Decision Support: Costing Contributes to Competitive Edge of a Luxury Handbag Company
In the fashion business, time to market is critical, and rapid, efficient decision-making is essential to remain in step with the most current product trends. As such, moving a design through development, manufacturing, and into stores must be accomplished both quickly and at the right cost point. However, costing new designs is a time-consuming, negotiation-based exchange, with much iteration between designers and outsourced suppliers.
The company, a luxury handbag producer, experienced rapid growth with 100 percent outsourced manufacturing, primarily in Asia. The manufacturing environment in Asia is no longer a one-stop for cheap solutions; more often, supplier organizations are spread out over several countries, requiring companies to have nimble and efficient operations. This company had several large groups of external suppliers in different countries, and the need for speedy and well-orchestrated management of these relationships was becoming increasingly important in order to stay competitive.
That being said, the company wanted to find a way to make decisions more efficiently and get new designs into stores more quickly. It was imperative to shorten the design cycle while at the same time managing the supply base with fewer resources.
Discovery & Solutions:
Through our “Tools for Insight” activity, Strategic Decisions Group helped the client’s operations group significantly speed up the costing process to allow it to make quicker decisions regarding choice of supplier and price point for an entire upcoming season.
The SDG team performed a deep, detailed analysis of the company’s design process to determine the full scope of its suppliers’ cost drivers to create a handbag. Then, our team developed a tailored tool that incorporated all of the detailed elements of the design and construction processes, including labor, materials, and fabrication on the factory floor. It became possible to directly cost from the company’s digital design files, as this new tool allowed for a cost to be established in seconds, whereas it had previously taken weeks to determine.
By working directly with suppliers, the need for time-consuming negotiation was reduced significantly. Having a standard approach to costing also allowed supplier comparisons to be made, providing valuable insights into the relative performance of different designs.
Results & Impact:
The project turned what had previously been slow, intuitive, and negotiated decision-making processes into a fact-based, rational approach to supplier interaction that took a fraction of the time. Focus was shifted from spending significant management attention on minutia to an enhanced focus on the strategic decisions that needed to be taken. Several specific results were also worth noting, including:
- The ability to pre-cost at the design stage. Range decisions could be taken quicker, allowing relatively final designs to be taken to suppliers. With new designs being released on a monthly basis, taking two to three weeks out of the development timeline was a significant advantage.
- Product negotiations limited to the exceptions. A full 90 percent of designs were costed automatically through the tool, with client and suppliers agreeing on the costing principles incorporated into the tool. Significantly less management and admin time was needed, resulting in the ability to consolidate costing and planning functions. There were also significant headcount savings.
- Comparable supplier performance established. With common performance criteria built into the tool, agreements could be made on allowances for new location ramp-up and category acceptance—but with a clear agreement for improvement over time. This meant that underperforming (or over-charging) suppliers could be easily identified, and decisions on product allocation became fact-based and rational. Ultimately, potential cost savings through productivity of up to 20 percent were identified.
- Underpinning Strategic Supplier Decisions. Understanding the drivers of cost and productivity, relative supplier performance, future design trends, and the need to underpin future supplier strategy were all significantly improved. This allowed the company to quickly answer questions such as: “How fast can we expect new suppliers to get up the experience curve?”; “How much of our business should we move from country A to county B?”; “Has Supplier A “s performance been good enough to warrant extra allocation?”; and “Which suppliers are giving us the biggest commitment on productivity improvement?”