GOH vs Flat packed michelle Klinkhamer Amsterdam fashion institute 500600779
final thesis Product From the Netherlands to Asia michelle klinkhamer 500600779 *** Amsterdam fashion institute 5 June 2013 Hong Kong *** Henny JOrdaan Marco mossinkoff
From the Netherlands to Asia By Michelle Klinkhamer, 05 June 2013 China is the leading country in exporting knitted and woven garments (Choi, et al., 2013). This has been so for many years, companies produce in Asia for the low costs and relatively good quality. But, although the production costs are lower, the time to market is often higher due to transportation. To reduce the time to market, Bundling at the Source has created an answer, the goods should be made store ready in the production country. This would mean that the shift to the Far East that has been made many years ago would be extended with more tasks and responsibilities. Bundling at the Source (BatS) is a project that has been developed by several parties: Greenway Logistics, AMFI, TU Eindhoven, Eyefreight, Modint, Dinalog, Euretco, Ewals Cargo and their Asian partner Tigers Logistics. Each of them has their separate tasks within the project that will create the success of the project. Modint and Euretco started this project with the intention to reduce 30% of the handling costs, a quicker time to market and consolidating shipments that result in reducing CO 2 emission (Profnews, 2012). This information does not quite explain what the project entails, so what is the Bundling at the Source project? In this project, multiple suppliers of fashion retail products collaborate horizontally to bundle volumes in Asia and prepare shipments of multiple suppliers but sorted for individual stores. This means that shipments containing goods of multiple suppliers are delivered to shops in one go, as opposed to many different shipment deliveries (Modint, 2011). By consolidating shipments in Asia, the goods also need to be made store ready in Asia, so no extra stops will need to be made in the Netherlands, which will increase the time to market. But what needs to be done to be able to make this a reality for all types of brands and garments? Transportation can be done in several ways, via sea freight, airfreight, overland (truck and train) and via multimodal, a combination of sea and airfreight. Each of them has its pros and cons, such as sea freight has the possibility to carry large shipments at once, but it is a time consuming method. Airfreight is the exact opposite, it has high speed but it has a limited amount of goods it can carry. Overland transportation works for short/ medium distances due to the speed, but a train relies on the railways and their schedules and trucks have traffic limitations. Multimodals pro is that it can catch up lost time that was created during production, yet when using multiple transportation methods the time schedule needs to meet up at one point, which immediately creates the weak point. The methods that are mostly used between China and the Netherlands are sea freight, airfreight and multimodal. Tigers mostly uses sea freight, 90% of their transportation is via sea. This can be explained by the fact that sea freight has the lowest costs. Airfreight is not used often for garments, although it is a possibility when goods are to late or need to be at a destination faster than firstly intended; yet this is a costly solution as airfreight is the most expensive way to transport goods. This is then also the reason for multimodal; this makes the costs lower then only using airfreight, and makes the time to market faster then only using sea Product - final thesis June 2013 3
freight. Besides considering the ways the goods can be transported from A to B, it is also important to take the packing method into consideration. There are three ways of packing garments; flat packed, goods on a hanger (GOH) and semi-hanging. Flat packed is most commonly used as this is the cheapest way and has the highest density when shipping goods. Flat packed means that the goods will be folded and put into a poly-bag, which will be placed into a box. Often the garments will be packed individually, and sometimes these individually bagged pieces will be put in larger poly-bags to create a unit. This is used to make the pick and pack process easier. The poly-bags are there to protect the garments from damaging each other when in one box. Another ways of packaging is by GOH, this means that all goods will be hanging in the container. This method is not frequently used nowadays as the quantity of garments that fit into one container is low in comparison to flat packed. The goods can be hanged in the container in two different manners, one is by a bar system and the other is by a string sytem. A string system will increase the amount of pieces that fit into the container, yet it takes more time to load and unload a container. Another down side of GOH is that not all transportation companies have the ability to ship or transport goods hanging, due to special requirements such as the hanging system. Semi-hanging is a combination between flat packed and GOH, the goods will be hanging within a box, called the wardrobe box. This will make the distribution as simple as flat packed and the garments are immediately presentable instore, which is similar to GOH. The way of packing will have a large influence on making a garment store ready. Two main indicators will determine whether a garment should be packed GOH or flat packed, the first indicator is the crease resistance. The crease resistance is of importance, because this will have a large influence on whether or not a garment is representable after transportation. To determine the crease resistance, it is necessary to look at the materials that are being used within a garment. A general rule can be established when looking at the relationship between the fabric and the crease resistance, when using synthetic fibers the crease resistance is higher in comparison to natural fibers such as linen and cotton. Besides the type of fabric, the thread count is also important. If a fabric is tightly woven, which means a high thread count; it will have a tendency to crease less. Another point that is important to look at is the construction of a garment, what other materials are used besides the main fabric and what effect will flat packed or GOH have on these materials. These points are all related to the materials, but this is not the only indicator. The second indicator is the in-store presentation; this will have a large influence on whether or not goods need to be flat packed or GOH. For example, when a garment will be presented folded on a table, there is no need to send GOH. This seems like an obvious point yet not all goods that will be shown hanging need to be send GOH. This is because of the character and crease resistance of the fabric. All these aspects will need to be looked at when making a decision on the packing method. As mentioned above, transportation has an effect on the presentation of the goods, but it does not only effect the appearance it also has an effect on the quality of the goods. When transporting the goods flat packed the goods are well protected and have a fixed position, Product - final thesis June 2013 4
yet this fixed position can lead to wrinkles, creases and pleats that need to be removed via reconditioning. Also the goods will have a flatter appearance (Koeleman, 2013). GOH can be seen as the solution against creases as the goods are hanging, although the possibility of creases cannot be excluded. When using semi-hanging, the goods will have little to no creases, depending on who has packed the goods, yet this manner is the most expensive. Frequently occurring effects that are often seen due to transportation circumstances are pressure effects, which cause creases, wrinkles and a flat appearance, moisture effect, which can create mildew (mold) or rust (through packing materials), and contamination effect, due to the use of hazardous chemicals. Pressure and contamination effects can be resolved by reconditioning garments, but when moisture effects arise it will be more difficult to remove. Moisture effects could be avoided by giving clear instruction on the conditions of the goods when they are packed or by giving the goods a special finish to avoid mildew. In the above paragraph there is a mentioning of reconditioning, but what is reconditioning? Reconditioning is a way to make goods look representable again after they have been creased and wrinkled during transportation. Often reconditioning is used when goods arrive flat packed but need to be delivered hanging to the retailers. Within reconditioning there are several processes that could be carried out like tunneling, blowing and ironing/pressing. Tunneling is the one that is mostly used, and the one that has the least handling costs. If this process is used, the goods will go through a tunnel that has several rooms each having a different function. First the garments will be heated, then steamed and afterwards dried. The garments are heated first because it makes it easier for the steam to get the creases out. Sometimes the goods are not recovered after going through the tunnel, if this happens the goods will go through the blowing process. You have different blowing machines; different ones are used for tops and bottoms. The machine looks like part of a doll, either the top or bottom, the garment that will be on this doll will be secured. Then the doll will blow out hot air and steam under high pressure, the blowing machine blows from the inside out. If necessary it is also possible to only do parts of a garment instead of a whole garment. Often the blowing machine is used to increase volume, such as for winter jackets. When a garment needs high finishing, the garment will go through the ironing and pressing process. This process is done by hand and can therefore be used on multiple fabric groups and product types, i.e. to accentuate pleats in a skirt. The processes described above are only part of the complete process, when the goods come in flat packed, the goods will need to be unpacked, hung on hangers, pick and packed after restoring the garments, and there are even more services a reconditioning company can offer, all to the wished of the client. If a company decides to reduce the transportation costs by sending the goods flat packed and recondition the goods after transportation it will not always be the cheapest way. Although flat packed is the cheapest way to pack goods, reconditioning adds high costs. The average reconditioning costs are roughly between the 0,80 and 1,35 per piece (Bruijn, 2010). It can happen that the extra costs that are made with reconditioning are in total higher then when deciding to transport the goods GOH. To determine the point where it will be cheaper to ship GOH instead of flat packed has not been determined so far as it is influenced by Product - final thesis June 2013 5
the type of goods that are within the shipment. Besides the type of goods that are constantly changing, the amounts will differ with every shipment. And then there is also the fact that not everything needs to be shipped hanging. Besides the shipping costs there are more costs to consider that will differ with each packing method. The pick and pack process and (un) loading of a container will be more expensive when transporting goods GOH then when the goods will be transported flat packed. This is because GOH has more instruction then flat packed; the goods need to hang in a special way, usually a manual will be provided to make sure the instruction are well explained and easy to follow for the personnel. Other costs that will be made when transporting GOH is that the container will need to be adjusted, often there are containers that have these adjustments permanently, but these containers are more expensive than regular ones. When wanting to determine what is the best way to transport and what is the best packing method a cost overview will need to be made and possibilities need to be compared, especially if goods need to be hanging for the in-store presentation and the fabric is easily creased or damaged. Eventually it will become clear that the costs of reconditioning will determine whether or not goods should be transported GOH or flat packed. There has been a mentioning of the density of goods that can fit into one container, this density has a big influence on the total costs. When goods are being flat packed they are folded and put in poly-bags, these poly-bags will be put in boxes. The amount of the goods in one box will be determined by the instructions of the buyer about the sizes of the bags and boxes. When the goods are transported GOH, the goods are not folded, so they will take in more space, they will also need room to breath. On an average it is possible to say that GOH takes in twice as much space as flat packed (Zheng, 2013). In the beginning of this article the BatS project was explained, but little mention has been made after. The next part of this article will be about the involvement of the project and how the above-mentioned points relate back to BatS. But first what do buyers find important in the current market situation and how can BatS help with these points. Sustainability has been a trend that seems to last, brands want to react to this trend but this is not always an easy task. The BatS project gives brands the possibility to reduce the CO 2 emission by bundling goods and creating less shipments. By creating fewer shipments, there will be lesser trucks driving around to deliver the goods, which results into reducing the CO 2 emission (Profnews, 2012). The lean and agile approach is the way a brand approaches their manner of working, this manner is often related to the health of the market. A lean approach is described in order to compete successfully, working effectively and only using what is necessary is what it takes. The agile approach is an approach that is able to deal with new situations quickly and successfully. Fashion brands usually are a combination of both, leagile; by combining both approaches it will preserve and improve the supply chain partnership (Bruce, Daly and Towers, 2004). The BatS project is there to combine and work together with all supply chain partners to create a better way of transporting goods. The role of the BatS is that they create a platform where the goods can be gathered, picked and packed and consolidated. The platform can be seen as a synonym for a warehouse, distribution center (DC) or Product - final thesis June 2013 6
terminal. Before any types of goods are sent out to be transported they need to be loaded on to a container. This is done at a terminal, yet a terminal is also used as a storage place, also referred to as a warehouse or DC. But let s start at the beginning, when the goods are ready to be send to the retailers the goods are still at the factory, from there they need to be transported to the platform. This can be done in two ways, one is that the factory uses a third party, a transportation company, to send the goods to the platform or the logistic partner that is involved in the process will pick up the goods. The Asian logistics partner in this project, Tigers, usually picks up the goods from the factories. This makes the process especially easier if the goods need to be transported via GOH. When the goods arrive at the platform the goods will be counted, picked and packed and if necessary other services such as quality control can be executed. Usually the goods will stay 7-14 days at the platform (Tung, 2013), within this time-span all services must be executed. This is also the time where there is a possibility to consolidate shipments. When another order at a factory is done within the same time-span as the first order it would be possible to join those orders for pick and packing. The pick and packing is done on a retail level, this means that the order is picked and packed per retailer and one shipment, containing multiple boxes, is send out to this retailer. If there would be multiple orders from different brands for one retailer from multiple factories, the order cannot be mixed together in one box, this is because of the packing list. So the different brands will stay in different boxes, but the boxes will be put together within one shipment. The shipment will be made completely ready so there are no extra handlings needed when it arrives in the Netherlands, this includes packing lists, all labels needed on the boxes, etc. The example above shows that there are different brands in one shipment, but it is also possible that multiple orders from different factories for the same brand are consolidated. After the container is loaded the container will be transported to the quay, where the container will be stored until it can be loaded on to the vessel. When the container arrives in the Netherlands, the shipments can immediately be handed over to a transportation company, such as DHL, and be delivered to the retailer. In the above-described route you might have noticed there is no mentioning of customs, yet the goods will need to go through customs twice. The goods will go through customs when they arrive at the country of their final destination and when they leave the country of production. Yet in China it is possible to go through customs before the goods have physically left the country, but how does this work? It is all related to the location of the warehouse. The ideal location for the warehouse in China would be in a Free Trade Zone (FTZ) or a Bonded Logistics Park (BLP). Within a FTZ goods can be landed, handled, manufactured or reconfigured, and re-exported without any intervention of customs (Pfaar and Wang, 2011). The goods will only become subject to custom duties when the goods are being moved within the same country as the FTZ. Often the FTZ s are located close to the harbors, yet they are not a part of the harbors, by creating a BLP a link can be created between the FTZ and the port, the so-called zone-port interaction. A BLP will be located within the planning areas of the FTZ or ports that are neighboring the FTZ, but will have their separate enclosed zones. The zone-port communication will allow the BLP to combine the function of Product - final thesis June 2013 7
bonded warehousing with cargo handling and transport functions of the nearby port. (Pfaar and Wang, 2011) But although a link has been created between the FTZ and port, there are still different authorities involved, which could be considered a down side. There is also the possibility to have a general warehouse; this warehouse would not be located in a FTZ or BLP. There is a great disadvantage for the BatS if this type of warehouse would be used, as it is only allowed to pick and pack one supplier within a shipment, instead of multiple suppliers. When having a warehouse in a BLP, the customs will be located at the entry point of this area, so it is possible to say that when the goods are in the BLP and have been handed over to the logistical partner the goods are officially out of China. So far the BatS platform has been located in a BLP, as this makes the consolidating of goods easier and more efficient. If BatS wants to be able to address multiple segments in the fashion market they will need to be able to offer certain services. With the most important one, being able to ship, store and pick and pack flat packed and GOH items. This means that the logistical partner they are working with will need to offer GOH and flat packed transportation; this will not be a problem as many logistic companies offer these services. The part that will be more difficult is the storing of the goods and there for also the pick and pack service. GOH goods need to be stored in special rooms or tents, which are dust free so the goods will not be damaged. This is something not all warehouses offer. So if BatS wants to address all segments they will need to make sure these dust free tents are available at the warehouses that are being used. For brands that are interested in joining the BatS project there is only one thing they need to comply with. If the logistical partner wants to pick and pack the goods, the goods need to be bought with the incoterm free carrier (FCA). FCA means that that the supplier is responsible for delivering the goods until the warehouse, after this point the ownership of the goods will be transferred to the next party. FCA is an incoterm that is not the most frequently used. Usually in China the incoterm FOB, free on board, is bought. FOB means that the supplier is responsible for arranging the transport and insurance of the goods until the port, here the goods will be loaded into the container, and loaded on to the vessel. At the same time the ownership of the goods will be transferred to the next party. After the goods are on the vessel all costs and responsibilities rest on the buyer. When wanting to change the incoterm from FOB to FCA clear communication will be necessary, as not all Chinese parties will understand the difference between the two. This shows that all communication about all aspects between the parties is very important and needs to be clearly stated so no mistakes can be made. After reading all that you, the reader, might have formed an opinion about this project. Whether it is positive or negative, you can t blame someone for trying something new. But how innovating is this project? The logistics partner, Tigers has not only partnered with E-wals, they have multiple partners, such as Dean s logistics, which is located in Australia. Dean s logistics has a similar running project, but is in a more advanced stage as they already offer GOH, where as BatS currently does not, and pick and pack services in the country of origin. This makes you wonder why BatS is running behind on their own idea in the current market? Product - final thesis June 2013 8
To conclude this story a small recap should be made, BatS is a project that wants to reduce costs by re-locating the pick and pack process to the country where the production takes place. This will help improve the CO 2 emission, by reducing the amount of deliveries per retailer and will fit into the changing market by creating a better relationship between all supply chain partners. If BatS wants to function their warehouses should be in a BLP, as this will create the possibility to consolidate multiple goods into one shipment. The buyer needs to buy FCA; otherwise the logistics partner cannot work with the goods before it goes on to the vessel. The most commonly used way of transportation is via sea for long distances, such as from China to the Netherlands. Airfreight and multimodal is used when goods are delayed or need to be on location quicker than anticipated. The packing method that is most frequently used is flat packed as this the manner that can fit the most products in one cubical meter. GOH takes in twice as much space as flat packed, and semi-hanging is too expensive because of the packaging. Whether or not it should be determined if goods should be transported GOH or flat packed is measured by the following two indicators, in-store presentation and crease resistance. Reconditioning also has a large role in how the goods are packed, as this is an expensive process it is sometimes cheaper to transport GOH then flat packed with reconditioning. Transporting goods will never have a good influence on goods, therefor possible effects should be avoided by giving instructions via a supplier manual. This is sometimes difficult but with the right instruction and communication the effects can be minimized. Sources: Bruce, M., Daly, L. and Towers, N. (2004) Lean or agile, A solution for supply chain management in the textiles and clothing industry? [pdf] Available at: http:// www.milanofashioninstitute.it/files/obj/bacheca/2012/ LeanorAgile.pdf [Accessed on 2 April 2013] Bruijn de, J. (2010). A study on the most efficient transport combination between flat packed, hanging and semi-hanging transport in the fashion industry. [Thesis] Amsterdam Fashion Institute. Choi, L., Pan, L., Romberg, C. and Tran, M., (2013). Bundling at the Source Best practice report. Hogeschool van Amterdam CIPS. (n.d.) Lean and Agile Purchasing and Supply Management. [pdf] Available at: http://www.cips.org/documents/resources/ Knowledge%20Summary/Lean%20and%20Agile. pdf [Accessed on 2 April 2013] Koeleman, C. (2013). The effects on garment quality due to transportation. Interviewed by Michelle Klinkhamer. [e-mail] 28 March 2013, 17:40. HKT Pfaar, M. and Wang, X. (2011) Chinese Bonded Areas: Choosing the Right Location. [pdf] Available at: http://tmagazine.ey.com/wp- content/uploads/2011/01/ News11_CM2249_G_Chinese-Bonded-Areas.pdf [Accessed on 4 April 2013] ProfNews (2012). Brancheorganisatie MODINT wil logistiek in modesector efficiënter maken. [Online] Available at: http://www.profnews.nl/999292/ brancheorganisatie-modint-wil-logistiek-inmodesector-efficienter-maken [Accessed 31 May 2013] Tung, M. (2013). What does Tigers currently offer and how does that relate to BatS? Interviewed by Shona Pratt and Michelle Klinkhamer. 13 March 2013, 10:45. HKT, Hong Kong Zheng, E. (2013). What does Tigers currently offer and how does that relate to BatS? Interviewed by Michelle Klinkhamer. 23 April 2013, Shanghai. Product - final thesis June 2013 9