Reducing over-production to quasi-zero
Two big problems plague the industry simply because of the way it operates-over-production and massive sampling. This is where PlatformE, an end-to-end digital platform, steps in by cutting down on forecast sales and production. Co-founder & CEO Gonçalo
Cruz explains how the platform is enabling the on-demand model.
What is the story behind PlatformE? Who are the key people involved?
We started PlatformE to shift (to digital) the shoe/sneaker brands that we own called Swear. Back in the day, we didn't believe in the wholesale model of designing, producing and selling as there was a lot of inefficiency. We wanted to create a digital capacity for Swear and sell e-fashion. The styles were in 3D digital-and that's the reason for the name PlatformE as a platform for e-fashion. Jose Neves, the founder of Swear and Farfetch, is one of the key founders, besides Ben Demiri who has managed Swear for 12 years. They are fashion insiders. As for me, I am an industrial engineer with a 3D background and as an entrepreneur I been involved with several businesses in digital.
Blockchain, AI, VR-new-fangled terms that are increasingly becoming part of the industry vocabulary. How could it change the way business is conducted? Any thoughts of leveraging your solution on these lines?
When you are closer to full visibility of your supply chain-because with on-demand model with the pull system by definition-you need to give full visibility to the point of sale. What is the status of production? It goes without saying that it's easier to get full traceability in this system rather than on the inventory-led systems. Both are viable-on-demand and inventory. In any case you are giving visibility both to your origin and also to the production process. We believe that traceability might play an important role here. And the future will tell if traceability requires decentralised technology like blockchain or if it's fine to centralise-meaning the brand or factory to be the source of truth.
And we don't want to be the source of truth because we are just an enabler-we are a platform; we don't want to be a player. We are a catalyst, we are orchestrating, we are joining/ connecting several different dots. For sure, artificial intelligence will play an important role. For instance, on identifying the optimum point where on-demand can meet stock and throughout the sub-chain. So, the sub-suppliers knowing to be origin of creating the fibre, producing the yarn, doing fabric or woven, dyeing that, composing the raw materials, having those and other components, stock services ready to be available for production. This a complex value chain that varies case-by-case and will have to need to have sophisticated tools that ideally will self-improve over time. AI is great for that and to find the best balance of all the elements that I just described. A technology like AI will be key to achieve better and faster results.
PlatformE is customisable by the end-consumer. What effect does it have on pricing?
There is this wrong assumption that mass customisation does not necessarily mean that every single product will be ultra-customised by the end user. Mass customisation might mean that every single piece produced might be customised or not in the sense of selecting a specific material, specific colour, specific measurement. Now, in the cases where we see permutations and customisations of a specific product, there is an appetite to pay a premium that could be 20-45 per cent. So, it's true that for customisable items, people are fine in paying more.
What has been your growth story since you launched in 2015?
Originally, our intention was to power a mono-brand experience with Swear. Soon, maybe just after 6-9 months, we understood that the set of tools and platforms would be useful for the industry as a whole. From 2016, we simply started selling to clients and brands. Since then, we have democratised our approach and are now partnering with brands, factories and retailers. In the first two years since then, we worked with not more than 10 brands. Now we are working with almost 100.
What is your model of fashion production?
We believe in a world where you do not need to produce something to start selling it. Digital tools and e-fashion can be beneficial because we can avoid and optimise samplings and editorial photoshoots. Thousands of units are made just to display and start selling fashion. We believe that 3D and e-fashion will occupy an important zone in the value chain. The first disruption is the utilisation of e-fashion 3D to replace, at least partially, everything made with physical goods and stock.
The second and probably bigger challenge is flipping to a market where we can create and start selling without a production risk. A real market and real sales will generate real data that will inform production to produce and deliver in real time. For specific product instructions and product categories, we can be super-competitive. This means that the risk of pursuing forecast sales and production and forecast information and production that have tremendous risks can now be reduced/optimised. This is the system of fashion production that will have an incredible impact because it's financially viable and more sustainable, and therefore it's our fashion production model.
How many retail sites and physical stores have you tied up with?
Before the pandemic, we were connected with lots of brick-and-mortar stores. We were connected to almost 1,000 stores both physically and digitally. The number has decreased because a vast majority of our physical partners have parted simply because they stopped operating physically for at least a few months. This is in the scale of hundreds.
How many factories are in your ambit to whom you send orders for production?
We have in our inner network around 50 factories that are partner factories, and 90 per cent of those are located in Europe-mainly Germany and Italy. Historically, we have worked with designer brands and high-end luxury brands typically producing in Europe.
But we have also engaged with factories in the US and China. It's still not the main part of the network, but for sure we want to roll out to different geographies to make this a global play.
What is the range of products that you help sell digitally?
Our platform is neutral. It does not see a specific product A vs B. It's more scalable to operate with single constructions- with ready-to-wear and footwear, and also accessories like handbags, etc. So, any kind of fashion product is eligible.
Yet, we have been focusing on simple ready-to-wear constructions like t-shirts, shirts, sweatshirts, hoodies, dresses, jackets, and also footwear, men's shoes, women's shoes, sneakers and accessories like handbags and leather goods.
How swiftly do you handle orders? What is the time lag between order placement and delivery?
As a rule of the thumb, our platform reduces information lead-time to zero-meaning all orders are processed in the same second. So, the platform receives those purchase orders essentially as production orders. Then, depending on case by case, every single order is completed in terms of lead times both with factories and brands. This, however, might vary. On an average, we deliver a pair of shoes/sneakers in 5-10 working days. We deliver ready-to- wear within a week. But this might vary for specific projects like high-end handbags which could well take a couple of months.
How did the pandemic impact your business? Assuming business got better since the world went digital, how different was your growth story?
As we are not necessarily B2C, the impact was slightly different. It's true that our business got more attention, and not because fashion went digital all of a sudden. We saw many brands and retailers with a lot of unsold items and overstock/inventory. This made existing problems like overproduction and excess of inventory even more obvious. In that sense, many people are looking at smarter ways of dealing with fashion creation, production and distribution. And, it's getting more and more obvious that on-demand and digital tools are helping to minimise risk.
The pandemic is here to stay, ebbing and receding in waves-at least that's what we understand as of now. How has this impacted customer behaviour? What do you predict for the future?
We haven't seen much of an impact besides (that on) selection of product categories. It is obvious that people are looking to buy less social and less professional outfits like men's suits and gala dresses. People are looking more into basics and comfy wearables and ready-to-wear footwear. We are seeing that the focus on specific product categories is increasing, and again-the focus on experiencing fashion digitally. I do not foresee the future to be like that. Maybe in 6-12 months, we will get back to the best balance of both. But one thing is for sure-the digital tools and experiences are here to stay. We have accelerated the importance of digital throughout the chain.
How much of overall production wastage reduction has your platform been able to achieve so far?
We want to compare apples with apples. Typically, we should always analyse, compare and contrast for a stock place that has shifted somehow partially or totally into an on-demand place. Then one needs to understand three things. First, how scalable is the on-demand model, because we do not want to create any limit to this growth capacity.
Second, what are lead times in terms of again how many days do we need to deliver those goods to the final consumer, and also what are the financial gains. While it's true that on an average the unit costs of producing something will increase slightly, it's also true that in the overall equation you will have better margins because the full price sale through ratios, sellouts will be better.
In principle, we don't have one single answer, but we can tell you that we can reduce over production to quasi-zero. Ideally you will stop over-producing and in principle this logically reduces waste generation both on finished goods and components. This is because if you can streamline your operation also to inform your sub-suppliers of the right quantities of raw materials and components, not only will you save in terms of finished goods wastage, you also won't be delivering products that won't be eventually sold. Thus, you can also optimise the full chain. There isn't a single figure, and this is obviously case by case. Ideally, we will work to reduce over-production to zero.
The pull model is beneficial because first and foremost we will change into a positive working capital system which means you will sell first. Therefore, you are injecting cash into the system before producing. This is immediate gain number one. Gain number two is that if you deal with stocks, you have tremendous hidden costs of logistics, operations, warehouses, etc, and therefore by the time you finish, the factory becomes your last point because you then drop ship directly to the end-user. There are no operational and logistical costs directly related to the management of finished goods.
Then we will have to evaluate the financial gains again case by case, but for sure there are several benefits not to mention the most relevant of all which is the respect for people's labour, time, energy and resources, because you will only consume as much quantity as the ones that you really are selling. You won't be wasting anything in vain.
Physical stores have customers visiting them in person for the trial of products. How can your digital products replace this process and how successful has this attempt been?
This is a very interesting myth. People believe that to sell we need to have 100 per cent physical catalogues and many other industries have proven precisely the opposite. Starting from the car industry where for sure in the Sixties and Seventies you would go to a car stand and you would have hundreds of possible styles and options. Now we know that we have migrated into a kind of test drive model where you have one car to test and everything else happens digitally.
We know that fashion will also evolve more into a kind of showroom strategy-meaning you will have the possibility to touch and feel and eventually try, and there will be always at least one specific style or one colour size variation per style. But it's obvious that it's impossible to have full material and colour range of a specific collection-the full-size range of that specific style and collection. We will see more and more of this showroom approach.
For sure you will see and touch that specific fabric or leather material. But you will also have the support of digital catalogues that will allow you to acquire something that does not exist necessarily in store and no one is suggesting that this will become or be binary-it's all or nothing, but for sure not binary. What we are challenging is the fact that today it's binary in the negative sense. We are sampling massively, and we have hundreds or thousands of styles in stores that do not have any kind of justification. We believe that in the very near future we will find that balance. What is the balance-it's still to be defined. We believe that it will be at least one-third digital catalogues to two-third physical catalogues of products. We will for sure have physical stores. We know that we are driven by instant gratification when we enter a store. We want to experience, try or touch those goods which is not contrary to benefits that digital tools and catalogues bring.
As a company, how do you plan to grow?
We are still in the inception stage. It is still to be proven how big and how far can we go on the scale side of things. Is this meant to be niche, are we seeing limitations to the model on the scale of sustainability, are we equipped to do just a few product categories? There are still lots of questions that are unanswered. So far, we have proven that there is a product market for it. People are happy that we have found at least some solutions for the two big problems in the industry. The first is-can I save on waste? Can I stop over-production? The answer is yes. The second-can I avoid over and massive sampling? Can I avoid massive logistic hurdles of dealing with photo-shoots, distribution of physical goods through vast networks? The answer again is yes.
There are lots of benefits of digital approaches to this. So, it's great to know that we have found solid ground in that people like our toolkit, our solutions, our platform. It's still to be defined what are the limits. It is a trillion-dollar industry. So, we know even if we get 10 per cent, it's so big. And there is so much to do. We do not have any concrete figures to tell in terms of growth. We want to create an impact, want to impact at least 10 per cent of the industry. But to get there we need to impact 10 per cent of brands, 10 per cent of retailers. There's a lot to do, but we are super-excited and very committed. We won't be stopping. We are here to stay, to grow gradually on a very steady solid way, and yet always with a very strong ambition leading and guiding us all the way.
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