The Textile Industry How to deal with demand uncertainty?

Current situation of the Textil Industry
The textile industry is closely aligned with the fashion industry. As a result, companies in this industry face challenges significantly different than other industries such as the automotive, consumer, construction, and among others.

One of the processes most distinguished by its complexity is demand planning and supply capabilities, due to certain factors:

Seasons:

Naturally, demand behavior governs certain seasons manifested during the year derived from the necessities of consumers.
Competitiveness in the market forces players in the industry to resort to the creation of seasons to differentiate themselves (for instance, Zara handles up to 20 seasons per year).

Short Life cycles:
Increasingly, the end product (clothing) remains less time on display before being replaced by a new style.

Diverse demand alteration variables:

Demand strongly influenced by impulsive shoppers / buyers.
Increasing use of promotions, sales, etc. by stores.
Strongly influenced by factors such as: climatic, economic, social and media-related.

High Volatility:
Demand behavior is far from linear; on the contrary, demand behavior suffers drastic fluctuations in short periods of time.

Moreover, to reduce costs companies acquire materials from different countries consequently adding complexity to their supply chain.

CHALLENGES AND OPPORTUNITIES
Companies in the textile industry operate in an environment of uncertainty facing the challenge of fulfilling consumer needs: provide the specified products in adequate amounts at a specific point in time, maintaining operation costs at adequate levels, and enabling them to ensure business profitability.

Given these requirements, some of the main challenges faced are:

Reaching a clear understanding of the market behavior to synchronize product launches with season / fashion trends (i.e. time to market).
Maintaining operative flexibility and robustness to the volatile demand trend in each category/brand and product.
Difficulty identifying cycles and seasonality in order to forecast demand.
Ability to handle a large amount of skus (color x size x style).
Identifying the optimal scheme to effectively plan for each type of product.
Ability to provide demand visibility to the entire supply chain.
Maintaining adequate levels of inventory and control of obsolete skus.
Flexibility in production planning for lower lot sizes without losing scale advantages.
Managing international supplier’s lead times with processes, which if not managed correctly, may result in an increase of inventory levels and/or obsoletes.

Therefore, the solution to face the challenges laid out goes well beyond improving the methods to forecast demand. The solution requires the development of collaborative processes, both within the companies’ commercial and supply chain areas, as well as the trading partners (i.e. clients and suppliers). This must be done in order to align processes and structures with the objectives of defining, communicating, and processing information in an agile and reliable way; thus, facilitating the decision-making processes within procurement, production, and distribution.

SINTEC´S SOLUTION
We have executed projects to assist our clients when facing these challenges using the Sintec model for best practices in Demand and Supply Chain:

Demand Planning:

Determine the appropriate forecasting models for each type of brand / product.
Determine the level of detail at which forecasts must be determined (brand – product – sku).
Management and handling of the required information to generate the forecast.

Collaboration and Consensus of Forecast:

Determine what products should be included in the collaboration process.
Determine the level of collaboration detail (channel – client – brand – product – sku).
Establish the collaboration processes (cycles, participants, dates, content, etc.) with trading partners and internally through the value chain to obtain close to real-time information on demand (i.e. closest to the consumer, ideally the point of sale data).

Validation of the capabilities of the Supply Chain to optimally satisfy the demand:

Procurement (raw material inventory and supplier capacities).
Production (capabilities and information that enable the best manufacturing practice).
Distribution (inventory and shipment capacities).

Financial Validation:
Economic evaluation of the agreed upon sales scenario.
Enablers:

Align the organization to the process and the client.
Create management, implementation and monitoring indicators for forecasts and the collaboration process.
Deploying information technology to enable forecasting and collaboration as well as KPI monitoring.

The application of this model provides a comprehensive solution to the problem of facing demand uncertainty typical of this industry.

The solution relies on preparing the supply chain to manage the appropriate flow of information regarding demand and being able to anticipate and react to the fluctuations that occur. Collaboration between trading partners and areas of sales and operations is key to reach the optimal level of service without sacrificing profitability.

BUSINESS CASE
Background
Up against a competitive market in the production of clothing fabrics, producers in Mexico have lost market share in imports to the U.S., one of the main consumers of this products. Countries like China, Nicaragua and

India compete with aggressive pricing strategies that have worked well so far.

For this reason, differentiation must come through innovation and impeccable service.

DESCRIPTION OF THE PROBLEM
A company dedicated to the production of fabric that supply to clothing manufacturers, received complaints from major clients about the low level of service (late deliveries and / or incomplete orders), low reliability of the information on orders and inefficient capacity to respond to fluctuations in demand.

The company conducted its planning according to different forecasts (each area generated and functioned under its own forecast) and information did not flow properly; consequently, the status of orders was perceived differently by distinct areas and the order progressed without considering available raw materials and production and distribution capacities. la demanda.

ROOT CAUSE
Deficiency in generating sales forecasts, lack of formal processes and a supply chain not prepared to meet demand fluctuations that are common to this industry.

DESCRIPTION OF SOLUTION
The solution was based on implementing the Sintec S&OP model for the textile industry which aims to empower the enterprise with a process model to transform the organization into an agile and flexible one.

Design of sales forecasting and planning processes which involves: Understanding the demand behavior, identifying patterns of behavior, classification of products according to the demand (volume) and level of variation, and allocation of forecast models for each type of product. For new products or those with barely any market history, relevant products with similar characteristics that could have similar market behavior were adapted. Analyze the adoption of an open-to-buy strategy, which involves buying small amounts of products sent to POS and then based on the observed demand the amounts of each SKU to buy for the rest of the season are decided.

Design of business processes to enable collaborative forecasting and validation of capacities: Working routines were established in production, logistics, sales, marketing and design / innovation for each area to collaborate for demand of the products (some at product level and others at brand level).

Integration of 3 major customers in the process to achieve better communication and anticipation of any contingencies. Besides validating the capabilities of purchasing, production and distribution, contingency plans were agreed on. In the end, the final production amount was defined with a weekly horizon of 4 weeks and 2 additional months (providing a total visibility of 3 months).

Creation of roles within the organization (e.g. demand planner) to enable collaboration in forecasts and align the company’s structure to focus more on customer service.

Creation of performance indicators to measure forecasts and collaboration.

Finally and most importantly, selection of the appropriate tool to generate the forecast and facilitate the collaboration process, to become more agile and precise, in addition enabling process management and monitoring.

BENEFITS

Reduction of days of inventory – working capital of 35%
Reduction of transportation costs 18%
Improved asset utilization 12%
Increase of 8 percentage points of Fill Rate (Service Level)

About Sintec
Sintec is the leading consulting firm focused on generating profitable growth and developing competitive advantages through the design and execution of holistic and innovative Customer and Operations Strategies. Sintec provides a thorough and unique methodology for the development of organizational competencies, based on three key elements: Organization, Processes and IT. Furthermore, Sintec has successfully carried out more than 300 projects on Commercial Strategies, Operations and IT issues with more than 100 companies in 14 countries throughout Latin America. Our track record of more than 25 years makes Sintec the most experienced consulting firm in this area of expertise in the region.

Ciudad de México: +52 (55) 5002 5444

Monterrey: +52 (81) 1001 8570 / 01 800 112 8570

Bogotá: +57 (1) 379 4343

Sao Paulo: +55 11 3443 7433

sintec.com

informes@sicweb.wpengine.com