Dilemma for Businesses: Making-To-Order or Stocking Ahead? Which Choice Accommodates Your Company Best?
In the world of fashion, the question of inventory management is a crucial one, and it's essential for designers to have a plan in place before starting the manufacturing process. For an emerging designer choosing between made-to-order (MTO) and upfront inventory, the best sales channel depends heavily on factors like cash flow, risk management, customer experience, and scale opportunities.
Made-to-order (MTO) minimizes upfront investment and inventory risks, making it ideal for emerging designers with limited capital. This approach aligns well with online direct-to-consumer (D2C) sales, where customization and uniqueness can be highlighted, and inventory is held virtually until an order is placed. The D2C online model also helps designers maintain brand control and customer data, crucial for building loyalty and refining collections.
On the other hand, upfront inventory requires purchasing products in bulk before sales, necessitating more cash and storage. This approach is advantageous for brick-and-mortar sales and wholesaling where physical stock is expected by retailers or customers, and fast availability improves in-store experience and retailer trust. Wholesaling especially demands upfront inventory to supply partners who want consistent stock levels and quick delivery.
When it comes to online sales, customers may be willing to wait six-to-eight weeks for delivery if the garments are exclusive or complex. However, for online marketplaces such as Poshmark, a mix of lean inventory or MTO may be more appropriate due to commission costs and the need for stock readiness for faster sales.
Brick-and-mortar sales, on the other hand, require upfront inventory due to customer expectations for immediate availability. In this context, the designer gets 100% of the income, unless selling at a trunk show. A trunk show exception for emerging designers allows them to host a one-to-two-day event at a boutique/retail store, bringing samples of their new upcoming collection for pre-orders. In this scenario, the designer splits the income with the store or boutique (typically 50/50).
In wholesaling, the designer sells the collection through a showroom or sales rep/agent, and the retailer pays for the garments when they receive the order. In this model, the designer knows exactly how many units of each style they'll be selling due to minimum order quantities and set cost prices. However, the retailer takes on the risk of markdowns or overstock.
Drop-shipping scenarios require inventory to be ready to go the minute an order is received, and the made-to-order manufacturing approach might not be possible due to the business model's focus on speed.
In conclusion, an emerging designer should generally choose made-to-order for online D2C sales to conserve capital and build brand presence, while considering upfront inventory for physical retail and wholesale channels where product availability and speed influence sales success. This hybrid approach balances financial risk with channel-specific demands and consumer shopping habits.
- The choice between made-to-order (MTO) and upfront inventory in the fashion industry can significantly impact an emerging designer's business, particularly in terms of cash flow and risk management.
- Made-to-order (MTO) is an ideal approach for emerging designers with limited capital, as it minimizes upfront investment and inventory risks, aligning well with online direct-to-consumer (D2C) sales.
- Upfront inventory, on the other hand, requires purchasing products in bulk before sales, making it suitable for brick-and-mortar sales and wholesaling where physical stock is expected by retailers or customers.
- In online sales, customers may be willing to wait for delivery if the garments are exclusive or complex, but for online marketplaces like Poshmark, a mix of lean inventory or MTO may be more appropriate due to commission costs and the need for stock readiness for faster sales.
- Drop-shipping scenarios, which focus on speed, may not be compatible with the made-to-order manufacturing approach, requiring inventory to be ready to go the minute an order is received.
