In recent past, the industry went through a period of low output because of two major policy decisions - demonetization and introduction of GST. During this phase, industry witnessed temporary as well as permanent closure of certain units, which shared one or more common characteristics of smaller capacities, conducting cash business, employing contractual workers, focus on labour arbitrage rather than efficiencies, etc. The emerging trends are once again indicating tough times ahead for such units. The only survival strategy is to start focusing on manufacturing excellence to eliminate systemic inefficiencies. The urgency for such change in DNA of the Indian garment industry roots in following 4 reasons:
1. Growing Dominance of Organized Retailers in Domestic Market
The organized fashion brands and retailers in India such as FBB, Reliance Trends, Madura Brands, Arvind Brands, M&S, H&M, Zara, etc. have woven an exceptional growth story. The larger ones are inching towards US$ 1 bn. revenue mark; while many are registering revenue growth in double digits and new store addition has accelerated beyond Tier 1 cities. Online fashion retailing is yet another high growth story with Amazon and Myntra leading the pack.
These increasingly dominant organized buyers are the best bet for domestic garment manufacturers looking for high growth in future. The sourcing requirements of these buyers are steadily moving closer to international ones in terms of volumes, price points, quality, service and compliance. Manufacturers looking to work for them will have to be as competitive and compliant as the exporters elsewhere. No wonder, some of the Indian exporters are already doing good business with some of the domestic brands. The larger buyers will have a strong bargaining power but more importantly, they would also be looking for strategic partnerships with vendors who are able to meet their requirements. These requirements can be met only with adoption of benchmark systems and processes, which are the foundation stores of operational excellence.
2. Reducing Export Incentives, Competitive Imports
Garment export sops have reduced tremendously in the past and going by the current policy directions, they stand a further chance of reduction. Simultaneously, the garment imports into the country is increasing at a break-neck speed.
On one hand, exporters will have to compensate internally for reduction in export incentives while on the other hand domestic manufacturers will have to compete with their more efficient counterparts in countries such as Bangladesh, Vietnam, etc. The most effective strategy to tackle both the scenarios is to improve the man and machine productivity through the implementation of operational excellence techniques.
3. Export Opportunity Arising Out of US - China Trade War
US imposition of higher import duties on garments made in China will cause some of the US imports to be diverted to exporters elsewhere which can provide scale, price and service equivalent to their Chinese counterparts.
India, despite all the strengths, has a meagre share of 4.6% in US garment imports at present. One of the reasons for such low share is manufacturing competitiveness in selective product categories. Unless the same competitiveness is replicated in larger section of trade portfolio, Indian exporters would clearly miss the opportunity.
4. Emergence of ‘Smart Factory’ Concepts
Smart Factories, an output of Industry 4.0, are able to take faster and better decisions; thanks to concepts of big data, advanced robotics, artificial intelligence and industrial connectivity. The pace of advancement in this arena is expected to hasten with leading machinery suppliers investing significant resources to develop such solutions for garment industry such as specialized sewing machines. These concepts have the potential to significantly optimize manpower involvement and even cause business re-shoring within next few years. Within next decade or so, the traditional systems will become obsolete and factories deploying them will be rendered uncompetitive.
To compete with smart factories that will crop-up in USA, Europe and Japan followed by those in China, Turkey, Bangladesh and Sri Lanka, Indian factories will have to become smart as well. Also, in the current scenario of rising wages and workmen shortage, being Smart will be the smart move.
But to start going down that path the requirement is to first set the house in order by optimizing what is already available. Age old monitoring, production and management systems need to give way to modern, scientific ones which can be the foundation for smart factories eventually.
We, at Wastra believe that it is a very crucial time for Indian apparel manufacturers. On one hand, the global market is expanding, creating opportunities for the manufacturers while on the other hand, global competition is taking a toll on the profitability of garment business. It is hence very important that Indian manufacturers make a move towards manufacturing excellence. Wastra services for re-engineering focuses on the pillars of manufacturing excellence; operational excellence, manpower training, market intelligence and continuous improvement.
This blog has been authored by Varun Vaid, Associate Director.