Transitioning to made-to-order in 3 key steps.
Is a made-to-order strategy feasible for apparel, footwear, and accessories? Fast Company just published an excellent article on how some smaller brands are thriving by abandoning the industry standard build-to-forecast approach, and instead adopting a made-to-order strategy. Startups such as Ministry of Supply and Rapha make a few pieces of their collection on 3D printing machines after a customer places an order. Misha Nonoo takes a similar, albeit lower-tech, approach with her apparel brand, Nonoo. She works with on-demand manufacturing in factories in Peru and China that only start sewing a garment after a customer places an order.
It wasn’t easy for Nonoo to switch her business model. As Fast Company explains,
Nonoo believes that her approach is more relevant to the fashion industry than ever, but she also recognizes that it is very hard to fundamentally rewire your supply chain. Doing so means revamping everything from how you design the garments in the first place to finding factory partners that are willing to change the way they work. Nonoo acknowledges that while it was hard work making this pivot, it was far easier for her to do it as a smaller brand than it would be for larger industry players. “I shifted the entire business,” she says. “It was a heavy lift, and I think this is why so many brands are reticent to do it.”
So what can your brand learn from Nonoo, and other brands that have embraced the on-demand model (also called “made-to-order”)? Here are three criteria for success in this business model.
1. Treat your suppliers like true partners.
The traditional relationship between brands and factories has been a zero-sum cage match: if the factory wins, the brand loses, and vice versa. An on-demand business model requires that the both the brand and the factory share the risks and the rewards. John Thorbeck of Chainge Capital suggests that this approach “replaces adversarial bargaining and exploitation, and realigns incentives.”
Nonoo, for example, commits to a certain number of orders every month. If more orders come in, the factory earns more money; if fewer orders come in, Nonoo compensates them anyway. And while the unit cost is higher, the total cost of each piece is lower, because there’s no waste and no markdowns. Ruffwear, the premier manufacturer of outdoor dog gear for hiking and camping, does the similar thing with its factory partners: Ruffwear commits to a certain dollar volume of sales, and the factory agrees to hold the raw materials in stock. If Ruffwear misses its sales targets, the brand pays the factory anyway for the raw goods. However, they don’t have to pay for finished goods, and they can use the raw materials in the next season.
2. Adjust your product assortment.
A made-to-order business model only works if you adjust the overall product assortment. As the article explains, Nonoo can’t design trendy, seasonal collections, since it would take factories and seamstresses too long to learn how to make every piece, then make it only when a customer places an order. Instead, she designs core pieces that will be sold for years, and freshens the collection by adding just a few key pieces each year. Designing, developing, and merchandising an entirely new line each season—or even each year—isn’t feasible for a total on-demand model. If you think that means a boring product line with small sales, think again: both Everlane ($220M in 2019) and Patagonia (more than $1B in 2019) have done a pretty good job following this strategy.
3. Take a portfolio approach.
You may think that made-to-order isn’t a scalable solution for you, particularly if you’re a bigger brand than Nonoo. Your factories probably aren’t set up for on-demand manufacturing right now. You might have items in your product line that wouldn’t benefit greatly from on-demand production. And you might have large volume items that exceed current on-demand manufacturing capability.
The good news is that you don’t have to commit fully to the made-to-order model. Made-to-order versus mass production isn’t a binary choice for your brand. Instead, take a portfolio approach. Just as a balanced investment portfolio has a mix of equities, bonds, and cash, your product line can have a mix of mass production, made-to-order, and personalized products. Retain mass production for products that have consistent sales year over year, or that you make in volumes too high for on-demand manufacture. Use made-to-order for smaller volume items that your factories can handle and that are a bit riskier. And use product personalization—decorating in-line products with custom embroidery, patches, or special trims—to ease your factory partners (and your own company) up the learning curve of on-demand manufacturing. Since you’re dealing with smaller volumes, you can even use other turnkey factories to manage these products, making the transition to on-demand much easier.
McKinsey’s 2019 State of Fashion report predicted that made-to-order production would become mainstream in the fashion industry by 2025. Nonoo is a good example of how that transition has already started. These three important steps will help you start the shift yourself.
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