Crude, Lewd... and Lean

Whether he really knows it or not, Dov Charney of American Apparel apparently understands lean.  At a time when most clothing companies are flocking to Asia and Latin America for low-cost labor to make container loads of clothing, Charney is staying right at home.

All of American Apparel's items are made a the plant in Los Angeles where he started the company.  He pays 3,500 people up to $18 an hour, making them the world's highest-compensated garmet workers.  Charney stresses vertical integration.  Operations are consolidated at the LA headquarters, allowing for close control of costs, quality, customer service, and flexibility.  The company can design a shirt and have it in stores in less than a week.  The company's VP of Operations, Marty Bailey, is the brains behind this and other lean improvements.  He came out of Fruit of the Loom, and has also implemented other ideas that have led to a tripling of production with only a 15 percent increase in staff.

The fast flow and tight-knit supply chain is paying off.  At $15 to $45 the clothing is priced competitively for the young urbanite niche, and Charney is turning a decent profit on sales that have risen from $20 million in 2001 to $250 million in 2005.  131 stores have opened since 2003 and 60 more are expected by year-end.

But there could be problems ahead.  The company is looking for a $40 million cash infusion to fund further expansion, but bankers have flat-out told Charney that they can't get past the fact that he doesn't outsource.  Outsourcing has become so expected in that industry that not doing it is perceived as a business flaw.  As Charney puts it, "there's a general disconnect between the financial community and our customer and the way our business works."

And the larger problem will probably be with Mr. Charney himself.  The company designs and manufactures edgy urban clothing, and the owner takes that to an extreme.  He openly displays his passion for his company... and sexy women.  When he decides to wear clothes, he dresses like a '70s-era porn star, and defends his right to run a "sexually free" workplace.  This includes walking around in his briefs, and exposing himself eight times to a reporter.  As expected this has led to some legal issues, which he's vigorously defending.

Mr. Charney found himself a bright operations guy that understands lean, and has designed clothing that is in demand.  Now if he can just keep it in his pants he might become an example of how apparel companies can manufacture in the U.S. and be competitive.

Comments

[Manny Sequeira]

Kevin,
I enjoyed your article. You are right on the money! Instead of exploiting cheap labor abroad - get the same results by exploiting Lean at home! (Just keep your pants on - LOL)

I've linked you to my site. Check my blog out at http://egoliblog.blogspot.com/.
Regards.
Manny

[JH]

Bill-

You're going to get this website banned if people go to this company's website. . . .

My impression is that they've done a mashup of Abercrombie and Fitch's marketing taken to its logical extreme and Zara's supply chain nirvana (Spain/Europe).

Funny, my first intinct was how do I invest. I would guess the article's description of their difficulty in getting investors was as much spin as reality.

Interesting slideshow on their vertically integrated manufacturing (proudly featured part of their logo)

Gives a whole new meaning to Lean and vertically integrated manufacturing.

[Bill Waddell]

This is Kevin's work not mine - I wouldn't touch this story. I don't want the blame when Superfactory starts gettng inundated with search engine hits for "70's-era porn star" and "sexually free workplace". We may have a whole new class of readers once the Googlebots find this post.

[Mark Graban]

Don't we have "lean investors" or a private equity group that is willing to invest in lean companies using lean methods? I hope they'll "bootstrap it" rather than look for the outside investment then, if the bankers want the shirts made in Vietnam or someplace.