Responsive Supply Chains Require Process Integration 1

Responsive Supply Chains RequireProcess IntegrationEvolving and increasing consumer expectations are driving fashion and lifestyle companies to align and integrate processes to remain competitive and relevant. Consumers have gained greater access to product, pricing, and availability details. Cloud computing, social media, mobile technology, and big data are combining to offer innovative market leaders the tools with which to differentiate their brands from the competition. Business tactics will not change dramatically, however as technologies mature, new benchmarks in speed, managing complexity, and personalized offerings will transform consumer preference and demand.

Invariably, many of these maturing technologies will gain increased acceptance and enable new processes that will become the industry standard. Market leaders are already conducting pilot projects in many of these areas that, if successful, will better solve old challenges with new tools, while irreversibly elevating consumer service expectations.

Last decade the industry increased efficiency through investment and deployment of process-changing enterprise technology. This decade we seek the agility to better align with consumer expectations. Over the next decade the combination of efficiency and agility is likely to create a focus on synchronization up and down the value chain, all with the goal of matching fashion offerings with consumer preference in real time. Tomorrow’s world of consumer-centric synchronization will be dominated by businesses that orchestrate their entire supply chain to prioritize the consumer and deliver goods and services in alignment with elevated consumer expectations.

Such orchestration of the value chain will differentiate competing organizations in the coming decade. Enabling technologies will facilitate coordination and collaboration between partners using integrated processes across the value chain in real time.The convergence of enabling technologies will support those committed to this evolution.

Race for Operational Agility

Investments made to enable greater agility across the value chain are paying off for brands and retailers that consistently focus on meeting and exceeding the increasingly sophisticated demands of consumers. Surveys show that 41 percent of consumers now shop with only two to five retailers1 illustrating the fact that the average consumer retail footprint is shrinking. The agility demonstrated by leaders like Amazon is setting the bar high for brands and retailers seeking to win and protect market share.

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The race for operational agility required to service tomorrow’s consumer is reminiscent of the race for operational efficiency in the 1990’s. Rather than focusing purely on productivity, brands and retailers must similarly focus on aligning supply with demand to better serve consumers. When competitors like Amazon are nearly always in stock and deliver products within a day or two, delivering the right products, at the right time, in the right delivery channel becomes a requirement to even be considered by the consumer. In the market described in PWC’s report above, second chances will become more scarce for merchants who disappoint consumers.

The potential of combined agiility and efficiency is the result of a convergence of multiple technologies. These technologies will enable businesses with new processes required to meet heightened consumer expectations. Big data initiatives will drive real-time understanding of the consumer. Integration of social and other sentiment data into intelligent analytical models will shift from reporting the past to predicting the future. Hyper-speed processing made possible by hardware and software innovation will combine with mobile platforms to drive in-store and online demand shaping and dynamic personalized pricing and promotion management.

ComponentSuppliers

Factories

MillsFinancials

Manufacturing

TrendAnalysis

Sales &Service

Design

Brand Headquarters

Longer lead-time Ine�cient production planning Supply misaligned wi� demand

Lack of transparency Information latency Increased of Out-of-Stock

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Lack of real-time notifications Delayed trend analysis Inaccurate forecasts Production not linked to design Eroding market share

Disconnected operations, information latency and a lack of coordination across �e value chain increase �e risk of ine�ciencies and causes supply chains to be unresponsive to sudden changes in consumer demand. This results in an erosion of brand equity.

Retail

Online

Retailer

Customer

Quality &Compliance

ShopFloor

Planning &Execution

Disconnected Operations Results in a Cumbersome Supply Chain

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Connected Operations Improves Supply Chain Agility

Production aligned wi� demand Reduced costs of production Faster time to market Greater control over planning

Out-of-Stock minimized Optimal utilization of inventory Better customer retention Increased brand loyalty Better cross-channel integration

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1 Real-time trend analysis Design prioritized based on demand Better collaboration wi� manufacturers

Connected operations enable better visibility into functions of �e entire supply chain, �ereby promoting increased collaboration and coordination across partner organizations. The alignment of all major sectors results in an agile supply chain �at is better equipped to meet dynamic consumer demand and capture market share.

Manufacturing Brand Headquarters

Retail

Financials

Trend Analysis

Sales & Service

Design

ComponentSuppliers

Factories

Mills

Quality &Compliance

Shop Floor

Planning &Execution

Customer

OnlineRetailer

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As these processes and technologies mature, businesses that master the orchestration of their internal and external value chains to better service the consumer will capture market share from those who fail to integrate their processes with those of their supply chain partners.

Fortunately, real-time integrated platforms combined with heightened processing power will enable transaction-level, real-time analytics while mobile platforms will be leveraged to communicate directly with the consumer as she is making a purchase, and cloud infrastructure will connect value chain partners to help them collaborate to more effectively meet demand. As these technologies mature and converge fashion and lifestyle companies will continuously improve their ability to overcome these challenges.

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Process integration inside the enterprise will be the early focus, but new “multi-enterprise” technologies will present opportunity for process integration across entire value chains. Ironically, similar technology has already connected customers to each other to allow them to communicate more effectively by using platforms like Twitter and Facebook to share just how effectively fashion brands and retailers are meeting their expectations.

Supply Chains Become Customer-Centric

Technology innovations are enabling fashion and lifestyle brands to pursue previously unattainable levels of coordination across supply chains. This is well timed for the industry’s renewed focus on meeting increasing customer expectations. Even brands that source product overseas are now considering how outsourced processes can be better connected to contribute to improved consumer service levels.

In many ways the shift is analogous to the improvised music of three gifted musicians against the carefully composed music of an orchestra, where each instrumentalist contributes to an overarching harmony – equivalent to the service provided to the end consumer. However consumers, unlike music connoisseurs, are less interested in the process through which their demands are met and more in being satisfied.

In-Store and Online Retail Merge

In-store retail: Historically, fashion consumers who valued immediate availability and opportunity to evaluate product fit selected brick-and-mortar retailers with high in-stock rates. They accepted the inconvenience of travel required to reach the store.

Online retail: Meanwhile, consumers who shopped during non-traditional hours preferred an online channel, accepting the trade-off between the cost of returning products that did not fit in exchange for shopping at their convenience.

This was the backdrop when online retailer Zappos appeared on the scene and simultaneously attacked and merged both legacy segments with a new model that consumers validated with their business.

Zappos reduced the fit concern by shipping multiple sizes to the customer, and paying round-trip shipping on whatever they returned. This created and captured a new segment of consumers who prefer to shop during off hours, but require to see, touch, and evaluate fit prior to committing to the purchase. The Zappos model first exceeded, and now sets consumer expectations for future purchases from both Zappos and their competitors. It is reasonable to assume this model accelerated the adoption free online shipping as a standard practice.

Such innovations are evolutionary until consumers decide, through their loyalty, they become standard practice. Zappos focused on a consumer issue, integrated processes and technology with brand and logistics partners using evolving technology, applied website technology to close the gap between online and store shopping experience, and captured market share from online peers in addition to brick-and-mortar retailers. Those brick-and-mortar retailers likely felt they would “never” lose customers who wanted to confirm fit before purchase. Surprise - “never” fails to recognize the evolution possible when process and technology combine to better serve the consumer.

Omni-Channel Drives Integration

With fashion margins generally at 50% or above, and out-of-stock and markdown rates between 10-20%, the prize today is capturing the revenue and margin lost to misalignment of supply and demand. The rising omni-channel movement can be considered a symptom of thedisconnected operational framework and the lack of integrated solutions available to achieve this alignment.

Further, the emphasis placed on “omni-channel” investment across many brands and retailers confirms the business case for alignment. Planners have made a successful case that a real-time view of inventory across the suppy chain and distribution network allows them to make better allocation decisions in response to changes in demand. This results in higher service levels. Resulting higher service levels further bolsters the business case, especially if we consider the value of a satisfied customer against the considerable expenses incurred in replacing a dissapointed customer. This is ultimately reflected in each orgnization’s brand equity.

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The Bottom Line

Aligning supply to meet demand increases revenue and margins. This can be better achieved by developing the ability to sense changes in demand and respond based on a singular view of key factors, such as inventory availability, location, and supply chain capacity. All parties, from retail to manufacturing will have the same view. Maggy London unified their platform to achieve this very goal, integrating key processes. They report that: “In this challenging environment we need the ability to make decisions and react quickly. Being on one system gives us complete transparency. Now we have that coveted ‘one version of truth’, we are able to shift our focus towards making better decisions.” 2

Increased agility will drive significant benefits, including:

• Reduce lost unit sales• Reduce need to markdown• Reduce logistics costs expediting inventory• Reduce labor spent addressing supply imbalances• Increase customer loyalty (future revenue) • Minimize customer switch rate

Assuming the above conservatively increases top-line revenue by 1%, it drives over $ 10 million in EBITDA for every billion of a firm’s revenue. If processes and consumer loyaltly impacts are considered, the return may be 2-3x this result.

1 PWC’s 2013 Annual Global Survey of Online Shoppers2 Lisa West, Vice President of Production, Maggy London. Unified ERP, Thought Leadership Report, Apparel Magazine & Edgell Communications, 2011

attune is a team of trusted business technology advisors who work with fashion and lifestylebrands to transform their business performance. attune offers services across the fashion and lifestyle value chain, developing solutions that maximize competitive advantage, integrate and transform activities across people, processes and technology.

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