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Fashion markets are synonymous with rapid changes; as a result success or failure in this market is based on the responsiveness and flexibility of the organisation. The nature of the industry is discussed in terms of its volatility, complexity and dynamism.
Competitive analysis has been done on Zara and H&M to now the supply chain strategy of the companies. This analysis shows that both companies have different supply chain and Zara has a competitive advantage due to its supply chain.
Based on the analysis, need for an agile supply chain has been identified. This report explains how agile can be used in fast fashion company and achieve flexibility and responsiveness.
Later part of the report talks about how the supply chain can be adapted into the organisation using Quick Response as an operational strategy. This gives an idea about how the company can implement operation strategy to gain competitive advantage and also decide on sourcing.
Fashion Industry Description
Fashion is fast, complex and furious. In this fast changing industry, competition is too high. In the world of fashion, latest designs speed their way into the high street making it affordable for everyone. The commercial success and failure in the market depends on the organisation responsive and their flexibility.
Responsiveness is characterised by short time to market and the rapid absorption of customer preferences into the design.
Fashion can be termed as short life cycle. Fashion typically exhibits the following characteristics:
Short Life Cycle: These products are designed to capture present moment of the market. This means that life of product is short, seasonal and it can be measured in months or even weeks.
High Volatility: Demand for these products are not stable, it might get influenced by weather or even celebrities as well.
Low Predictability: Due to high volatility in demand it is difficult to forecast if this demand is for a particular item or is it going to last a month.
High impulse purchase: Most of the buying decisions by customers on these items are done at the point of purchase, so availability of the product is a critical factor.
Today's market is highly competitive and there is a need to be the first to release or even create a trend of latest fashion. This can be done by refreshing the products monthly or even weekly. Companies like ZARA and H&M who are leading in the market have a strong supply chain plan to make this happen.
ZARA has a unique structure and based on this structure it is able to supply product to the market within two to three weeks of the demand. It follows an Agile supply chain management. By using this chain management it is very successful in avoiding over-stock and under-stock situation. Where H&M has a Lean supply chain management style through which it is able to reduce their operating cost, which resulted in increasing operating profit.
For this, organisations to compete with companies like ZARA and H&M they should follow an operational plan with a strong supply chain strategy in place. Effective management of supply chain is key success factor of companies in this industry. To be more precise companies are now competing on their supply chain.
The key ingredients of fast fashion are the ability to track quick fashion trends and to identify potentially popular new designs through daily proximity to markets, fashion images and fashion makers. It is clear that successful fast fashion retailers like ZARA; the pressure to reduce the lead-time has links with supply chain Management.
The idea of Agile in the context of supply chain management focuses on responsiveness. Conventional supply chain takes long lead-time and has been forecast driven. Agile supply chain has shorter and demand driven i.e. it is information based whereas traditional supply chain which are forecast driven which implies that it is inventory based.
Lean Supply chain focuses on reducing and eliminating waste and non-value added activities from the supply chain producing efficiency. This would help in managing the inventory i.e., to avoid the situation of excess or shortage of inventory.
The critical lead-time that must be managed by organization to compete successfully is:
Time to market - This is the time taken to recognize an opportunity and to convert it into a product or service and launch in the market.
Time to server - Time to take an order and deliver it a per the customer's satisfaction.
Time to react - Time taken by the company to manage based on the markets volatile demand.
Based on the analysis on industry and their supply chain models, would suggest a supply chain strategy that is customer driven and customer focused. This can be achieved by delivering the product to the customer's expectation with the reasonable possible price and in the shortest possible time.
Supply chain management is the management of relationship and flow between different operations and processes which produce value for products and services to the customer. Being in a fast fashion industry, supply chain is considered with the flow of information and flow of product and services plays a vital role as well.
Effective supply chain include policy of keeping inventory low to maintain throughput which reduces the amount of working capital tied up in inventory. Information flow must be quick in both up and down the chain from retail outlets back to the manufactures so that this gives maximum amount of time to manage efficiency. In the same way, products have to be moved quickly through the downstream so that it reaches the customers before/in time. This shows that there should be coordination between the demand and the supply of the products.
For this industry, agile supply chain is best as it emphasizes on responsiveness and flexibility. As it has been suggested Agile supply chain has a number of characteristics. They are
Market Sensitivity: Here industry being close to the customer and identifying their requirement is very important for a successful business. Point of sales data must be analysed daily for the replenishment requirements. Not only point of sale data but also identifying customer's preferences and chaining requirements should be a priority. This can be achieved faster using computer aided tools like CAD/CAM which can be quickly implemented in generating into products and can be presented in the market within few weeks.
Virtual: Being virtual in the sense that everything is connected and integrated through shared information on the real time demand so that right from the manufactures to the retailers all are working on the same numbers. Retailers and suppliers are to be more closely connected by sharing information between them so that high levels on the shelf availability can be achieved with fewer inventories.
Transaction costs can also be reduced if cooperating parties are ready to move to Co-Managed Inventory (CMI). CMI is a process where suppliers collaborate with the retailers to manage the flow of products into the customer distribution system. This would work in the seasons where demand is relatively stable and replenishment within the season is possible.
Fig: Agile Supply Chain for Fast Fashion
Network Base: It is preferable to maintain a wide network base with specialist's often small manufacturers with flexible arrangements. These help the company to work in close with manufacturers and also achieve high level of customer responsive. Company should conduct the operations which enhance cost efficiency through economies of scale. Other manufacturing activities should be completed by network of small contractors each specializing in a particular production process and work exclusively for the company. In turn the company should be able to provide technological, financial and logistical support so that they can achieve time and quality targets. This system would give the required flexibility to cope with sudden changes in the demand.
Process Alignment: The supply chain requires high level of process alignment both within the company and externally with upstream and downstream partners. By process alignment there will not be any delay caused between different stages of the chain.
As we have seen there are often different entities involved in the process. So co-ordinating and integrating the flow of information between the networks is important. In the Agile network this is critical and can be achieved by web based software that enables different entities to be connected to achieve quick response to changing fashion.
Adapting Supply Chain
This industry is every changing so the company have to keep adapting their supply chain based on the markets or strategic changes. Though adaptation is tough it is critical in developing a supply chain that delivers a sustainable advantage. To be competitive in the market companies has to adapt or some time change the supply chain based on the situation.
Quick Response (QR)
QR is recognized is an operational strategy for two reasons. First the ability of the strategy to cope up with the complexity of logistics and second to adapt to the changes based on the economic situation.
QR has a number of strategic implementations for the organisation. Such as:
Alignment of operational activity to demand
Linkage between demand and supply
Partnership and alliance's
Apart from the strategic implications, Quick Response also requires a number of operational building blocks that have to be integrated and aligned for efficient and effective reaction to 'real'-time demand. Mere possession, however, of the various technologies, processes and activities will be insufficient for an agile response; close linkages are required across the whole supply system in order to provide a QR capability.
Quick Response and offshore sourcing
As highlighted earlier customer demand is becoming more volatile. Quick Response is designed for such an environment. A key factor in the value of QR is its ability to deal with uncertainty or variance. There are many sources of uncertainty in the fashion industry starting with demand; QR can counter this negative impact of uncertainty. This fits with the needs and characteristics of the product as well as the uncertainty associated with it.
From the very first day point of sales data are gathered, analysed and used to understand the demand preferences. Manufacturing is done based on this continuous data and reordering; re-estimation and replenishment approaches are used. Quick response can be better appreciated when applied to a particular demand situation such as global or offshore sourcing.
Quick Response and the costs of offshore sourcing
QR operations strategy offers a very high degree of flexibility, speed and responsiveness in supply. This has a sustainable implication for sourcing decisions; particularly offshore sourcing. Research shows that sourcing offshore to lower cost inputs can sometimes result in negative consequences; once the hidden and inflexible costs are quantified.
These hidden costs may be those that are not anticipated by the organization. Some examples include: quality control and delivery variables, high initial training cost, lower operator efficiency offshore; delay at the port of entry, last minute usage of air freight, expensive administrative travel to correct problem, process inefficiency and quality problems; leading to long lead time increasing large buffer inventory.
Once the hidden cost are categorised, sourcing only based on only low cost may become less attractive for fast fashion industry. This shows that the usage of domestic quick response supplier may be a better option due to the flexibility it provides. Collapsing the product pipeline can reduce time and provide an efficient response to rapid changing customer demand.
This report has provided a conceptual focus upon the issues involved in fast fashion retailing. Nature of the industry was discussed based on which the need of agile and responsiveness in the logistics pipeline has been identified.
The supply system has been identified by three typical lead times: time to serve, time to react and time to react which stress on the importance of agile in fashion network. Agility leads to changes in organisational structures and strategies. It moves organisation away from forecast-driven supply. Market sensitivity, virtual integration, networked logistical systems and process alignment all become fundamental prerequisites to achieving the ultimate agility, a Quick Response capability.
Quick response is used as an operational strategy which opens a new dimension in fast fashion. This report provides a review on Quick response, the agility it provides and the strategic implications for its implementation. The final section shows how a Quick response operational strategy provides an attractive sourcing when compared to sourcing to low cost input form under developed economies. This gives a clear idea that the impact of agility, flexibility and responsiveness in fashion supply becomes dominant.