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The Cost of Production Delays for Apparel and Fashion Retailers

March 24, 2022

Key takeaways:

  • Production delays represent less cash flow, lost sales, the need to stockpile greater inventory, consumer dissatisfaction, and difficulty remaining competitive
  • Out-of-stock items can cost brands and retailers $634.1 billion in annual revenue. This is a costly problem that can be eased by effectively managing on-time delivery of orders.
  • Some of the main reasons for production delays include poor understanding of production capacity, poor quality control during production, and poor communication across the supply chain.
  • A viable strategy to manage production delays and improve on-time delivery performance is adopting digital tracking technologies. Brands and retailers worldwide are starting to see the value of technology to manage risk in a post-pandemic world.
  • New production tracking solutions improve supply chain efficiency and collaboration, bring transparency to processes, and provide data insights for decision making.

In apparel and fashion, production delays account for well over a trillion dollars in lost revenue every year.

The “cost of delays” refers to the amount of money that you — the brand or retailer — lose due to time spent without a product to sell. In simple terms, any day that a product is not in your hands is a day you’re not profiting from it.

While there are different types of production delays, “they’re getting worse and may persist through 2022,” according to CFO.

The effects of these delays are less cash flow, lost sales, the need to stockpile greater inventory, consumer dissatisfaction, and difficulty remaining competitive.

Out-of-stock items cost retailers up to $634.1 billion in annual revenue.

This article explores why these production delays are occurring, how they impact you, and how to prevent them.

The reasons for production delays

The following are the most common causes for costly delays:

Poor understanding of production capacity
A supplier may fail to accurately evaluate their own production capacity, resulting in many urgent orders and an inability to deliver them on time.

Poor material planning
A supplier may inaccurately calculate the number of materials needed for their orders, resulting in material delays and downtime.

Poor quality control during production
When quality control is lax, defects in semi-finished products may not be caught in time — this means they’ll only be found in the finished product, which further increases delays and costs.

Poor communication
When communication is not centralized or standardized, internal management cannot identify or prevent delays. This slows the production process and increases delivery times.

Dependency on third-party inspections
Relying on third-party inspection agencies requires making a booking and waiting for the company to arrange the inspection. Then, if the inspection fails, the third party needs to be rebooked, thereby increasing the possibility for delays.

The impact on brands and retailers

How do production delays affect brands and retailers in fashion, apparel, and textiles?

  • Cost of inaccurate inventory

If there’s no inventory, you can’t sell products. If there’s too much inventory, you must sell it at a lower price. Both result in lost revenue.

While preventable returns cost retailers nearly $650 billion per year, consider that the cost of inaccurate inventory is over $1.1 trillion. Failure to effectively manage inventory can have a dramatic impact on your bottom line.

  • Lost revenue

Production delays will almost always lead to lost revenue. To make matters worse, conventional supply chain management practices make it difficult to assess their cost, impact, and root cause.

When you cannot determine where a production delay is coming from, you are more likely to blindly invest money and hope the issue resolves itself.

Without the ability to collaborate with suppliers and the appropriate level of visibility, investing in your supply chain can become further lost revenue and won’t fix production delays. “The financial implications for retailers include sales declines, gross margin erosion and reduction of net profit,” writes Forbes. “Customers may be impacted by product shortages or increased prices.”

  • Increased transportation costs

When the production of goods is delayed, you may have to spend additional money to ensure shipments reach their destination on time. For example, choosing air freight instead of sea freight can result in 3 to 5 times higher costs.

  • Damaged brand reputation

To most consumers, what matters is that the product they ordered matches both the promised quality and the arrival date. If it does not, they may simply stop trusting your brand and choose to go with the competition.

Trust is one of the hardest-earned assets your brand can possess, and losing it has a firm dollar value. A recent study of 7,000 companies found that 54% of them had experienced a drop in trust, leading to lost revenues of over $180 billion — a staggering $25.7 million per company on average.

  • Reduced shareholder value

Time-to-market is an important consideration for shareholders. SDC estimates that production delay announcements reduce shareholder value by 12% on average and can cost between 15% and 35% of the company’s Net Present Value.

How brands and retailers can reduce the cost of delays

When you manage a complex supply chain in today’s world, digital tracking technology provides the best defense against production delays and helps you reduce costs associated with late deliveries. Such technology gives brands and retailers the following benefits:

1. Increased supply chain efficiency

A digital tracking solution lets you standardize time and action (T&A) calendars to optimize your processes. This allows you to both increase efficiency and better manage risk while maximizing supplier productivity. This helps keep your company shielded from that $1.1-trillion annual revenue loss due to inventory problems.

2. Real-time production tracking

Leverage advanced reporting capabilities with automatically generated reports on open orders, production milestones, on-time shipments, and more. Just as importantly, use real-time notifications of potential issues to actively prevent problems during production.

3. Better transparency

Gain better visibility over your production chain with digitized T&A calendars. Centralize communication between all parties involved in production and improve tracking of key production milestones — all in real time. No more silos.

4. Actionable data analytics at your fingertips

Obtain and analyze supplier performance data for increased transparency and better decision making. Data disconnect costs retailers $223 billion per year. By investing in digital data structures, you improve both transparency and decision making, all while building the ability to predict the risk of delays before they happen — and before they become costly.

5. Better supply chain collaboration

Gain data insights from your suppliers and work together to solve production delays and constantly improve processes. When all parties — brands, retailers, and other stakeholders — move to a single platform where trustworthy data is easily accessible, communication and accountability improve. This is the foundation necessary to solve problems faster during production.

Inspectorio Tracking

The ability to solve these problems is thanks to technology. Inspectorio Tracking let’s you solve problems before they become problems by monitoring your entire production network in real-time.

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