Int J Adv Manuf Technol (2003) 22: 134140 DOI 10.

1007/s00170-002-1453-5

O R I GI N A L A R T IC L E

Chung Yeh Hung-Cheng Yang

A cost model for determining dyeing postponement in garment supply chain

Received: 11 March 2002 / Accepted: 18 June 2002 / Published online: 14 May 2003 Springer-Verlag London Limited 2003

Abstract There is a complex, dynamic and highly competitive market for the textile and clothing industries in developed countries. To respond quickly to changes in the market and to insure that the response will be able to satisfy customer fashion requirements, postponement strategy is one of the most important methods. This paper constructs original and postponed garment dyeing cost models and uses practical parameter data to simulate various situations, and then analyzes the dierences and relations between the two cost models. The results show that the cost of the postponement model is lower than the cost of the original model when key parameters such as total demand quantity, number of colors, inventory holding cost rate, demand standard deviation, lead-time, and safety stock factor are large. The cost evaluation model provides a strategy and the basis for feasible judgment in evaluating dyeing postponement for the textile and clothing industries in garment supply chain management. Keywords Clothing industry Garment dyeing Postponement Simulation

1 Introduction
In developed countries, the textile and clothing industries are faced with higher operating costs and the pressure of global competition in the fashion markets. Traditional ways of responding to customer requireC. Yeh (&) Department of Industrial Engineering, Feng Chia University, Taichung, Taiwan, R.O.C. E-mail: cyeh@fcu.edu.tw Tel.: +886-4-24517250 ext.3624 Fax: +886-4-24510240 H.-C. Yang Department of Industrial Engineering, Feng Chia University, Taichung, Taiwan, R.O.C.

ments involved the resulting risk of over- or understocking. Maintaining the original economics of scale, i.e., cost, quality, speed, and time-sensitivity combined with a quick response to customer fashion requirements are the requirements for a competitive strategy in the clothing industry in the 21st century. Christopher and Peck [3] pointed out that the solution to the problematic characteristics of fashion markets, including short life-cycles, high volatility, low predictability and high impulse purchase, lay not in better forecasts but in reducing dependency on the forecasts. The way to achieve this is through lead-time management to reduce lead-time logistics and simultaneously capture information sooner on actual customer requirements. The application of a postponement strategy could decrease the stock quantity in the apparel supply chain. It can avoid missing a signicant sales opportunity that may not be repeated, and reduce the likelihood of markdowns [5]. This is one of the most important factors in achieving optimum supply chain lead-time management eciency. This paper is structured in ve sections. The rst section introduces the signicance of a postponement strategy in fashion markets. In Section 2, the types of postponements are surveyed. Section 3 presents dierent cost models for producing garment dyeing in the original and postponed environments. In Section 4, a case of practical parameter data for a T-shirt from garment manufacturing plants in Taiwan is collected; the parameter data is then substituted into the two cost models and various situations are simulated. Section 5 provides summaries and the future direction of this research.

2 Literature review
Alderson [1] introduced the concept of postponement in the marketing literature. Postponement involved redesigning the product or the production process so that the

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point of dierentiation was delayed as much as possible before a customer order was received. This can be applied to increase the eciency of a marketing system to avoid the risks of time and demand volatility. There were two general types of postponement reported by Bowersox et al. [2]. The rst type was time related. In time postponement, the key dierential was the timing of inventory deployment to the next location in the distribution process. The goal of time postponement was to ship exact product quantities from a central location to satisfy specic customer requirements. The practice of shipping exact quantities to specic destinations greatly reduces the risk of improper inventory deployment and eliminates duplicate inventory safety stocks throughout the channel. The second type of postponement was form related. Form postponement involved activities associated with assembly, packaging, labeling and manufacturing. Form postponement maintained a product in a neutral or noncommittal state until a customer order was received. Form postponement reduces the risk related to manufacturing an incorrect product mix and reduces the need to stock inventories of all product variations. Zinn and Bowersox [12] presented a detailed discussion of postponement. Ernst and Kamrad [6] introduced a conceptual framework for evaluating dierent supply chain structures in the context of modularization and postponement. In their analysis, postponement corresponded to the outbound logistics. They also illustrated the applicability of the resulting framework through quantifying the total cost dierential for utilizing a particular supply chain structure. Lee and Sasser [7] described their experience of developing models in which the principles of design for supply chain management (DFSCM) were implemented for new product development at the Hewlett-Packard Company (HP). In general, DFSCM aimed at designing products in which the supply chain related costs and performance could be managed more eectively. Lee and Tang [8] developed a simple model that captured the costs and benets associated with delaying product dierentiation, then applied this simple model to analyze some special cases. These special cases enabled a manufacturing operation to formalize three dierent product or process redesign approaches (standardization, modular design, and process restructuring) for delaying product dierentiation. Finally, some special theoretical cases were analyzed that characterized the optimal point of product dierentiation and derived managerial insights. Remko and Van Hoek [10] reviewed the literature on postponement dating back to 1965 and put it into a systematic framework. In light of the classication of the literature developed, opportunities were identied for integration and cross-fertilization between research papers in disciplines such as logistics and operations management and between the varieties of research methods used. Some directions for research were then formulated.

3 Constructing the cost model

We constructed original garment dyeing and dyeing postponement cost models using the principle of Economic Production Quantity (EPQ) [11]. Further, we analyzed the dierences and relations between the two cost models. Table 1 presents interpretations of the mathematical notations for the two cost models. 3.1 Constructing the cost model for the original production garment process This research assumed that the garment demand for color variety and for color requirement are independent. Figure 1 presents the garment production process under the original method. The original method used one color of gray fabric and dyed n types of color cloth. Then, various colored cloth was cut and sewn into garments to meet customer requirements. Assuming that garment demand per season Di,O is known and the production garment cost is proportional to the production quantity, then the original production garment process is shown in Fig. 1. The total costs for producing i color garments per season TCi,O includes the inventory holding costs for color i cloth, setting up the production costs, cloth costs and garment production costs. Thus, the total cost for color i garments TCi,O is the sum of all four costs and is given by the following: ! pi;O ui;O Di;O TCi;O Qi;O Xi;O hi;O Ci;O Si;O Qi;O 2pi;O Di;O Ci;O mO Di;O In the original production garment environment, the total cost TCO is the sum of the various color garment costs. It can be expressed as: ! n n X X pi;O ui;O Qi;O TCO TCi:O Xi;O hi;O Ci;O 2pi;O i1 i1  Di;O Si;O Di;O Ci;O mO Di;O Qi;O 2 Equation 2 shows the variation in the dierent costs as the production lot size Qi,O is changed. The rst derivative of the total cost with respect to Qi,O is taken and set to zero to obtain the optimal production lot size. The optimal production lot size is referred to as the economic production quantity (EPQ) under the original environment. It is denoted by Q and is given by the i;O following equation: sr 2Di;O Si;O pi;O 3 Qi;O hi;O Ci;O pi;O ui;O

136 Table 1 Interpretations of the mathematical notations Notations Interpretations Ci,O Cp Di,O Dp di F hi,O hp I LTi,O LTp mO mp pi,O pp Qi,O Unit cost of color i cloth Unit cost of gray fabric Seasonal demand for color i garment under the original environment Seasonal demand for garment under the postponement environment Unit dyeing cost of color i garment under the postponement environment Average investment cost per season for redesigning the process Inventory holding cost rate of cloth per unit per season under the original environment Inventory holding cost rate of gray fabric per unit per season under the postponement environment Number of colors Lead-time to purchase color i cloth under the original environment Lead-time to purchase gray fabric under the postponement environment Production cost of garment per unit under the original environment Production cost of garment per unit under the postponement environment Production rate of color i garment under the original environment Production rate of garment under the postponement environment Production lot size of garment under the original environment Economic production lot size of garment under the original environment Production lot size of garment under the postponement environment Economic production lot size of garment under the postponement environment Setting up production cost for color i garment per unit under the original environment Setting up production cost for gray garment per unit under the postponement environment Total costs per season for producing color i garment Total cost per season for producing garment under the original environment Total cost per season for producing garment under the postponement environment Demand rate for color i garment under the original environment Demand rate for garment under the postponement environment Safety stock for color i cloth under the original environment Safety stock for gray fabric under the postponement environment Safety stock factor for color i cloth under the original environment Safety stock factor for gray fabric under the postponement environment Standard deviation of color i garment demand per season under the original environment Standard deviation of garment demand per season under the postponement environment

i;O Qp P Si,O

Sp TCi,O TCO TCp ui,O up Xi,O Xp zi,O zp ri,O rp

Fig. 1 Garment production process using original method

where Q is the minimum cost order quantity. Thus, i;O p substituting Q for Qi,O in Eq. 2 and zi;o ri;o LTi;o for i;O safety stock Xi,o [11], the total season original environment minimum cost model is given by: ! n X  pi;O ui;O Qi;O TCO Xi;O hi;O Ci;O 2pi;O i1  Di;O Si;O Di;O Ci;O mO Di;O Qi;O s n X 2 pi;O ui;O Di;O Si;O hi;O Ci;O pi;O i1
n X i1 n n X X p zi;O ri;O LTi;o hi;O Ci;O Di;O Ci;O mO Di;O i1 i1

3.2 Constructing the cost model of garment dyeing postponement The garment dyeing postponed environment process is shown in Fig. 2 in which the dyeing operation process is implemented after sewing the garment [4]. Total demand per season under a postponed environment is the sum of various color i demands under the original strategy, thus n P DP Di;O . The production and demand rates are the sum of the production rates for all of the color garments and the demand rate under the original environment. n P pi;O , and the The production rate is expressed as pP n P i1 ui;O . The demand variation is the demand rate as uP sum of the demand for all the various color garments under the original environment, so the variation s demand n n P 2 P 2 is written as r2 ri;O , or rP ri;O . Therefore, P
i1 i1 i1 i1

137 Fig. 2 Garment production process using dyeing postponement

rearranging the terms of Eq. 1 and according to Fig. 2, the total costs for producing the garment with dyeing postponement TCp is given by the following: ! p P u P DP Q P X P h P CP S P D P CP TCP 2pP QP n X mP DP di Di;O F 5
i1

3.3 Dierent analysis between the two cost models To distinguish between the original cost model and the postponement cost model, we have compared the two according to statistical theory [9] and the practical cost for the plant manufacturing garment process. Equations 4 and 7 have the following relationships: s n n X p X p DP Di;O < Di;O ; 8
i1 i1

Equation 5 also assumes that the production cost and garment dyeing cost are in direct proportion to the production quantity. In Eq. 5, the rst term on the right hand side represents the inventory holding costs per season for a gray fabric while the second term corresponds to the set up production costs per season for a gray garment. The third term represents the purchasing material costs per season for the gray fabric, the fourth term represents the production costs for each garment per season and the fth term represents the costs for garment dyeing. The sixth term, F, represents the average investment cost per season and includes equipment cost for implementing the garment dyeing and the cost of the redesign process. Equation 5 shows the variation in the dierent costs as the production lot size QP is changed. The calculus approach is used to determine the value for QP which results in the minimum total seasonal costs TCp. The optimal production lot size QP is also referred to as the economic production quantity (EPQ) with dyeing postponement. Q is given by the following P equation: rr 2DP SP pP QP 6 h P CP p P u P where Q is the minimum cost order quantity. Thus, P p substituting Q for QP in Eq. 5 and Zp rp LTp for P the safety stock Xp [11], the total seasonal postponed environment minimum cost model becomes: ! p P u P DP Q P X P h P CP S P D P CP TCP 2pP QP mP DP
n X i1

s n n X X r2 < ri;O ; rP i;O

i1 i1

9 10 11

CP < Ci;O mP < mO

In accordance with the above mentioned relationships and under the assumption that the production and demand rates for various color garments are the same, there are no dierences in the set-up production cost per unit, safety stock factor, lead-time and inventory holding cost rate, i.e. Si,O=Sp, zi,O=zp, LTi,O=LTp, hi,O=hp, i=1,....,n. The cost relations between the postponed and original environments are shown in Table 2. Table 2 shows that production garment item costs for inventory holding, set-up, and purchasing material for the postponed environment are all smaller than for the original environment. The garment dyeing and average investment costs for the postponed environment are larger than those for the traditional environment. The clothing industry can decide which environment is best from Table 2. This can be used as a cost reduction
Table 2 The cost relationship between the postponed and original environments Cost items Holding cost Set-up production cost Purchasing material cost Production garment cost Garment dyeing cost Cost relationship postponed environment less than original environment postponed environment less than original environment postponed environment less than original environment postponed environment less than original environment postponed environment greater than original environment(=0) postponed environment greater than original environment(=0)

di Di;O F

s p 2pP uP DP SP hP CP zP rP LTP hP CP pP DP CP mP DP
n X i1

di Di;O F

Average investment cost

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method for selecting a total lower cost environment to produce garments. In the next section, we will provide a case study to identify which environment is better using simulated practical cost parameter data.

Table 3 T style shirt practical cost parameter data Notations Ci,O Cp Dp Di,O di F hi,O zi,O i LTi,O mO mp Si,O pi,O ui,O ri,O Unit cash/piece cash/piece piece/season piece/season cash/piece cash/season fraction fraction number day cash/piece cash/piece cash piece/day piece/day piece/day Quantity of simulated data 90 60 6000$150000 1000$25000 27 320000 0.05$0.5 1.6$3.4 2$11 2$20 38 35 2000 600 100 8$80

4 A case study of the T style shirt simulated with practical cost parameter data
In order to evaluate a feasible lower cost model between the original and postponed environment cost models, practical cost parameter data for the two models was collected. This cost parameter data was substituted into the two cost models and various situations were simulated. A ow chart for the simulated lower costs for evaluating a feasible production process is provided in Fig. 3. For Fig. 3, we collected the practical cost parameter data for a mixed cotton T-shirt from garment manufacturing plants in Taiwan. The data is shown in Table 3. In Table 3, the simulated parameter data range refers to the practical changes for plants producing garments in Taiwan. The numbers for the simulated parameter data do not change in the present production environment in Taiwanese factories. In a practical production case, we must simplify the complex formula for the cost model. We assumed that the non-critical parameters are the same for the original environment. These parameters include set-up production cost per unit, safety stock factor, lead-time and inventory holding cost rate, i.e. Si,O=Sp, zi,O=zp, LTi,O=LTp, hi,O=hp, i=1.....n and the parameters Ci,O, Di,O, ui,O, ri,O, pi,O,. di are also the same for the postponed environment to dye garments of every color. Figures 4 through 9 depict the simulated results when varying the range number and constant numbers in Table 3. Figure 4 shows the results for a dierential comparison of alternative total demand per season. The

Fig. 4 A total cost dierential comparison for an alternative total demand

Fig. 3 Flowchart for the simulated lower cost for evaluating a feasible production process

Fig. 5 A total cost dierential comparison for an alternative number of colors

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Fig. 8 A total cost dierential comparison for an alternative standard deviation Fig. 6 A total cost dierential comparison for an alternative inventory holding cost rate

Fig. 7 A total cost dierential comparison for an alternative leadtime

Fig. 9 A total cost dierential comparison for an alternative safety stock factor

postponed production environment cost is lower than the cost for the original production environment. Figure 5 shows that the total cost for the original production environment increases more than the cost for the postponed production environment when the number of garment color changes increases. If there are more than four colors, the total cost for the postponed production environment is lower than for the original production environment. Figure 6 shows that the inventory holding cost rate is 0.13511. The total cost for the original production environment is equal to that for the postponed production environment. When the holding cost rate is larger than 0.13511, the total cost for the postponed production environment is lower than that for the original production environment. Figures 7, 8 and 9 show that when the lead-time and standard deviation for the demand and safety stock factors are large, the total cost for the postponed production environment is always lower than that for the original production environment. From the above example, the eect of total demand quantity, number of colors, inventory holding cost rate,

demand standard deviation, lead-time and safety stock factors in the total cost simulation results show that the postponed production environment produced better production conditions than the original production environment for a mixed cotton T-shirt. We also collected data for products from wash dyeing and garment manufacturing corporations in Taiwan and mainland China. Table 4 shows the products that can be made using dyeing postponement. As we have done with cost parameter data for these products, the two cost evaluation models can be used for simulation to provide a feasible judgment for the selection of the original or dyeing postponement production method.
Table 4 Products which t dyeing postponement Classication General dress Family things Dress accessories Items Shirt, T-shirt, Skirt, Jeans, Cowboy dress, Underwear Towel, Woolen blanket, Pants, Carpet, Half apron Scarf, Mouth-mue, Hat, Socks, Gloves

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5 Conclusions and future directions

The fashion industry has been beset by the problems of volatility and diculty in predicting demand. Product and process redesign could increase the exibility of the process to cope with market uncertainties and lower inventory for the same target service level. Postponement oers such an opportunity. This paper presented and illustrated a methodology to help managers evaluate costs when postponed production is justied. We expect this paper to contribute to the exercise of strategy selection and feasible judgment in dyeing postponement for the textile and clothing industries in garment supply chain. This approach will aid in reducing working capital and stock costs. The results from the research have the following benets: 1. This paper constructed current and postponed garment dyeing cost models. If the managers of any enterprise want to evaluate the feasibility of dyeing postponement, the relative parameter data can be substituted into the cost model. 2. By testing and verifying through the cost model, we can obtain a postponed environment that can be eective in decreasing inventory holding and set-up production costs. 3. The simulated results show that the postponement cost model is better than the original environment cost model when key parameters are as follows: total demand quantity is larger than 33075, the number of colors is larger than four, the inventory holding cost rate is larger than 0.13511, and demand standard deviation, lead-time and safety stock factor are large. Interesting directions for future research include: 1. The two cost models constructed using this research were aimed at one style with various colors, future research could consider cost models involving a number of styles and colors.

2. The advantage of dyeing postponement is a quick response to consumer requirements. Simulating the time gap between the postponed and original environments would provide a valuable insight. 3. The two cost models could be extended to involve special demands for varying products with dierent markets.

Acknowledgements The authors gratefully acknowledge the nancial support of the National Science Council of Taiwan R.O.C. (Grant no. NSC.90-2815-C-035-029-E).

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