Unit III Merchandising

FT6606 APPAREL MERCHANDISING AND MARKETING UNIT-3
UNIT III MERCHANDISING

Contexts of merchandising, concepts of apparel product lines, dimensions of product change,
determination and development of product line and product range. Creative and technical design in
garments and accessories, new product development and seasons of sale, costing, coordination and
communication with the production house and export house
Introduction:
The primary concern of an apparel firm is to provide a product line that will meet the needs of the selected
target market and produce a profit so the firm can grow. The product line is the primary responsibility of
merchandising. Merchandising is considered as planning, developing, and presenting product lines) for
identified target market(s) with regard to pricing, assortment, styling, and timing. Merchandisers may be
involved in the materials-manufacturing, apparel-manufacturing, and retailing levels of the apparel business.
Merchandising is the central coordinating point for the product line.
Contexts of Merchandising
Strategic business planning is recognized as an essential part of management in today's competitive
markets. A firm's mission, goals, and policies reflected in their strategic plan provide the basis on which
merchandising decisions are made. Merchandisers work within the context of the firm's strategic business
plans that identify the primary product liners, price rangers, size rangers, fashion emphasistes, and quality
levels appropriate to the firm's mission and target market. It is the merchandisers' responsibility to work
creatively within the constraints of the firm and marketplace to meet the needs of the target market.
Merchandisers are charged with converting business strategies into product lines, individual styles, units
of merchandise, and prices that will meet sales volume and profit goals. The criteria used to evaluate the
effectiveness of a merchandiser and merchandising functions include determining which merchandise
will sell the best, cost the least, and make the most gross margin and profit. Traditionally, merchandisers
have worked with gross margin (GM), the difference between net sales and cost of goods sold, as an
indicator of success. Gross margin can be calculated in both dollars and as a percentage for total
assortments, individual merchandise groups, individual selling periods, or an entire year.
Manufacturer merchandisers may plan and develop lines that are presented at wholesale apparel
markets for sale to retail buyers. If a firm is forward vertically integrated, manufacturer merchandisers
may also present directly to ultimate consumers in manufacturer-owned retail stores or manufacturer
outlets.
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Retailer merchandisers work for firms that operate primarily in the retail sector and prepare lines for
presentation to retail customers. Merchandisers may buy finished goods at wholesale to develop
assortments and/or use product development as a part of line development.
Impact of Quick Response on the Merchandising Calendar
A merchandising calendar determines the timing required to plan, develop, and present merchandise for
each selling period in the merchandising cycle. Merchandising calendars are based on a 52-week
merchandising cycle, usually from the first week of February to the last week of January. Within the
merchandising cycle are blocks of time called selling periods, defined as weeks of sale for different types
of products. A selling period may be 3, 6, 12, 26, or 52 weeks, or as long as the style continues to sell.
The merchandising calendar may also have strategically planned release dates for individual styles or
merchandisable groups. This allows manufacturers to level production while providing their retail
customers with an ongoing sequence of fresh merchandise.
According to the merchandising calendar developed in 1982 by the American Apparel Manufacturers
Association (MMA), the time line from evaluation of past selling periods to delivery of finished goods to
the retailer was 56 weeks. The goal of QR systems has been to cut the time from concept to consumer in
half. Historically, retail merchandisers have preferred that orders for merchandise be shipped complete
before the beginning of or very early in a selling period. This provided retailers with maximum flexibility
in presenting the merchandise on the selling floor. QR strategies have now shown the benefits of
pretesting styles before the selling period and using small, multiple orders based on sales early in the
selling period. Manufacturers set up for QR with lead times of 3 weeks or less can respond to customer
demand by shipping reordered merchandise for hot selling styles. Brief lead time, the time between
placing an order and delivering merchandise, allows the replenishment process to be customer-driven.
The result is maximum merchandise turnover and minimum inventory investment for both the
manufacturer and the retailer.
Quick Response has brought two measures of merchandising success to the attention of apparel firms in
addition to gross margin (GM): gross margin return on inventory (GMROI) and adjusted gross margin
(AGM).
GM = net sales - Total cost of goods sold
GMROI = Gross margin / Average inventory investment
AGM = GM - (Inventory carrying costs + Distribution costs)
GMROI and AGM emphasize the importance of level of inventory. The challenge is to have enough
inventories to minimize lost sales but not so much as to have lots of excess at the end of the selling
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period. Bud Konheim, president and CEO of Nicole Miller, believes that "inventory control is the most
important thing in the fashion business. Change is the definition of this business. In order to have change
you have to sell the inventory you have. Thus, if you control the inventory, business improves and you
create excitement for what's next at retail".
With QR strategies the target market is an active participant in line planning and development by
providing feedback just before or during the selling period through point-of-sale (POS) data. Point-of-sale
data during the selling period are only effective when electronic communication systems using electronic
data interchange (EDI) and/or the Internet are in place among firms involved with the product lines.
Cooperation, long-range planning, and investment in technology among materials vendors, apparel
manufacturers, and retailers make it possible to respond to customers' immediate needs and want to
make QR programs work.
Concepts of Apparel Product Lines
The term product line may be used to refer to the total merchandise mix presented for sale by a firm,
such as shoes or gloves or men's shirts. This general product line often has several divisions, and each of
these may also be referred to as a product line, but a more specific product line. In this context, the term
product line refers to a category of merchandise in the total merchandise mix that is (1) closely related
because it satisfies certain needs, (2) used with other items, (3) sold to the same target market, (4)
marketed within the same outlets, and/or (5) priced within similar price ranges. For example, within a shoe
line, many categories of womens shoes, children's shoes, and men's shoes might exist. Each category of
shoes may be subdivided into classifications. The category of men's shoes might include classifications of
dress shoes, casual shoes, and work shoes at moderate prices.
Within each line/category/classification of merchandise, the merchandiser builds an assortment, the
range of choices offered at a particular time. The number of styles, sizes, and colors in which products are
offered determines the assortment. A style is an identifiable piece of merchandise characterized by a
distinctive appearance. Styles may be modified from one selling period to the next. A design is a specific
or unique version of a style that has not yet been accepted into a product line. Designs that are accepted
into a line are given a style number and from then on are simply referred to by manufacturers and retailers
as a "style," a "style number," or simply a "number." A style number provides identification of the
product throughout the manufacturing and distribution process.
The product line is an apparel firm's source of potential profit; therefore, its content, development, and
production require constant analysis and planning. The wrong mix of products may not appeal or meet the
needs of the specific target market and thus would limit sales and profits. The number of lines produced
in a year and the number of styles in each line depend on the nature of the products and the individual
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firm's objectives, strategies, size, and projected sales volume. Large apparel firms may have several
product lines for each selling period. Each product line may be marketed at a different price range, under
a different label, and targeted to a different market segment. This gives the firm broader market coverage.
A smaller firm may offer a single product line focused on serving a few defined needs of a particular
target market. The North American Industry Classification System (NAICS) identifies the general product
lines within the apparel business. An individual firm further refines the description of its product line
(considering its business plan regarding quality, value, and fashion) by describing the particular type of
product (e.g., knit dresses), general price range (upper-moderate knit dresses), and the size rangers)
offered (upper-moderate junior knit dresses).
Merchandisable Groups
The definition of the product line includes a concept of how individual units of merchandise relate to
each other and to the line as a whole. Merchandisers and designers, when planning and developing
product lines, usually think in terms of merchandisable groups rather than individual styles.
A merchandisable group provides alternate solutions to solving the same apparel need for the ultimate
consumer. Basic concepts of these merchandise groups include separates, coordinates, and related
separates.
A firm described as a "separates house" may produce and/or distribute tops or bottoms or both. As
separates, tops may be grouped as blouses, dressy blouses, knit tops, or sweaters. Bottoms may be
grouped as casual skirts, career skirts, and slacks. Within the dressy blouse group, the line may have
classifications based on common fabrication, trim, color, or style features). Separates lines are
merchandised for retail buyers and for consumers as groups of the same type of merchandise. For
example, at retail, blouses from several vendors might be displayed on a rounder classified by size.
Sweaters may have one to four styles stacked on a table either sorted by style, size, or color
(see Figure 1). Separates-type merchandising serves the customer who is looking for an individual item
rather than a whole ensemble. Historically, discount/mass and off-price retailers have been more likely
to merchandise goods as separates rather than as coordinates.
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Figure 1. Specialty Store Presentation of Sweater separates a merchandisable group of one Style, five colours and
five sizes.
A firm that develops and distributes coordinates presents groups of different types of products
with common characteristics. For example a group of coordinates might include skirt, slacks, top,
and jacket. The group of coordinates creates an ensemble unified by styling, fabric, trim, and/or
color. Coordinates are presented at wholesale to show the multiple-sales potential of product
groups. At retail, coordinates tend to be displayed on T-stands, 4-ways, or other multiphase units
featuring related styles in the group. Styles in the coordinate set are sold individually, but the
benefit of a multi style purchase is very obvious. The coordinate group includes the following
styles: jacket, blouse, sweater, skirt, and pant. Each style is presented in two colors. The customer
has the option of buying one piece or mixing and matching several. One feature of a coordinates
group is that it may be difficult to match pieces with styles presented by other brands.
Coordinates are different than multipiece styles. A multipiece style is a product such as a suit in
which a jacket and skirt are included in the same style number, and the two pieces are merchandised
for one price. Multipiece styles may serve the same purpose as coordinates but do not offer the
consumer the same flexibility in selection of individual pieces. For example, a customer cannot buy
a different size in a top and bottom or substitute slacks for a skirt. Yet another concept related to
merchandise groups is related separates. Related separates are conceived, displayed, and sold like a
separates line, but coordination. Potential exists throughout the product offering because of use of
common color palettes and materials. The advantage of related separates is the potential for multiple
sales of compatible merchandise without the complexity of presenting the merchandise groups as
coordinates. Talbots, the Gap, and other specialty stores have had great success offering related
separates.
The solid-colored shirts are one style and the striped shirts are another. Notice how the stripes on
the collars match across all the shirts on the hangers. This does not happen by accident. The pattern
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pieces may be the same for the solid and striped shirts, but the striped shirts would require special
specifications related to spreading, cutting, and assembling the striped fabric; thus, the solid and striped
shirts are different styles. Sometimes a firm uses a multi concept-line strategy in which part of the line is
offered as separates and other parts are presented as coordinates. Conceptualization of the product line
guides marketing strategies, merchandising processes, and production sourcing. In any case, in the apparel
business, everyone must be prepared to deal with product change.
Dimensions of Product Change
Dealing with the demand for constantly changing products may be one of the most challenging and
interesting aspects of apparel merchandising. Fashion results in customer demand for product change.
Fashion is a continuing process of change in the styles of dress that are accepted and followed by
segments of the public at any particular time. A second aspect of product change, seasonal change, is
often confused with fashion change. The terms seasonal goods and fashion goods are often used
interchangeably, as are the terms basic goods and staple goods. However, when fashion change is
separated from seasonal change, reasons for product change are clarified.
A Perceptual Map of Product Change
Some apparel products are highly fashionable, and others are highly seasonal. Some are both seasonal
and fashionable; others are neither seasonal nor fashionable. The impact of these aspects of product change
on merchandise planning and positioning can be visualized through the use of a perceptual map as shown
in Figure 2. This perceptual map is a graphic representation of fashion seasonal and basic/staple variation
in consumer demand. It is based on a 52-week merchandising cycle, the time period commonly used for
merchandise planning. A merchandising cycle is divided into selling periods, the number of weeks a
particular style or merchandise group is salable to the ultimate consumer. The rate of product change is
determined by the number of different selling periods in a merchandising cycle. The following terms
required to understand rate of product change.
Fashion Basic Continuum:
Fashion goods are products that frequently experience demand for change, in styling. Fashion goods
require frequent change in styling to have continued demand from consumers. Styling is the characteristic
or distinctive appearance of a product, the combination of features that makes it different from other
products of the same type. For example, the salable life of junior dress styles may be only about 8 weeks.
This means that the junior dress line must be replanned, developed, produced, and presented with new
merchandise six times a year (52-week merchandising cycle divided by 8-week selling period equals 6.5
lines a year). In contrast, products that experience a comparatively long period of fashion acceptance are
called basics.
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Basic goods have less-frequent types of products in each Quadrant demand for style change than fashion
goods.
Sector 1 Basic, Staple Products
a.Men's white boxer shorts
b.Golf shirts
Sector 2 Fashion, Staple Products
c.Designer sheets
d.Teen blue jeans
Sector 3 Fashion, Seasonal products
e.Junior dresses for teen market
f. Misses skirts
Sector 4 Basic, Seasonal products
g.Holiday costumes
h.Thermal winter underwear
Seasonal
o weeks
3 4
e 9
13 weeks
h
Fashion Basic
o weeks 13 weeks 26 weeks 39 weeks 52
b
2 39 weeks
d c a
52 weeks
Staple
Figure 2. A perceptual map of product change defined by weeks in a selling period.
Basic goods may have a selling period of 52 weeks, a whole year, and perhaps several years. Only one or
at the most two lines must be planned, developed, produced, and presented during a 52-week
merchandising cycle.
In Figure 2, a fashion basic continuum is created and plotted horizontally. At one extreme are products
that are completely basic and enjoy a 52-week selling period. At the other extreme are high-fashion or fad
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items for which style change may be demanded every week. The fashion basic continuum represents the
range of consumer demand for change in styling from the extreme of fashion, L-week selling period, to
the extreme of basic, 52-week selling period, over a merchandising cycle. The changeover from fashion to
basic is at 26 weeks.
Seasonal Staple Continuum:
Seasonal goods experience change in demand related to a combination of factors associated with the
calendar year including ethnic and cultural traditions, seasonal events, and weather changes. Products
may be seasonal because of events that occur consistently in the calendar year, social customs, or
functional aspects of the garments relative to the weather. Holidays and the beginning and ending of the
school year have a major impact on the demand for certain types of products. For example, well over half
of all children's wear is sold at retail during about 10 weeks of the back-to-school selling period.
The merchandising of coats offers another seasonal example. Coats are often sold year-round, but the
types of coats offered vary. Lightweight coats and raincoats are offered for spring/summer, and down,
wool, or fur coats are offered for fall in winter, about a 26-week selling period for each.
In contrast to these seasonal products, products that have little change in demand relative to the time of
the year are called staple goods. Staple goods are stocked year-round at relatively consistent inventory
levels. Change in demand related to time of year major may not include a corresponding demand for
change in styling. For example, demand for budget or moderate priced girls' Easter dresses is highly
seasonal. The selling period spans less than 8 weeks, ending with the Easter holiday. However, the
preferred styling for the Easter dress may be quite traditional, including white collars, lace trim, and bows
in the back. In this case, the merchandiser's primary concern may be planning for the highly seasonal
demand of a basic product.
In Figure 2, the seasonal/staple continuum is plotted vertically. It represents change in consumer
demand for products relative to time of year over a one year period. One extreme represents staple goods,
such as natural-color pantyhose, that tend to be in relative continuous demand throughout 52 weeks of the
year. At the other extreme are seasonal goods that experience dramatic changes in market demand that
depend primarily on time of year. The four sectors that are created by the intersection of the basic/staple
continuum and the seasonal/staple continuum are useful in describing product characteristics.
Sector-1 Basic/Staple Goods:
The intersection of the fashion basic continuum and the seasonal/staple continuum creates four sectors
in the perceptual map. Sector 1 represents products that are basic and staple. These products have selling
periods lasting over 26 weeks without product change. The same or similar styles in similar fabrics and
colors are stocked year-round. Manufacturers of basic/staple goods such as athletic socks may produce
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and promote only one line for each year with a minimum of a 52-week selling period. Product lines for
succeeding years may be nearly identical. Athletic socks may be located at point in Sector 1. Another
example of a basic/staple product is men's white boxer shorts. These might also be positioned at point a in
Sector 1. The growing demand for fashion fabrics in men's boxer shorts could move the demand along the
fashion continuum to the left, reflecting shorter selling periods. Basic/staple merchandise lends itself to
standardized stocks, computer-based reordering systems, and sales direct to the consumer on the Internet.
Products that experience subtle fashion change from one selling period to the next are sometimes called
fashion basics. (This is an apparel industry term for what is commonly called classics in the fashion
literature.) Golf shirts are examples of fashion basics that might be represented by point b in Sector 1 with
a 26-week selling period. The style changes in golf shirts may involve only fabric or color. The seasonal
impact on golf shirts is also moderate, since many products have only spring and fall versions. Selection
of fabrications and color assortments is the primary merchandising tactic. Sometimes fashion pulls a
basic/staple item into the fashion/seasonal mode. Getting enough in stock for summer is the
merchandiser's first challenge. Deciding whether the trends will carryover for fall is the next challenge.
Then, what about next summer?
Sector 2-Fashion/Staple Goods:
Sector 2 represents fashion/staple products. Selling periods might range from 1 to 52 weeks. An
example is designer sheets. Most household textiles are basic/staple products; they are offered year-round
and have relatively few changes in styling (52-week selling period). However, the creation of designer
lines moves some household textiles into the fashion category, to point c in Sector 2 with a 26-week
selling period, with designers doing two lines a year. An apparel example of a staple, fashion product is
blue jeans for the teenage market. Teenagers purchase blue jeans year-round, but the popular styles and
labels change frequently. Therefore, jeans for teens might be positioned at point d in Sector 2 with a 10-
week selling period.
Sector 3-Fashion/Seasonal Goods:
Sector 3 represents merchandise that is both fashionable and seasonal. Seasonal merchandise with a high
rate of fashion change has a short selling life from 1 to 26 weeks. Each selling period's stock should start
at zero and end at zero since merchandise is not normally carried over from one selling period to the next.
Any fashion merchandise the firm has left over at the end of the period has to be sold at extreme
discounts. This makes timing of planning, development, and delivery of the line extremely critical.
Merchandisers monitor sales and inventory levels and have to make quick and risky decisions for reorders
because of the short selling period. Thus, merchandise represented in Sector 3 experiences the most
frequent demand for change. Seventy to 100% of fashion/seasonal styles in a line will be new from one
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season to the next. The junior dresses mentioned earlier might be positioned at point e in Sector 3 with an
8-week selling period. Missy skirts are also fashion/seasonal products, but the rate of change may not be
as intense as for junior dresses. They might be positioned at point with a 13-week selling period, resulting
in remerchandising the line four times a year. Fashion/seasonal merchandise mean frequent change of
fabrics, colors, styling, and inventory. Fashion/seasonal goods require the most complex merchandiser
decision making, involve the highest levels of risk, and provide the greatest potential for profit. With
regard to Internet marketing, fashion/ seasonal goods may be shown on the manufacturer's Web site, and
potential customers may be provided with retail sources where the goods can be bought.
Sector 4-Basic/Seasonal Goods: Sector 4 represents basic/seasonal goods. Selling periods may range
from 1 to 52 weeks. A product such as holiday decorations is highly seasonal but may be mostly basic in
styling. For example, Halloween costumes are sold only for selected weeks during a year, but the
merchandise often has similar styling year after year. Thus, holiday apparel might be represented by point
g in Sector 4 with a 12-week selling period. Men's winter underwear (long johns) has seasonal demand,
but styling remains basic. Thus, thermal underwear might be positioned at point h in Sector 4 with a 20-
week selling period. Merchandisers must decide when to offer the seasonal goods for sale and which
prices and quantities will satisfy the seasonal demand to maximize profits.
Uses of the Perceptual Map:
Various classifications of merchandise might be more accurately placed on the perceptual map by
analyzing sales figures that reflect changes in rate of sale during each week of the year. Clearly, the length
of time that a particular style or classification is salable-the selling period-may be limited either by
consumer expectation for fashion change or by the nature of the product related to the calendar year.
Merchandisers must understand which aspect of product change limits salability of the product and must
make merchandise plans accordingly.
Computerized data captured by both manufacturers and retailers can make appropriate analyses easily
accessible to the merchandiser. Raw sales figures reflect two things: (1) the results of decisions made by
merchandising and marketing personnel related to selection, presentation, and promotion of goods, and
(2) customers' preferences relative to the merchandise offered. The effects of seasonal and fashion change
have to be sorted out of those figures. Analysis of rate of change in style numbers stocked in a department
store or offered by a particular firm might be used to indicate the rate of fashion change for particular
merchandise. For example, if goods are basic but seasonal, the same or similar style numbers may be
stocked for the same selling period the following year.
Fashion and seasonal changes are two aspects of product change that strongly influence merchandisers
decisions. Salaries and/or numbers of departments or classifications in merchandisers' assignments are
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often varied according to the "difficulty" of the merchandise (Kunz, 1998). Difficulty is highly related to
the amount of change in the merchandise. The planning, development, and presentation of product lines
are clearly demanding and intensive processes.
Nature and Timing of Merchandising Responsibilities (or) Determination and Development of
Product line and Product range
Merchandising processes differ for individual firms according to business strategies, product types, and
technologies employed. Figure 3 is a merchandising taxonomy. The taxonomy identifies interactive,
concurrent, and sequential components of the merchandising process. Components that may occur
somewhat concurrently have a similar level of shading vertically. The components of the merchandising
process that may occur somewhat sequentially are located horizontally. This taxonomy was synthesized
over many years of participating in, reading about, and observing internal operations of apparel firms. In
2001, examining merchandising processes as they were practiced in the California apparel industry tested
the merchandising taxonomy. Fifty California merchandisers participated in telephone interviews.
Fundamentally, the results supported the merchandising taxonomy as it was written. However,
merchandisers who worked for small companies had more diverse job responsibilities than merchandisers
who worked for large companies. Merchandisers in small firms may be responsible for planning the line,
developing it, and presenting it at wholesale. Merchandisers in large firms may be responsible primarily
for planning the line, while the design staff carries out line development. Wholesale presentation may be
the responsibility of sales representatives located across the country (Amos, 2002). The merchandising
process, as defined in Figure 3, interacts with and may be limited by the business plan and the
marketing plan. The primary components of merchandising activities include the following:
1.Line planning is the formulation of the parameters that guide line development and presentation and
influences sourcing and production processes. Line planning has subcategories including evaluating
merchandise mix, forecasting merchandise offerings, planning merchandise budgets, planning
merchandise assortments, and analyzing and updating merchandise plans. The line plan defines and limits
the line.
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Figure 3. Merchandising taxonomy detailing planning, developing, and presenting a product line.
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2. Line development has subcategories offline concept, creative design, adoption, and technical design.
Line development includes determining the actual merchandise that will fill out the line plan through
some combination of product development and/or selecting finished goods at wholesale.
3. Line development identifies merchandise that implements the line plan.
4. Line presentation, with subcategories of internal (meaning within firm), wholesale (meaning through
interaction at wholesale markets with personal calls by sales representatives), and retail (including many
different retail formats and components of presentation), involving processes required to evaluate the line
and make the line visible and stable. Line presentation results in evaluation and sale of the product offers
In apparel firms, the merchandising function is essential but not always performed by someone called a
merchandiser. Some of the different job title commonly used for merchandisers includes merchandise
manager, product development manager, product manager, designer, and buyer.
A designer may perform the merchandising as well as the design functions for some firms. When both
merchandiser and designer are present, the merchandiser is likely to focus on line planning and
development, while the designer's primary responsibility is presentation of merchandisable groups for the
line. A product manager may be responsible for the product development process, as well as coordinating
production. In large retail firm, a buyer is often in charge of line planning and development.
An apparel-manufacturing firm, a buyer may be in charge of sourcing material. Large apparel firms may
have a different merchandiser in charge of each product line or classification. In small companies, the
merchandising responsibilities may be carried out by the owner/manager. Regardless of the job titles or
size firm, merchandising involves directing and coordinating development of product lines from start to
finish. Line content, fabrications, styling, diversity of assortments, pricing, mid-selling period changes
and revisions, visual presentations, timing, and budgets are all part of merchandisers' responsibilities and
decision making.
The following discussion of merchandising, including planning, developing, and presenting product
lines, is based on Case 3-1, Cartwheels manufacturing. It is easier to grasp the processes and relationships
among the elements of the merchandising process in context; consequently, Cartwheels are used as a
foundation of discussion throughout the rest of the chapter to illustrate principles of merchandising.
Case 3-1 is an example of a simple line plan summary for a merchandise group. The line plan summary
combines the key points considered planning the line for a particular selling period. It includes the
scenario within which the firm operates, the firm's target customer, the firm's positioning in the market,
socioeconomic and fashion trends, and parameters to guide line development, sourcing, product
development, and line presentation.
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Line Planning
As indicated in Figure 3, the merchandising taxonomy, the primary elements of merchandise planning
are to evaluate the merchandise mix, forecast merchandise offerings based on synthesis of fashion trends
and socioeconomic issues, plan merchandise budgets, plan merchandise assortments, and analyze and
update merchandise plans. This discussion follows the same format. In addition, use of merchandise plans
is discussed.
Evaluating the merchandise mix and forecasting merchandise offerings-
Line planning is a time-consuming, expensive process. Evaluation of the merchandise mix for the same
selling period last year may begin by analyzing extensive records of past season sales. Issues to be
examined include the relative rate of sale of merchandise groups, brands, individual styles, colors, and/or
sizes. Managers from the firm's various divisions may meet to evaluate past performance of the line,
review current market information, and brainstorm for ideas for the new season. World markets may be
shopped for fashion direction, fabrics, design ideas, and sample garments. "Marketing Strategies,"
forecasting requires synthesizing quantities of information from diverse sources into relevant issues
related to a particular product line and target customer.
Planning Merchandise Budgets-
The merchandise budget provides the foundation for the merchandise plan. Executive leadership
determines total planned sales with input from each of the functional divisions. In the case of Cart wheels,
the decision was made to plan a sales increase because of their QR partnerships. Consequently, planned
sales for next year are 10% greater than for last year. Because of the stable market conditions and good
relationships with its regular retail buyers, the proportion of sales allocated to total tops, girls' tops, and
girls' back-to-school (BTS) tops is based on last year. List price (the manufacturer's suggested retail price)
and wholesale price (the cost to retail buyers) also remain similar to last year. Manufacturers commonly
provide incentives to retailers for buying their merchandise and for paying for it on time. In Cartwheels
budget discounts for and allowances to retailers are estimated at 6 % consequently 6% more merchandise
must be sold to achieve planned sales.
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New Product Development and Seasons of Sale

The NPD process consists of the activities carried out by firms when developing and launching new
products. A new product that is introduced on the market evolves over a sequence of stages, beginning
with an initial product concept or idea that is evaluated, developed, tested and launched on the market.
This sequence of activities can also be viewed as a series of information gathering and evaluation stages.
In effect, as the new product evolves, management becomes increasingly more knowledgeable (or less
uncertain) about the product and can assess and reassess its initial decision to undertake development or
launch. Following this process of information gathering and evaluation can lead to improved new product
decisions on the part of firms by limiting the level of risk and minimizing the resources committed to
products that eventually fail. The NPD process differs from industry to industry and from firm to firm.
Indeed it should be adapted to each firm in order to meet specific company resources and needs. Many
researchers have tried to develop a model that captures the relevant stages of the NPD process. A number
of detailed NPD models have been developed over the years, the best known of which is the Booz, Allen
and Hamilton (1982) model, shown if Figure 1, also known as the BAH model, which underlies most
other NPD systems that have been put forward. This widely recognized model appears to encompass all
of the basic stages of models found in the literature. It is based on extensive surveys, in depth interviews,
and case studies and, as such, appears to be a fairly good representation of prevailing practices in industry.
Figure 1. Stages of New Product Development (NPD)

The stages of the model are as follows:
New Product Strategy: Links the NPD process to company objectives and provides focus for
idea/concept generation and guidelines for establishing screening criteria.
Idea generation: Searches for product ideas that meet company objectives.
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screening: Comprises of an initial analysis to determine which ideas are pertinent and merit more
detailed study.
Business Analysis: Further evaluates the ideas on the basis of quantitative factors, such as profits,
Return-on-investment (ROI), and sales volume.
Development: Turns an idea on paper into a product that is demonstrable and producible.
Testing: Conducts commercial experiments necessary to verify earlier business judgments.
Commercialization: Launches products.
He found that companies that have successfully launched new products are more likely to have some kind
of formal NPD process and that they generally pass through all of the above stages. Our framework is
based on the BAH model, however, we exclude the commercialization stage; while this stage represents
an important area of concern, our study deals with the pre-commercialization stages of the NPD process.
2.1 Critical success factors
Over the last two decades, several studies have examined the determinants of NPD success and
identified many factors that distinguish successful products from unsuccessful ones. Factors that are
necessary and guarantee commercial success are termed as critical success factors (CSF): it is imperative
to reflect on how one can benefit from each and how one can translate each into an operational aspect of
the NPD process. He proposed that organizations need to identify factors that are critical to the success of
that organization, and they suggested that the failure to achieve goals associated with those factors would
result in organizational failure. In fact, it is even suggested that NPD itself is a CSF for many
organizations. Given that this is now a well-known fact, the idea is to determine what factors in NPD are
essential for success, and how to measure the extent of this success. The challenge is to design a process
for successful product innovation - a process whereby new product projects can move quickly and
effectively from the idea stage to a successful launch and beyond.
2.2 Metrics
A metric tracks performance and allows a firm to measure the impact of process improvement over
time. Metrics can play an important role in helping companies to enhance their NPD efforts and are
important for at least three reasons. First, metrics document the value of NPD and are used to justify
investments in this fundamental, long term, and risky venture. Second, good metrics enable Chief
Executive Officers and Chief Technical Officers to evaluate people, objectives, programs, and projects in
order to allocate resources effectively. Third, metrics affect behavior. When scientists, engineers,
managers, and other NPD employees are evaluated on specific metrics, they often make decisions, take
actions, and otherwise alter their behavior in order to improve the metrics. The right metrics align
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employees' goals with those of the corporation; wrong metrics are counterproductive and lead to narrow,
short-term, risk-avoiding decisions and actions.
Any metric that might be applied to NPD will often focus on one function or another or on the entire
NPD process. But no one function is the sole contributor to the process that produces new products. A
metric for the productivity of the R&D organization, for example, may show constant improvement. In
spite of this improvement, however, there may be no improvement in the rate at which new products
reach the market. What is important to measure is the effectiveness of the stages of NPD process in an
interdependent fashion. A lack of useful metrics is undoubtedly one reason that the success rate of NPD
has not improved appreciably over the past 40 years Crawford (1979, 1992). If companies had reliable
metrics to gauge their performance, then specific problem areas could be addressed and managers might
see the same improvement in their NPD efforts that they come to expect from their quantifiable total
quality management programs.
3. Critical success factors and metrics for stages of the NPD process
In what follows, each stage of the NPD process and its respective CSFs, metrics, and tools and
techniques for measuring progress are explained in detail.
3.1 New Product Strategy
Prior to commencing an NPD project, companies must set objectives and devise a clear new product
strategy (NPS) to meet them (Wind, 1982). The purpose of this stage is to provide guidance for the new
product effort. It identifies the strategic business requirements that the new product should comply with,
and these are derived from the corporate objectives and strategy of the firm as a whole. These business
requirements assign roles to be played by the new products, which in turn are influenced by the needs of
the industry (Booz, Allen & Hamilton, 1982).
CSFs for NPS
A firms strategy should provide a clear understanding of the goals or objectives for the companys new
product program, and should indicate the return-on-investment (ROI) expected such that the contribution
of new products to corporate goals is well-understood. Furthermore, clearly defined arenas, i.e., specified
areas of strategic focus, such as products, markets, or technologies, are needed to give direction to the
firms total new product program.
The problem at this stage is not only one of developing a clear strategy but also its implementation, i.e.,
translating the strategy into terms that everyone understands to bring focus to day-to-day actions, and
communicating the strategy with other members in the organization. Prior research suggests that
companies that recognize the importance of interventional coordination and effectively sharing an NPS
across departments will have more successful new products (Cooper, 1999).
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The role of new products in achieving company goals was clearly communicated to all in such firms.
Thus, once a clear NPS is defined, the related confounding problem is communicating clearly the needs,
requirements, resources, and plans for a new product effort - in essence, internalizing the strategy. This
communication must take place in multiple forms; however, a well-documented plan and specification
must serve as the foundation. In summary, the establishment and communication of a clear plan and a
strategy for an NPD project is a key requisite for success. Businesses that have a well-articulated NPS fare
much better than those lacking in this aspect and they have 32 percent higher NPD success rates, meet
sales objectives 42 percent more often, and meet profits objectives 39 percent better.
Metrics for NPS
The return-on-investment (ROI) compares the companys yearly income with the investment in the
asset. While the ROI is not too challenging, management should understand how the ROI benchmarks
have been calculate so that relevant comparisons can be made for the project under evaluation.
A companys ROI proves to be useful in setting the new product goals. This metric will help to determine
if the cost to develop a new product exceeds the resulting benefit, or if the payback affects the corporate
bottom line. The aim here is to compare the return expected to be received from the project with some
pre-established requirement. This long-term metric set by the corporate objectives should be linked with
the NPS.
Tools and techniques for NPS
The Balanced Scorecard (BSC) provides the instrument the firm needs to navigate to future competitive
success. BSC translates an organizations strategy into a comprehensive set of performance measures that
provides the framework for a strategic measurement and management system. The scorecard measures
organizational performance drivers across four perspectives which provide its framework: financial,
customers, internal business processes, and learning and growth. The objectives and the measures of the
BSC are the collection of financial and non-financial performance measures; they are derived from a top-
down process driven by the strategy of the business unit. The measures are balanced between the outcome
measures - the results from past efforts - and the measures that drive future performance. The scorecard is
balanced between objectives, easily quantified outcome measures and subjective performance drivers of
the outcome measures. Organizations should use the scorecard as a strategic management system, to
manage their strategy over the long run and use it for the measurement focus of the scorecard to
accomplish critical management processes, including communicating and linking strategic objectives and
measures.
The BSC strategic objectives and measures are communicated throughout an organization via company
newsletters, bulletin boards, videos, and even electronically through groupware and networked personal
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computers. The communication serves to signal to all employees of the critical objectives that must be
accomplished if an organizations strategy is to succeed. Once all employees understand high-level
objectives and measures, they can establish local objectives that support the business units global
strategy.
The organizational communication and education program should not only be comprehensive but also
periodic. Multiple communication tools can be used to launch the BSC program: executive
announcement, videos, meetings, brochures and newsletters. This initial announcement should then be
followed continually, by reporting scorecard and outcomes on bulletin boards, newsletters, groupware,
and electronic networks. The design of such a program should begin by answering fundamental questions:
What are the objectives of the communication strategy?
Who are the target audiences?
What is the key message for each audience?
What are the appropriate media for each audience?
What is the time frame for each stage of the communication strategy?
How will top management know that the communication has been received?
The BSC links financial objectives to corporate strategy. The financial objectives serve as the focus for
the objectives and measures in all the other scorecard perspectives. Every measure should culminate in
improving financial performance. The scorecard starts with long-run financial objectives, and then links
them to the sequence of actions that must be taken with financial processes, customers, internal processes,
and finally employees and systems to deliver the desired long run economic performance. Many
corporations, however, use identical financial objectives for all of their divisions and business units. This
uniform approach is certainly feasible, consistent, and fair since all business unit managers will be
evaluated by the same metric, but different business units may follow quite different strategies.
3.2 Idea Generation
After setting a well-defined NPS for NPD, the idea generation stage begins, where the search for
product ideas is made to meet company objectives. The idea generation concerns the birth, development,
and maturation of a concrete idea. After defining the markets and segments based on the NPS it wishes to
target, the firm must advance and nurture ideas wherever they occur to take advantage of the identified
opportunities.
The main purpose of this stage is to create a number of different ideas from which the firm can select
the most feasible and promising ones. A greater likelihood of achieving success depends in part on the
number of ideas generated. Firms that are effective at idea generation are those that do not focus solely on
the first source to generate ideas, i.e. ideas that are originated from inside the firm, but that concentrate on
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all potential idea sources. There is a multitude of sources as well as many different methods to generate
ideas. The firm can derive new ideas from internal sources (i.e., employees, managers), external sources
(i.e., customers, competitors, distributors, and suppliers), and from implementing formal research and
development. Brainstorming, morphological, analysis and gap analysis are most commonly employed
methods for generating ideas. Customers can be an especially good place to start searching for new
product ideas. The relatively high rate of success for product ideas originated from marketing personnel
and customers.
CSF for Idea Generation
Customer focused idea generation is a CSF for this stage as per studies done by many researchers that
show that a thorough understanding of customers needs and wants is vital for new product success.
Successful businesses and teams that drive winning new products have a dedication towards the voice of
the customer. A strong customer involvement is necessary right from the idea generation stage. A review
of causes of NPD success and failure, he concluded that internally generated ideas had lower success rates
then externally generated ideas. A relatively high rate of success is achieved for project ideas that
originated from marketing and customers as compared to ideas originating from R&D, suppliers, and
management.
Metrics for Idea Generation
Metrics to track idea generation and enrichment include: number of ideas generated from the customer,
number of ideas retrieved and enhanced from an idea portfolio, number of ideas generated over a period
of time, and the value of ideas in idea bank. Among all of these metrics, the number of ideas generated
from the customer is the most associated with the CSF of the idea generation stage. Firms must devote
more resources to customer based idea generation activities, such as focus groups with customers;
detailed, one-on-one interviews with customers; customer site visits, especially by technical people; the
active solicitation of ideas from customers by the sales force; and the development of a relationship with
lead users (Cooper, 1999).
Tools and techniques for Idea Generation
There are many creativity and brainstorming techniques for enriching the idea stream. Effective
methods for enriching the customer based idea stream utilize lead user methodology and ethnographic
approaches.
The lead user methodology takes a different approach as compared to traditional approaches in which
ideas are generated based on customer input and usually collect information on new product needs from a
random or typical set of customers. The lead user process collects information about both needs and
solutions from the leading edges of the target market and from markets facing similar problems in a more
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extreme form. The rich body of knowledge collected during this process continues to be useful during the
remaining steps of product development and marketing.
An ethnographic approach is a descriptive, qualitative market research methodology for studying the
customer in relation to his or her environment. Researchers spend time in the field observing customers
and their environment to acquire a deep understanding of customers lifestyles or cultures as a basis for
better understanding their needs and problems. In this approach, observation, interviews and the
documentation are done for traces that people leave as they go about their everyday lives. Since it allows
the use of multiple converging perspectives - what people say, do, and use - it will always reveal more
and provide greater insight. This deeper level of understanding is derived from customer to generate
customer-based ideas.
3.3 Screening and Business Analysis
While the screening and business analysis are proposed as two different stages in the BAH model, we
consider the two stages as one for simplicity of the proposed framework. In the screening stage, initial
analysis is done based on the NPS, resources and competition, while in the business analysis stage, ideas
are evaluated using quantitative performance criteria. After gathering enough new product ideas through
various sources from the idea generation stage, which ideas to pursue will be selected based on the
business value they bring. Making a good selection is critical to the future health and success of the
business. The point is that product development costs rise substantially with each successive stage in the
NPD process. The ideas that have been classified as Go ideas must be screened further using criteria set
up by top management. These ideas must be described on a standard form that can be accessed by a new
product committee. The committee then assesses each idea against a set of criteria, which verify the
attractiveness and visibility of the idea as well as its fit with the companys strategy, objectives and
resources. The ultimate result from screening and evaluation is a ranking of NPD proposals, such that the
resources can be allocated to the projects that seem most promising.
After screening, the business analysis is the detailed investigation stage that clearly defines the product
and verifies the attractiveness of the project prior to heavy spending. According to Coopers New Product
studies of new product, it was shown that weakness in the upfront activities seriously compromises the
project performance. Inadequate market analysis and a lack of market research, moving directly from an
idea into a full-fledged development effort, and failure to spend time and money on the up-front steps, are
familiar themes in product failures. The quality of execution of the predevelopment steps is closely tied to
the products financial performance.
In every successive stage of the NPD process, as estimates become more refined and accurate,
companies should continue conducting financial evaluation throughout the NPD process, but at this stage
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it is critical. A review of a costs, potential sales and profit projections of the new product are undertaken
in order to determine whether these factors satisfy the companys objectives or not. If a result from this
stage shows that the product meets the objectives, then the new product concept can move to the
development stage. According to Griffin (1997) among the firms taking part in study, 75.6% developed
formal financial objectives against which performance was measured. The final component of the
business analysis stage is the action plan. A detailed plan of action is created for the next stage and
tentative plans are developed for all subsequent stages. This critical stage opens the door to a significant
commitment of resources and to a full-fledged development program based on financial analysis which
forms the base for the CSF and its metrics proposed for this stage.
CSF for Screening and Business Analysis
Up-front homework is a CSF for the screening and business analysis stage as too many new product
projects move from the idea stage right into development with little or no early preparation. The results of
this approach are usually disastrous. Up-front homework includes activities such as financial analysis,
undertaking thorough market and competitive analyses, research on the customer needs and wants,
concept testing, and technical and operations feasibility assessments. Solid pre-development work drives
up new product success rates significantly and is strongly correlated to financial performance. All of these
activities lead to solid business analysis prior to beginning serious development work.
The most dominant method used by 40.4% of businesses for performance results is a financial
approach, followed by strategic approaches and scoring models. Using financial methods, profitability,
return, payback or economic value of the project are determined and projects are judged and rank-ordered
on these criterion.
Metrics for Screening and Business Analysis
Financial or economic models treat project evaluation much like a conventional investment decision.
The expected commercial value (ECV), net present value (NPV), internal rate of return (IRR), and the
profitability index (PI), are metrics that are proposed as being most useful for measuring the success of
the screening and business analysis stage. These metrics should be used to rate, rank order, and ultimately
select projects. All metrics have their own advantages and disadvantages. For example, the NPV method
ignores probabilities and risk; it assumes that financial projections are accurate and financial goals are
important. The ECV depends on extensive financial and other quantitative data. These metrics together
give clearer details about the projects financial performance to help select the best project from the
group.
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Tools and techniques for Screening and Business Analysis

The financial methods of evaluation for the proposed metrics and how they measure the financial
performance of each project are explained below.
The Expected Commercial Value (ECV) method seeks to maximize the value or commercial worth of
the project, subject to certain budget constraints, and introduces the notion of risks and probabilities. The
ECV method determines the value or commercial worth of each project to the corporation. The
calculation of the ECV is based on a decision tree analysis and considers the future stream of earnings
from the project, the probabilities of both commercial success and technical success, and both
commercialization costs and development costs. Therefore, the ECV measures the value of the project in
terms of its expected financial returns from the perspective of the companys overall commercial strategic
objectives. In order to arrive at a prioritized list of projects, the ECV of each project is determined
projects are rank ordered accordingly.
The net present value (NPV) criterion for evaluating proposed capital investments involves summing
the present values of cash outflows required to support an investment with the present value of the cash
inflows resulting from operations of the project. The inflows and outflows are discounted to present value
using the firms required rate of return for the project. If the NPV is positive, it means the project is
expected to yield a return in excess of the required rate; if the NPV is zero, the yield is expected to exactly
equal the required rate; if the NPV is negative, the yield is expected to be less than the required rate.
Hence, only those projects that have a positive or zero NPV meet the criterion for acceptance.
The internal rate of return (IRR) is that rate which exactly equates the present value of the expected
after-tax cash inflows with the present value of the after-tax cash outflows. Once the IRR of a project has
been determined, it is a simple matter to compare it with the required rate of return to decide whether or
not the project is acceptable. If the IRR equals or exceeds the required rate, the project is acceptable.
Ranking the projects is also a simple matter. Projects are ranked according to the IRRs: the project with
the highest IRR is ranked first and so on.
The profitability index (PI) is the ratio of the present value of the after-tax cash inflows to the
outflows. A ratio of one or greater indicates that the project in question has an expected yield equal to or
greater than the discount rate. The profitability index is a measure of a projects profitability per dollar of
investment. As a result, it is used to rank projects of varying costs and expected economic lives in order of
their profitability. Projects are rank-ordered according to this productivity index in order to arrive at the
preferred portfolio, with projects at the bottom of the list placed on hold. In order to ensure that project
ideas are carefully screened, and that the business analysis is carefully carried out, these metrics are
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certain to help select projects so as to maximize the sum of the values of all active projects in the firms
pipeline in terms of business objectives.
3.4 Development
Once the results of the business case of the new product conform to company objectives, the new
product team can move on to the development stage, which is made up of activities that range from
prototype development to volume ramp up and test marketing. The interaction between the program and
project manager is no longer one of selling or buying the concept, but rather one of bringing the product
to market on time, within budget, and to the required specifications.
On average, one third of total NPD expenditures are committed during this stage with 40 percent of
total NPD time. In the development stage, business case plans are translated into concrete deliverables. It
is important to gain competitive advantage and to enjoy the products revenues as soon as possible and it
also minimizes the impact of a changing environment. Thus, as the product proceeds from one step of the
development stage to the next, the new product team should reassess the market, position, product, and
technology in order to increase chances of delivering a successful product. Marketing and R&D functions
in particular should collaborate because, while marketing can express the needs of customers, R&D has
the capacity of turning a product concept into an actual physical entity. Therefore they should work
together to ensure the product meets customer requirements. Cross-functional teams are widely used in
companies to help in identifying and solving problems efficiently by coordination of resources and ideas.
Customer input and feedback is a critical activity throughout development, both to ensure that the product
is right and also to speed development toward a correctly defined target.
CSFs for Development
Development of new products often takes years, and much that is unexpected can occur during this time
frame. The market may change partway through development, making the original estimates of market
size and product acceptance invalid. Customer requirements may shift, rendering the original set of
product specifications obsolete. Competitors may introduce similar products in the meantime, creating a
less receptive market environment. These and other external changes mean the original product definition
and justification are no longer valid.
Reducing development time is a vital competitive weapon and yields competitive advantage; it means
that there is less likelihood that the market or competitive situation has changed by time the product
reaches the market and it means a quicker realization of profits. Companies that develop products quickly
gain many advantages over their competitors: premium prices, valuable market information, leadership
reputation with consumers, lower development costs, and accelerated learning. Therefore, the goal of
reducing the development time is critical. Most importantly, fast development minimizes the impact of a
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changing environment. If the development time can be reduced from eighteen months to nine, the odds of
things changing are similarly greatly reduced that makes the need to reduce the time during the
development stage. Most firms have reduced product development times over the past five years with the
average reduction being about the one-third. In short, the challenge here is to shorten development time so
as to minimize the chances that the development target has changed.
Seeking customer feedback is a vital activity throughout development stage, both to ensure that the
product design is right and also to speed development toward a correctly defined target. The original
voice-of-customer research that was done prior to development may not be enough to resolve all the
design problems during development. Customer feedback is perhaps the most certain way of seeking
continual and honest customer input during the development phase. Seeking customer input should
become an integral part of the design team to speed up and make development stage successful.
Metrics for Development
Development time is defined as the duration from the start to completion of the development stage, i.e.,
the length of time to develop a new product after passing business case stage to initial market sales.
Precise definitions of the start and end point vary from one company to another, and may also vary from
one project to another within the company. How quickly the team moves through this stage is critical for
the reasons stated earlier, and as such, it is imperative that the team measures their progress according to
time.
A cross-functional team is defined as a team consisting of representatives from the various functions
involved in product development, usually including members from marketing, R&D, and operations (and
perhaps others, such as purchasing, as needed). The most effective development teams also involve
suppliers in the early stages of development, and frequently rely on suppliers for a large portion of the
subsystem design. Cross-functional teams have replaced a more functional approach in which each team
relinquishes project responsibility to a down-stream function (e.g. the engineering team hands-off to the
manufacturing team). This paradigm requires frequent communication between functions represented on
the team and co-location greatly facilitates this process. Cross-functional teams are essential for timely
development, improving design quality, and lowering development costs. Cross-functional integration
that really matters occurs when individual design engineers work together with individual marketers or
process engineers to solve joint problems in development. True cross-functional integration occurs at the
working level. It rests on the foundation of tight linkages in time and in communication between
individuals and groups working closely related problems. How these groups work together determines the
extent and effectiveness of integration in the design and development of the product.
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Related to the above is the degree to which team members are committed, or dedicated, to the project.
Since project team members' time commitments are typically spread across a number of projects at any
one time because departmental managers are vying for team members time, team members are often on
and off development projects. This creates a discontinuity and increases development time. It is in this
stage that it is crucial to have a team with dedicated team members.
Parallel processing involves activities that are undertaken concurrently (rather than sequentially), thus
more activities are undertaken in an elapsed period of time. The purpose is to achieve product designs that
reflect customer wants as well as manufacturing capabilities and to do so in the shortest possible time.
However, due to the need for prerequisite information, not all activities or phases in the NPD process can
be overlapped with minimal risk. Therefore, the degree of parallelism must be measured to ensure
minimal downstream risk.
The degree of design effort on real customer needs is a qualitative in-process metric which ensures as
much as possible that the final design meets customer requirements. This requires seeking customer input
and feedback throughout the entire development stage and thus the customer becomes an integral part of
the design team to overcome technical problems that arise and that necessitate product design changes
during the development stage. Customer needs and wants assessment must be a vital and ongoing activity
throughout development, both to ensure that the product is designed right and also to speed development
toward a correctly defined target.
Tools and techniques for Development
Dynamic time to market is a tool which can be useful in predicting the end date of the said project as
well as in tracking the progress of a project. It works in the following way: when a schedule prediction is
made, the prediction date is plotted against the date the prediction was made. By assessing dynamic time
to market, the team members will get an early warning of potential late delivery and appropriate action
can usually be taken by the team to maintain schedule integrity. Thus projects are kept on schedule to
achieve timely product development.
The degree of team cohesiveness gauges the growth of the team as a working group and it is a function
of length of time that a team has worked together in a past or present project. It is the extent to which
team members are attracted to the team and motivated to remain in it. Overlapping means doing various
activities in parallel rather than doing them sequentially. By overlapping activities, the cycle time, i.e. the
total time taken to complete the product development from concept until the product reaches market, can
be greatly reduced.
Overlapping activities saves time due to 1) parallel processing of activities, 2) better and more timely
identification of design problems, and 3) improved communication earlier and throughout the team. This
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metric serves as an indicator of the degree of concurrency in the process. In general, the higher the
number of overlapped activities, the higher the degree of concurrency and the shorter is the development
time. A lower number of overlapped activities indicates a lower degree of concurrency in the process and
may also indicate opportunities for improving the process to achieve objectives.
3.5 Testing
The purpose of this stage is to provide final and total validation of the entire project: the commercial
viability of the product, its production, and its marketing. Design and testing go hand in hand, with testing
being conducted throughout the development stage. Information obtained during testing is used in
developing the product. This phase is extremely important in that it may dramatically decrease the
chances of failure in launch, since it has the capacity of revealing flaws that could cause market failure.
It shows that a test phase that is customer oriented is the critical factor - whether it is done and how well it
is executed - is significantly correlated with the new product success. Different types of testing, i.e.
concept testing, prototype/development testing, and test marketing, should be conducted in this stage. It
should be noted, however, that testing should not be solely restricted to this stage; it must be conducted
throughout the NPD process.
CSF for Testing
Product functionality is critical for the testing stage as the aim here is to see whether a product with the
attributes called for has been produced. It must be proven that claimed attributes exist and the causes for
missing attributes must be found.
Customer acceptance is critical for this stage to gauge whether the product is acceptable to the customer,
to measure the customers level of interest, liking, preferences, and intent to purchase, and to determine
those benefits, attributes, and features of the product to which the customer responds. Not only must the
product work right in the lab or development department, but, more importantly, it must also work right
when the customer uses it. The product must excite and, indeed, delight the customer; who must find it
not only acceptable but actually like it better than what he or she is currently buying. In short, the
customer reaction must be sufficiently positive so as to establish purchase intent.
Metrics for Testing
The performance of a product is how well the product achieves the functionality desired. Product
performance is usually measured in such ways as testing physical features, perceptual features, functional
modes, and perceived benefits. Feature is those aspects of an offering that create the benefits; they are
typically a focal point of NPD. Perceived benefits are the best point in the needs continuum on which to
focus conversations with customers because they represent customer-oriented perceptions but are still
close enough to supplier-oriented features to permit that linkage to be made by the product developer.
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Validation and user testing techniques are used to gather data on product performance. These primary
research techniques generate quantitative results. At this stage in the NPD process, these are the types of
research results necessary to make final critical decisions and reduce the risk of possible failed launches.
Customer-perceived value is measured to determine whether the customer is willing to purchase the
tested product or not and to gauge whether the product is acceptable to the customer. Important metrics
for this stage are: perceived relative performance, customer satisfaction (Like/Dislike), and the preference
score to determine the nature of the competitive situation. These are qualitative metrics, but are very
important nonetheless to record the basic likes/dislikes of the customer early before the product gets
launched into the market. Based on the qualitative data, managers can take action to make changes in the
product.
Tools and techniques for Testing
Validation testing is of a product model that closely resembles the final product that will be
manufactured and sold, and is often called system testing and usually takes place in-house. The purpose of
the testing process is to ensure that all product performance requirements and design specifications have
been met. The validation test is normally conducted late in the development process to ensure that all of
the product design goals have been met. This includes usability, performance, and robustness. Validation
tests normally aim to evaluate actual functionality and performance, as is expected in the production
version and so activities should be performed in full. It is probable that the validation test is the first
opportunity to evaluate all of the component elements of the product together, although elements may
have been tested individually already. Thus, the product should be as near to representing the final item as
possible, including packaging, documentation and production processes. Also included within validation
tests will be any formal evaluation required for certification, safety or legislative purposes.
Data from a validation test is likely to be quantitative, based on measurement of performance.
Normally, this is carried out against some benchmark of expected performance or criteria set before.
Usability issues may be scored in terms of speed, accuracy or rate of use, but should always be quantified.
Issues such as desirability may be measured in terms of preference or user ranking. Data should also be
formally recorded, with any failures to comply with expected performance logged and appropriate
corrective action determined.
User and field testing is performed by real users or customers, and in some cases, this testing must
precede product shipment. This is not to be confused with marketing customer testing, where certain
strategies regarding sale and marketing of the product are explored. The purpose of testing is to
understand how the product performs in the end-user environment. Customer based testing is indeed
complex, and there is no way it can be simulated in laboratories, where use is isolated from users
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mistakes, competitive trashing of the concept, and objections by those in the user firm or family whose
work or life is disrupted by the change. Products that are entirely new to the market should receive beta
testing because there is no base of data on which to judge customer acceptance.
Test protocols are produced by the company and can range from rigorous to nonexistent. In the first
case, the developer closely monitors and follows up the beta test with in-house staff or contracted staff
from a specialty testing company. In the second case the developer may simply contact the customer by
phone or has a group or individual contact to ask for opinions on the product. The test results attempt to
confirm that the user feels the same toward the prototype as toward the verbal concept discussed earlier in
the NPD stage. The results of the testing either confirm that the product meets its requirement or show the
areas where the product is deficient, and is therefore a critical stage to be considered in the development
process.
3.6 Framework of CSFs, metrics and tools and techniques for NPD
The CSFs, metrics, tools and techniques proposed for successful NPD discussed in the previous
sections are all summarized in the framework proposed in Table 1.
Table.1. Critical Success Factors and Metrics for Stages of NPD Process
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For each stage of the NPD process, the factors that are essential for success for each stage, metrics which
can be used to measure the performance of those factors, and tools and techniques to implement the
metrics are all detailed in the framework. As a preliminary proposed framework, we believe that any
complex NPD project that follows this framework will have an increased chance at success.
Apparel merchandising costing:
Costing Techniques in Garments Sector of Bangladesh: Shore to Shore (BD) LTD
Cost decision & allocation typically depends on multiple variables. For any manufacturing firm it is
always confirmed that the cost is dependent of production volume. Hence it is also considered that other
dependent variables like overhead costs, transportation etc. has an impact on the overall costing.
The classification of cost for this organization is differently presented. The cost here is classified as
Primary & Secondary cost which simply refers to Direct & Indirect cost. SME Sweaters Ltd. Categorize
the Primary Costs as-
Merchandising Cost
Production Cost &
Placement Cost
And the Secondary Costs as-
Overhead Cost
Transportation Cost &
Other Costs
The basic categories are even further classified into different specific cost elements.
Primary Costs
Merchandising Cost
Merchandising cost refers to direct purchases related to production. This cost typically depends on Order
Quantity. Merchandising cost includes all the costs starting from the initial buying process to the
placement process of merchandise. The merchandise cost can also be referred as direct material cost. The
negotiation with supplier basically depends on-
Product Price: The product price clearly portrays the interest of both the parties in buying decision. As
a buyer the organization traditionally manages the cost as a benefit out of the alliance. As a sweater
manufacturing firm SME manages alliances with around 15 different suppliers. As international product
Sweater has demands all around the world especially in Europe. The different merchandise requirement
for sweater manufacturing is met through overseas contracts. The wool fibre used as fabric, yarn, etc. The
knitwear is a product which generally has a huge order quantity and therefore the order for buying
quantity.
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Order Size: Order quantity depends on the order taken from the buyer of knitwear. Generally the order
is placed taking a month time. The quantity ordered is decided after the order is placed. Generally the
order is maximized for merchandise as referred to wastage. The order is maximized by 5% which
pretended to be wastage after production. So, that cost is also included & adjusted after the order is
delivered. And the un-wasted products are kept as sample & also released to local market and the cost is
also adjusted through that but the revenue is here declined. The wastage cost is annually adjusted however
the damaged products are released to open market in lots.
Production Cost
This is to most crucial cost as a direct cost. The direct cost of garments sector of Bangladesh depends on
different factors as this is a Government Subsidized sector. The Production cost is allocated as follows-
Direct Labour Cost: Direct labor cost is directly related to the production. The direct labor cost refers
to the workers related to the production process. The factory workers are regularly paid & also paid for
the overtime. The overtime cost is 100% markup of regular pay for any worker as per the labor law of
Bangladesh. The Direct labor cost sometimes estimated as hourly pay and sometimes production unit
based. In order to calculate the per unit production cost it is required to find out the per unit labor cost for
direct labor. In Shore To Shore the labors are hourly paid for production however the production
perimeter for an hour is set by the line manager.
Placement Cost
The placement cost in Shore to Shore is referred to the order delivery cost. After the production is
completed now it is time to deliver the product to the buyer. The merchandiser is held responsible for all
the communication made with the buyer. The delivery process also encounters some cost those are
regarded to be primary cost for the organization.
The delivery is cost divided into different parts like
Details Analysis of Export L/C and Opening L/C
As the orders are overseas, Shore to Shore opens L/C of required amount for export of certain amount of
product.
Shipment Cost
The organization then books the carrier to carry the shipment. It is the duty of the supplier to manage the
transport towards the buyer.
Insurance
The organization also pays for the insurance of the shipment. To eliminate the risk of damage the
organization needs to make insurance for the freight.
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Travel Cost
Sometimes a representative on behalf of the Company is sent to the buyer to ensure the proper hand over
of the ordered product.
Secondary Costs
Overhead Cost
Factory Overhead
Factory overhead cost is an annual cost which is annually adjusted to the cost sheet of the company. The
factory overhead cost includes the factory maintenance, deprecation of machineries, maintenance & repair
of machineries etc.
Indirect Production Cost
The direct production cost refers to the technical cost of production. The electricity usage during
production referred to the unit of electricity used for production is taken into account and then it is divided
with the total production unit to find out the unit production cost.
Transportation Cost
All the transportation made internally & externally is encountered under the secondary cost. The freight in
& freight out is paid by the company. This is adjusted as annual cost. Generally the transportation cost
arises from freight from doc to warehouse, warehouse to factory & the reverse in time of delivery.
Other Costs
Other indirect costs are not related directly to the production but annually these costs arise. These costs
are as follows-
Selling Expense
Administrative Expenses
Interest expense
Capital Expenditure
Cost Calculation of the Products
Cost calculation of Paper Item (100x70mm size Hang Tag for 1000 pcs)
Raw material = 300gsm paper board C2S
Per ton (1ton=10000sheets) paperboard cost USD1300 includes all external cost Therefore per sheet cost
($1300/10000sheets) = $0.13/sheet
Paper Board Cost
Paper Board size = 22x44inch and output of 100x70mm Hang Tag from a Sheet is 136pcs 1000 pcs Hang
Tag needs (1000/136)pcs=7.35 or 8sheets which includes 15% wastage. Which cost
(8x$0.13) =$1.04/1000pcs??
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Plate Cost (Fixed Cost)

$10
Ink Cost
15% for 25000pcs $10X10%= $1
Finishing Cost
5% (Die-cut, lamination, UV-lacquer) $10x5%=$0.5
Packing Cost
5% (1.04+1.5+10)=12.54x5%=$0.63
Common Cost
10% (common costs includes : LEASING - ELECTRICITY - CMT - FINANCIAL COSTS - CAR
EXPENSES BANK EXPENSES - EXHIBITION EXPENSES - RETURN & WASTE COST -
MARKETING COST) ($1.04+$1.5+$10+$0.63)=13.17x10%= $1.32/1000pcs
Other Cost 5% (Includes all indirect cost)
($13.17+$1.32)=$14.49X5%= $0.72/1000pcs
Total Cost for 1000pcs
$14.49+$0.72=$15.21
Profit Margin 10% for 1000pcs
$15.21X 10%= $1.52
Price of the Goods
$15.21+$1.52=$16.73/1000pcs
Therefore as we can see through this costing method, the price of the good is $16.73/1000pcs. And this
costing is also similar to other woven label costing and printed fabric label costing.
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Analysis of Costing
We can conclude that in order to maintain proper accountability and getting precise information about the
costing & for more accuracy Shore to Shore (BD) Ltd. follows the typical costing technique which is
widely known as Activity Based Costing (ABC) technique.
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The Activity Based Method

Activity based costing is a relatively new type of procedure that can be used as an inventory valuation
method. The technique was developed to provide more accurate product costs. This improved accuracy is
accomplished by tracing costs to products through activities. In other words, costs are traced to activities
(activity costing) and then these costs are traced, in a second stage, to the products that use the activities.
The concept of ABC is illustrated in the enlarged graphic below. Another way to express the idea is to say
that activities consume resources and products consume activities. Essentially, an attempt is made to treat
all costs as variable, recognizing that all costs vary with something, whether it is production volume or
some non-production volume related phenomenon. Both manufacturing costs and selling and
administrative costs are traced to products in an ABC system. Note that treating selling and administrative
costs in this way is not acceptable for external reporting.
Findings
There are many types of Garments accessories, namely woven label, Printed Fabric Label, Paper Items,
Heat Transfer Label, Zippers, and Button etc. Costing is the deciding factor for fixing of prices and the
important thing to follow in all stages like purchase, production, marketing, sales, etc. Also update
knowledge about everything related to garments, is essential to make perfect costing.
Costing includes all the activities like purchase of raw material, processing and finishing item, packing of
item, transport and conveyance, shipping, over heads, banking charges and commissions, etc.
We must be aware that there are always fluctuations in the costs of raw materials, charges of knitting,
processing, finishing, packing, charges of transport and conveyance. The method of making costing will
vary from style to style. As there are many different styles in garments accessories. Hence let us take
Woven label as example which is in regular in use in all garment items.
To find out the costing of garment accessories, the following things should be calculated
Yarn consumption.
Gross weight of other components
Yarn cost per kg.
Yarn Costs per thousand Pieces of Woven Label
Other charges (Dyeing and testing).
CMT charges.
Cost of accessories (polybags, cartoons, etc).
Transportation and other costs.
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Knitted Garments
(a) Before costing parameter:
1) Fabrication: there are clear ideas regarding the fabrication before taking the order from the buyer /
buying house. After then, surety that strong source of the followings fabric.
2) Size spec: Make sure that; get the correct/latest size spec with the measurement of all the sizes, which
will be ordered. Many times it is seen that, PO sheet has come with new bigger size which was not during
the costing.
3) Fabric color: Try to know that, how many colors the style has & also try to know that, color wise
order qty ratio.
4) Qty: Take information regarding approximate order qty.
5) Shipment date: Asked buyer for the shipment date & check with the production department that, they
have enough space for shipped out the followings quantity within the require ship date or tell your
possible date.
6) Test requirement: Let know that, the order has any test or not.
7) L/C payments term: Take a previous L/C copy from them & discuss with commercial people
regarding all the terms along with payment terms.
8) Inspection: Get a confirmation from the buyer that, who will inspected the goods. If third party then
who will pay their charges.
9) GSP: confirm that, buyer has need the GSP or not.
(b) Calculating Fabric Consumption
1) Body Consumption: Calculate the body fabric consumption at first. If possible calculate it after make
the pattern. Be confirmed regarding the dia. Calculate the consumption with adding + 5 GSM extra which
fabric is sells in kg (s/j, pique, rib etc). Or reduce 2 (in width) from the both side which are in yards
(tricot, taffeta etc). Moreover, if the garments are wash garments then make sure that, the pattern has the
wash allowance.
2) Rib: Calculate the rib consumption carefully because sometimes the garments have rib at cuff opening
& bottom hem. Some people mistakenly do the consumption considering one cuff.
3) Neck tape: Calculate the consumption of neck tape.
4) Appliqu & others fabric: Make sure that, you are not missing any appliqu & any other fabric.
5) Estimate the wastage: Normally we add 9% wastage for the knit items. However, its may vary
depends on how many process the garments have. If it is with only front chest print then 9% is ok but if
with allover/rotary print, with heavy wash etc then you must increase the wastage. Moreover, if the
garments with pigments dye then add minimum 25 to 30% wastage because in this pigment dye garments
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reject percentage is very high. For more details regarding consumption click followings link For Knit &
for Woven shirt & For Woven Fabric.
Others item:
1) Print: If the garments have print then make sure that, the sample have a clear art work of it. Check that
there clearly mentioned the print quality, dimension & placement. Send the art work to your printers for a
better price idea. Also let know from printers regarding the difficulties of the followings print. Many
times it is seen that, buyer has asked for so many type/kind prints in same body which is so difficult for
production. Such as, if buyer asked for Flock + discharge & foil print in at the same artwork then it is not
possible for production.
2) Embroidery: Discuss with embroidery supplier regarding the embroidery & take price quotation.
3) Wash: Take the wash price quotation from washing factory.
4) Test: Confirm the charges of test from the testing company.
(c) Accessories & trims
Calculate the price of accessories individually it will reduce your percentage of mistake. Please find
below the list of some accessories item
Sewing thread: Confirm that, which thread are need 100% cotton, spun polyester or filaments. Then
ensure the count 50/2 or 40/2 or any other denier. Its may vary on fabrications. Regarding the pigment
dye garments we normally used cotton grey color cotton thread. Calculate the sewing thread consumption
part by part & add require wastage percentage. For details of Sewing thread consumption Thread Chart &
Consumption Formula
Labels: Take the quotation from your supplier for the entire woven & satin/paper label.
Tape: Calculate the consumption of tape if it has, such as Velvet, herringbone or canvas etc.
Elastic: Make sure which denier & width it need. Then take the quotation from supplier.
Zipper: If the garments have zippers then confirm that, from where you will purchase that. Many time
the logo zipper need to import the mold from abroad. Make sure the zipper quality, such metal, nylon or
vision zipper. Check the zipper measurement from production department and get prices from zipper
supplier.
Button: Take the button price from your supplier if the garments have it.
Inter lignin: Calculate the inter lignin price if the garments need.
Patch or badge: Calculate the patch or badge or others metal item if the garments have.
Finishing item: Tissue paper, silica gel, hang tag, barcode sticker, back board, h/tag string, scotch tape,
security tag calculate the prices of these item.
Hanger: Take the quotation of hanger.
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Poly: Make the measurement of poly. Confirm the quality & with adhesive or not.
Carton: Find out the carton measurement & take the prices from carton supplier along with top, bottom &
divider.
Gum tape: Confirm the gum tape quality that, whether it is normal transparent or with any logo. Then take
the price quotation.
PP belt: Take the price quotation of pp belt if buyer asked it.
Carton sticker: Take quotation for sticker.
(d) Commercial cost: Normally we add 3% of total purchase (Fabric cost+ other item cost + Accessories
cost) as commercial cost if the L/c payments terms is as sight. If the L/c is 60 days deferred then you can
add 7.5% additional cost of total price and it will be 15% for 90 day deferred.
(e) COSTING: Costing of garments is important task for a garments merchandiser. Overall profit
depends on it. All manufacturing Companies sell their product to make profit. The profit on each product
sold can be defined as the difference between the selling price of the product and total cost of making the
product. Cost therefore plays a very important role in the product making and it is important task for
factory which runs for business purposes.
(f) GARMENTS COSTING: There are two types of garments, namely woven and knitted garments.
Shirt, trouser, series, bed spreads, blankets, towels and made ups are woven. T-shirts, sweaters,
undergarments, pajamas and socks are knits. Costing is the deciding factor for fixing of prices and the
important thing to follow in all stages like purchase, production, marketing, sales, etc.
Also update knowledge about everything related to garments, is essential to make perfect costing. Costing
includes all the activities like purchase of fabrics and accessories, processing and finishing of fabrics,
sewing and packing of garments, transport and conveyance, shipping, over heads, banking charges and
commissions, etc.
We must be aware that there are always fluctuations in the costs of raw materials and accessories, charges
of knitting, processing, finishing, sewing and packing, charges of transport and conveyance. The method
of making costing will vary from style to style. As there are many different styles in garments. Hence let
us take men's basic T-shirt style as example which is in regular in use. Costing of the product is done by
the consideration of the following factors: (Costing of product depends on the following matters):
1) Amount of raw materials consumed. /Raw material
2) Direct labor.
3) Indirect labor.
4) Factory cost
5) Office and administrative cost.
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6) Sales and distribution cost.

7) Profit
8) Total utility cost & Depreciation
9) Wages & Salary
10) Bank liability
11) Transport cost Lunch Salary
12) Payment
13) Entertainment cost
14) Miscellaneous cost
15) Government cash incentive
(g) PRICE OF THE PRODUCT: Generally price of product is determined by the required profit adding
to the total expenses. So, Price of products= (Direct expenses + Indirect expenses + Factory Overhead) +
Required profit
COSTING OF KNITTING:
(Circular knitting) M/C depreciation cost = 2.25 taka/kg
Needle cost = 1.45 taka/kg
Sinker cost = 0.20 taka/kg
Lubricant cost = 0.82 taka/kg
Electricity cost = 0.45 taka/kg
Spare parts cost = 0.05 taka/kg
Knitting floor charge = 0.33 taka/kg
Salary = 1.85 taka/kg
Others = 0.10 taka/kg
Total Knitting cost = 7.5 taka/kg
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(g) Costing parameters

Fabric consumption.
Gross weight of other components of garment.
Fabric cost per kg.
Fabric cost per garment.
Other charges (print, embroidery, etc.).
Cost of trims (labels, tags, badges, twill tapes, buttons, bows, etc.).
CMT charges.
Cost of accessories (hangers, inner boards, polybags, cartons, etc.).
Cost of a garment.
Price of a garment.
(h) Fabric consumption
The garments manufactured in many sizes to fit for everybody. Generally they are in sizes Small (S),
Medium (M), Large (L), Extra-large (XL) and Double Extra Large (XXL). The quantity ratio or
assortment can be any one of the following approximate ratio. S: M: L: XL: XXL - 1:2:2:2:1
S: M: L: XL: XXL - 1:2:1:2:1
S: M: L: XL: XXL - 1:2:3:2:2
As the price is the same for all these sizes of garments, the author have taken the centre size large (L) for
average calculation. Generally, the quantity of L size will be higher or equal to the quantity of each of
other sizes.
(i) CM (Cost of manufacturing):
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(j) Costing for knitted t-shirt:
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(k) Costing of Mens long sleeve woven shirt:
270
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(l) Consumption Calculation of Woven Basic pants:
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(m) Sewing Thread Consumption:

The sewing threads are carefully removed from a specific length of each different seam. We use the
amount taken from these seams to enable us to calculate a ratio, which can then be applied to the total
length of each seam. By dividing the amount of thread by the seam length, we get the ratio of thread
consumed. If we multiply this factor times the total length of seam, we determine the total thread
consumed for that seam. We usually add 15% for wastage of thread due to machine running conditions,
thread breaks, repairs, etc. 540 cms x 1.15 = 621 cms or 6.21 meters of thread per seam including
wastage. Carry out the steps in the above example for each stitch type found in the garment.
(n) Using sewing Thread Ratio:
An easier method is to use the generally applicable Thread Consumption Ratios for the various stitch
types that are listed in the table overleaf. By relating these ratios to the lengths of seams using each stitch
type, total thread consumption can be calculated.
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Sewing Thread Consumption per Body:

Sewing thread consumption is very important for the garments costing. For quick costing we use our
previous idea to calculate the sewing thread cost. Please find below an approximate sewing thread
consumption list for some common item. This list is based on minimum wastage. So, at first please check
your percent of wastage & and try to control it.
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(o) Machine wise and body wise sewing thread consumption:
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Coordination and Communication with the Production House and Export House
(a) The Apparel Supply Chain
Irrespective of the category, clothing products can take a circuitous route from fabric production,
through garment production and distribution, ultimately to an individual retail customer (Johnson, 2002).
The textile producers supply the clothing plants, which in turn feed into distribution and logistics systems
to enable garments produced in dispersed global networks to meet anticipated demand in specific retail
chains and stores. Much of the material flow complexity occurs around clothing plants and the
distribution parts of the system. In reality, any specific clothing supply configuration will resemble more a
supply network than a linear supply chain. Describing just the physical configuration and the material
flows is insufficient to understand and analyse the operation and performance of a specific clothing
supply network. A global supply network comprises of diverse entities including retailers, designers and
merchandisers, fabric producers, garment manufacturing plants, as well as distribution, logistics and
warehousing companies (Dickerson, 1999).
Even simple garments like T-shirts are often touched by hands in several countries before ending up in
the target markets of Europe or the US. A more complex product, like a winter parka, often sports
components from all over the world: snaps from Germany, zippers from Japan, insulation from China and
Thailand, and the outer shell from Taiwan. Getting the right information to the right people at the right
time is the biggest challenge.
Equally important is visibility to the entire product and sourcing team with a documented history of
product changes. All too often, a change made by one member of the design team would be unseen by
others creating confusion and finger pointing. Off-spec products arriving at a brand distribution center
would be turned back by inspectors only to find out later that a single manager in the chain verbally
approved the changes.
Key issues that need to be understood include the different participants within the network; the nature of
their relationships; ownership, power and control structures; how the network is managed, coordinated
and controlled and how information flows in the network.
As per Nordas (2004), textiles and clothing sectors can be seen as a supply chain consisting of a number
of discrete activities. Increasingly the supply chain from sourcing of raw materials via design and
production to distribution and marketing is being organized as an integrated production network where the
production is sliced into specialized activities and each activity is located where it can contribute the most
to the value of the end product. When the location decision of each activity is being made, costs, quality,
reliability of delivery, access to quality inputs and transport and transaction costs are important variables.
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Hines (2001) sees Supply Chain Management as a critical factor in managing contemporary fashion
businesses. Traditional supply chains view flow of goods/services from upstream raw material suppliers
through manufacturing processes and on to the customers. In contrast the modern supply chain concepts
begin and end with customer.
Modern supply chains are described as flexible, responsive, agile, lean, value adding networks and value
streams. Supply chains are more than the term suggests. They are value creation mechanisms for
customers. They are not simply supply focused nor are they necessarily chains. Supply chains are
dynamic, efficient, effective response networks delivering customer requirements flexibly and on time.
These high performance networks consist of customers, suppliers and information travelling through
organizational arterial systems. These arterial systems cut across functional, organizations and
geographical boundaries. Two management skills in particular marked out winners in todays
marketplace: managing the product cost and speed to market. In the apparel industry, speed and flexibility
are required to satisfy customers who expect increasingly good value and more fashion content (Chandra
and Kumar, 2000).
There are a number of critical issues management needs to address when it comes to applying the
marketing concepts towards fashion:
i. Fragmented markets hence difficulty in targeting and segmentation
ii. Increasingly more demanding customers make it difficult to spot a sustainable winning formula
iii. Individualism is breaking down traditional fashion trend prediction influences
iv. Fashion cycles are shorter, leading to a more volatile marketplace, making forecasting difficult
(b) Apparel Supply Chain Entities
Apart from the final customer the three main entities of the apparel supply chain are:
The Apparel Importer/Buyer-The apparel export industry is a buyer driven industry, hence
comprehending the expectations of the buyers is of utmost importance. The buyer could be a retailer, a
brand owner or a wholesaler based in he country of selling.
The Buying House- The buying house is a mediator between the buyer and the seller, buying house
plays a vital role in offering the kind of service levels which their principal(s) expect and ensuring that
they upgrade the vendors.
The Apparel Manufacturer/Exporter-Also referred to as vendor/seller/exporter, the apparel
manufacturer/exporter is the most important link in the supply chain. The merchandiser here is the pointer
which balances tasks between buyer/buying house on one side and the factory on the other.
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Figure 1 -The Structure of Apparel Supply Chain

A global supply network comprises of diverse entities including retailers, designers and merchandisers,
fabric producers, garment manufacturing plants, as well as distribution, logistics and warehousing
companies. Key issues that need to be understood include the different participants within the network;
the nature of their relationships; ownership, power and control structures; how the network is managed,
coordinated and controlled and how information flows in the network.
(c) Apparel Sourcing Criteria
In a research on UK apparel retailers supplier selection criteria (Gibbon, 2001), most UK apparel
retailers considered cost as the most important criteria in formulation of company sourcing strategy. The
next important criterion was lead time/flexibility. The others which followed in Gibbons research were-
availability of capacity, service capacity, production expertise and ethics.
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List of expectations from their core suppliers were articulated as- conformance to their current price,
technical/product quality, communications, capacity, and delivery reliability requirements. Ninety percent
of responding companies said partnership, with core suppliers is of prime importance. Exchange of sales
information is a pre-condition for suppliers to be able to manage retailers inventories, mutual
transparency, bargaining volume for reductions in price, joint planning of new capacity, degree of
differentiation in product offers, openness and honesty.
Cesca (2006) found that the top three criteria when selecting a vendor were quality, on-time delivery, and
cost. Primary research supported in that all U.S. retailers feel that on-time delivery is more important than
costs. Retailers feel that if the product is not on their shelf when it is supposed to be, no money will be
made and costs will no longer matter.
With U.S. and global manufacturers, quality, on-time delivery, and cost were the most frequently used
when selecting a vendor? When looking beyond the top three criteria, the global manufacturers were
found to be using more common criteria with the U.S. retailers than the U.S. manufacturers. The major
metrics used by U.S. retailers to measure the performance of their vendors was again on-time delivery,
quality, and costs. The costs measured may be first costs, distribution costs, or the margins that they
receive from a certain vendors product. The U.S. and global manufacturers from both markets were also
measuring their own on-time delivery and quality. However, only the global United States retailers were
also using flexibility as a metric to measure the performance of their vendors.
Six criteria namely cost, quality, delivery, flexibility, innovation and trust are identified as the supplier
selection criteria in apparel industry.
Even high-end fashion-driven segment wants to lower production costs and ability to work within cost
structures is dictated by market.
Most apparel buyers look for-
i. Reliable supply of low-cost labor
ii. Ability to meet quality standards, labor treatment standards, benefits, facilities standards, and
environmental standards specified by key market regulators and customers
iii. Access to raw materials
iv. Ability to meet deadlines
v. Flexibility for smaller production lots
vi. Unit capacities to meet peak demand
vii. Design and merchandising skills
viii. Ability to interact with buyers to implement design changes, complex items, etc
ix. Cultural understanding of customers
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x. Educational infrastructure to provide regular supply of designing and management skills

The ability to ship a decent garment, on time every time and in a competitive price, is no longer an asset.
It has become an entry-level requirement.
(d) Buyer-Supplier Relationship
Buyer-supplier relationships in the supply chain are one of the most important elements of supply
chain integration. Establishing and managing effective relationships at every link in the supply chain is
becoming the prerequisite of business success. Two kinds of supply chain relationships have been
identified to exist-Strategic and Operational partnerships (Mentzer et al, 2000).
Strategic partnerships are long term, ongoing partnerships which deliver value to customers and
profitability to partners. Operational partnerships on the other hand are short term, as and when needed to
keep parity with competitors. Partners in a strategic partnership recognize each other as an extension of
their own firm.
An operational partnering orientation seeks to improve the efficiency and effectiveness of business
operations. Efficiency minimizes use of resources to accomplish specific outcomes and effectiveness is
the ability of channels to deliver products and services as required by the end customers.
High volatility in the retail industry reflects rapid fluctuations in customer demand and unpredictable
market trends. In addition, environmental diversity reveals uncertainty in the global business environment
(Hsaio et al, 2003). Facing market volatility and diversity, retailers are encouraged to develop relatively
flexible relationships with multiple channel partners to deal with unexpected market demands and thus
reduce the dependence on the vendor.
Mentzer et al, (2000) further said that, firms engaged in long-term relationship with their customers
achieve higher profitability and ROI than firms using a transactional approach. Strong buyer-supplier
relationships have a significant positive effect on manufacturer performance, supplier performance, and
performance of the entire supply chain.
Five prominent dimensions of the buyer-supplier relationship are- trust, communication, interpersonal
relationship, cooperation, and power-dependence
Each of these dimensions has been discussed briefly as follows:
A. Trust-Trust leads retail buyers and sellers to the focus on long-term benefits of the relationship, and
eventually enhances the performance outcomes in buyer-supplier relationships, including firm
competitiveness and transaction costs reduction. Trust influences long-term relationships, and has the
strongest effect on achieving cooperation in relationship. It is the key to maintaining continuity and
financial performance.
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B. Interpersonal Relationship- Interpersonal relationship is the concept of drawing on connections or

networks, and it involves reciprocal obligations and favours between two parties in personal or business
relations. Personal relationships play a significant role in Asian business and are a critical precondition for
effective business. Many Western companies lacking the understanding of cultural differences in
relationships and networks were not able to manage long-term business relationships in Asia successfully.
Building and maintaining personal relationship network is key to achieving long-term success in business
markets.
C. Communication-Owing to the risk of seasonal and short product life, small firms are naturally inclined
to reduce inventory carrying costs and maximize profits from the products provided by the suppliers.
Effective communication plays a critical role in social and business relationships.
Communication is defined as the formal as well as informal sharing of meaningful and timely
information between firms. More open sharing of information is indicated by the willingness of both
parties to share important information. However, lack of trust can be translated to unwillingness to share
information, and can make it difficult to share sensitive information such as financial data.
Difficulties in cross-cultural communication and information sharing can be a significant obstacle to
business. Effective communication in channel relationships can enhance levels of channel member
coordination, satisfaction, commitment levels, and performance. In fashion apparel industry, frequent
communication between retailers and suppliers can expedite quick and accurate response to volatile
market, and reduce the costs and impact of inaccurate forecasts. Effective communication is crucial to
maintain a long-term buyer-relationship and achieve high performance
D. Cooperation-Cooperation is defined as similar or complementary coordinated actions taken by firms
in an interdependent relationship to achieve mutual or singular outcomes with expected reciprocation over
time. Cooperation between the exchange parties reflects the expectations of working together to achieve
mutual and individual goals jointly. The cooperative inter-business relationship is primarily based upon
personal trust between business parties. Without close relationship, the suppliers or buyers are not willing
to share information and have less intention to cooperate. Active cooperation plays a role in export sales
growth. Research on channel distribution has suggested that there is a positive relationship between
cooperation and satisfaction.
E. Power-Dependence-The issue of power is closely associated with the nature of dependency in business
relationships. Channel member dependence and sources of power in marketing channels are conceptually
inseparable, and dependence is a component or dimension of these power sources rather than a separate
phenomenon.
281
Marketing channel power is the ability of one channel member (e.g. supplier) to control the decision
variable in the marketing strategy of another member at a different level of distribution (e.g. retailer).
Power plays a significant role in the supply chain, and the different sources of power have differing
impact on inter-firm relationships and the performance of the entire supply chain.
(i) Relationship Adhesives
In a report by JE Austin Associates (2007), on Supporting Buyer-Supplier Relationships after the first
transaction, the supplier continually faces the challenge of keeping up with the buyer and its end-market.
The ability of the supplier to stay on top of the shifting needs of the buyer is largely determined by
relationship adhesives. Relationship adhesives essentially provide glue of the relationship to increase the
probability that the supplier is aligned with, and can adapt to, the needs of the buyer over time. When
considering the buyer-supplier, it is important to note the positioning of the business environment. In most
models and frameworks of private sector and enterprise development, the issues that define the business
environment are generally considered as encompassing the relationships or transactions. In this case, the
business environment is positioned directly in the middle of the transaction. The rationale being that a
positive environment can directly enable a successful and sustained relationship while a negative
environment can directly get in the way of the relationship.
There are two aspects of their buyers model: margin and scale. Big box retailers such as Walmart, Target,
and Marshalls are large scale, low margin businesses. Their product offer is driven by their ability to
attract low-value customers on a large scale. Their operating model and product/market standards are
ultimately tied to this model. On the other end of the spectrum a low volume, high margin business,
focused on delivering unique value at a premium price (Wuyts, 2007).
The different business models of the international buyers will have differing demands on their suppliers
product specifications, delivery and operating standards. For instance, volume and standardization of
product is critical for Target. It needs enough products to stock its shelves, all with standard
specifications. As a retailer, product brand is de-emphasized in favour of volume, price and time to
market. It has limited incentive to invest in the capabilities of its suppliers (Humphreys et. al, 2001).
For Nike, the brand equity is a key driver of the market value. In the soccer ball market, once product
specifications are met, there is limited additional product differentiation. The suppliers value to Nike is
determined by its ability to balance low-cost production while still upholding the brand equity. By
contrast, specialty, high priced buyers are driven by the quality of their ingredients and communicating a
sense of uniqueness to the market. A higher quality input from a unique location translates into a higher
priced product. The ability of the supplier to understand and deliver the intrinsic value of their products to
the buyer and the end market is a key determinant of the long-run sustainability of a buyer-supplier
282
relationship. The way in which the buyers will behave in a given relationship will be largely driven by the
shape of their business model. The strategies that they use for enabling the relationship will differ.
Some of the strategies that buyers are using to enable the relationship are:
- Third party verification
- Sponsoring in-house training
- Community development
- Market feedback
- Aligning the interests of the supplier to the brand, not just the product
- Joint ventures
Figure 2 -Buyer-Supplier Relationships

(ii) Partnering Implementation
As pointed out by, Mentzer et al. (2000), no matter what kind of partnerships exist between firms, the
partnerships are implemented by information sharing, technology utilisation, strategic interface teams,
organizational issues, joint programs, asset specificity and establishing joint performance measures.
(e) Apparel Supply Chain Competitiveness
Market Competitiveness in the Global Textile Supply Chain: Examination of Supply Chain
Configurations, competitiveness could be defined as:
283
Economic Competitiveness: It would refer to the ability to sustain and grow a business within the global
textile and apparel environment, through optimization of products, processes, and strategies to gain a
competitive advantage.
Market Competitiveness: It refers to having a position of superiority over competitors in satisfying the
aggregate demand for certain products or services. Research studies have identified the top three major
reasons for global sourcing as cost reduction, quality, and availability in the textile and apparel industry.
Therefore, improvements in these areas are a must to be competitive in a global market.
The main reason for the surge of apparel imports is due to the cost advantage of foreign manufacturers.
The apparel industry especially is very labor intensive and wages make up a large portion of production
costs, which has led to a decrease in domestic apparel production. Customers today are more quality
conscious and are willing to pay higher prices for it. However, to be competitive a firm must offer high
quality products at competitive prices, for many foreign manufacturers that used to compete on price
alone are now producing better quality goods. The availability of goods is a major motivator of offshore
sourcing because many desired products are not available in the large apparel retailing countries. In order
to compete, suppliers must not only be able to have high quality goods available at competitive prices, but
also be able to deliver those goods to the customer on time. In order to gain a competitive advantage in a
global supply chain a company must carefully manage lead times, quality, costs, inbound and outbound
logistics, and the supporting technical service. It is essential for companies to invest in information
systems to organize the entire supply chain. Overall, a company involved in a global supply chain must
have flexible and responsive networks, which can only be obtained if all viable information is made
available to all supply chain locations.
Yusuf et al.(2004) suggested that in order to compete in the areas of timely deliveries and supply chain
flexibility, companies should adopt the lean supply chain approach.
A firm competitiveness is the basic capability of perceiving changes in both the external and internal
environment and the capability of adapting to these changes in a way that the profit flow generated
guarantees the long term operation of the firm. This definition - in accordance with the contingency
approach and the evolutionary theory of firms interprets competitiveness as an ongoing struggle for
survival. This capability of survival is one of the most complex phenomena of companys operation.
Firm competitiveness is basically a function of two factors. First, it is determined by the extent a
company can identify those value dimensions that are important for their customers. These are the main
characteristics of the firms complex product and service package a customer expects.
284
In the long run a company can be competitive only when it is able to create value for their customers and
as a consequence contribute to their competitiveness as well. These value dimensions are the aspects of
supplier selection.
The second factor of firm competitiveness is the sum of resources and capabilities that makes a firm able
(capable) to create and deliver the identified important value dimensions for the customer. A company can
possess a very wide range of resources and capabilities. Those subsets of resources and capabilities have
the biggest importance which is fundamental to the firms performance are called core competencies.
A company is competitive when it is able to create and deliver value for its customers. Value is created
for the customer when the revenue received from a supplier exceeds the total ownership costs of the
product and service package of the given supplier.
Figure 3. The two basic components of firm competitiveness

The essence of supply chain management focuses on delivering the right product at the right time at each
level within the supply chain. This requirement has quality, dependability, flexibility, agility, and
efficiency as necessary capabilities for achieving this goal. The priorities should not be considered as
trade-offs for each other, but rather as complimentary and cumulative. All of these capabilities are
necessary for value to be delivered to each customer at each level in the supply chain. Quality, as the
foundation, allows for future ongoing developments in dependability, flexibility, agility, and efficiency.
As this capability development continues, customers receive the right product at the right time, with the
right price.
Supply chains can improve their performance by developing competitive priorities in a specified
sequence: quality, reliability, flexibility, agility, and finally, cost efficiency.
Market competitiveness
In the textile and apparel industries, being competitive in the market mean that companies must also be
competitive economically. Factors to consider in order to gain a competitive advantage include:
285
a) Customer-supplier relationships
b) Quality orientation
c) Cost competitive
d) Product availability
e) Service/Delivery
f) Logistics
g) Innovative products
h) Value-added services
i) Flexible supply chain
Market Characteristics
Key Sourcing Objectives
i. Cost- Cost is not the number one factor in sourcing decisions. The research showed that more and more
retailers are looking at the importance of on-time delivery. If you cannot get the product on the shelf on-
time then you will never make any money.
ii. Full Package sourcing-Retailers want to communicate with as few people as possible. They are
moving more and more towards full package sourcing in which they go to one person, usually the
garment manufacturer, who takes full responsibility of the entire supply chain. This takes the
responsibility off of the retailer and makes business a lot easier.
iii. Minimal Inventory-Many retailers want to source from companies that are willing to keep their
inventory for them so that they do not have to acquire those costs. The retailer wants to simply call out
goods as they need them without actually keeping a large amount of inventory themselves.
(f) Benefits and Challenges of Apparel Sourcing from India
U.S. buyers enjoy the benefits of sourcing from India, including higher mark-ups from high quality
apparel products produced at low costs. Despite the benefits, there are several challenges faced by U.S.
buyers sourcing globally. These challenges have been categorized into three main groups: logistic
support, cultural differences, and regulations. International logistics involves longer distances, requiring
longer lead times, higher inventories and increased chances of inaccuracy. Indias poor transport
connections make it difficult to meet the just-in-time requirements of the apparel industry. Due to a
relatively poor infrastructure, it is more expensive for India to ship a single container of garments to the
U.S. when compared to other Asian countries. India also faces transit time delays due to a scarcity of
direct sailing vessels, as well as delays caused by general inefficiencies in Indian ports when compared to
other Asian countries. Its inventory management is therefore much less flexible.
286
Marked cultural differences between the U.S. and India can often lead to problems, most notably arising
out of miscommunications in supplier evaluation, contracting, inspections, and even in maintaining
relationships, due to differences in factors like attitudes, manners, customs, religion, and language.
Although Indias official language is English, most Indians speak Hindi to each other. English is used
when dealing with the U.S. customer. To achieve success, Indians must understand the cultural and time
differences, the buyers mindset, and prevailing trends within the U.S. market so as to adapt their working
style to the needs of their customers. This is important because they are producing goods for customers
who are culturally very different from themselves.
To improve supply chain efficiency, Indian suppliers must develop collaborative links with buyers
working together as partners during the buying-supplying process. Participants in research describe the
benefits of working with Indian suppliers as stemming from their ability to produce novel products with
innovative approaches and at comparatively low cost. Apparel buyers who are looking for innovative
products think of India as a sourcing destination.
India is one of the few countries that offer so much innovation and product development right then and
there, vendors have their own design teams, their own sample rooms, and that can do ordering mock ups,
etc. India happens to be the home of innovative vendors compared to Asia. Yet innovation is not the only
benefit. Buyers work with Indian suppliers because of category expertise, a high level of convenience,
functional capabilities, effective pricing structures, and good service. India is always known for the
technological advances and especially, the IT industry but these advancements are not seen in the apparel
industry. The buyers found it lacking when they compared to the technology of their Chinese suppliers in
particular. Most buyers linked quality products with good equipment and the latest technology.
Few areas of policy weakness stand out of labour reforms (which is hindering movement towards higher
scale of operations by Indian firms), power availability and its quality, customs clearance and shipment
operations from ports, credit for large scale investments that are needed for up-gradation of technology,
and development of manpower for the industry.
(g) Competitiveness of Indian Apparel Export Industry
A study on buyers perception of India as a source country showed that while India was perceived
satisfactorily on price, quality, technology, flexibility, small order quantity etc., it was perceived
unfavourably on lead times, responsiveness, communication, trust, meeting contractual obligations,
ethical standards etc .
A research by CRISIL on Indian textile and Garment Industry highlight the demand-side issues faced by
the industry as:
287
a) Understanding the change in buyer preferences markets, especially USA and EU Keeping up with
fashion trends
b) Competing on non-price factors, and
c) Upgrading technology to improve quality and productivity
On the supply side, the concerns include:
a) The availability of quality raw material
b) Low labour productivity
c) Infrastructural bottleneck
Each firm's performance and survival is dictated by a combination of external and internal factors. But a
firm cannot compete externally if its internal operations are not geared to deliver. The firm level
initiatives suggested to improve competitiveness are
Core competencies: Each firm needs to identify its core strengths benefits and build on them to create its
own niche in the marketplace through an extensive benchmarking and hence draw up a business plan to
reach its goal.
Market responsiveness: Given their small operational scale, most Indian textile firms are unable to
respond to market challenges.
Market responsiveness is a combination of various factors such as communication, transparency, delivery
timeliness, social and employment and environmental aspects. All these have a bearing on the sourcing
decisions of international buyers.
Organizational restructuring: Most textile companies are caught in meeting a chasm between their
market and operations. A thorough analysis of their operations, market, finances and human resources
will help them to improve each of these areas. Most garment units are family run businesses. The infusion
of professional management at senior level would enable them to access experienced and talented pool of
manpower. Investments in IT and communications could help reduce response time
To improve supply chain efficiency, Indian suppliers must develop collaborative links with buyers
working together as partners during the buying-supplying process . Trusts, communication, commitment,
follow up, knowledge and continuance - participants weighed each attributes value differently based on
their own experiences. Singhs work points to all attributes as important for building, maintaining, and
strengthening working relationships with their suppliers.
The Indian textile and clothing industries have one of the longest and most complex supply chains in the
world, with as many as 15 intermediaries between the farmer and the final consumer. Each contributes not
only to lengthening of lead times, but also adding to costs.
288
Ramachandran (2001) further points out that the supply chain in India is extremely fragmented chiefly
due to the government policies and lack of coordination between industry and relevant trade bodies. The
countries that are globally competitive are the ones who have a significantly consolidated supply chain.
Manufacturing management is a key link between technology adoption and competitiveness of firms.
Productivity gains are indeed achieved through better managerial practices on the existing technology.
Of all the parameters used in the framework, India appears to score over China only in the breadth of
home market, quality of managerial workforce, and managerial practices. In all other components, India
compares unfavourably with China. Perhaps here lies some explanation for higher competitiveness of
China compared to India in the textile industry.
According to Vermas (2002) study, poor organisation of functions and tasks (OFT) was the most
important contributor to poor productivity in Indian apparel sector.
Continuously shrinking lead-time will leave SCM implementation not a choice but a mandate for apparel
exporters in future. Pre production activities vary from manufacturer to manufacturer as well between
orders for a one manufacturer. While some start at pre-production stage others start with product
development stage, some orders even may start from pre-production stage but later involve development
activities. Due to this hybrid nature of product development activity supply chain rationalization poses a
real challenge. Based on the research on Supply Chain Dynamics in Indian Apparel Export
Manufacturing, the following were the conclusions -
i. Only 31% of respondents were aware of SCM or had heard about Supply Chain Management.
ii. Majority of respondents felt priority is productivity and quality improvement and not SCM
implementation.
iii. Though product development was identified as most time consuming activity and needed
improvement, the subsequent operational measures were all focused around cost reduction and control
and time did not get enough importance.
iv. Intra and inter-enterprise communication was a weak area resulting rework and delay in approval.
v. Management is busy addressing day-to-day petty operational issues, finding no time to think about
strategic issues.
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Unit III Merchandising

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Unit III Merchandising

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FT6606 APPAREL MERCHANDISING AND MARKETING UNIT-3

UNIT III MERCHANDISING

New Product Development and Seasons of Sale

Figure 1. Stages of New Product Development (NPD)

Tools and techniques for Screening and Business Analysis

Plate Cost (Fixed Cost)

The Activity Based Method

6) Sales and distribution cost.

(g) Costing parameters

(j) Costing for knitted t-shirt:

(k) Costing of Mens long sleeve woven shirt:

(l) Consumption Calculation of Woven Basic pants:

(m) Sewing Thread Consumption:

Sewing Thread Consumption per Body:

(o) Machine wise and body wise sewing thread consumption:

Figure 1 -The Structure of Apparel Supply Chain

x. Educational infrastructure to provide regular supply of designing and management skills

B. Interpersonal Relationship- Interpersonal relationship is the concept of drawing on connections or

Figure 2 -Buyer-Supplier Relationships

Figure 3. The two basic components of firm competitiveness

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