When it comes to retail sales, profits and overall performance, fast-fashion powerhouse Zara is at the top of the class—and supply chain excellence is the reason why.
A recent Forbes article, “Zara Uses Supply Chain to Win Again,” sheds insight into Zara’s supply chain prowess. “Fundamental to Zara’s money machine is a massively superior ability to sense both demand and supply. Demand data flows unimpeded to the supply chain…awareness of capacity, cost, availability and lead time is therefore far better than for competitors, who rely on distant supply bases in Asia or Latin America.”
Few if any retailers can replicate Zara’s tightly integrated operations. But taking a page from Zara’s playbook, companies can take major strides in connecting information and breaking down the operational silos in their business, areas in which Zara excels. It’s the key not only to reducing lead times—today’s No. 1 supply chain priority—but also to controlling costs and increasing profits.
Siloed supply chains lead to missed opportunities
For retailers and brands, the supply chain is the lifeblood of their organization. Today, however, organizational silos mean it’s difficult for departments to share information, and ripple effects are felt throughout the organization.
Production issues aren’t shared in a timely manner with decision-makers upstream, where problems can be resolved before they escalate into full-blown crises. By the time companies sort through mountains of spreadsheets, emails and faxes, they’ve missed critical opportunities, resulting in cost overruns, late shipments, chargebacks, quality problems and a host of other problems that can happen because of siloed data and processes in the supply chain.
SCM systems help break down barriers
The good news is that a new generation of supply chain management systems can help enterprises tear down the silos in their supply chain. These new supply chain management (SCM) systems connect the data and systems in an organization to drive better decision-making and lead-time reduction, turning SCM into an enterprise platform that shares data among key stakeholders in every department, as well as third parties like vendors, suppliers, product testing labs, logistics providers and more.
With this kind of alignment in processes and systems, SCM becomes an enterprise hub connecting users and departments across many different departments in the organization, so data flows upstream and downstream throughout the organization, much like Zara. And by breaking down the information silos in an organization, companies can not only plan but also react, which is an important distinction.
Planning is important, but reacting is even more important
Planning is vital but reacting is even more important. Information should flow real-time throughout an organization, so designers are not waiting until the end of the season to identify the top selling items. Instead, they should be able to see what’s happening almost immediately; gaining visibility across the entire enterprise with customers, suppliers and vendors is essential.
This ability to react quickly to information anywhere in the extended enterprise, upstream or downstream, makes all the difference in helping companies optimize lead times, increase full-price sales, reduce markdowns and meet profit goals. Here are just a few examples of the difference it can make:
Respond quickly to sales data. Boosting sales and profitability can be summed up with a simple formula: if something is selling, accelerate production. If it’s not selling, cut the losses and stop producing it, because it’s cheaper to cancel production than sell a product at a markdown. When goods are marked down, companies not only lose profit, they also take away floor space from goods that could be sold at full price. With the SCM hub connecting design, finance, sales and production data in real-time, retailers and brands can quickly react to the latest sales information and make the most of every season.
Push decision-making further downstream. SCM allows organizations to push decision-making further downstream; this concept of “postponement,” or waiting until the last possible minute to make decisions, is central to lead time optimization. And it improves decisions because the further into the design-production process, the more information companies will have and the better decisions they’ll make.
For example, there’s no way to accurately predict the runaway best sellers a year from now, but the further one is into the production process, the more information is available from fashion shows, social media, consumer trends and point-of-sale/e-commerce data. By eliminating the silos in the organization and sharing information collaboratively, companies can postpone decisions and improve outcomes.
React quickly to unforeseen events. There’s no way to predict random events like work stoppages, natural disasters, port closings or dozens of other occurrences that can wreak havoc on production. The ability to react quickly is critical, and companies can only do that by connecting design, production and logistics data. If your company relies on spreadsheets, fax or email to communicate with overseas suppliers, you’ll lose critical days and weeks, crippling your ability to quickly react.
Perform quality audits at the factory. SCM allows organizations to incorporate quality audits as part of the enterprise platform. This enables you to check for quality at the factory before the goods ship; if an audit fails, you can address it at the source, resolving quality issues quickly and without undue cost.
To optimize lead times, focus on supply chain systems
Does your organization aspire to Zara-like levels of performance? Then focus on eliminating silos and streamlining the flow of information throughout your organization. It’s within reach of any brand or retailer today, and it begins by turning your SCM system into an enterprise hub that connects data and can transform your organization.