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Four manufacturers are confronting globalization — and winning — by maximizing the strategic advantages of U.S.-based productionIndustry Week
December 1, 2003
Dov Charney, CEO, American Apparel, Los Angeles
With his 5-year-old T-shirt manufacturing company, Dov Charney, is out to prove that a vertical manufacturing company, paying "rich-country wages" in the heart of downtown L.A. can be profitable in what is largely viewed as a commodity business, and so far he's on roll. American Apparel doubled sales for three years running, from $20 million in 2001 to an estimated $75 million in 2003. [Actual sales in 2003 surpassed $80 million.]
Charney says his strategy is to know and serve the up-and-coming customer better and faster than his competitors, rather than to compete solely on price. "Our prices are higher than some of the off-shore producers, and rightly so. But ask a 20-year-old young woman if it makes a difference to her, $12 or $18, which T-shirt she wants to wear. If the $12 T-shirt is not fitting right, she won't wear it in public. In fact it has a negative value.
"Not [everybody] wants to be low-costed. So we produce products that young people love to wear and really study that and optimize that and concentrate all of our assets around doing that," rather than spending time and money managing a lengthy, complicated off-shore supply chain.
Charney rattles off a list of advantages to manufacturing close to the market he serves: The proximity to the market enables the company to react more quickly, with throughput of "maybe three days," versus an off shore time of 90 days. Small quantity manufacturing, including market tests, can be easily and quickly executed. Plus, he says, being able to walk through the factory on a daily basis keeps him apprised of quality issues and ensures the "evolution of the manufacturing process."
Global Lessons Learned
Four manufacturers share additional insights on maximizing U.S.-based production in a global world
Dov Charney, American Apparel, Los Angeles
. . . on the often unseen problems with off-shore manufacturing "People underestimate the cost of [going] off shore. Instead of investing more money in R&D and investing money in innovation, a lot of companies find themselves putting an insurmountable amount of capital into financing the supply chain because you need to constantly have stuff on the water and you need deeper inventories. In order to compete with domestic manufacturers, you have to have a lot of foreign product stocked. Those deeper inventories end up costing a lot of money."
"[With deeper inventories] sometimes you find yourself in the position where you find it's hard to phase out obsolete products — especially in the fashion cycle. Even in electronics there's fashion involved in cell phones now. A bad color, a bad shape, a bad body style to the cell phone, and you're stuck with them and you have 9 million of them in inventory. If they are made domestically, then you have fewer of them in inventory."
"Cheap labor is a false crutch, and it's actually preventing the automation of manufacturing. It's slowing down evolution. Instead of figuring out how to automate where labor costs are $30 to $40 [an hour] if labor costs are a dollar you don't really care."
. . . on vertical manufacturing and the herd instinct "I say the next step is on shore. It's vertical integration. It's this herd effect. The herd [effect] right now has been to outsource. . . the general dogma is that outsourcing is better, [that] it's too expensive to do business domestically [because] you're going to have to deal with labor unions, or you're going to have to deal with workman's comp costs that are astronomical."
"If you swim against the tide sometimes that's where the money's at … so that's what I'm doing. All of our cut-and-sewn labor is done on site; we don't outsource anything. Whether you outsource across the street, or you outsource south of the border, it's the same thing."
. . . on Wal-Mart and fashion trendsetting "I don't bother [selling to Wal-Mart and other high-volume, low-cost department stores] because I don't think those companies are a reflection of the future. I think the youth generation is rejecting those low-cost producers. The Boomers are into those things. Boomers love Wal-Mart, but I don't see Generation X and Generation Y shopping at Wal-Mart."
"If you want to be a trendsetter, [you have to] go to the places where things happen. You've got to go to Los Angeles or New York, and even in that pool you've got to [go to] the hippest of hip . . . you've got to go to the top 5% of the kids that really set trends. You have to make products that they are going to want to buy two years from now or three years from now. And if you're going to focus on that, and then you're going to say, well I'm off shore and I have this elongated supply chain, and I want the cheap, cheap, cheapest cost, you're going lose that ability to be the trend setter."
Made in Downtown LA—Vertically Integrated Manufacturing