Markdowns, stockouts and lost sales are profit-killers for fashion brands and retailers. Across the industry, the collective impact is staggering. IHL Group, a retail analyst firm, estimates that stockouts (resulting in lost sales) and overstocks (leading to markdowns) cost the worldwide retail industry $1.1 trillion annually.
Among the key reasons for these profit-killers are the disconnected, siloed data and processes in most retail supply chains, which lead to slow, ineffective decision-making. While everyone would agree that eliminating siloes is a desirable goal, fashion retailers and brands have made surprisingly little progress in this area. Instead, they continue to rely on spreadsheets and a patchwork of systems; most companies’ current supply chain models are decades old, with information that flows in only one direction. They start with planning, then move to design and development, into manufacturing and finally, distribution to the retail locations.
These outdated processes create ripple effects throughout the supply chain. After all, fashion retailers must react to current sales trends and make operational and tactical decisions mid-season. All too often, however, the critical departments involved in the supply chain–planning, development, sourcing, compliance, production, logistics and sales–operate as though they are separate business units. The result is outdated information, an inability to react to trends, and missed opportunities, which leads to lost sales, markdowns and poor profit margins.
Real-time information helps increase sales and profits
That’s why fashion brands and retailers are increasingly focused on a digital supply chain platform, which centralizes and shares information that originates in legacy PLM, ERP, logistics and other systems. A digital supply chain makes real-time information available to all relevant decision-makers in the extended supply chain. Armed with this information, companies can answer two basic questions that can help them increase sales and profits:
- What’s selling? How quickly can the company accelerate more products to the consumer, which will drive greater sales and profits?
- What’s stalling? How can the company minimize losses when products fail to meet sales expectations? How quickly can it reallocate materials and production lines to more profitable items that are in demand?
A digital supply chain can help companies adopt a demand-driven supply chain strategy that helps minimize stockouts and overstocks by enabling companies to:
- React quickly to retail sales trends in multiple channels and locations.
- Execute material commitments and manage open liabilities.
- Position material inventory in multiple production locations for fast-turn manufacturing.
- Prioritize WIP based on retail sales trends.
- Streamline supply chain communication with internal collaboration tools.
- Detect problems and opportunities with exception alerts.
A blueprint for change
Without a mindset to embrace change, however, brands and retailers will not be able to adjust to meet new demands and read and react to the shifting market. Company culture must be transformed to embrace the digital supply chain and deliver products to the consumers that want to purchase them.
For many companies, this means a willingness to embrace new strategies and processes. Company leaders must set the example for their employees and lead with courage and confidence when it comes to adopting these changes. Otherwise, the rest of the organization will not follow. Below are practical steps to position your company to realize the benefits of a digital supply chain:
Foster a single corporate goal. Every fashion brand and retailer should have the same goal: Get product to the customer who wants to buy it. This simple goal will unite everyone in the company to adopt a new mindset and create change.
Flatten the organizational decision-making process. Streamlining corporate structures to prevent bottlenecks will help teams to make quick decisions and make processes faster. Teams should have the freedom to make decisions and execute upon them, as long as they align with the corporate goal listed above.
Eliminate data silos. Enterprises must break through organizational barriers and tear down any silos in the supply chain. All the information needed for a digital supply chain to run smoothly should reside in a single platform that everyone can access. NGC’s Andromeda Cloud Platform is an example of a system that brings together all departments into a single cloud-based solution that connects vendors, suppliers, and other providers, aligning the company and breaking down silos.
Change can be difficult, but when it comes to realizing the benefits of a digital supply chain, the transformation is worth it. By adopting new strategies to reduce markdowns and stockouts, fashion companies can improve sales and profits in 2018, and that’s a New Year’s resolution that’s well worth pursuing.
By Mark Burstein, president, NGC Software