OVERVIEW

Moving Shoes Is No Easy Feat

Dealing with shifts in global manufacturing, limited product lifecycles, and inventory complexity keeps the footwear supply chain on its toes.By Cindy H. Dubin

Apparel trends change rapidly, and each season spawns a new look. This is particularly true for footwear, a category of seemingly endless variety. From shearling-lined suede boots and bejeweled strappy sandals to retro-style sneakers and satin ballet flats, American consumers can't seem to get enough.

Shoppers' shoe addictions are good news for the industry, but for footwear logistics managers the demand can be hard to meet and specific obstacles hard to overcome.

First, footwear involves operating a global supply chain. Footwear manufacturers typically source raw materials overseas from a variety of suppliers, and manufacturing often takes place abroad. Second, the products go through short life cycles and many seasons. Third, the number of styles and variety of sizes add to the complexity.

To get a feel for how footwear companies are keeping pace with these unique supply chain challenges, come with us and walk a mile in their shoes.

CHINESE MANUFACTURING ON THE MOVE

Like many industries, footwear manufacturers have chased low-cost labor, raw materials and capital, as well as tax incentives and low-interest loans promised by countries trying to attract new business. As a result, footwear manufacturing has migrated from Italy, the United Kingdom, and North America to Asia, particularly China, explains Gene Rider, president of Chicago-based quality and safety solutions provider Intertek. The Chinese government is currently working to shift manufacturing sites from the coastal regions to internal provinces, and is enticing manufacturers with various incentives.

Eighty-six percent of all footwear sold in the United States comes from southern China because huge ports located nearby can accommodate the ships and shipment volumes, says Nate Herman, senior director of international trade for the American Apparel and Footwear Association (AAFA), Arlington, Va.

This move away from coastal regions will also impact outbound shipping, as it costs more to transport product from these provinces to ships bound for U.S. destinations.

"A move to north and west China creates a logistics challenge because the territories are farther away from ports and the transportation infrastructure doesn't exist," says Herman.

Transportation obstacles aren't the only concern related to the inland shift. "Adding new production facilities has a profound effect on product safety," warns Matt Priest, president of Footwear Distributors and Retailers of America (FDRA), Washington, D.C. "Keeping new factories updated on safety issues requires considerable effort."

Even in established factories, safety considerations require vigilance. "Footwear manufacturers need to ensure that production factories comply with certain specifications, and don't use hazardous solvents and adhesives," says Rider.

STEP IN TIME

Inbound logistics plays a critical role when final footwear products arrive in the United States. "The footwear sector requires efficient supply chains that move product to shelves and consumers as quickly as possible," notes Priest.

Although 75 percent of the U.S. population lives east of the Mississippi, many products enter the country through West Coast ports, notes Bruce Mantz, executive vice president of Edison, N.J.-based third-party logistics (3PL) service provider ADS Logistic Services.

More manufacturers are starting to bring in product on the East Coast, however, which "makes more sense than bringing product to the West Coast and moving it across the country by truck," says Mantz.

Some footwear manufacturers are adopting a two-point distribution system -- bringing product in on both coasts to be closer to distribution centers and customers.

But no system is foolproof. "No matter how carefully we plan overseas transportation, complications arise," says Richard Kleinberg, vice president, national accounts for Gilbert USA, a 3PL in Chino, Calif. "Once product arrives, it has to turn quickly. 3PLs don't create the pressure situation, but, like firemen, we have to react to it and control it."

Many footwear companies benefit from hiring a 3PL that understands port operations, global regulations, and the critical nature of their shipments.

TRACKING THE STEPS

In addition to working with knowledgeable 3PLs, footwear manufacturers can benefit from collaborating with supply chain partners. One way to achieve this goal is through Product Lifecycle Management (PLM).

PLM helps manage product information in one central location for real-time viewing by all footwear supply chain participants. "All partners gain visibility into when footwear goes into production, when it is shipped, and when it will arrive -- all in an effort to meet established timelines," says Kathleen Mitford, vice president of insight and strategy for PTC, a PLM software provider in Needham, Mass.

PLM also reduces costs by removing supply chain inefficiencies. "In today's economy, footwear manufacturers can't raise prices, so they save money where they can," says Herman. "They use PLM to squeeze cost savings out of the supply chain, whether by consolidating a DC network or locating DCs closer to ports or major transportation crossways."

"PLM's bottom line is savings; its top line is speed to market," says Michael Burkett, vice president of research for AMR Research, Boston. "Products get to market faster if shippers target their sourcing strategies, with fewer size and style variabilities. Less variability results in a less expensive supply chain.

"In addition, the more volume footwear shippers move, the more likely they are to get transportation discounts. And PLM helps avoid stockouts and overstocks," he notes.

Web-based solutions can also help global footwear supply chain partners stay connected and reduce costs. "The Internet evens the playing field, giving all parties in the footwear supply chain the same level of technological sophistication required for electronic integration," says Esther Lutz, vice president of business development for TradeCard, a supply chain collaboration platform provider based in New York.

Tools such as the TradeCard platform actively manage transactions through the supply chain across multiple parties. They also enable last-minute decisions, such as diverting shoes from one retailer to another, or rerouting stock from the United States to Europe, where a shoe might sell better.

"The goal is removing costs completely, rather than pushing them along the supply chain," explains Lutz.

THE PRODUCT TRAIL

Another way footwear companies attempt to control costs is through radio frequency identification (RFID) systems. The footwear sector's critical product visibility requirements and the transient nature of inventory make it a prime market for item-level RFID and a breeding ground for product innovation, according to New York-based market research firm ABI Research.

"RFID can bring value to the footwear sector, which is fraught with inventory control issues," says Michael J. Liard, ABI's practice director of RFID. Initial RFID pilot testing at manufacturers including Nine West and New Balance, and retailers such as Rack Room, has been successful.

In one RFID pilot, Jones Apparel Group Inc. tested item-level RFID in two Nine West footwear stores during August 2008 to evaluate the technology's impact on productivity, customer service, and inventory accuracy. Results of the study include a 21-percent sales increase, a 91-percent conversion increase, and a 92-percent improvement in cycle time.

Charlotte, N.C.-based retailer Rack Room Shoes uses RF source tagging for theft detection. The manufacturer places an RF tag inside the shoe as it is being made. A store sensor activates an alarm if someone leaves without deactivating the tag.

"This strategy is more cost- effective than having store personnel apply visible tags," says Dale Patterson, Rack Room's vice president of systems and logistics.

While RFID can be a competitive differentiator and enable business process improvement, deployment in the footwear sector is slow going. The market for RFID in fashion apparel and footwear is expected to reach $45 million in 2009, with footwear adoption accounting for five percent or less of the total.

"In today's economic environment, it may seem counterintuitive to invest in technologies such as RFID," says Priest. "But the time to explore ways to improve is when volumes decrease."

FOOTWEAR'S FOOTPRINT

Like most manufacturers, footwear companies are exploring ways to "green" their supply chains. These efforts include choosing environmentally friendly and recycled manufacturing materials. Premium footwear brand Timberland even offers a shoe that can be disassembled and recycled when the wearer is finished with it.

"Some products appear to be green, but a growing list of chemicals are not environmentally friendly to the manufacturing process," says Rider. "For instance, some companies use ethanol, which can either have a positive or negative carbon impact on the environment, depending on where it's sourced."

"Whether it's making rubber soles from tires, recycling packaging, eliminating hazardous chemicals, or ensuring the manufacturing process doesn't pollute the air and water, greening the supply chain is about brand reputation, and it's a differentiator," says Herman.

Addressing sustainability concerns, shifts in global manufacturing, rapidly changing demand, and inventory complexity requires some fancy footwork, but the footwear industry is staying in step.

CASE STUDY

Rack Room Shoes: The Right Fit

Just as children outgrow their shoes, retailer Rack Room Shoes, Charlotte, N.C., outgrew its warehouse space. In 1994, the company was operating 200 stores, and space in the warehouse was at a premium. By 2004, the Rack Room chain had doubled in size, with locations in 24 states, including New Jersey, Florida, and California.

Finally, in January 2006, Rack Room, a wholly-owned subsidiary of Deichmann Shoe of Germany, elicited help from a third-party logistics provider. It asked ADS Logistic Services, Edison, N.J., to take over all distribution operations from the 3PL's DC in nearby Gaffney, S.C.

"Footwear is a unique product comprised of four dimensions ‹color, style, size, and width," says Dale Patterson, vice president of systems and logistics at Rack Room. "ADS understood how to fulfill our stores' replenishment orders, giving them the right quantities of each dimension so they have the shoes customers want when they come into the store."

Ensuring the right shoe winds up in customers' hands, and on their feet, begins with an efficient inbound logistics strategy. Rack Room product generally arrives at West Coast ports from China, and moves by truck or rail to the ADS distribution center. Because Rack Room is primarily a Southeast company, however, this process can add transit time. Patterson says the company has been exploring a new strategy of bringing product into East Coast ports to cut transportation time and costs.

Once shoes arrive at the ADS facility, they are crossdocked to set a Today In-Today Out (TITO) process in motion. Small package carriers UPS and FedEx pick up the shoes at the ADS facility and deliver them to retail locations. The recipient's signature is proof that the shoes were delivered. "Proof of delivery is critical for us because shrinkage is a big problem in the footwear industry," says Patterson. "Tracking and tracing product from the DC through delivery has contributed to lowering our shrinkage rate."

While Rack Room's shrinkage rates are going down, pick rates are going up. Luckily, ADS offers the ability to "pair pick," allowing each store to receive a customized set of sizes. For example, if one store needs three pairs of size 10 shoes and another store needs two pairs of size 11 shoes, a tilt tray sorter cases each store's order in its individual lane and sorts by geographic region for delivery.

Automation is also speeding up turnover rates for Rack Room's northern-based Deichmann stores. "These stores require special attention because they are low price point, high-quality items," explains Patterson. "Customers know the products are a good buy, so inventory doesn't stay on the shelves very long."

Replenishing these stores requires ADS to receive orders daily at noon, process them, and have them ready for pickup by 7:00 that evening. "It's currently a low-volume operation, so ADS is able to handle it," says Patterson. "We'll see what the future brings."

Whatever the future holds for Rack Room, it's likely ADS will be involved. "Working with a 3PL allows us to expedite product in and out of the DC, so it's available for consumers before our competitors have it on their shelves," Patterson says.

CASE STUDY

Steve Madden Stays in Step

The world of high-end fashion promotes a sense of urgency in getting product to market as quickly as possible. "Speed to market is key in the footwear industry, where trendy styles and designs change constantly," says Sanjeev Sahni, senior vice president of logistics for shoe designer and manufacturer Steve Madden Ltd. "The countless inventory turns make it critical to stay on top of the supply chain."

And staying on top of the supply chain is what Sahni does, overseeing everything from inbound logistics to warehousing, distribution, and outbound shipments to retail stores. To achieve the necessary speed on the inbound side, Steve Madden works closely with its ocean carriers to ensure the fastest possible service from China, where the majority of its products are manufactured. "We use carriers that can get products to our West Coast warehouses faster," says Sahni. "We choose them specifically for their speed."

Meeting delivery schedules has not been a problem for Steve Madden, even during the economic slowdown. "Many carriers currently are moving less volume than in the past, giving shippers bargaining power," says Sahni. "In addition, we are a year-round product shipper, not a seasonal customer, so carriers want to do business with us."