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Recession was not all bad. It gave people time to think of new ways to improve efficiencies and optimise processes. Earlier there was simply no time to look into some of the processes that happened anyway! Supply Chain Management was one of those things. Of course, there has always been a focus on SCM but recent time saw concentrated efforts towards innovation in this area.
2009 Economic Downturn & Its Impact
The year 2009 has been a year of re-awakening and the challenges faced in this year have forced fresh thinking in all segments of business, more so in the apparel and textile sectors. The fashion industry which saw unprecedented boom in this decade, also witnessed unprecedented challenges in the year 2009. Almost all brands and all retail formats were on extended sale period in the year 2009 and in the non sale period were offering aggressive promotions and discounts to prop up the consumption. This has led to 2009 becoming perhaps the year of lowest full price sales (in other words - highest mark downs). This was also the year when all projections and forecasts went haywire and the hyper activities of previous years caught on, leading to huge inventories across the fashion supply chain and adversely affecting not only the retailer/brand but also the suppliers, logistic providers, distributors, and the brand owners equally. Though the above gloomy picture was universal, there were some fashion retailers and brands (retailers and brands are taken together as most Indian retailers have their own private brands which constitute a significant chunk) who not only grew in sales but also had much higher full price sales compared to the competitors, and also had their inventories in reasonable control. An in-depth analysis of all such brands clearly attributes this to nothing else but better supply chain initiatives that these brands/retailers had undertaken even before the recession had hit. Some of these supply chain initiatives taken by retail formats/brands are being discussed here to highlight the impact of the competitive edge that a Fashion company's supply chain readiness brings in at all times, especially in times of recession.
Apparels and Textiles - The Extended Supply Chains View
The Apparel and Textile supply chain in India is not only unique in many aspects, but also by far one of the most complex. The diversity of Indian culture and hence, the fashion tastes and habits of the large demography of India leads to proliferation of local players in the fashion domain and fragmentation of revenues amongst players. Even today, there are very few fashion brands in this country with a turnover in excess of $50mn (INR 250 crore) a revenue sum considered to be very small in the developed world.
India is a country that perhaps has the longest Fashion supply chain lead time of close to 400-600 days. The cotton plucked from the cotton plant can take upto as long as two years to reach the hands of the end consumer. While this might seem exaggerated, an in-depth analysis of overall textiles and garment value chain will make it obvious. The number of composite textile mills in India is very limited and textiles, even today is produced in discreet manufacturing processes across various stages of spinning, weaving, fabric processing etc., carried out in different locations by different players. This in turn means holding of inventory in each stage (before as well as after each stage- raw material as well as finished goods), and there is also 'work in progress' inventory in each stage. Once the fabric is ready, it is stored as finished goods and sold to distributors and finally to retailers. The inventory level at the distributor and retail stage combined is often in excess of 180 days. In the case of garments, the garment manufacturing stage is an additional stage and hence an additional stage of inventory. The organised retail is acting as a major improvement in the supply chain and is helping reduce one level of inventory (at the distributor's end). However, organised retail too has two levels of inventory - one at the retail front and other at the retail warehouse. This in some way negates the advantage of disintermediation by retail in terms of supply chain time. Hence, it can be easily seen that while the most efficient fashion supply chains may be able to reach goods from the raw material stage to the consumer in about 250 days, the lesser efficient ones can take around 700 days. It is in this complex environment of Indian supply chain that we need to discuss new paradigms - innovations, infrastructure, technology and a holistic end-to-end (raw material to consumer strategy) - paradigms - which will be the main differentiator between Fashion Leaders and the Fashion Laggards.
In the field of apparels, a large number of case studies worldwide on fashion supply chain (like the case study of Zara, H&M, Li and Fung) have been written. However, the economic downturn in 2009 has led to challenges faced by even the companies that were studied. Through a shorter lead time at higher cost, Zara was a great example of a responsive supply chain. In a recessionary environment, in a complex country like India, this approach can be challenged. India needs its own responsive Fashion Supply Chain, yet needs to do away with the higher cost manufacturing as incurred by Zara. This is where a number of retail chains and fashion brands have innovated and have been successful in India. Despite extended mark downs and seasonal sales, some fashion brands and retailers have come out winners - not by chance but because of holistic supply chain redesign as well as implementation in the recent past.
The fashion supply chain is not a one-dimensional supply chain, but is quite varied and has several variations as shown in the chart below. Considering the diverse needs of the fashion sector, the three important concepts which need to be focussed on by any player are Mind to Market (MTM), Time to Market (TTM) and Cost to Market (CTM).
Mind to market - Mind to market is the time taken from the moment of design initiation to the time when the product reaches the consumer. This time in western nations used to be as high as 18 months. However, it is the endeavour of every fashion retailer / brand to continuously strive to lower the same. Zara is a case study of the same (in best cases 21 days). In India, leading retailers such as Pantaloons have successfully reduced this dramatically over the last few years and achieved growth in both sales and margins despite having tighter control on inventories. Achievement of a lower TTM needless to say entails end-to-end collaborative approach between the buyers, merchandisers, planners, garment manufacturers, fabric providers, logistic providers and the retail stores.
Time to market - This is the lead time from the moment an order is released to the garment manufacturers to the time the product reaches the consumer. In other words, TTM = MTM - design and planning time. Reduction in MTM and CTM plays a great role in reducing the uncertainties of the Fashion Supply Chain and finally results in better inventory management, lower obsolescence, lower mark downs and hence higher profits for the fashion retailer/brands.
Cost to market - The cost to market is the total supply chain cost including factory gate logistics (vendor to brand/retailer), the primary and secondary warehousing and distribution system, the replenishment system, and the secondary transportation. The reduction in cost to market can be significant for a brand/retailer. An an exercise last year, the supply chain cost for Big Bazaar Fashion was reduced by 1.5% which is more than half the total bottom line percentage for most retailers. This was achieved by redesigning the supply shain network and reducing the storage locations from 16 and consolidating them into just five big regional distribution centres with state-of-the-art infrastructure and technology applications.
The Fashion Supply Chain Model
Factors influencing the Indain fashion supply chain
The fashion domain along with its opportunities, also posesses various challenges for the logistics industry:
India is a multicultural heterogeneous country with the consumer tastes changing every few kilometers. This results in the retailers/brands offering becoming region specific,leading to multiplicity of Stock Keeping Units (SKUs). Some large retailers have more than 100,000 SKUs in fashion.
· The high real estate rentals for retail leave no scope for the retail stores to have any back-end store stocking of inventory. Hence, replenishment systems and their accuracy becomes critical.
· Lifestyle retail needs fast and quick-response supply chain deliverables, whereas, value retail requires cost-efficient supply chain.
· The logistics infrastructure of this country is in its early stages of evolution.
The combination of these factors leads to a uniquely Indian consumption supply chain - one that includes handling very large number of SKU's in pieces (eaches) as opposed to fewer SKU's handled in the form of pallets by most of the large retailers in the world. Hence, there is a growing need to learn the art of managing these complexities and design and execute supply chain solutions that are uniquely Indian. In addition to the above factors, there are multiple other factors that have an impact on a product's supply chain and need to be carefully evaluated and factored in while designing the supply chain solution. The major amongst them being:
Supply chain requirement - responsiveness v/s efficiency
Supply chain design
Retail market (geographic) strategy for the respective format
Retail format's positioning strategy and its relation to the supply chain
External factors - the contemporary logistics landscape affecting supply chain in organised retail
India being a dominant global player in textiles, the sourcing for fashion is largely domestic. The manufacturing of garments is clustered around a few major centers - woven garments around Mumbai, Bangalore and Delhi, woolens and knits in Ludhiana, knitwear and hosiery around Tirupur etc. The supply chain network design has to factor in these manufacturing bases depending upon the product mix of the brand/retailer to optimise the inbound logistics cost. A few international fashion brands also import their merchandise from the global manufacturing bases or route it from their international distribution network.
Supply Chain Requirement - Responsiveness v/s Efficiency
Different product categories and retail formats have different requirements from their supply chains. For fashion chains like Pantaloons, Shopper Stop, and Westside, the Time to Market is the most important parameter. For hypermarkets like Big Bazaar, Spencer's, and Star Bazaar. businesses that target the cost conscious, Cost to Market is also an extremely important parameter. All these factors influence the supply chain design and determine how the associated solutions will evolve to deliver the specific and exacting requirements from the supply chain.
Supply Chain Design
The Supply chain design revolves around a plethora of activities like designing the network and the associated decisions - centralised or decentralised, based on sourcing or based on consumption or a combination thereof. The right solutions also need to be selected in the areas of - Technology, Automation and Mechanical. Decision needs to be taken on whether to own or outsource be it manpower or vehicles. Systems and processes to be implemented need to be evaluated and implemented. It is also important to have a culture of Learning and Knowledge Management to share and train across locations.
Retail Market (Geographic) Strategy
The major Indian retail markets are concentrated around the urban centers, the biggest of them being - Mumbai, Delhi NCR, Kolkata, Chennai, Bangalore, Hyderabad, Ahmadabad and Pune. The service levels to these cities are of utmost importance to any consumption supply chain. The distribution strategy is heavily influenced by the size of the product markets in these urban centers. The regional preferences have a major influence in deciding the supply chain strategy for specific products and categories. Further, in future, some more cities are likely to become important for organised retail. The supply chains will have to factor in the same.
Retail Format (Positioning) Strategy
The positioning of the brands and their value proposition determines the product mix and it's pricing. This in turn influences its deliverables from the Supply Chain. Even for the same product category, the priorities change depending upon the target customer segment for the product. For example, apparels can be high fashion lifestyle or they can be targeted towards the masses with low prices. Though the product in both the cases is apparels, the delivery strategy determines what is a priority - time to market or cost.
Government is in the process of scraping the CST and introducing the VAT thereby opening up prospects of the retail boom. Also, the emergence of GST is projected to make positive impact. Evolution of seaways, inland river ways and railways has enabled these to be considered as viable options. Infrastructure developments in the form of Golden quadrangle and Cross corridors have improved connectivity and reduced transit time. More FDI in retail sector will increase the competition and there will be a greater focus on optimising the supply chain to maximise the profits. Consolidation activities like mergers and acquisitions will also have a great impact on the design of the supply chain network as the companies would try to exploit the economies of scale to their advantage.
Sourcing - Integrating The Supply Side
In order to respond to market and consumers demands quickly, getting suppliers involved in the supply chain process is now becoming an important business practice often resulting in the formation of collaborative partnerships. To offer target customers new styles and fashionable merchandise in a timely manner, buyers' must collaborate with suppliers in streamlining supply chain processes right from product design and development, technical specification development for packing, labeling and packaging, development of quality standards and manuals and rating systems containing parameters and checklists for meeting supply chain needs.
Competitive advantage comes from not just sharing information with suppliers, but also from HOW you share the data. Information is only important if it can be acted upon. Leading buyers are allowing vendors secure, online access to reports, raw data, forecasts, sales and inventory and even to the replenishment system in some instances, using web-based portals and dedicated servers. Supplies are managed online with suppliers adopting latest techniques such as Advance Shipment Notices for notification of inbound cartons and their contents to the buyers, thus enabling pre-allocation of merchandise for retail even before the goods have come in. Pre packs, Inner Packs with bar codes and other such improvements are being used to further reduce the TTM. The information about the contents of each carton is recorded when it is packed by the supplier and a unique identity is created to link the bar code label on the carton with the ASN. The ASN is transmitted to the retailer, usually via EDI, so the retailer knows:
What is coming, how it will arrive and the number of cartons in the shipment. In conclusion, training and development of suppliers, building supplier matrices, and developing collaborative efforts were steps that "the buyer had taken to establish a virtual vertical company."
The Logistics Piece of Fashion Supply Chain
Warehousing is the most complicated and under-invested yet most critical logistics activity in the entire supply chain. The Fashion business requires the expertise in managing eaches at every level of activity from inwarding, putaway, picking, sorting, to store delivery. There is an increasing need to increase efficiencies, maximising inventory turns and services to the stores and customers. There is a growing need for Big Box warehousing solutions for fashion as the volumes and complexities go up in this fast growing market. Having bigger warehouses will facilitate economies of scale as the warehouse set-up costs and overheads are distributed over larger throughput. Consolidation of merchandise in fewer locations will also result in higher product availability for order fulfillment and store replenishment and therefore wider choice to the customers and higher sales. Further, these larger mechanised warehouses can be equipped with Mechanisation such as Racking, Shelving, wi-fi infra, RF guns, conveyor system, automatic weigh-check with print and apply, and sorter systems like put-to-light (PTL), bomb-bay, ring sorter etc., to automate the merchandise sortation process and make it fast and accurate at the same time.
For garment transportation, specially designed transportation network is required connecting all major consumption centers bringing in an innovation in the form of new system of volumetric goods transportation in double deck containerised vehicles and last mile deliveries from DC to Stores through tail lift fitted vehicles and Roll cages/Dolly /Nest able crates for consignment delivery directly on store floor. This has led to reduction in transit times hence lowering 'Time to market' (TTM), lower in-transit inventories and also lower freight costs. Vehicle fitted with vehicle tracking system (VTS) monitored through a TMS (Transportation Management System) ensures visibility of all consignments on a real time basis ensuring reliable and timely movement of consignments at lower cost.
In recent years, fashion attributes have infused nearly all garment types: product life cycles are shortening and product proliferation is accelerating even in the most basic garments. These trends have created increasing demand uncertainty that has changed radically the basis of competition in the textile- apparel-retail channel. Increasing demand uncertainty has led to the advent of "lean retailing". Retailers who once purchased large quantities of each item, far in advance of the selling season now avoid the risk of carrying inventory of increasingly unpredictable items by ordering smaller quantities of each product in advance and ordering, on a weekly basis, replenishment quantities of those products that have sold in the previous week. Lean retailing has driven changes in both information and product flow, resulting in the changes in manufacturing and supply chain practice; this has been facilitated greatly by the introduction and maturation of several key technologies:
Wire less infrastructure and hand-held devices for product identification, used to provide real- time, accurate information about which products are selling at the pointof-sale;
Electronic data interchange (EDI), used by the retailer to place quick, accurate replenishment orders; and
More sophisticated, Warehouse Management System (WMS), which allows manufacturers to pick and pack small replenishment quantities based orders.
Automated Replenishment System (ARS) works on actual pull based demand.
Automatic Replenishment System (ARS)
ARS is a pull-based system instead of the traditional push based system and ensures generation and availability of correct assortment with correct quantity of all major fast moving items on store shelves most of the time. ARS works on actual demand considering shelf stock, base stock level and past sales trend and instead of manual order generation, ARS triggers an auto-replenishment order from nearest DC to stores. This pull-based system helps in lower obsolescence and lower markdown for the fashion retail business thereby directly impacting the bottomline and topline. The replenishment requirement in ARS can be in single pieces also and here WMS plays a very important role in ensuring the order fulfillment.
Warehouse Management System (WMS)
A good WMS enables a complete visibility of inventory in the warehouse and contributes in the warehouse operations by substantially improving the productivity, order fulfillment and accuracy. WMS enables cross docking facility to bypass traditional receiving, put away, replenishment and pick cycles by moving "received" goods directly from the inbound dock to fulfill outstanding demand, all while reducing staffing, equipment needs, space requirements, and inventory carrying costs. Wave planning is performed to Group of orders into waves of one or more orders that are planned and released together to pick more efficiently and meet stores requirement. WMS is also helping in slotting to maximise productivity and minimise travel time from location to location by determining the most advantageous arrangement of SKUs within a range of pick faces or slots. It minimises disruptions that result from demand variability by enabling adjustment of product placement according to seasonality, special promotions, and changes in customer order patterns. This results in complete visibility of inventory and the warehouse processing in system, and leads to improved order fulfillment and accuracy especially the order line fill rate at SKU level - a parameter very crucial in fashion retail success -ensuring prompt replenishment of every single item in stores.
Reverse flow of merchandise is an integral part of any retail business and its efficient management can augment the bottomline considerably. The reverse logistics services are required to manage the reverse flow of merchandise from the stores and refurbish, repair, refinish and re-sell these products through the factory outlets or other liquidation channels.
Importance of an E2E Holistic Approach
One of the most important considerations for the success of supply chain strategy is that any supply chain is only as strong as its weakest link. Hence, unless all parts of the extended supply chains extending from the raw material suppliers to the consumers work equally well and in synchronisation and harmony, the end result would be sub optimal. Some of the critical factors for the success of the chain are :
Holistic extended supply chain approach
Selection of the right supply chain solution provider
· Use of the right technologies
· Creation of the right infrastructure, specially the warehouse
· Measurement systems and the continual improvement of MTM, TTM and CTM
Execution - The Final Frontier
Strategy alone can't delivery the result, execution is equally critical and can be managed by own or through third party logistics (3PL) company. One of the options for fashion/retail brands is to create all the above parameters on its own. The other option is to outsource it to a third party supply chain solution provider who has the requisite competencies.
Unfortunately, the supply chain solutions providers in India are very few and most of the logistic providers in India are mainly transporters and do lack most of the above critical success factors. However, with the growth of organised retail in the country, the organised logistic segment is also poised to grow. With the advent of GST (most likely in a few months) brands can further rationalise their network and by reducing stocking points, reduce the inventory as well as reduce the total cost of distribution. Reduction in stocking points also enables implementation of pull base system such as Automated Replenishment System (ARS) thus leading to much higher fill rate and hence higher sales. However, supply chain network modeling and design is a science which requires not only modeling software application but also an in-depth knowledge of the business. Some of the supply chain companies also possess network modeling design capabilities and can add tremendous value, both in terms of higher top line as well as healthier bottom line because of their expertise in providing innovative solutions which include supply chain network modeling, state-ofthe-art technology, skilled and trained manpower, investment in the state-ofthe-art infrastructure and innovative transportation.
Further, investment in infrastructure by the supply chain service providers will also help keep the balance sheet of the fashion players lighter, leading to higher returns on capital. Certain supply chain solutions companies have built core competency in the fashion domain for several years and have developed knowledge and infrastructure and possess all the above critical factors. Such companies can be used by the fashion retailer/brands and the supply chain network design as well as execution infrastructure, warehousing, replenishment and movement activities and also reverse logistics can be completely outsourced to such companies.
Anshuman Singh is the Managing Director & CEO of Future Supply Chain Solutions Limited - India's largest Consumer Supply Chain Company. In a career spanning over seventeen years, he has successfully created and led organizations in the field of Retail as well as Supply Chain and Logistics.