Exploring Made-to-Order and Inventory Upfront Strategies: Which Approach Suits Your Brand Best?
In the dynamic world of fashion, the choice between made-to-order (MTO) and upfront inventory (stocking) models is a critical decision for brands. This choice is significantly influenced by sales channels, which include online sales, brick-and-mortar sales, and wholesaling.
Online sales, with their flexible nature, often favour MTO or low upfront stock due to customers' willingness to wait for custom products and the reduced need for large upfront inventory. Dropshipping, a form of MTO or on-demand fulfillment, is popular in online retail, allowing sellers to avoid inventory management while maintaining a focus on speed. However, this model often results in lower profit margins and less control over product quality and shipping times.
Brick-and-mortar sales, on the other hand, typically favour upfront inventory due to customer expectations of immediate product availability. Effective use of demand forecasting, ABC analysis, and ERP systems helps optimize inventory levels to meet in-store demand while controlling costs. Brick-and-mortar stores often require higher buffer stock levels compared to online to maintain customer satisfaction.
Wholesaling generally leans towards upfront inventory due to the nature of bulk orders and contractual commitments. Wholesalers bear inventory risk but expect brands to have reliable stock availability to prevent supply chain disruptions.
The following table summarises the key considerations for each sales channel:
| Sales Channel | Preferred Inventory Approach | Key Considerations | |--------------|----------------------------|-------------------------------------------------| | Online sales | Made-to-order or low upfront stock | Customer willingness to wait, flexibility, lower risk/cost, potential lower margins | | Brick-and-mortar sales | Upfront inventory | Immediate availability expectations, accurate forecasting, higher buffer stock | | Wholesaling | Upfront inventory | Bulk orders demand ready stock, contractual commitments, inventory risk borne by brand |
In conclusion, online sales often enable or encourage MTO models due to more flexible consumer expectations and lower inventory risk. Brick-and-mortar sales necessitate upfront inventory to meet immediate demand. Wholesaling requires upfront stock to fulfill bulk orders reliably. Fashion brands typically adopt a hybrid or tailored inventory strategy, balancing these factors based on their sales mix and operational capabilities.
Selling in brick-and-mortar stores gives designers 100% of the income, unless at a trunk show, a one-to-two day event where designers bring samples of their new upcoming collection for pre-orders. Trunk show sales involve a 50/50 income split with the store or boutique, and it's essential to inform customers about the expected shipment date.
Wholesale has benefits such as knowing the exact manufacturing budget and avoiding markdowns or overstock. With wholesale, the retailer places the order, and designers have three to six months to fulfill it. Sales channel options include Online Sales (including Drop Shipping), Your Own Shop (including Pop-Up and Pop-In Shops), and Wholesaling (via Trade Shows, Showrooms, and Agents).
For exclusive or couture products, customers might be willing to wait, and the MTO process can be explained and incentives offered. However, for commodity-type items, such as yoga wear or athleisure, customers likely have a "buy now, wear now" mindset and can't be asked to wait. The decision ultimately depends on the sales channel chosen and the nature of the products being sold.
Emerging designers in the fashion industry may find investing in business strategies that prioritize made-to-order (MTO) models for online sales an effective choice, as the flexible nature of online sales allows for custom products and a reduced need for large upfront inventory. However, selling in brick-and-mortar stores can be more lucrative for designers, as they receive 100% of the income from sales, unless at a trunk show where a 50/50 income split applies. On the other hand, wholesaling offers benefits like predictable manufacturing costs and avoiding markdowns, but requires upfront inventory and reliable stock availability to prevent supply chain disruptions. Thus, fashion businesses must carefully consider their sales channels and the nature of the products being sold when making decisions regarding financing, manufacturing, and investing.
