Supply Chain Management: Lessons Not Learned
Nikki and I are buried in the data from this year’s Supply Chain Execution Benchmark. Early analysis tells us that speed, inventory accuracy and inventory visibility are consuming retailers’ thought processes. There is also a distinct recognition that our supply chains are just not nimble or fast enough. Problem is, especially in the soft goods industry, this is far from new news.
Our supply chains were built for mass, not for speed. Despite exhortations to change spanning two decades, we continue to bring in merchandise by the ton and then mark it down to make room for more tonnage.
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% the time merchandise sits in the supply chain pipeline. Where did we go wrong?
I first heard about the DAMA project when I became an analyst in 2002. The goal of the project was a demand-driven supply chain (their term, by the way). I never saw the actual report until today, and I strongly recommend giving it a read. Still, the idea made complete sense to me: more frequent, smaller shipments, or what DAMA called the “Quick Response Apparel Business Model.” It also advocated production or assembly closer to the point of demand in the U.S., specifically in Mexico.
The theory was that the internet (ironically pictured as a cloud) would enable far faster communication and responsiveness from fabric manufacture through product ideation through delivery. A key tenet was more frequent deliveries of smaller loads of product and collaboration across the value chain to make that speed and nimbleness a reality. I got really juiced!
The goal was to reduce 6 weeks of inventory to 2.5 weeks’ worth without sacrificing service levels. All kinds of acronyms can be found in the abstract: work with VICS, the AAFA (American Apparel and Footwear Association) and ATMI (American Textile Manufacturing Institute) to nurture the model, and use CPFR and CTM (Collaborative Transportation Management) to improve forecast and delivery speeds. I was so juiced that I spent several years as an AAFA member, and met some really good people along the way. I eventually left the group, but that’s another story for another day.
Has that inventory reduction happened? Is Mexico a key part of our supply chains? Well, if you ask one of the presidential candidates, Mexico has taken all our business, but if you look at the labels in your clothes, you know with the exception of jeans, they’re mostly made in China and Vietnam. The end of apparel quotas in 2005 escalated this trend to go to the lowest cost sourcing countries out there. And full containers are less expensive than partial ones.
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. I’ve been hearing about Zara forever, but it has really only been the past couple of years that Fast Fashion has started decimating the fashion industry.
This begs the question I started with. What went wrong? Well some of the problem is caused by what I call “the tyranny of turn.” It’s a quirk of math. Turn is based on sales divided by average inventory. 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 that consumers can’t quite ferret through. And 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. That doesn’t mean the retailers are small. It means they make the experience feel more personal. 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.
I suppose we can wait them out. I read my first report on Generation Z, the next generation up this past weekend, and they apparently prefer things over experiences. Of course, given that the oldest Generation Z person is roughly 16 years old, it’ll take a while for this to cycle round again, and we may have far fewer stores by then than we do now…but who knows? There may be some retail survivors saying “I knew it!”
Bottom line? Beyond my recommendation that you read our fresh, new Supply Chain Execution report that’s coming out in November, I want to also recommend that you read this “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.”
It really is time to change. For real.