Why Supply Chain will be a major area of focus for brands & retailers over the next 5 years?

Supply Chain Management is the management of flow of goods (Raw Materials, WIP products & Finished Goods) from the point of origin to the point of consumption..

As a function within the organization, S&OP process was often looked at as a mechanism to bridge the gap between supply and demand. The primary idea has always been to ensure the availability of just enough right products at the point of consumption so that retail business can maximize the return on capital invested.

The biggest enemy behind running an efficient supply chain has always between uncertainty- related to both the demand & supply of goods. McKinsey State of Fashion Report 2019 identified dealing with volatility & uncertainty as the number 1 challenge of the industry.

There are two sets of news that are real and in front of us:

Amidst many factors, following are some of the leading factors that are leading to an increase in uncertainty:

1. Shorter Product LifeCycles  

The customer trends are becoming shorter & product life cycles need to follow the same.

Fast fashion is the faster growing business category in the Apparel business. Zara offers 24 new clothing collections each year; H&M offers 12 to 16 and refreshes them weekly. The customer trends are becoming shorter & product life cycles need to follow the same. The retailers of tomorrow will need to more agile & smarter at sensing & responding to these trends.

Rise of smartphones have enabled information (competitor’s products, price point) at the fingertips of end customers. If retailers don't adapt to changing signals from end customers & follow in-frequent (in some cases a year long) planning cycles, customers are going to flip to retailers that respond faster & deliver them products which are in-line with the recent trend at the right price point.

2. Increasing share of Online Business & Expectation of Speed:  

Customers want products same day or next day. Faster fulfilment & delivery is table stakes if retailers need to survive.

The share of online business for retailers, especially in categories like Apparel is already greater than 25% and this is only increasing with time. The time lag between discovery and purchase is a pain-point for customers who continue to expect better experiences. Amazon effect has taken the entire industry by storm. Customers want products same day or next day. Faster fulfilment & delivery is table stakes if retailers need to survive.

Now how does a business which was predominantly run offline adapt to the nuances of online business. Retailers need to ask questions around should they partner with warehouses closer to customers, or should they convert their stores to warehouses for fulfilment and so on.

These are complex questions in uncertain environments and need careful consideration. Companies are increasingly focusing on improving fulfilment experiences and launching new technologies to enable a smooth and speedy transition from inspiration to acquisition.

First of all, the way to look at the situation is that uncertainty is not the enemy - it's an opportunity. The real question the retailers should be asking about is how do they deal with uncertainty by using data smartly and being more agile. Following 2 themes seem real and inevitable:

1. Move from Push to Pull model

Technology, analytics and nearshoring are part of the solution, enabling companies to respond quickly to source and develop products

Fashion is seeing the start of a seismic shift where products are going to be “pulled” into the market based on actual demand rather than “pushed” based on best-guesses and forecasts. Technology, analytics and nearshoring are part of the solution, enabling companies to respond quickly to source and develop products, squeeze production timelines and streamline distribution.

Products were earlier produced and marketed as a part of traditional “seasons” in the Push Model once every 4-6 months. Under the “pull” dynamic, procurement, production and distribution are based on customer demand and as frequent as 1-2 months.

2. Move Closer to Customers and Investment in Speed

Getting the customer experience right and profitable by the right stocking and shipping models is going to be important for retailers.

As a big part of the business is moving online & customers are demanding faster delivery, the products will be held closer to customers in a connected network of stores and warehouses. Getting the customer experience right and profitable by the right stocking (How much quantity in each warehouse and store) and shipping models (Buy Online Ship From Store, Buy Online Ship From Warehouse, Buy Online Pick from Store) is going to be important for retailers.

While the demand is already omni-channel, the inventory placement and fulfillment will also need to be truly omni-channel where there are shared inventories and retailers don’t look at online & offline inventories in isolation.

Intelligence will be at the heart of Fashion Supply Chains of tomorrow

Tools like AI and ML are becoming available for operational decision making for fashion businesses by enabling better sensing of demand and placement of orders in smaller batches based on recent trends. Most optimal product placement and distribution decisions for fulfilling online demand will also be led by machines to get the highest operational efficiencies and customer experience. Machines will start assisting merchants and planners in significant part of their work and will act like decision support systems to make their life easier.

Current Tech Systems need to be augmented with AI and ML

Most current ERP tech stacks that power operational decisions like demand planning, product placement, replenishment and fulfilment are largely rule driven & embedded with traditional algorithms that worked well for single channel and static seasons (once every 6 months).  We will cover more of these in our subsequent blog posts.

With the emergence of products with shorter product life cycles and complex decision making in omni-channel context, there is a need to augment the current systems with AI led algorithms that solve for the new paradigm of connected & frequent decision making.

Sprint AI

We at Sprint AI believe that getting an intelligent supply chain in place will be one of the key areas of technology investments for retailers over the next 5-10 years.
One thing is true, the game of Fashion Retail has already changed and supply chain is no longer an enabler but rather will be a key driver of competitive advantage for the retailers of tomorrow.
We have started taking baby steps in this new world. There are exciting times ahead!