FASHION IS A THREE TRILLION DOLLAR GLOBAL BUSINESS ESTIMATED TO REPRESENT OVER 2% OF GLOBAL GDP. IF IT WERE A COUNTRY THE INDUSTRY WOULD BE THE FIFTH-LARGEST ECONOMY, ECLIPSING THE GDP OF THE UK AND FRANCE.
However, the making and marketing of clothes hasn’t changed much. Until recently, brands with two seasons, or two design changes, per year were the norm. The rise of fast fashion in the 2000s began to challenge this. Zara, an affordable yet fashionable high street brand, and one of the early innovators in fast-fashion, soon became a benchmark. Besides original designs, brands like Zara turn a design seen on a catwalk to a product in their stores in a matter of weeks. A decade ago, minimum orders quantities for ready-made clothes were in the tens of thousands. That’s not the case anymore. Consumers no longer want to be seen or know they are wearing the same thing as thousands of other people.
“Large factories used to say ‘we have a minimum order quantity’, but if they don’t adapt now their survival is at risk,” says nCinga’s Imal Kalutotage.
When long time school friends and former colleagues Vijitha Abeywardena and Imal Kalutotage decided to start a business in 2014, they wanted the venture to meet three criteria: harness realtime data; be globally scalable, and be capable of inspiring an industry. They zeroed in on apparel manufacturing as the target sector. Abeywardena felt that the operation of factories had been overlooked and set out to solve some of the multitudes of operational challenges. nCinga’s software as a service (SaaS) tech tracks production real-time at apparel factories. Productivity, order fulfilment and a myriad of other analytics form evidence to improve efficiency, reduce wastage, manage working capital, and deliver quality.
Data is collected from every station on the production line; automatically by devices connected to the system or is input by people at the station. Data is then cleaned, analysed and reported back through the cloud. Factory managers access real-time data on a mobile app, and they can play-back or project forward operations.
WHEN THEY FOUNDED the business six years ago, Kalutotage and Abeywardena had no apparel experience. But they recognised that order sizes were falling and that factories faced new challenges because of this. A fully automated digital solution, aimed at smaller factories, is in development.
[pullquote]TECHNOLOGY HAS MADE PRODUCTION IN SMALL BATCHES AFFORDABLE[/pullquote]
While nCinga sets its business up to serve large and small factories, Singaporean Zillingo, which acquired it in a $15.5 million cash and stock deal, exclusively focuses connecting low volume brands to supplier or factories able to supply them. Its founders say nCinga Innovations was valued at over 20 times revenue.
Technology has made production in small batches affordable. From a manufacturing point of view, specialisation’s prominence is challenged by the shift in consumer demands from mass consumption to mass customisation. Social media is driving this trend. Consumers are now able to discover independent small fashion brands easily. Factories producing small order quantities and digital technology have transformed fashion sourcing too, and it’s in this market that nCinga’s new parent, Zilingo, has excelled.
The inspiration behind digital supply chain company Zilingo came during a trip to Thailand when co-founders Ankiti Bose and Dhruv Kapoor realised a technology platform could connect Bangkok’s street vendors with global brands who may want to retail their products. Bose, Zilingo’s Chief Executive and Kapoor, the CTO, realised the potential for solving problems upstream in the supply chain were more extensive than in the saturated eCommerce market targeting end consumers. They pivoted to this B2B market to create a fashion platform. Since 2015, Zilingo developed technology connecting fashion brands to factories across Asia and now operates at every stage of the fashion supply chain; procurement, manufacturing, logistics, financial services and analytics.
Whereas a decade ago, minimum order quantities were a deterrent, now any minor celebrity, influencer or average Joe can launch their own range and market it directly to their audience. Zilingo’s end-to-end tools have enabled factories to connect with and meet this new demand for small batch orders. Bose has compared Zilingo to the way that Amazon conceived the cloud-based Amazon Web Services (AWS); the tech was first built to solve internal problems then commercialised as a service for third parties. Zilingo has developed sourcing networks and tools that can now be accessed by anyone looking to source and create their own fashion. A visitor to ZilingoAsiaMall.com sees catchy banners promising ‘a one-stop shop for all your business needs’ and the ability to ‘create your own private label and sell to a global market’. Fashion houses that have relied on their heritage for success are finding themselves challenged by new brands who are bypassing the need for costly stores, warehouses and staff.
THE APP’S minimalist appearance belies the complexity of the information it provides. With a few taps on the nCinga app, a factory can see the information that previously was only available after long delays and even then, inaccurately. Purchase orders, order progress, workforce productivity and occurrences of faults can all be reviewed in easy to digest formats, allowing managers to tackle problems on the production line immediately. The realtime data collection also removes the opportunity for floor managers to edit or massage records along the way.
IoT and analytics are at the core of nCinga Innovations product called nFactory 4.0. Its founders say their technology provides a means for factories to utilise the 90% data that otherwise go untapped. Garment manufacturing is heavily reliant on people, and Abeywardena recognised that communication was an unrecognised challenge. Poor communication wasted a lot of time on the factory floor. Similar to Ford creating the assembly line for car manufacturing transformed an industry, nCinga’s tools create a digital factory ‘belt’ connecting each station’s data for a full view.
[pullquote]IOT AND ANALYTICS ARE AT THE CORE OF NCINGA INNOVATIONS PRODUCT CALLED NFACTORY 4.0[/pullquote]
“There were a lot of guys who would say ‘give me the data, and I’ll tell you what the problem is’. But the problem was that there was no one to provide the level of data required. We built from the ground up to collect that raw data, refine it and in real time understand the problem and tell you what to do,” Abeywardena points out. In many cases, factories are located in areas with poor education and IT literacy, requiring more training, integration and ongoing support. Whereas many tech platforms are designed for advanced IT users, nCinga’s is developed for the lowest skilled.
Their vision for the future was a company that could serve thousands of factories, but getting there would require capital, people and time. The risk was that if they didn’t scale in the next couple of years, more established players could swoop in and take the market.
Abeywardena explained, “There are a lot of competitors and multiple apparel giants in the industry, so it would have been easy for somebody else to throw money at the problem and scale a business.” The match with Zilingo offered scalability at speed. It also provided common values and vision: “We’re trying to disrupt the same industry, nCinga from a manufacturing point of view, Zilingo from end-to-end fashion,” said Kalutotage.
Before Zilingo, Kalutotage and Abeywardena were servicing 50 factories. Now they’re preparing to deploy the tech in 4,000 factories. The discussions with Zilingo initially began as a partnership in early 2019. Instead, only a few months later, Zilingo proposed to acquire the company.
The acquisition was announced on December 17th, 2019. The $15.5 million is a cash plus stocks deal with 50% cash and 50% stock. Singapore based venture capital fund BOV Capital, an early investor in nCinga with seed money and subsequent funds, gave a 300% return to its investors, distributing up to 380 million rupees. The company will continue to operate as an independent subsidiary of Zilingo, and Kalutotage and Abeywardena will stay on in their roles for at least the next 12 months. While the post-merger integration stage is still underway, Kalutotage expects to double employment at nCinga within 12 months and sees potential to position Sri Lanka as the global knowledge hub for Zilingo.
SO FAR NCINGA, operates in Sri Lanka, India and Bangladesh. It will now have access to Zilingo’s customers and expand to new markets. The software will be rolled out to Zilingo’s U.S., European and Australian customers. Zilingo has more than 6,000 factories and 75,000 businesses. Zilingo recently raised $226 million Series D funding round from Sequoia Capital, Singapore sovereign fund Temasek, Burda Principal Investments, Sofina, Singapore investment fund EDBI and other existing investors. Industry commentators have put the company’s value at close to $1 billion, positioning them within range of becoming Asia’s next unicorn. From Zilingo’s point of view more efficient factories means a more productive end to end supply chain. The company’s goal is to provide sellers with tools, understanding and network that industry stalwarts have built over years of development. nCinga’s manufacturing focus fits perfectly into their end-to-end approach.
As well as the clear benefits of increasing factory efficiency, reducing wastage, enabling greater order fulfilment and better supplier relationships, the transparency that nCinga’s data provides could also be valuable as a risk metric for Zilingo’s financial service operations. By optimising the processes, Zilingo could provide loans and working capital to their upstream customers at a lower risk than previously.
One reason the garment manufacturing industry was behind technology adoption is due to its obsession with margins. In their view, there was no other solution to the problems facing the industry other than technology. “The industry has moved factories from Sri Lanka, Bangladesh and China, now to Myanmar and Ethiopia. So where else do you move for labour arbitrage once you have gone there? The only solution is a technological leap to the next level of efficiency,” said Kalutotage.
YOUNGER CUSTOMERS view social and environmental issues as the defining challenges of our time, and they are altering their consumption to reflect these. In 2019 McKinsey & Company reported that nine in ten Generation Z consumers believe companies have a social responsibility to address environmental and social issues and that by 2020 they will account for 40% of global consumers. Previously, a great product and catchy marketing may have been enough. Now consumers want to know about the brand’s values and sustainability practices. Brands are responding, shifting towards greater transparency on provenance, quality and impact of the items they sell. The rise in numbers of B-Corporations, which put a positive impact at the heart of their business models, is testament to this. B-Corp now has over 100 certified companies in the apparel, footwear and accessories sector, including giants like Patagonia.
Transparency in manufacturing, however, is not easy to achieve. The nature of the garment supply chain means that products pass through different manufacturing partners, often through multiple countries, on their way to the end consumer. The solution, inevitably, is technology, to track and deliver throughout the supply chain.
HE GOAL FOR NCINGA’S co-founders is to realise the creation of a cloud factory, where digital connectivity could enable physical de-centralisation. Think, if you will, of a mid-sized factory in a rural location that typically employs women as seamstresses. These women may face challenges in getting to and from the factory. They may stop working after getting married or having children or because of demands from other commitments such as looking after elderly relatives. A cloud factory could enable them to continue working from home on a sewing machine, with their data on performance automatically sent in real-time to the factory management.
With customer demands moving towards customisation, it’s easy to see how this supports the shift away from production lines to whole garments manufactured by one worker. Two challenges to this idea like are the ability to track production to an owner’s satisfaction, and the logistics of getting the goods to and from workers’ home locations. Kalutotage and Abeywardena are confident that technology platforms like theirs will solve the former and advancements in logistics technologies – such as drone deliveries – will soon provide answers to the latter.
Cloud factories are just one innovation set to change the future of fashion and garment manufacturing. Reuben Noronha, Zilingo’s VP of Monetization, spoke in Colombo about how data can tackle one of the biggest challenges in the fashion industry – the problem of excess inventory which results in wastage and lost capital.
Excess, he says, is essentially a prediction problem, making too much of the wrong size or style. In the future, with data analytics improving the accuracy of these predictions, an insurance scheme for manufacturers may be possible, where Zilingo agrees to buy back the stock if it does not sell. In a pre-disruption world with minimum order quantities in the tens of thousands, an idea like this would never have been possible.
Zilingo’s acquisition of nCinga comes at a time of disruption in the fashion and garment manufacturing industry. With their MES solution, nCinga is easing a legacy industry into the digital age.
Zilingo’s business model trusts that fashion will be the next industry to make this shift to data-driven, and their impressive valuation of nCinga shows just how big they are willing to bet.