Snapshot: Footwear

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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.

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