you know, the kind of secret sauce of Calypso.Tom Raftery:
Okay, and US specialize in apparel, is that correct?Unknown:
So my, my role right now is across all industries, and really across the whole supply chain. But my, you know, my personal practice area for a really long time has been with, with companies that specialize in and around apparel. So that could be, you know, traditional store based retailers, it could be brands that sell through wholesale, or have their own direct to consumer, or it could be digital native retailers.Tom Raftery:
And people listening to this podcast, come from all walks of supply chain and all industries, because supply chain span all industries, so many people listening might not be familiar with the apparel supply chain and any of the kind of idiosyncrasies it might have, as opposed to any of the other supply chains you want to give us give us a bit of context. What Yeah, what is it that's interesting and unique about the apparel supply chain.Unknown:
So I'm gonna kind of talk about it from you know, ideation and inception. But most of these, those three kinds of companies I described retailers and brands, in digital natives, they'll initiate design and a product development process that's often done in New York locations, kind of the design centers for a lot of these companies. And then they'll have a headquarters location somewhere else where the, the details of the product development process take place, and then they'll go and look to produce that or source that through third parties. So most of the supply chain and apparel, you know, 95% of that is not produced by the brand or the retailer themselves. So oftentimes then that product is cut and sewn in our in Asia or maybe Central America. And then it's you know, it's put on a boat ship to our you know, a lot of times a western region, western country that makes it to a distribution center or fulfillment center that either goes onto stores, it goes directly to a consumer, so probably the biggest thing is that it's, you know, it's its internal design, but external external production. Okay,Tom Raftery:
kind of like the Apple model, where it's designed in California in Cupertino and then manufactured typically in China.Unknown:
It is, what's interesting, is that that supply chain, I guess, you know, it's sort of 2025 years old right now, but there was a pretty consistent migration from goods being manufactured by these companies in the US kind of all US centered to steadily moving offshore, which really accelerated in the 90s. And to the point now, where it's almost all, you know, offshore production right now.Tom Raftery:
Okay. That has probably been I suspect, heavily impacted by the happenings of the last two years with COVID. Is that, is that a fair assumption?Unknown:
Yeah, I think though, it has. So they, it was difficult to execute during COVID. When, geographically you're trying to coordinate between people in New York people in a headquarters location, which let's just say it was San Francisco, and then people in Hong Kong. So it was really a big, big challenge from a supply chain visibility standpoint, and a really big challenge from a supply chain collaboration standpoint.Tom Raftery:
Okay, and what about shipments of goods? Yeah, absolutely.Unknown:
The, the thing that happened, the made the headlines is that, you know, everybody kind of panicked when the roads shut down, you know, retailers, like everybody panicked, because they had, you know, made commitments to inventory to show up in stores that weren't even open, or websites that weren't even, you know, really selling. And so there was this initial, you know, cut back on commitments to orders, even orders that were, you know, on their way, and at least a postponement of that. And that, you know, it really rippled through the industry, and really made it difficult on the manufacturers. And by the time we got to the point where, you know, demand rebounded, it turned out, you know, we need to hire back people, we need to get more containers, we need to find more ships, and, and the demand actually was exceeding the rate of demand prior to COVID. And so now, we've been in this, you know, constant catch up mode in the industry right now, trying to try to keep up with demand. And you can see, even whatTom Raftery:
kind of changes are happening off the back of that?Unknown:
Yes, I think there was a lot of a lot of changes that beginning to happen prior to COVID. And COVID, really accelerated that. So the, one of the key tenants of this overall supply chain is really labor arbitrage. So one of the reasons why so much production move to that move to Asia is because, you know, labor was significantly cheaper, in the tax duty and tariff environment was super friendly, you know, for doing that. And so, you know, before COVID, those, you know, the cost, the labor arbitrage gap was beginning to close in creating, you know, the need to begin to look at, you know, look at other opportunities. And really what started to happen as if you were, you know, that the global head of supply chain for a retailer, or a brand and you had designed your supply chain, you know, in optimized for the last 25 years, sort of little by little those design assumptions had been changing.Tom Raftery:
And what what was the consequence of this, then,Unknown:
by its being unprepared for COVID, and really unprepared for the world is evolving. So if I think about maybe breaking it into a couple parts, so if you're head of supply chain, you're trying to optimize and retail for, you know, lowest landed cost to your distribution center, you know, cost has been such a big factor big retailers have driven that is a is a strong demand, you want to do that it, I'll just call it just enough quality and quality, that's good enough that the value proposition for the price makes sense. And you're you're trying to optimize inventory. And so you've got a supply chain bill with just in time inventory is guide, you know, long product development cycles, relatively predictable tax, tariff and duty environment, the demand variability, you kind of understand it pretty well, at that point there, you know, there's been at that point, there were no epidemics or pandemics that really matter. There were no climate disruptions that mattered. They weren't having to worry about cybersecurity. And so your, your supply chain was built to to optimize costs. It was also in a world where, you know, most retailers, most retail was done through the stores. And so we were a supply chain, really built around moving cartons around. And so if you're, you know, you take take, like almost every element of what leaders design for over the last 25 years, and recognize that those underlying design assumptions have changed. You know, so, some of the things I had mentioned, but you know, there are faster and faster fashion cycles. So fashion cycles used to be, you know, if you're trying to land product, you might land product for two times a year and maybe four times a year, but now cycles are lasting, you know, days and weeks. Those product development life cycles, overall in retail are about 42 to 90 weeks, and now folks are doing you know, you got other models that are doing them in 16 weeks competitively. And then, you know, we know that our, you know, the tax and duty environment, because of some of the trade tension has really created difficulties, you know, in the in the apparel space and also up created opportunities for others. And we've got, we've had floods that have impacted factories we've had, you know, social unrest. And in areas like Africa, where some companies have tried to move production out of out of Asian into China, your headquarters in China is experienced social unrest for the last last 18 months. And now you're both your customers, your employees are being much more emphatic about what they expect you to do from a sustainability standpoint. So literally, everything you plan for is changed right now. So as a supply chain leader, as you think about how to make those changes, and why, what levers to pull and where to focus. It's it's just a new game. Yeah.Tom Raftery:
I mean, as, as an outsider, the two things that I would have, I guess, seen having an impact on this sector? And, you know, correct me if I'm wrong, but would be the shift to direct to consumer will be the first one, which, you know, to your point you alluded to there shifting from, you know, moving boxes around. And the other one, I think, maybe, again, maybe, maybe not, is I think, with fewer people going to the office, there's probably a shift from shirt and tie, or, you know, business casual to more casual. Is that a is that another fair assumption?Unknown:
It is when I talked a bit about the variability of demand. So trying to understand those fashion cycles and trends, they moved around a lot during COVID. So I just realized I didn't directly answer your question about the impact of COVID. So he helped me pick up on that. So I think there's three things that happened in the industry under COVID. The first one you mentioned is this dramatic shift to e commerce. And what that what that what that caused is really two things is that every company got really, really smart, really quick, around picking up demand signals through E commerce. So really understanding what's selling what's not rapidly turning that into, you know, what we need to bring to market, but we need to develop, you know, product wise. And then the second thing is it just that the the number of goods shipped in each is not only from a distribution center, to a consumer, but quietly what started to happen during COVID, is some of the manufacturers that were sitting on canceled orders in Asia, you know, threw up websites created a brand and started shipping direct to consumer from Asia. Well, yeah. So it's a way to save their businesses with inventory that they you know, had already committed, so that that big jump ecommerce was one of them. The second is the, the retail industry collaborates and designs through the use of two dimensional CAD drawings. So most every bit of apparel historically, you know, has been designed in Adobe Illustrator. And unlike aerospace, and defense, and automotive, and everybody else, it's used 3d forever. This industry is not used that and so that those 2d designs get turned into 3d physical prototypes and samples. And so the way that product development design is done, are these numerous iterations of physical samples, with people sitting around a physical table, touching and feeling the product? Well, it turned out in COVID, no one could do that. And I just wasn't possible. And so the introduction of 3d design and collaboration, just jumped overnight in retail. So you couldn't, you couldn't collaborate otherwise without having a better representation than 2d of a product to make, you know, important decision. So a big part of our work right now is helping companies make that jump, you know, from 2d to 3d. And the third thing that happened was, I mentioned that the product development life cycles, or maybe 42, to 90 weeks, you know, for clients, and what they realized, is paid that was just a luxury, you know, they were having to make decisions, binding decisions much more quickly. And then, as they saw the results of the decisions being productive and powerful in the market, they just realized they don't need product development life cycles that are that long. They know that they can make binding decisions, you know, retailers are notorious for a key milestones and development, second, guessing their choices, having another look, you know, changing a lapel length here changing a pattern there. That I think what they're learning is they're not for that incremental time. It's not getting incrementally better. And so that that ability to make you know, more rapid Good decisions and a shorter timeframe that they're making them closer to market and therefore making better decisions, higher sell through the ratio, what they developed was good sold is, is better and better. So those three things have really helped the industry, you know, during this time of COVID. Fascinating,Tom Raftery:
is there also a greater awareness of the supply chain itself amongst consumers? And what I mean by that is, you know, there seems to be a rising awareness of things like slave labor in in supply chain is that a trend as well, that you're seeing? It is,Unknown:
so some of the data shows the consumer, especially under 35, you know, two thirds of them are making product decisions based on sustainability, social responsibility, you know, some ethical, you know, ethical guidelines as they make their purchases. So it's, it's definitely factoring in I think the other, but the big change for the people we tend to work with is that, that information that was being shared with people in E commerce and in marketing, and at the stores, is now quickly making it over to the people in supply chain, and the people that are doing design and development of the products. And so it's gone from a you know, sustainability and social responsibility. You know, it's a nice to have to being, it's pretty darn mandatory right now. Now, I would say that the industry is it's kind of old news rounds, you know, the slave labor and like that, that's been fairly cleaned up. But things like, you know, how I'm disposing of the water when I do dying, you know, how am I selecting the materials that go on to the products? And where do those materials come from, you know, is the composition of those materials going to be effective in the afterlife, as we think about putting things into landfills, and so that, that, that consumer awareness that, again, chiefly fill on the ears, the marketing folks is rippled all through these retail organizations now,Tom Raftery:
fascinating? What will the apparel supply chain of the next 510 years look like? What are the trends you're seeing there?Unknown:
Yeah, I think we're gonna see, we're gonna bring to market fewer better products. So there's going to be on that, you know, fewer products to move around, I think those products are going to be brought to market design developed. And broadly, this supply chain to a large number of small nodes, versus right now, a small number of large nodes. And it's going to be more globally distributed and not so concentrated in in Asia, particularly China. And that's, it's really for two reasons. One, is some of the challenges from my, you know, from our stability standpoint, and a trade war standpoint, in, in Asia, but, but also because so much of the product is consumed in Western countries that the idea of nearshoring and even onshoring, right now gets you closer to the point of recognition of the demand signals. And so you can just turn products in smaller sizes quicker to the point of demand and not have so much inventory in the system, and so much long lead time in the system. So I think you're gonna see that play out, you know, traditionally, mostly supply chains and retail, from a technology standpoint, are really supported by a called transactional technology. And I think, you know, some of the things we're working on, is bringing in AI and IoT and, and 3d modeling and simulation into the world right now, I think, a couple years away from people really picking up on on distributed ledger is part of part of the model. But applying applying those technologies to get smarter about sensing what's going on in the market and having better visibility, you know, throughout the supply chain are definitely high priorities for companies right now. And then just being a partner with your development and design colleagues to just dramatically shorten the product development lifecycle is another big, a big focus area right now for a lot of people we're working with.Tom Raftery:
Cool, cool, really good. Okay, Steve, we're coming towards the end of the podcast. Now, is there anything that I have not asked that you wish I had, or any topic we've not addressed or touched on that you think it's important for people to be aware of?Unknown:
I think we've covered a lot of the things I thought that we might talk about, but it's inappropriate for me to ask you a question at the end of this. Sure. Yeah. So you have a lot of really, and I've listened to a lot of your podcasts, you have a lot of really interesting, you know, senior leaders in supply chain, and they represent a lot a lot of different industries. So you know, a lot of the conversations we end up in writing are really about everybody gets they have a lot to do. But it's around prioritization. So if you were to advise all of us that are on your podcasts, and we were, you know, we were down to our last dollar to spend to make the supply chain better right now where, you know, from your view, where would you spend that dollar?Tom Raftery:
I'd want more than one. And thank you for asking the question, because I think this is about, we're close to 190, if not more episodes recorded and published at this point, and no one has done that before. So I really appreciate it. Thank you. Sure. There are a number of things that people need to prioritize. And I would say they are linked sustainability and digitization would be the two main things that I would say people need to be looking at digitization, because you really need to have as much visibility as possible down throughout your supply chain. And that kind of visibility is only possible through having everything or as much as possible digital. And sustainability is hugely important for many reasons, some of which we've outlined already. Things like consumer demand, also employee engagement, also regulatory, so that there's lots of different things. So that's only going to become more important. And in fact, I mentioned the two are linked, because a lot of getting your sustainability story right revolves around having digitized systems in place for similar reasons. Again, you won't have visibility or access without it. So for doing things like setting targets, measuring and reporting against them for things like emissions, or water, as you talked about these kind of things, you can only do that if you've everything digitized beforehand. So those those would be the two things. So I might spend 50 cents on one and 50 cent on the other half of that dollar you gave me.Unknown:
Yeah, that sounds great. And it maps really well to your to podcast series so that it makes complete sense.Tom Raftery:
So I might be biased in that case.Unknown:
At least you're consistent. That's good.Tom Raftery:
There you go. There you go. Steve, that's been fantastic. If people want to know more about yourself or about Calypso, or any of the things we mentioned in the podcast today, where would you have me direct them?Unknown:
Maybe two things is our website is Calypso, and so KLY pso.com and you could go there and search on my name or my email address is Steve dot Reardon, our i o r d a n at Calypso with a k.com.Tom Raftery:
Brilliant, read it. And I'll have a link to your website in the show notes as well so people can access it easily enough. Great, Steve, that's been fantastic. Thanks a million for coming on the podcast today.Unknown:
Yeah, thanks. I really enjoyed it.Tom Raftery:
Okay, we've come to the end of the show. Thanks, everyone for listening. If you'd like to know more about digital supply chains, head on over to sa p.com/digital supply chain or, or simply drop me an email to Tom Raftery at sa p.com. If you liked the show, please don't forget to subscribe to it and your podcast application of choice to get new episodes as soon as they're published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks. catch you all next time.