Learn about Amazon's mini-fulfillment centers,H&M's new consulting service Treadler and the appeal of Indonesia's garment industry in this week's roundup.

Best in Manufacturing – March 22, 2020

Each Sunday, we publish a list of top articles and other content related to manufacturing in areas like quality control, product development, supply chain management, sourcing, auditing and law.

1. Amazon launches mini-fulfillment center for faster delivery

Amazon's mini-fulfillment centerAmazon has revolutionized the shipping industry. Its two-day delivery soon became the standard in the ecommerce industry since it first launched in 2005. In the latest trend of same-day shipping, Amazon has launched mini-fulfillment centers to further support the shipping service.

The new mini-fulfillment centers are about a tenth of the size of a traditional fulfillment center. Mini centers are roughly 100,000 square feet and are much closer to the customers than the traditional ones.

With mini-fulfillment centers, up to 3 million goods marked “Today by” can now be ordered for delivery throughout the day. According to Amazon’s blog, There are four windows for customers to order:

  • Orders between midnight and 8 AM can receive today by 1 PM
  • Orders between 8 AM and 1 PM can receive today by 6 PM
  • Orders between 1 PM and 5 AM can receive today by overnight
  • Orders between 5 PM and midnight can receive overnight by 8 AM

Being closer to the customers, Amazon’s delivery service can reduce the need for aircraft transport and generally decrease the driving distance needed. This can lower carbon emissions and in line with its Climate Pledge to be net zero carbon by 2040.

New mini-fulfillment centers compete with Walmart+

With same-day delivery becoming a new standard, more rivals are in the battle ground. Amazon's announcement comes days after the news of Walmart+. The move will help Amazon better compete against rivals like Walmart and Target.

As Amazon’s biggest rival, Walmart enjoys a huge advantage with its store network. Walmart has a store within 10 miles of 90 percent of the U.S. population.

Walmart’s stores put pressure on Amazon and forced Amazon to create a new method with mini-fulfillment centers. An Amazon spokesperson said:

…these new facilities enable all three functions under one roof. This means that delivery drivers pick orders up directly from the new site and then deliver them to customers. By housing mini-delivery stations within these new buildings we’re bypassing the traditional middle mile journey.

However, the mini-fulfillment centers are only available for Prime members in Philadelphia, Phoenix, Orlando, and Dallas so far. The company will be working to expand the service to more locations in the future.

Amazon invests heavily in its shipping service

When Amazon began to speed up the delivery service for Prime members from two days to one day, the company said it will do no changes to its fulfillment centers. But the company has forecasted recently that the cost of the transition were more than $800 million.

From Amazon's moves over the years, it is clear that this giant has bet on its logistics. In 2019, Amazon invested billions to improve its same-day shipping service for Prime members.

Luckily, Amazon has bet on the right project. The investment improved the speed of delivery and helped Amazon grow the $119/year Prime program to more than 150 million subscribers.

Although Amazon’s shipping cost is increasing, the company said that the cost will decrease with the as the capacity of same-day shipping grows. Brian Olsavsky, Amazon’s CFO, said in an earnings call:

It's going to be the route density and other things will improve over time and get our cost structure down, but for now, there is certainly some start-up paying in adding new capacit.

Follow the link below to learn more about Amazon’s mini-fulfillment centers.

Amazon makes its same-day delivery service faster in select US citiesSarah Perez, TechCrunch

2. H&M shares its supply chain service with smaller apparel brands

H&M is an expert in the fast fashion industry. This company Amazon's mini-fulfillment centeris the second biggest fast fashion retailer in the world, just after Inditex. This giant has a mature supply chain to support its 4,968 stores in 70 markets.

Recently, H&M announced to pilot a new consulting service Treadler to share its supply chain. According to H&M’s press release, Treadler is an H&M subsidiary. It can help smaller apparel brands to "overcome initial business barriers and accelerate sustainable change".

Treadler can use H&M's network of third-party suppliers and guide smaller brands to improve product development, sourcing, production and logistics. By using Treadler, smaller apparel brands can have access to H&M’S supply chain and learn about:

  • Component sourcing, product development and fitting
  • Sourcing optimization and production market allocation
  • Sampling development and size set
  • Price quotation and transparent, fact-based pricing
  • Physical and chemical quality checks
  • Quality control, inspection and production
  • Order management, shipping, customs, and warehouse delivery

Additionally, Treadler can also offer supply chain network for those smaller brands to overcome the impact of COVID-19.

Treadler will bring a win-win scenario for H&M

As a huge part of the unsustainable fast fashion industry, H&M has been working to be more environmentally friendly. The company wasn’t afraid of opening up the supply chain to its competitors. H&M believes that Treadler will bring a win-win scenario for the company.

Although H&M didn’t specify how much Treadler will do, H&M noted that the market will be “sizeable”. The company believed that the industry “needs to open it up to collaboration” to bring more sustainability. Gustaf Asp, Treadler Managing Director, said:

We see the opportunity to utilize the full potential of H&M Group's extensive investments and progressive sustainability work by catering to clients' needs and contributing to driving tong-term growth for H&M Group, while driving change in our industry.

The transformation to sustainability is a philosophy that drives an industry-wide change. As the leader in the industry, H&M can be the pioneer that pushes other smaller brands to turn to sustainability. Accordingly, the transformation of the fast fashion industry will benefit H&M back as well. H&M Group CEO Helena Helmersson said:

To future-proof our industry, we have focused on transforming and improving our supply chain. We've realized that the output of our efforts can be valuable for others too.

Sustainable supply chain will be viable in the near future

According to a McKinsey Apparel CPO survey, more than 50 percent of North American apparel CPOs consider sustainability and transparency as their top concern. Transparency, sustainable materials and tighter relationships with suppliers will be fast fashion industry’s future focus.

It’s obvious that the sustainable supply chain will be viable in the near future. As a leading company in the industry, H&M won’t let this chance flee.

Currently, H&M's supply chain is using 57 percent recycled or sustainably sourced materials and 97 percent recycled or sustainably sourced cotton. The company has pledged to source 100 percent recycled or sustainable materials by 2030.

Also, H&M is using AI technology to achieve sustainable supply chain. AI can help H&M align demand and supply before sourcing to reduce waste. AI can also make every step traceable and make the supply chain more transparent.

Follow the link below to learn more about Indonesian textile industry under the COVID-19.

H&M pilots supply chain service Treadler to improve industry sustainability S.L. Fuller, Supply Chain Dive

3. Indonesian garment industry appeals to foreign investors

Amazon's mini-fulfillment centerIf you are a garment importer, you must have once considered China. In 2018, China’s garment export reached a record high with $276.73 billion value. As of 2019, China was still the largest exporter of textile and clothing products in the world.

However, with rising land rent and labor cost, Chinese garment manufacturing is not as cost-effective as before. Potential tariff risk brought by the U.S.-China trade war has worsen the situation. Among other Asia manufacturing countries, foreign investors are finding Indonesian garment manufacturing appealing.

Indonesia is the largest economy in ASEAN. In 2019, Indonesia enjoyed an estimated 5.1 percent economy growth rate. This offers foreign investors tremendous growth potential. According to an estimation of Standard Chartered Bank, Indonesia’s economy will grow from $4.2 trillion in 2020 to $10.1 trillion by 2030.

So how is garment manufacturing in Indonesia? Let’s find out.

Why Indonesia?

Indonesia has an enormous labor market. This country is the fourth most populous country in the world with a population of over 272 million. A Labor-intensive industry like the garment industry will easily find suitable labor in Indonesia.

Also, the Indonesian government is considering cutting the tax for foreign investors. Currently, Indonesia’s standard corporate income tax (CIT) rate is 25 percent and is slightly higher than the ASEAN average of 23 percent. The Indonesian government plans to reduce its CIT to 22 percent in 2021-22 and to 20 percent in 2023.

By doing so, Indonesia will have a competitive CIT rate as it’s on the same rate level with competitors like Vietnam and Thailand.

The Indonesian garment industry has become a secret winner under the COVID-19. Many textile importers soon moved to Indonesia since manufacturing lines in China paused. Some Indonesia-based garment factories have seen a 15 percent increase in orders. Chances are there for Indonesian garment industry.

Traditional garment manufacturing countries are in crisis

If you are going to import garment to the EU, there’s another factor that you must take into consideration: “Everything But Arms” (EBA). EBA is a preferential trade terms that let goods from third-world countries enter the bloc with nearly zero tariffs. Traditional garment manufacturing country Cambodia is benefitted by the EBA.

However, the EU might revoke Cambodia’s EBA status as the bloc thought Cambodia had “serious and systematic violations of core human rights and labor rights”. If the EBA leaves, tariffs would rise to 12 percent for apparel, 8 percent for leather upper shoes and 17 percent for synthetic upper shoes.

Under the fear of losing EBA status, Cambodia has raised workers’ wages to show its concern on labor right. The EU has weighed softer stance toward Cambodia over human rights. But the bloc hasn’t decided its mind whether to revoke the EBA or not yet.

But if the EBA leaves, importing garments from Cambodia will no longer be a competitive choice. Preparing a garment supply chain in Indonesia might save your business.

Follow the link below to learn more about how Indonesian garment industry become appealing.

China Plus One Series: Indonesia’s Appeal to Foreign Investors in Asia Alexander Chipman Koty, China Briefing

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