Collaborative Design: A Mixed Blessing

The profitable lifecycle of merchandise, especially apparel, continues to compress.

 

Some of this compression is self-inflicted, as retailers, in an effort to improve their merchandise turn rates, have driven up the rate of new product introductions and are switching out their merchandise every four to eight weeks.

 

Compression is also a by-product of the digital "I want it now" era, dominated by tweens who expect new sexy fashions and sexy digital appliances every three to four weeks.

 

Whatever the cause, it is no longer acceptable to take two years to bring a new product to market. Brand managers must get faster, even as their supply chains get longer.

 

Retailers are getting faster
RSR's most recent survey on producing private label merchandise shows that indeed, retail brand managers have improved. Figure 1 shows a comparison between 2007 and late 2006 survey respondents.

 

 

Average time to market has decreased sharply, with a strong plurality of respondents able to ramp up to full volume in six to 12 months.

 

This type of speed increase doesn't happen just by wishing and hoping. It happens through conscious strategic and tactical decisions within the retail enterprise.

 

On the transportation front, retailers continue to seek the fastest, least expensive routes from the point of manufacture to the point of purchase.

 

In fact, 53 percent of respondents believe they should be able to shrink transit time to three weeks or less, even though today, 75 percent live with transit times of three weeks or more.

 

But the area where retailers have been most focused to date is in the realm of collaborative product design - working with suppliers to create the best possible, least costly design in the shortest possible time.

 

Retail winners turning more quickly to collaborative design
RSR typically gauges the state of the industry by comparing the behavior of retail winners against their competitors.

 

We use one relatively basic key performance indicator (KPI) to call a retailer a "winner." Quite simply, we ask retailers about their comparable store sales increases. We ask them to self-identify whether those sales increase by an average of 3 percent (meant to tie to the rate of inflation), exceed 3 percent or increase less than 3 percent. We call those retailers "winners" whose increases exceed 3 percent.

 

More often than not, we find that most other KPIs fall into line behind that fundamental metric.

 

Retail winners also tend to outperform their peers in gross margin and in payroll-to-sales ratios as well. Retail winners think and act differently from their peers, and use technology in different ways.

 

Private label management is no exception to that rule. We can see in Figure 2 that self-identified retail winners have been far quicker to embrace collaborative design than their competitors.

 

 

Average performers and laggards have been more prone to stand pat, while 70 percent of retail winners have increased their reliance on collaborative design strategies over the past two years.

 

Results of these collaborations have been mixed. As illustrated in Figure 1, retailers generally have become faster, but they also report inconsistent product quality as their new No. 1 business challenge. Retailers report that the need to find and keep dependable business partners has been a significant business issue for the past two years.

 

While inconsistent product quality is an annoyance if apparel doesn't run true to size, or if dye lots differ across multiple runs, it becomes life threatening when lead paint coats children's toys, or bad additives taint massive quantities of pet food. In any case: Whether fashion faux pas or life-threatening issue, retailers and other brand managers risk serious and irrevocable brand damage from inconsistent product quality.

 

This is a very different world from the era of reverse auctions and low cost uber alles and it requires more oversight and control to manage it.

 

Turning to technology to help control the process
The term product lifecycle management (PLM) can be misused. Some have argued that PLM covers the entire life of a product - from the first storyboard to the final markdown.

 

RSR views it as the process that brings a product from sheep to shelf - or from the manufacturer to the distribution center or store. Within that context, we have seen the most critical technologies shift over the past two years.

 

Last year, supply chain visibility software was considered the most critical technology for retailers that were sourcing private label merchandise.

 

This year, while visibility remains important, it has been supplanted as most important by supplier resource management (SRM), product development management, global sourcing management and track and trace tools.

 

Translation: Not only is it important to know where a product physically is located in the manufacturing and shipment process, it is also critical to evaluate how well the product is being made, who is making it and how often they make mistakes.

 

More consistency and frequency needed
Unfortunately, our survey respondents have somewhat "untidy" processes to measure their suppliers. Whether or not they have "best-in-class" technology tools, we find that they don't measure suppliers consistently.

 

As we can see in Figure 3, only 6 percent evaluate their suppliers quarterly, with the majority reviewing supplier performance either annually or on an ad hoc basis.

 

 

A wise employer once told me: "People do what's inspected, not what's expected."

 

Nowhere is this truer than in the realm of product development. Left to their own devices suppliers will begin to cut corners, and within a year, once-dependable partners may no longer be close to meeting product specifications. As Ronald Reagan once famously said: "Trust, but verify."

 

The good news is that technology is available to help in supplier selection, scorecarding, management and evaluation. It's incumbent upon product development managers to perform those evaluations.

 

Without these key controls - in an era when more product is outsourced than ever, and when supplier collaboration is a core component of the development process - an entire brand can be put at risk. //