Despite talk of a retail apocalypse, the retail industry is alive and well; in fact, retail sales are growing at an annual rate of 4 percent in 2017. While many traditional fashion retailers and department stores are struggling, innovative companies are experiencing record growth as they rewrite the rules of fashion retailing.
Zara stands out for its stellar performance. Zara’s parent company, Inditex, announced record sales and profits earlier this year, as the fast-fashion prodigy once again reached new heights.
The key to Zara’s success? The retailer is a master of the “read and react” supply chain strategy. Zara is a data-driven fashion company, continuously monitoring or “reading” sales data to “react” faster than any company in the industry — accelerating delivery of the products that are selling and shutting down production of any products that are stalling. The fashion industry has taken note, and companies are racing to transform their businesses with read-and-react strategies.
Most fashion companies’ current supply chain models are decades old and linear, and flow in one direction. They start with planning, then move to design and development, into manufacturing and finally distribution to the retail locations. A few years ago omnichannel strategies were seen as the salvation to achieve sales for out-of-stock merchandise in the local market, but the industry failed to recognize that more than 70 percent of fashion purchases are impulse buys. In most cases, when the desired item is not immediately available, the sale will not occur.
There’s a big barrier standing in the way of fast reaction: disconnected and isolated information throughout the supply chain. Fashion retailers must react to current sales trends and make operational and tactical decisions mid-season. Yet all too often, the critical stages in the supply chain – planning, development, sourcing, compliance, production, logistics and sales — operate as though they are separate business units.
Fashion brands and retailers must connect global decision makers into a single connected enterprise that centralizes and shares information that originates in legacy PLM, ERP and logistics systems. A connected enterprise joins data and users throughout the extended supply chain. Armed with real-time information, companies can answer two basic questions that are at the heart of the read and react strategy:
What’s selling? How quickly can the company accelerate more products to the consumer, which will drive greater sales and profits?
What’s stalling? How can the company minimize losses when products fail to meet sales expectations? How quickly can it reallocate materials and production lines to more profitable items?
It’s not enough to simply have access to data. Companies must “plan their reaction” by having a playbook of read-and-react strategies that guide their supply chain decisions. The successful fashion companies have agile supply chains that flow both forward and backward. Here are a few strategies that put products into consumers’ hands faster than ever:
Sustain the product pipeline with agile development. Development should be guided by real-time sales data, to ensure you’re reacting to the latest sales trends. Fashion leaders such as Zara aren’t afraid to over-develop styles; the key is to maintain a robust product development pipeline, realizing that many styles will never go into production.
Lead time reduction: 8 weeks
Position raw materials and manage commitments and drawdowns. Positioning raw materials with suppliers and factories is key to “faster fashion.” Using Excel to accurately manage the commitment and drawdown process is next to impossible. The process should function like a checking account. The commitment transaction is like a deposit of funds into the account. Purchase orders are like checks; they draw down the funds.
Lead time reduction: 8 weeks.
Practice postponement and just-in-time manufacturing techniques. Just-in-time manufacturing means that companies wait until the last possible moment to make final decisions regarding the products that enter production. Guided by the latest sales information, silhouettes, colors and size breaks are adjusted to better match consumer demand.
Lead time reduction: 4 weeks.
Ship direct-to-store from the factory. Most retailers receive their shipments in DCs, then allocate and reship units to each store location. However, companies can save significant time and money by sending store floor sets directly to retail stores, while replenishment stock ships to the DCs.
Lead time reduction: 3 weeks.
Ship direct-to-consumer from the factory. Retailers and brands are eager to do this, but most lack the systems to achieve accuracy and scale. Orders are packed and labeled at the factory, then consolidated and shipped in bulk. Once the shipment clears customs in the destination country, a courier service such as UPS or FedEx deconsolidates the shipment and delivers each order directly to the consumer.
Lead time reduction: 2 weeks.
Expedite shipments for high-demand products. Are best-sellers moving faster than expected? Then rush these products to the stores. This is only possible if there is clear visibility to the goods in transit.
Duration: 1 week.
Transfer products between stores. Are products selling out at some store locations and headed toward markdowns in others? With access to sales information by store location, companies can quickly reallocate products to the locations that need them most.
Duration: 2-3 days.
With real-time information from connected supply chain systems, every company can become a data-driven fashion company like Zara. By adopting the tactics to continuously monitor or “read” sales data, companies can “react” faster, allowing them to accelerate the delivery of the products that are selling and reduce losses on the products that aren’t.
Mark Burstein is president and chief strategy officer for NGC Software. NGC’s Andromeda Cloud Platform enables the “connected enterprise,” which centralizes and shares real-time information throughout the extended supply chain.