Creating profitable supply chains

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Retail, fashion and particularly ‘fast fashion’ pose significant challenges for executives who have to match supply chain performance with product demand in each market, to avoid marking-down excess items.

This drive to get product into the right store at the right time to sell at full-price underlines the need for simpler supply chain networks, which can effectively replenish and rotate stock to stores, in accordance with local market demand.

The ideal situation would be to operate with only one global inventory location, but this is not practical for many brands, though Zara famously achieve global deliveries from DCs in Spain, to stores across Europe within 40 hours.

It is the integration of this effective distribution network with rapid and instinctive product design decisions that means Zara can create and place products in stores faster than many competitors.

But Zara manufactures and moves huge volumes through its global supply chain network, creating economies of scale that do not exist for most brands and retailers.

For most retailers and brands, the need to manage stock placement globally has led to increasing quantities of inventory at regional locations, in an effort to minimise lead times to stores in every market.

While a great deal of planning, including network modelling technology, may have preceded selection of these global locations the result is often cash tied up in inventory that will very likely result in greater inefficiencies and stock write-downs.

Our customers are seeking an effective global supply chain, without the need to move larger volumes or invest in assets that are tied to specific regional markets, which is why they use our network to move slow moving lines, to buoyant markets to maintain margins.

SOURCING

For decades sourcing overseas has guaranteed cheaper purchase costs, though this benefit has been impacted by fluctuating supply chain costs and supply chain performance which is often the victim of visibility and traceability challenges.

As Zara and many other retailers have proved, sourcing closer to key markets guarantees a faster response, but with higher costs and unless you take radical action, capacity constraints.

Following Brexit UK retailers are looking to overhaul their supply chains, with 76% stating they are looking for efficiencies and 28% investigating new sourcing countries.

The best fashion and retail supply chains will be the ones that find the right balance between all the options, in order to meet the requirements of their business.

Arguably retail has never been more complex.

With multiple markets, channels and points of supply around the world producing continually refreshing product ranges, which means there’s a very real need for supply chains that are effective, resilient and infinitely flexible.

Putting the systems, processes and controls in  place to accelerate the responsiveness of key suppliers in order to react faster to market changes is a definite priority for most companies and is seen as a clear competitive advantage.

With the right systems and controls in place it may be possible to implement a one-size-fits-all approach that (with some adaptation) is efficient and effective for different value chains, providing the business can maintain a balance between cost, service, flexibility and agility for particular customers channels.

SUMMARY

Academic research shows that global fashion brands and retailers usually opt for simple network designs which enable them to quickly respond to fashion trends, whilst minimising the detrimental impact of mark-downs in slow moving stock.

Interestingly, larger companies like Zara are sometimes the most agile in having the right mind-set, values, and organisational structures for achieving such agility.

What is certain is that the deep transformational changes needed to achieve the required level of agility are only successful when supported by senior executives across the business.