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In the past, many apparel and footwear companies would search for new applications to support their business requirements only to find out that major functionality was lacking due to the uniqueness of the industry. Most of this uniqueness in functionality centered around the products sold by the apparel and footwear industry specifically, in how the product was structured.
In January 1996, Dr. Peter Zencke charged the SAP Munich development group with the task to develop a solution to meet the unique needs of the apparel and footwear industries by December 1997. The deliverable product is the Apparel Footwear Solution (AFS). A consortium was formed from with VF Corporation, Reebok and SAP America to deliver the industry requirements. Many apparel and footwear companies have invested great amounts of money and time into building their own solutions or acquiring packages and heavily modifying them due to the limited functional fit of these applications.
What make this industry so unique are two main factors: large data volumes and seasonal processing. Large data volumes result from having many sizes for each style or style/color of a garment or shoe. For one style/color, it is possible to have over 100 SKUs. The seasonality of business (Spring, Summer, Back to School, etc.) requires that certain products be available for their corresponding season, with special needs to “mark down” or “move” inventory that will soon be out of season.
The development goal was to design a system, which will accurately match the business requirements of the apparel and footwear industry. The development focus was on the logistics area of the business handled with the R/3 Standard modules SD, MM and PP. The file structure of the R/3 Standard system was checked for applicability - in some cases, revisions and modifications to R/3 standard will be made; in other cases, new functionality was developed. However, from the user point of view, there is only one system.
Basic AFS Development Principles
Focus on AFS Industry Specific Requirements in the Logistics’ Modules
The major focus of the development of AFS is on the goal to enhance the R/3 Standard with functionality and data structures, which are AFS-business specific. In addition, the focus is on the logistics area of the business handled with the R/3 Standard modules SD, MM and PP.
Standard Functionality
If possible and where applicable, the functionality of the R/3-Standard system is used. In general the entire logistical flow is handled with R/3 Standard functionality, amended with specific AFS add-ons.
Industry Characteristics/Requirements
SAP R/3 probably satisfies nearly “80%” of the requirements of most apparel and footwear companies. However, certain unique industry characteristics combine to make the other “20%” absolutely imperative; in fact, so imperative, that it would be nearly impossible to implement an ERP solution without functionality to address these minority needs. Listed below are some of the characteristics and requirements which will then be transferred into the AFS product.
Large Data Volumes
The apparel and footwear industry requires major structural changes to how any standard software package would define sales orders, factory orders or purchase orders because of the large volumes of data.
For example, a particular style of shoe might come in four colors and 24 different sizes based on a standard distribution for a given country, region, or customer. If a customer asks for a quantity of 1000 pairs at their standard distribution of color and size, the system would need to create 96 material masters for that one shoe, which would in turn, create 96 Bills of Material. This is for just one style!
Apparel and Footwear companies need the ability to operate on three different product characteristic levels: the style level, the style/color level, and the style/color/size/width level. This is commonly referred to as matrix processing.
Seasons vs. Periods
The seasonality of business (Spring…Summer…Fall…Winter…Back to School…Christmas) requires that certain products be available for their corresponding season, with special needs to “mark down” or “move” inventory that will soon be out of season. Price lists, reports, inventory displays, etc., are all necessary by seasons, not the usual calendar periods.
Multiple Channels of Distribution
Multiple channels exist from which products can be distributed. Each of these channels may have different practices, methods of transportation and distribution systems, pricing conditions, and policies. Channels could include company owned retail stores or retail franchisees (sometimes called corners or shop in shops). Consumers purchase direct through a variety of means such as catalog sales, response to Internet, electronic Kiosks, direct mail and telemarketing. Special channels exist to handle Endorsees and Influencers so they can wear or display products, wear testers so they can evaluate products and employee sales. Currently, the most common channel of distribution is wholesale, where products are sold through several additional channels such as retail stores, mass merchandisers, department stores, specialty retailers, distributors, and licensees.
Increasing Customer Service Requirements
Changing retail industry practices are shifting more and more responsibilities to the up-stream suppliers who in turn are seeking stronger partnerships with their suppliers. This necessitates a high degree of shared information and systems integration, flexible manufacturing strategies, stronger planning systems and highly sophisticated order allocation capabilities to meet customer service requirements, both in terms of fill-rate and on-time delivery. Cycle times to satisfy customer requirements can range from rapid response 24-hour delivery to bulk and release ordering or vendor managed inventory with just-in-time replenishment to six-month ahead futures ordering. Customers are requiring more special services including, but not limited to, drop shipments, cross-dock shipments, special ticketing/labeling, prepacks/special packs, boxing, hanging, folding, and finishing such as hemming, cresting, and custom graphics. These services could be performed at a factory or in a distribution center.
Product Variety
Apparel and footwear companies support a variety of product types and each type may have some of the following functional requirements:
· Restricted to certain channels
· Offered through sales programs, deals or promotions to encourage “future business”
· Move existing inventory and increase cross/coordinated selling
· Have royalty or licensing charges due to a third party when sold, or due to the seller or manufacturer
Core basic and carryovers are products that remain in a line from season to season. They may have minor changes to colors or details. Fashion products are offered for sale for a particular season, usually on a “futures” basis. They may have a very short life with new products being offered four or five times a year. Core basic and Fashion products could be merchandised in collections or assortments, packaged in different options, or sold separately.
A fashion company may also supply store fixtures and point of purchase materials and have other product lines like equipment that may or may not require size-level functionality.
Special “make up” products might be created for a specific customer. They could consist of changes to an existing product or totally unique designs as well as “Private Label” arrangements.
Accessories such as hats, gloves, belts, bags, and socks may each have unique size scales, stocking and reordering policies.
With such a wide range of distribution channels, product types, and customer types, fashion companies require an unlimited number of order types and the ability to configure each with specific events.
Multiple methods of production
Apparel and footwear companies utilize a wide variety of production strategies ranging from internal manufacturing in single or multiple plants, external production in single or multiple plants or in a mixed mode environment with combinations of internal manufacturing and external production.
In many cases, production occurs in a country other than the origin of the customer’s order. This may create special requirements regarding duties and quotas, and it may create source country restrictions. Sourcing could be internal or external through use of agents. If production is internal, full manufacturing capability is needed. If production is external, a subset of manufacturing capability is required. For example, material might be company owned, on consignment, or vendor owned. Capacity planning will need to consider external sources. Production tracking is required to ensure predictable product arrival dates. Product costing may be needed for estimating product costs for negotiating. Quality inspection could be used for product acceptance.
Other Industry Characteristics/Requirements
Samples: Sample products are usually created for sales purposes before volume production is considered. Although these are usually smaller production runs, samples require all of the same functionality of the order entry and production processes.
Forecasting: Predicting fashion is one of a number of forecasting problems. Determining what styles, colors, and materials will be “hot” is a difficult challenge because of regional differences.
EDI and Vendor Managed Inventory: Apparel and footwear companies have a heavy reliance on the use of EDI and is rapidly expanding the types of EDI transactions used, including VMI.
Receivable/Collection/Credit Policies: These are somewhat unique due to the characteristics of the distribution channels. The apparel and footwear industries have complex sales conditions; common practices include: deductions off invoices, sharing co-op dollars for advertising, and multiple salespersons on the same account with many rules and exceptions.
