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Eliminating Excess Inventory Through Supply Chain Efficiencies

As fashion emerges from the pandemic, one of the lessons learned is the need for better planning. Dealing with a greater-than-usual glut of unsold inventory during Covid-19 has been a wake-up call to align production to actual demand.

To get there, companies must make their supply chains more efficient. In a recent conversation with Sourcing Journal founder and president Edward Hertzman, Mercado Labs founder and CEO Rob Garrison and Public Habit co-founder Sydney Badger explained how to reap financial and sustainability benefits by better reading and responding to demand.

One of the ways to improve forecasting is by reducing the time between planning and production. Typically, fashion companies plan and design collections between nine months to a year out from when clothes will reach retail. And as Covid-19 showed, a lot can change in less time than that.

“There’s no way, if anybody’s honest with themselves, that they can forecast what’s going to happen a year from now,” said Garrison. “They’re going to get it way wrong.”

Retailers also need better connectivity during the first mile, or the first 120 days of a purchase order. By adding real-time visibility to manufacturing and linking sales to the supply chain, merchants can have a better pulse on demand and share that with their production partners.

Garrison noted that other brands could learn from Zara’s business model, particularly how it handles the planning stages. By shrinking lead times to just eight weeks, digitizing the supply chain and selling goods quickly, the fast-fashion retailer avoids excess inventory that can tie up cash.

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“The magic is what that does for their financials,” said Garrison. “Their working capital is freed up to use for continued investments.”

Taking the quick-turn model even further is Public Habit, a direct-to-consumer apparel brand founded by two Amazon alums. Public Habit produces entirely to order, using factories in Asia that allow minimum order quantities (MOQs) as low as one. From the time a shopper clicks purchase, it takes just 17 days to manufacture and ship the product to the consumer’s door. While this on-demand approach requires slightly more patience on the part of the customer, the lead times are even speedier than fast fashion. With its DTC fulfillment model, Public Habit also avoids the financial impact of duties by leveraging de minimis, and it doesn’t have to pay for warehousing.

In the traditional supply chain model, about 30 percent of goods are never sold. “We started becoming obsessed with trying to flip this make-sell-waste linear chain to be demand driven,” said Badger. “And if we could just make what we sell, then there’s a huge upside on the economics of the business as well as from a sustainability standpoint.”

Badger says that an often-overlooked piece of the puzzle in creating more efficient supply chains is establishing strong relationships with manufacturers. For Public Habit, its supplier partners are crucial in being able to produce single items quickly.

Underpinning Public Habit’s on-demand model is technology. Badger described Mercado’s platform as the order management equivalent to what Shopify does for e-commerce. “If [manufacturers] have visibility to demand, we can unlock so much value,” said Badger. “So that for us is the biggest opportunity.”

Click the image above to watch the video to hear more about how to improve supply chain efficiency and demand planning.