Last but not least, we can look at the way in which fashion firms manage their operations. Here are some additional criteria to segment fashion firms. By looking at vertical integration, we can look at whether companies manage their value chain through relationships that involve organizations owned by a firm, as opposed to organizations that are bound to the fashion firm through a contractual relationship. 

In this sense, we split firms according to their use of outsourcing or insourcing strategies.

• Outsourcing. A company outsourcing the segments of its value chain is looking to create cost efficiencies by finding partners willing to work, under a contractual obligation to provide, manufacturing services and distribution. Research and Marketing are not usually outsourced, as the design of a collection and the promotion of the brand are core activities that need to follow very strict guidelines. As a result, fashion firms hardly ever outsource these components of the value chain.
  
  
• Insourcing. Insourcing, or managing some of the value chain operations within the company is a way to ensure that operations are conducted following the most rigorous standards. Haute couture and luxury brands rely on insourcing, or direct supervision to guarantee the TQM (total quality management) of the final product, which is essential in order to add to the price tag the “luxury premium”. This option is more expensive, as it involves a sizeable investment of money upfront, however it does allow to directly oversee each one of the thousands of tasks that bring a product to life.

Another element to take into account is the logic of interaction with the market. We can both have either push or pull systems, and combinations of the two.

• Planned manufacturing.  This is the way in which fashion companies usually operate. With planned manufacturing fashion firms only produce a collection (which in the meantime has only been prototyped or sampled) only after orders have been filled. This happens because fashion firms need to scale production according to the actual market request, without burdening themselves with unsold goods. This economic advantage comes at a cost: the TTM (time to market) of the final product will experience some lag, and customers will need to wait longer before accessing the product in stores.
  
  
• Fast delivery. In order to offset this lag, the fast delivery model was developed. As a result, fashion companies decide to “bet” on a series of items in the collection in order to minimize wait time on those items which are more likely to be sold. These types of items can include iconic pieces, popular items or new items that a firm wants to test through retail. Of course, there is an underlying issue, which can relate to the fact that some of these items may go unsold.
  
  
• Reassortment. In this model instead, a company splits production giving more attention to the feedback received by retailers and their customers. With reassortment, a firm decides to invest in producing those items that have already been sold, and are in demand. In this case, more emphasis is put on the customers, as opposed to the market knowledge of the retailers.
  
  
• Fast Fashion. The maximum degree of customer orientation is instead shown by fast fashion companies where 100% of production is based on monitoring as closely as possible the ongoing demands of the public, by producing in short 6-week cycles the items which meet the taste of the customers. The low cost of production allows for a certain degree of hit or miss strategy, however, this approach, heavily based on economies of volume has a detrimental impact on the environment.

An additional element of differentiation pertains to distribution. In the value chain, in fact, we can argue that the last segment, distribution, is one of the most important, if not the most important given that customers may transition their shopping experience from being product-based to being experience-based. Even if the retail\wholesale segment is the last mile for the company, is still the first point of connection with customers, and adds a lot of value to the product. Let’s compare the two models or retail and wholesale. 

• Retail. Retail is a directly operated point of touch between the brand and the customer. As discussed, fashion retail is becoming more experiential and less physical, so as a result these stores can add value to the purchase by being educational, entertaining, aesthetically engaging or even escapists.
  
  
• Wholesale. Through wholesale companies are able to access a network of independent wholesalers that sell a brand within a multi-brand store. This allows a brand to avoid the costs associated with operating a fully owned store and allow it to test markets without excessive investment. At the same time, brands might miss the price premium associated with direct distribution.

Of course, now there are many ways in which retail and wholesale find new combinations of value, like in the case of flagship stores and omnichannel distribution as discussed in this post.

Here are the four most prominent business models in the fashion supply chain:

• Vertically Integrated Luxury Brands. As previously discussed this is the model associated with luxury brands that seek total control over each segment of design, production, marketing, and distribution. Their “promise of consistency” would be hard to keep if they operated through third parties.
  
  
• Industrial Brands. These brands seek economies of volume and use the means of industrial production to strike the best balance between the cost of production and the cost of sale. The lower price point allows them to work with processes where a complete obsession for detail might be lacking, but with no actual impact on the final quality.
  
  
• Licensing Relationships. These are the models followed by companies that acquired high intangible brand equity and look for monetization through licensing. This model is particularly prominent in masstige, in eyewear, fragrances and beauty products.
  
  
• Art Directorship. According to this model, a company relies on the expertise and reputation of a fashion designer in order to create its collection. This can be helpful as it allows firms to take advantage of the high value associated with a designer and attach it to the product created by the firm.

As a result of the complexity of the fashion industry, it’s impossible to find two companies that are exactly alike. As seen in this post, there are so many elements of differentiation that firms will always find some degree of freedom and novelty in the way they are going to grow internationally.