Responding to seasonal demand in a Global environment

The Retailers Challenge Responding to Seasonal Demand in a Global Environment Objective Global sourcing has provided significant cost benefits. But these benefits come with their own challenges such as long product development, procurement cycle times, communication issues, lack of visibility and lack of responsiveness to changing customer demand. This article explores such challenges and possible solutions associated with creating a nimble, demand driven supply chain for retailers who must deal with the challenges of seasonal merchandise. The Challenge Sourcing and Product Development The general trend of retailers is to source and manufacture goods from global factories. While this has reduced the labor, sourcing cost, it has also increased the supply chain lead times, which negatively impacts the response times. However, the high end retailers have tougher challenge. The need to keep the cost low to preserve the margins but the same time need a faster and flexible supply chain that helps them to meet the demands of an ever changing market. For example, the High fashion retailer Zara has a model that differs from the traditional retailers. Zara sources un-dyed fabric from Morocco and India They have invested heavily in the dye and finishing plants allowing them to oversee the dyeing process which is a notorious bottleneck. Although Zara uses sub-contractors for sewing, they do the vast majority of cutting. For quick turnaround, 60% of the manufacturing processes are outsourced in countries close to the Zara headquarters in Spain. Zara maintains a strong relationship with their contractors and suppliers viewing them as part of the company. By manufacturing locally, Zara is able to manage the demand fluctuations. Their supply chain has higher costs but it has an advantage of Low inventory and higher profit margin. Global sourcing Challenges are: Product demand is highly dependent in fashion trends and weather. Global sourcing could complicate the response time. Demand forecasting is further complicated due to proliferation of sizes and colors. The inadequate visibility: It is caused by the extension of the supply chain across oceans, continents, and many time zones poses considerable risk to the high service levels. The retailer should look for ways to compress the order to delivery cycle and to accelerate goods in transit to protect margins and avoid markdowns How to achieve zero dead time logistics? 1|Page

Responding to seasonal demand in a Global environment

The Solution In order to address the above challenges the retailer will need to develop solutions to respond in real-time to customer demand by making the product available at the right place and at the right time. Success in this approach is dependent on superior global supply chain intelligence and control, which can be achieved through a series of key building blocks, including: Postponement Strategies Supply chain cost analysis Segmentation and initial buy POS data analysis Vendor visibility Merchandise visibility World-class partners Postponement Strategies A postponement strategy aims at delaying some supply chain activities until customer demand is revealed in order to maintain both low system wide cost and fast response. It also helps to improve competitiveness by offering customized products quickly. Types of Postponement Strategies: Purchasing postponement: Delay purchasing of some expensive and fragile Materials Manufacturing postponement: Products in semi-finished forms and can be customized quickly in production facilities Logistics postponement: Products in semi-finished forms and can be customized quickly in production facilities close to customers Time postponement: Finished products are kept in central location and are distributed quickly to customers Margin vs. supply chain cost analysis Careful analysis of historical forecast and sales actuals, price points, discounts and margins will be required in order to determine which products offer sufficient margin upside. Developing the cost vs. margin-loss trade-off requires an analysis of freight cost, landed cost and delivered-at-store cost by product, depending on mode of transport and routing. Segmentation and initial buy Sizing the initial buys by product, setting the time windows and lot sizes for demand driven replenishment are other crucial parts of creating an optimal solution. POS data analysis Collect inputs from different sources that suggest customer preferences or demand such as POS data, customer orders, syndicated data etc.

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Responding to seasonal demand in a Global environment

Vendor visibility On-line visibility of the inventory of semi-finished products at vendor sites, daily production actuals, and booking and shipment volumes by product Merchandise visibility Many of the best-in-class retailers have integrated their systems with the tracking systems of their logistics providers to get automatic status and alert information, while laggards still rely on phone calls, emails, or manual web lookups to track down shipments. These systems provide: In-transit visibility: Visibility of Part number and quantity, across all transport modes Dynamic ETAs Exception Management: To detect and manage supply chain delays Landed Cost Monitoring :To determine total supply chain cost per unit of sourced product World-class partners Leading companies are already using web-based on-demand platforms, built on an interconnected network of suppliers, shippers, 3PLs, trade banks, and etc.. Implementation Implementation will require fundamental elements of the organization to adapt to new capabilities. The needed changes include: Employee culture management: Employees will have to learn to work in highly collaborative, efficient and time compressed environment. They should be rewarded for action towards goals for supply chain performance and growth. Business process change management: In order for new business process to be successfully implemented the employees will have to be trained so that they understand how these processes influence their everyday jobs Technology Change management: Technology enables an organization to accomplish business goals and operate more effectively. Phased approach for implementation of the above: A phased approach enables the organization to realize high priority benefits in the short-term while building for the long-term, learning throughout the process. Before embarking on a particular solution companies must perform a thorough analysis of their current processes and systems. Recommendations How and where to start implementing the change? First identify all the important processes and systems that are part of it. Then work on the process flow to determine the road blocks in every process. Work on solutions or options to mitigate the road blocks rather than looking at this issue as one piece.

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Responding to seasonal demand in a Global environment

Look at the forecasting data, transit times, On Time Line Count, Customer Order Promised Cycle Time, Months of Supply etc. to determine the major road blocks and work on one or more major issue at a time rather than addressing all.

Global sourcing solutions Source from more than one supplier multi-sourcing Pre-Positioning of semi-finished goods, Reuse materials and colors. This will reduce lead times, cost and quality. Develop the strategy for partner collaboration, work on the tools to use (jointly) and then get them connected to reduce time-to-market, transaction time and decrease business risk. Investing in technology Transportation Event Management System, that tracks the departure and arrival times of shipments going through high-risk distribution channels. RFID technologies to track containers in distribution channels at critical nodes. Inventory visibility systems: Predictive analysis systems, incorporating intelligent search agents and dynamic risk indexes at major nodes in the supply chain to identify potential problems Real-time supply chain reconfiguration: To enable real-time re-scheduling of shipments or contingency plans in response to disruption discovery Risk management: Global logistics portals can provide the intelligence and control systems needed to make JIT work in a global sourcing world . Since the visibility is available making changes to the routing of inventory is not a challenge anymore thus lowering risks related to demand volatility. POS data analysis: POS data represent one stream of a number of possible cross-channel interactions with assortment, allocation, space, pricing and promotional data that, when integrated together, can bring unprecedented granularity, timeliness and responsiveness for decision making. Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise is recommended. Data-research methodology (References) GT Nexus Inc. white paper (downloaded from supply chain brain) http://www.supplychainbrain.com/content/nc/logisticstransportation/global-logistics/singlearticle-page/article/the-retailers-challenge-1/

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