TFR | Strategy Consulting

The Evolution of Supply Chain in the Fashion Industry

Traditional Supply Chains are based on made-to-stock model, economies of scale and mass-production. This model is unidirectional and sequential. Companies have a concept, then design, plan, produce, stock, stock, stock, distribute….and somewhere you will find the customer.

Nowadays, Supply Chain has totally changed into a platform, no more unidirectional or sequential. The Fashion Industry evolved and the best examples are Benetton with postponement (From yarn dye to garment dye), Nike‘s customization, H&M capsule collections and of course, Zara‘s supply chain revolution with Fast-Fashion. Today, brands can design through crowdsourcing (Nyden and H&M) or deliver using last-mile delivery partners (Glovo, Uber). It’s a new ecosystem where agility and flexibility will distinguish between companies that will disappear or will survive to Retail Apocalypse.

The Standard Design Process in fashion retail – Traditional Supply Chain operations in Fashion

STANDARD FASHION HOUSE

A fashion guru or best-in-class designer (e.g. Anne Wintour, Alessandro Michele) creates the collection. The artistic insights are key, and Operations accross the value chain try to optimize each process according to last season sales/forecast. The customer will receive what the Brand is producing. Customers are the last participants on the value chain.

Designers or buyers (depending on the business model of the fashion retailer) will look for inspiration and will start to create the new themes for the season (e.g. freedom, blue colors, ocean, San Francisco). Fashion Gurus (e.g. Anne Wintour) will predict the trends while influencers (e.g. Chiara Ferragni – The Blonde Salad) will “influence” the next “Must”. Previously, industry professionals like WSGN or Pantone (e.g. Pantone color report costs around 900€) will set the style or color trends for the next season. Even, stores could have a word on fashion, and Colette was the best example (see also Opening Ceremony). Buyers also will travel to fashion capitals to buy products they would like to “copy”. Then, major fashion fairs will present latest materials, styles and patterns. This occurs around +1 year before the collection reaches the stores. During the first 6 months, designers or buyers will exchange samples and visit suppliers, negotiate prices and forecast sales to make first orders.

Globalization allowed retailers to produce in Asia or other off-shore low-cost manufacturing locations. The result is low-cost operating expenses but larger lead-times. A cargo ship can take even 2 months from China to Europe. As a result, fashion retailers will need to optimize and manage incoterms, currency exchange rates and bet for the likely demand forecast.

The more integrated is the company, the more aligned will be marketing, buying and planning, financial and operations departments. If the stores don’t sell, inventory will increase, marketing will have to spend more in promotions and margins will lower and maybe, brand perception is negatively impacted. So, here it’s important to define a series of KPIs that are shared by different departments. An example of wrong KPI is in-store availability that doesn’t take into account inventory levels. Here the buyer, planner and store planners will be motivated to buy/ send a lot of product to stores in order to receive a bonus. But this will cause issues for in-store warehouse and product placement, logistics, and other departments. See that inventory is more expensive to manage when getting closer to the customer.

PRIVATE LABEL

There is not a fashion “guru” in private label brands. Most of the resources are dedicated to Operations. Key success factors are managing high-volume purchase orders, at a lower costs (quality is not a must), while optimizing costs of inventory and logistics. Most of the value chain is outsourced, like design and manufacturing. The value proposition is a wide assortment of basics at a low Price.

An example of Private Labels:

• Macy´s: Charter Club, Maison Jules, bar III, Alfani
• JCPenney: St. John’s Bay, The Original Arizona Jean Company, Ambrielle
• El Corte Inglés: Emidio Tucci, Fórmula Joven, Dustin
• Amazon: Ella Moon, Paris Sunday, Scout + RO
• Zalando: Anna Field, KIOMI, Pier One

The New Design Process in fashion retail – New Agile Supply Chain operations in Fashion

ZARA

The Fashion retail revolution started with Benetton garment dyeing postponment. But Zara reinvented fashion thru real time trend identification and best-in-class operations. Zara puts the customer first. Read more on ZARA, and fast fashion in Fast Fashion, the art of Liquidity 

FUTURE PRESENT

The Digital Customer, Millennials and next generations, are demanding a totally different approach. The traditional “Funnel” model is over. The Customer Journey is not any more linear, but continuous and dynamic. There is not a unique model because customer segments are losing its meaning when technology is able to filter by profile not group (Read more about the iProfile here).

FOREVER 21 – #1 Teen Vogue/Goldman Sachs Brand Affinity Index

Omnichannel is accelerated by technology, but empowered by customers creativity. Customers are the focus of fashion retail firms when starting to design the collection, and big data (e.g. machine learning), demand sensing, social buzz, RFID, amongst others, are tools that make easier to identify trends and have a more accurate forecast, inventory management, logistics and warehouse optimization. The whole value chain is revolutionized. It’s time for a customized, segmented supply chain enhanced by a digital platform!