Companiesandme

The "fashion" business is notoriously risky. The industry chases fads and trends, and tries to predict things as mundane as next season's colors, while keeping a lookout for "next big thing." It requires predicting what people will buy, investing in inventory before its sold, and hoping you'll sell what you make -- for a profit. There's a compulsion to re-invent your product line with every cycle to keep your brand "fresh." Frankly, it's stressful, expensive and exhausting.

I spent several years grappling with this traditional business model, so when I set out to start my new company, I thought about how I might do things differently -- to minimize the risk, and maximize the fun.

Traditionally, we start by creating a seasonal "collection," often two or three times each year. After previews with our sales team, store buyers, and perhaps a consumer focus group, we prepare a forecast -- an "informed" guess of what we expect to sell -- including each and every style, size and color variation. The forecast may have hundreds of line items, even in a small company.

Based on the forecast, we place orders with our factories for thousands of pieces -- three to four months before our product will hit the retail shelves. We invest a ton of money in inventory before we sell a thing.

No matter how good you are at forecasting, you always end up with excess inventory -- stuff that won't sell at full price -- and sometimes not at any price. Meet the evil twin of forecasting -- end-of-season closeouts. You dump all the stuff that didn't sell, for pennies on the dollar -- as quickly and quietly as possible through closeout brokers and discount retailers.

If you think of your market as an ocean -- this is like dumping garbage into the ocean, and hoping it will just disappear. Closeouts are a form of pollution that disrupt your economic ecosystem. They're insulting to customers who paid full price just weeks earlier. They're predatory for your retail partners who still have full-price product on their shelves. And they're destructive to your most precious asset -- your brand integrity.

My idea was to eliminate both seasonal forecasting and closeout sales by designing a build-to-order product line, with zero finished goods inventory. "Make it when you sell it."

Essentially, I adapted the build-to-order concept used by companies like Dell Computer -- custom products made from a menu of sub-assemblies arranged in a common chassis. The idea was to take a functionally complex product like a computer briefcase, and design a common platform for all of our computer bags. The "chassis" in our case is a complex sub-assembly that has all the zippers, pockets, buckles and other essential functional features -- and comprises 90-percent of the labor content. This chassis is the "functional core" of the product, and "fashion independent." If designed properly, the chassis can be used season after season, for years.

The innovation here is to subcontract the chassis fabrication to a low-cost, high-quality manufacturing partner, while we specialize in performing the final assembly process on a just-in-time, build-to-order basis. In our case, we give the bag its "personality" by selecting a decorative fabric for the flap, and a colored binding strip. I call this the "essential transformation" and we perform this operation in response to, rather than anticipation of demand. Manufacturing experts call this "late-point differentiation."

The beauty of this system is that we stock the chassis in just one color and a few sizes -- vastly simplifying our stock keeping units (SKU-count) and forecasting complexity, and essentially eliminating the financial risk of our inventory. We purchase our decorative fabrics by-the-yard, as needed, from the upholstery industry. We have access to thousands of stock colors and styles from numerous fabric manufacturers serving the commercial and residential furniture markets, so we don't have to make any big investments in fabric. We have the best of both worlds here -- we outsource 90 percent of the labor, and we insource 90 percent of the personality. Everyone gets a custom-built bag, and we never have excess inventory or closeout sales.

While the concept itself is simple, and its success has been proven in other industries, it's unique in our business. Time will tell, but we think we're on to something here. And we're having a lot more fun.

Image: Eddie Codel