Supply chain management: Lessons not learned

Discussion
Photo: Inditex
Oct 10, 2016
Paula Rosenblum

Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.

Despite exhortations to change spanning two decades, our supply chains continue to be built for mass, not speed.

Consider this: In 2001, the Demand Activated Manufacturing Architecture Project (DAMA) completed a seven-year project funded by the Department of Energy (DOE) through the American Textile Partnership (AMTEX). This project concluded that it was possible for the soft goods industry to improve consumer responsiveness while still reducing by 50 percent the time merchandise sits in the supply chain pipeline.

The theory argued for more frequent, smaller shipment and assembly closer to the point of demand in the U.S. — specifically in Mexico — while pointing to the benefit of the internet in delivering faster communication and responsiveness from fabric manufacture through product ideation and delivery.

Apparently, the only folks who actually read the report or acted on it were fast fashion companies like Inditex (Zara), H&M and Forever 21.

What went wrong? Some of the problem is caused by what I call “the tyranny of turn.” Theoretically, bringing product in at the beginning of the month gives the merchant the longest possible time to sell it, even if the aisles are choked with merchandise. If a merchant is compensated based on inventory turn, it’s in his best interest to do so anyway.

The remainder of the problem is based on two concepts: 1) “This is how we’ve always done it” and b) “we buy for mass; we don’t buy for precision.” Unfortunately, the days of mass retailing have been traded in for much more personal retailing. Millennials (the current key buyers) prefer curated assortments geared to their tastes and fresh product more frequently. They also generally prefer “experiences over things.” In other words, it’s a world made for Fast Fashion.

Our Supply Chain Execution report coming out in November will provide further evidence around retail’s fast and nimble challenges. I’d also recommend that you read the “tired, old” DAMA report. We haven’t got that part done yet, and if we do, many of the problems retailers identified in the new survey may be solved by “this old thing.”

DISCUSSION QUESTIONS: Why do you think retail’s supply chains are still largely built for mass selling instead of speed? Do you see that changing in any significant way?

Braintrust
"Reducing risk increases the inclination to do things differently."
"...retailers have spent the past several decades driving every penny of excess cost out of the processes in the supply chain."
"The changes needed require a commitment from management on down to a long period of chaos as systems, processes and, inevitably, people change."

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10 Comments on "Supply chain management: Lessons not learned"

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Ralph Jacobson
BrainTrust

In the fashion world, as in the food business, we’re dealing with numerous suppliers that operate at different speeds, coming from different points of the globe. Fast fashion retailers have made some impressive strides in some cases, a couple of which were mentioned in the article. The challenge is a fundamental shift in operations, planning, fulfillment and assortment optimization. This will not happen for a couple years across the majority of retailers at the very soonest. I do see change happening though, as the innovators take share (AND share of mind) from those still operating with traditional processes.

Lee Kent
BrainTrust

Is it all about a mass selling mentality? I don’t think so. It was all about the most efficient processes. You see, retailers have spent the past several decades driving every penny of excess cost out of the processes in the supply chain. The focus has been on operational efficiency — an efficiency driven by the way the consumer shopped.

Many supply chain and WMS processes were based on premises which are now far from adequate to meet the needs of today’s retailers. Things that have changed include mass merchandising efficiencies, the most direct path from supplier to the point of sale, the store being the final destination for inventory, the consumer transacting in the store and the sales transaction being the primary demand signal.

Undoing all of it is no easy task. And that’s my 2 cents.

Lyle Bunn (Ph.D. Hon)
BrainTrust

Adding information to any process changes it. The most important ways are by managing risk, accelerating production cycles and reducing waste. So the regulator on this question has to do with the nature of information that is applied. All’s well to the point of prediction, when the artful science of a business gamble manifests itself in a purchase order that activates the production and logistics processes. The marketing machine is expected to convert supply capacity to profits. As the processes of retail commerce increase their use of information and become more integrated, which enables cycle time improvements, risk will also be reduced. Reducing risk increases the inclination to do things differently.

Bob Amster
BrainTrust

I see the problem as a lack of evolution. There was a time between 15 and 30 years ago when mass merchandising was the way most of the country did business. The supply chain that was built for those times just has not evolved sufficiently to satisfy today’s need for speed. It can be done, but not overnight. There are many components of a supply chain and many can be improved independently of the others (design, prototyping, sample shipment and approvals), and that is where we are going to see speed. Eventually, there will be investment in the more costly, larger-scale changes.

Jasmine Glasheen
Staff
Jasmine Glasheen
Contributing Editor
1 year 2 months ago

The retail paradigm used to be based on infiltration in response to the buyer demand of the time. People bought moderately-priced branded staples in order to blend in, whereas today’s shopper wants pieces that exhibit their individuality and help them stand out. Because of this, mass production can lead to a sales deficit, where faster product turnover ensures shoppers that their pieces are unique and that they’ll be the first to wear it. Millennials are more afraid of being redundant than being strange.

I absolutely see the mass selling mentality changing. Retailers are catching on to the value of the “treasure hunt” for customers — the thrill of the search to find that one special item. A wider variety of items will be stocked in smaller quantities for maximum style turnover.

Tom Redd
Guest

Supply chains restructure each 10 to 15 years. The last shift was for the “man, we gotta mass sell and make this chain fit that model” era along with “cut the chain costs so we can chop prices.” So today we are kinda stuck with this mass-sell thinking vs. speed and efficiency.

The new shift in SCM is taking place as we write and we are seeing real change in the fashion space as more fashion retailers are really vertically integrated retailers.
The overall area is in the middle of a fast, tech-focused and simplicity-seeking change. After this phase of change is over we will log it all in the SCM Unknown Metrics library.

Larry Negrich
BrainTrust

The changes needed require a commitment from management on down to a long period of chaos as systems, processes and, inevitably, people change. The alternative is to fall even further behind in the race to shorten the fulfillment of shopper demand. There are many solid business reasons for retailers to look at on-shoring for the final mile of the supply chain.

Kai Clarke
BrainTrust

Mass logistics are what retail is built on, since it makes the most savings and sense. Retailing is about driving great efficiencies across complex channels in new ways that drive profits from cradle to grave in all factors of merchandising and logistics.

Doug Garnett
BrainTrust
Cant’ speak about textiles much. But speaking about retail in general … I love the theory of these kinds of supply chain approaches. However, there are some serious weaknesses I’ve watched clients attempt to confront. Obtaining favorable pricing from a supplier requires a bulk order — a full commitment. Many retailers want to use these flexible supply chains to avoid making commitments. It doesn’t work. Suppliers can only offer favorable pricing based on commitments. And some opportunities are for mass amounts of goods. Suppose demand for a product at a holiday time might be 500,000 units. At most, there’s a 2 month window to capture that demand. Playing too many tricks trying to control the supply chain ensures that the retailer misses the revenue and profit opportunity. (We’ve had a number of our retail oriented ad campaigns drive sales of 2M+ units in 2-3 months. Seizing that opportunity requires the courage to take some serious risks.) It’s not that I believe anyone on this board is unaware of these issues. But it’s my experience that… Read more »
Joseph Roy
Guest
1 year 2 months ago
The retail supply chain is outdated and focuses on costs and efficiency. The retail “consumer chain” focuses on revenue and attracting new customers (speed in development, information and supply). Many retailers have seasonal or one-time purchase strategies and ongoing replenishment strategies. A consumer chain mindset links supply to both daily consumer demand and to changes in merchandise strategies resulting from lack of demand especially during promotional time periods. Anyone can respond to changes in demand — only those focused on growing revenue and adding new customers will design store supply strategies that support weekly changes to the merchandise plan with merchandise delivered to all stores in the same week. Focus on replenishment items and develop your seasonal (one-time buys) merchandise exit strategies before the first item is shipped to a store. If you do, your company will begin to see higher in-stock rates and lower inventories. In fact, in-stock rates rose to 99.1 percent while inventories decreased by millions of dollars. We did this 18 years ago and I don’t see any significant changes soon… Read more »
wpDiscuz
Braintrust
"Reducing risk increases the inclination to do things differently."
"...retailers have spent the past several decades driving every penny of excess cost out of the processes in the supply chain."
"The changes needed require a commitment from management on down to a long period of chaos as systems, processes and, inevitably, people change."

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