Cost vs. Nimbleness at The Gap
Saw this in Business Week yesterday:
“As part of the supply chain revamping, Pressler also tinkered with the way the Gap brand produced clothing samples. These prototypes had long been made at studios in Manhattan’s Garment District. But Pressler moved sample-making to Asia, where the company’s many suppliers are located. With that change, designers had to create patterns, ship them to Asia, get the samples back, make changes, and ship them back to be remade. While making samples in Asia was cheaper than in New York, it delayed the process and ‘made you less nimble,’ says a former insider. Aggravating matters, the company instituted a new cost-cutting rule: No overnight shipping to Asia without high-level approval.”
Talk about a road to frustration. Management makes a labor-cost driven decision (make samples in Asia, while designers are in New York). Then, to further aggravate the slowness and lack of response, put in a draconian ban on overnight shipping.
Is this a lean tale? Sure. Companies of all kinds need to look at more than unit labor cost. They need to look at overall cost and, more importantly, overall effectiveness. What good do “cheap samples” do when you’re slow and can’t get the right fashions into your stores for people to buy?
Compare them to the “lean apparel” examples that Evolving Excellence has documented.
There was another example that highlighted the tradeoffs between cost and effectiveness. At a purely financial level, it made sense for The Gap, Banana Republic, and Old Navy to all buy the same denim in a huge bulk purchase. But, each company is serving different markets (middle, high-end, and cheap), so none of the brands was happy with the material.
And with all that denim ordered in advance, there was less incentive for designers to keep their eyes open so they could jump on the next great style. Jeans made with material from the pooled purchases ended up largely falling flat, and the joint purchasing effort was abandoned.
So before anyone is going to beat up on manufacturers for making short-term decisions based on cost alone…. it happens everywhere. It’s either human nature or it’s nurtured in MBA programs, I’m not sure which.