BMT Proves Zero Inventory Production (ZIP) Paradigm

By Teri Ross, Imagine That!

November 2001

The single most costly element of today’s soft goods business is the holding of product and parts in anticipation of a sale. This process is based on the erroneous maxim that the best way to create profit is to mass-produce and discount the surplus. To make this gamble work the apparel delivery system has developed a cumbersome structure designed to stockpile the inventory in staged production surpluses, then sell finished product in tiered discounts. While this process has in fact lowered cost, it has also lowered profit and customer choice. In many ways this mass production business model has made a badly weakened segment of the U.S. economy even weaker.

The solution to profit erosion and lack of consumer choice are the same according to Bill Grier, President of start-up Beta Management Team (BMT) of Ontario, CA. The solution, he claims, is individualized mass production and delivery. While mass-customization has been the theoretical answer for years, BMT has now completed the first year of field and customer tests on one of its three new Zero Inventory Production (ZIP) strategies which they claim make individualized mass production a commercial reality.

A Case in Point

One of BMT's proof of concept is Sacramento, CA manufacturer and retailer Coolware, Inc. The company has been purchasing polyester printed fabric from BMT for use in the production of their bathing suit coverups, sarongs, shirts and pants.

Coolware designs all of its own prints using commercial software applications such as Adobe PhotoShop™, Adobe Illustrator™, and Macromedia Freehand™ and uploads the designs to BMT's ftp server. BMT puts the design into repeat and prints an approval sample which is kept on file for reference by both BMT and Coolware for production matching. This approval process often happens within 48 hours.

Coolware's marketing manager, Mark Armenta, reviews cutting tickets every Sunday during their selling season and faxes an order to BMT for print production on Monday, shipping on Tuesday, receiving and prep on Wednesday and cutting on Thursday. Print runs can range from a few yards to hundreds of yards in one or many colorways. This is a far cry from their original print production process using conventional rotary screen printing, which required the development of costly screens, 1500 yard production minimums per colorway, and lead times of two to three months.

The impact on Coolware's business has been substantial. With lead times down from over two months to four days, the company now has an extra two months of working capital available. In addition, the ability to purchase smaller lots has allowed buyers to be more progressive and test unique prints that were too costly or dangerous to try with larger print run requirements. The combination of added capital and increased sales has resulted in a 25% increase in Coolware's business.

In addition to the ability to try unique prints, Coolware is now able to offer new designs that the market has never seen before. Since digital printing offers unique design advantages that conventional printing cannot produce, Coolware's designs can now include an unlimited number of colors, engineered designs around multiple seams, and prints with no limitation on repeat size.

"This technology allows us to be much more daring and creative in our offerings," states Mark Armenta. " We can test products without getting killed if it doesn't sell. Instead of killing ourselves for 100 yards in house or 1500 yards of production, we can get 300 yards of a test print for production which we can always sell. I no longer have to eat printed fabric." 80% of the company's new styles are printed using BMT's short run production technology, with the balance of staple items that utilize larger print runs being produced using conventional rotary screen printing.

The BMT Model

Beta Management Team has developed the printing system that is the foundation of the company. Rather than sell the equipment, BMT offers the printing production capabilities on a subscription basis. Customers sign subscription contracts for "X" number of yards of production per 6 months at a fixed price of $8.50 per yard. If and when a customer reaches a production level of 10,000 yards per month, BMT will place the printer in the customer's factory, where BMT will offer the equipment, maintenance, software, supplies, and training that reduces the price of the fabric to $6.50 per yard. The customer has no capital expenditure in equipment or supplies. All BMT's customers are paying for is the fabric they print from the system.

While Coolware is printing complete rolls of fabric, the BMT technology can be used to print on cut pieces as well. With their roll to piece (R2P) capabilities, a BMT printing system placed at the cut and sew contractor's location can produce only the printed cut pieces required to produce the next day's apparel orders. Since the printing system can print directly on the pre-cut apparel pieces regardless of size or fabric, construction orders can wait until the day before sewing to set size and print style ratios as well as total order volume. Today, one BMT system can print 200 golf shirts or women’s blouses per hour regardless of style, print, fabric or size changes.

With its piece-to-piece (P2P) capabilities, a BMT printing system placed at the cut and sew contractor's location produces only the printed cut pieces required to produce the next day's individual apparel orders. This strategy is designed for catalog, e-tail and team production. The process produces individual unique garment bundles printed, cut and ready for sewing. This strategy allows production speed on-the-fly changes in size, art, garment style and/or fabric construction to meet the next days sewing schedule.

BMT's replenishment system that provides fabric on demand directly to a manufacturer’s cut and sew location for immediate production differs from quick response because the inventory does not exist in physical form until the manufacturer triggers the printing order. The prints are then selected from a virtual inventory stored as digital cells at the print site. Yardage volumes are then assigned and the required fabric is produced. The printing system changes print designs on the fly so there are no minimums, separations, or setup costs.

Some of the highlights of the first year’s operation include:

> Average cost per yard - $6.50 > Average cost to develop and inventory a new print (including shipping) - $18.00 > Average turn around from fabric order to contractor cutting - 5 days > Average order size -140 yds of 5 prints > Average order frequency (in season) - 2 per week > Printing capacity used per week - 02.8% > Primary customer reduced fabric storage and design area from 10,000sq ft of office/ warehouse to 2,000 sq ft of office space.

BMT currently has ongoing customer accounts using R2P and P2P production as outlined above. Preliminary results are even better than roll-to-roll fabric production. Full potential of R2P and P2P production can only be realized in a fully digital Internet integrated garment production facility. This facility is now being developed at the Apparel Technology and Research Center ( ATRC) at Cal Poly University in Pomona, CA. In operation, this first of its kind facility will process virtual inventory orders from remote Internet sites and cut, print, sew, finish and ship completed garments produced completely on site using ZIP manufacturing.

Learning A New Paradigm

Although there is an assumed pent-up demand for quick response production strategies, the potential customers have little idea how to implement short run, virtual inventory or other such strategies. CAD systems are designed to deliver color separations for film not digital files for direct printing, sewing operations are not streamlined for continuous response and sales forces have been trained to force inventory for successful product movement. All of these marketing, production and sales strategies will have to be reengineered to a paradigm that supports increased profits through dramatic inventory reduction and consumer pull marketing.

Since the industry is convinced that volume production reduces costs, the concept of mass production at each step of manufacturing has become the standard for producing profitable lines. This idea that the cost of goods (COG) is the sum of the cost per unit of each of the production steps in manufacturing a garment is another maxim that is turned upside down by manufacturing on demand and ZIP merchandising. The integrated single location structure of ZIP means the true cost per unit sold (COGS) can be used instead of the cost per unit manufactured. This means that the COGS is a true measure of profit as opposed to an artificial number based on forecast accuracy.

Since this is the critical element of the economics of the ZIP model, a complete understanding of the concept is required to grasp the profit potential of the replenishment philosophy. The current production process is weighted in favor of mass production because a.) most products require multiple locations to produce (construction, printing, cutting and sewing are usually in different locations and often in different countries) and b.) camouflaged costs (“free” printing prepress, hidden overruns, shipping costs, coordinating costs, post production charge backs, etc.), which obscure the true cost of goods. The current process is designed to create over production at every level that adds cost, which the retailer is expected to recoup through the discount and sale of surplus product to second tier retailers. The answer is simple; make only what you sell. The execution of ZIP requires a complete overhaul of the current structure.

The first question a manufacturer asks a contractor or printer is, “How much is the cost per unit?” The second question is, ”How many do I have to buy to get that price?” The manufacturer is constantly hedging in order to preserve unit price so he can make his prescribed margin that is built to account for hidden costs and overruns. This allows the manufacturer to enjoy what he thinks is a low production cost of goods.

However, if the manufacturer were to calculate his cost of doing business divided by the units sold, the result would be quite different when the hidden costs and the charge backs are added to costs. The American Apparel and Footwear Association (AAFA) spent the 1990’s building the Apparel Quick Response model to demonstrate how fast supply chain management could revolutionize textile and apparel manufacturing. Mr. Grier claims this model promotes risky prestocking of goods to insure timely order fulfillment and assembly, compared to the ZIP model which shows lower risk, faster response and ultimate lower cost per goods sold (COGS) since only sold goods and their components are manufactured.

ZIP’s New Operating Definitions
Production on demand provides new terms for logistics

“Days of Supply” (DOS) replaces “Inventory Levels”	The speed of product throughput and shipping determines how many days of supply the production line needs to manufacture to successfully manage the consumer available inventory so that one of every offered SKU is available during the selling cycle.
“Cost of Goods Sold” (COGS) replaces “Cost of Goods”	The cost of product is calculated as the cumulative cost of product sold not as the speculative cost of inventory produced.
“Cost of Units Sold” replaces “Cost per Unit”	Since units are not produced until they are sold the cumulative cost is calculated on the fly as product is replenished.
Replenishment Contract	The basic document that describes the criteria for demand production for a particular style is the replenishment contract. This document sets the standards for order content and lead-time as well as finishing, packaging and order fulfillment.
Digital Inventory	Once products have completed the design and development process they are registered with a design number and stored in a digital folder of SKU marker sizes. Once the style is in the digital inventory it is ready for production on demand.
Product Cycle	Once a style folder is registered the product cycle can begin usually with sales samples followed by initial stocking orders. Replenishment orders follow based on actual consumer “take away” until the product can no longer sustain the merchandise turns to maintain its place in the retail store inventory. Depending on the terms of the replenishment contract the style may remain in a digital catalog for individual ordering.
Style Cycle	Design and development of a style group involves the traditional process of pattern making and new process of fabric building. Pattern making is the traditional process of determining the shape and look of the garment and then the reduction of the garment to a digital cutting marker for production. Fabric building is the selection of the white fabric style and the printing of decoration to determine the print choices, which will comprise the style group.
Style Group	Since one of the key merchandising advantages of ZIP is the ability to change fabric prints on the fly without additional cost a single style group (Hawaiian shirt group) might have many different prints. This allows the sales force to offer exclusive prints to each retailer.

Summary

Since the early 1900’s, manufacturing and retailing have had a growing love affair with mass production as the primary strategy for cutting cost. The concept of volume discounts has created warehouse stores and standardized products. Since then, the “tinlizzie” sameness of product has become a virtue and the assembly line teachings of Henry Ford have become manufacturing gospel. Teaching the market that variety is not blasphemy, that choice does not increase risk and that low volumes do not increase cost is a challenge. Scaling this philosophical barrier will require more than a new enabling technology, of which BMT's printing technology is but one such enabler.

There is a wealth of new digital technology for apparel and textile production that can easily be incorporated into a zero inventory production paradigm. In addition to learning how to think outside the box in the marketing and deployment of these new capabilities, the bigger challenge may be in getting the industry to understand that it is not the technology itself that is the competitive advantage, but rather the products and services that are produced; Coolware and BMT being a case in point.