By Sourcing Journal
This article was originally published in Sourcing Journal September 25, 2020. We are sharing because it describes an example of a fully digitized supply chain.
Quietly, Alibaba Group has been operating a digital factory since August of 2018 in Hangzhou, China, that leverages cloud computing, AI-driven planning and IoT technologies to power a “made-to-sell” apparel production model as part of its “New Manufacturing” vision.
The “made-to-sell” model, as opposed to a “sell-to-make” approach entrenched in the apparel sector, is difficult to adhere to due to potential out-of-stock issues that can arise if demand increases. Of course, the benefit of this model is that it eliminates product waste, and mitigates the perils that often come with excess inventory. Additionally, as more shoppers seek out personalized designs, “made-to-sell” operations can cater to these trends in a way that large-scale mass production simply cannot.
“For the apparel sector, inventory waste has always been a challenge. There is significant guesswork in trying to predict which styles, which sizes and colors will be in demand by consumers by the time they hit shelves,” Roger Zhang, a spokesperson from Alibaba Group’s Xunxi Digital Technology company, told Sourcing Journal. “This leads to smaller margins for the industry, less than optimal options for the consumer, and of course unnecessary environmental impact. In the past, excess inventory has led to a 30 percent loss in revenue across the industry. This is one of the challenges Alibaba set out to address with its ‘New Manufacturing’ vision—a fully digitized manufacturing supply chain that starts with, instead of ends with, the consumer.”
Xunxi Digital Factory is part of Alibaba’s long-term vision of building a digitized economy based on what company founder Jack Ma called the “Five New” strategy comprising New Retail, New Manufacturing, New Finance, New Technology and New Energy.
The Chinese e-commerce giant unveiled the factory on Sept. 17 at the Global Lighthouse Network‘s first annual meeting hosted by the World Economic Forum, an event that recognizes groundbreaking innovations in the manufacturing sector.
Apparel was identified as the starting point for the Xunxi factory because the sector is often held back by lengthy production cycles and high inventory levels. With the Covid-19 pandemic worsening the excess inventory problem that many apparel brands, retailers and manufacturers alike have to handle, the Xunxi factory’s public-facing launch addresses a critical need in the industry.
Its infrastructure allows for small-batch orders at reasonable costs and with shorter delivery times, consequently increasing manufacturing efficiency from 25 percent to an average of 55 percent.
Alibaba also says the factory prototype has been able to slash order lead times by 75 percent, and enables minimum order quantities as low as 100 pieces, which can significantly lower the manufacturing barriers for micro, small- and medium-sized businesses, while encouraging brands to individualize products for greater differentiation.
Xunxi’s model also reduces overheads by 43 percent, while trimming the need to hold inventory by 30 percent, the company said.
The factory is currently being upgraded to include in-house logistics and warehousing capabilities. With these technologies in tow, the endgame is for the factory to become a one-stop apparel production solution, covering the end-to-end supply chain, from material sourcing to consumer deliveries.
Although apparel serves as one of Alibaba’s largest categories, the Chinese e-commerce giant isn’t really known for its apparel manufacturing capabilities, making the Xunxi factory a significant play to attract nimble, young apparel sellers to its Tmall and Taobao platforms.
“Many popular sellers on our platform, especially livestreamers and internet celebrities, are very capable at identifying the trending design, they are experts at operating online storefront and engaging with their fans,” Zhang said. “However, they have to rely heavily on traditional factories to bring their product to life, which gives them very little control of supply chain. The flexible and fully digitized production mode will attract more such sellers to help them stay focused on their strength in leading the fashion trend and meeting demand of their consumer base.”
With the Xunxi factory, Alibaba aims to help its apparel partners live up to the ”see now, buy now” trend that has accelerated further throughout the pandemic as consumers look less to what apparel needs they may have in the coming months.
“On the one hand, Xunxi’s trend and sales forecast model alongside its own artificial intelligence-aided integrated product design platform gives manufacturers insights into consumer preferences,” Zhang said. “On the other hand, the fully digitized supply chain will be able to respond to small-quantity production requests from SMBs faster and help them to achieve flexible manufacturing.”
Since its inception, the factory has collaborated with “hundreds of Taobao and Tmall merchants, livestreaming broadcasters and streetwear designers” to explore and experiment with the new possibilities of apparel manufacturing.
Alibaba would not confirm whether it would expand its digital factory concept to other locations, but indicated that “Xunxi is aiming to establish an intelligent Digital Collaboration Network to help more manufacturers digitize and serve SMBs altogether.”
As the initiative progresses, the technology will be replicated into other retail sectors in addition to the current focus of fashion and apparel.