How to overcome the biggest barriers to implementing a Responsive Supply Chain
The implementation of a responsive supply chain is a goal that many retailers and brands want to realize. Responsive supply promises a much more effective and efficient way of moving stock to where it is demanded, ensuring the best possible financial result.
Today, smart technologies and purpose-built software means that this longstanding dream has become a reality.
However, many retailers discover that, even after introducing the required technology, that barriers still remain.
Substantial change requires more than just new systems – it relies on a revolution in our own thinking, our habits, and our behaviours.
What is the biggest barrier for retailers to adopt a responsive supply chain?
The most significant reason for problems with implementation come from the deep rhythm that beats like a heartbeat through all operations. This regular pattern dictates the scope of retail activities (such as reordering, deliveries, restocking, seasonal discounts) and sets the pace in which they are conducted. This rhythm has served us well in the past, ensuring that we don’t need to reinvent the wheel with every new season or financial year.
However, this rhythm is serving the wrong objectives, and the wrong end-goal is reached as a result. It assumes that all products are essentially the same – that we cannot know the quantity that will be demanded for any single SKU. As a result, the annual cycle of ordering massive quantities of cheap products with an unknown fate perpetuates, and there is no manoeuvring room for becoming more responsive.
To alleviate this, a new focus on maximizing throughput is needed for all retail activities, and the new rhythm should fall into place while pursuing this ultimate goal. Of course, this is easier said than done; a series of steps is preliminary.
Let us start with the manufacturing end of the supply chain. By introducing a new concept – ‘Make to Buffer’– we can ensure that we start off with the right pace. This will ensure that excess stock is never pushed down the chain and uproot outdated practices.
Following from this, agile production methods should utilize deferment and retain additional capacity – these tactics enable a more responsive manufacturing model. There should be a clear distinction between ‘evergreen’ or ‘basic’ items that are durable, and those that are seasonal, or trend based.
Using data from actual consumption, or from other sources, trends and velocity can be determined, and this is then used to regulate the pace and specificity of production.
Clearance – Everything Must Go!
Ever buy a sweater in the heat of summer? Probably not – and this is essentially why the ‘old rhythm’ dictates that seasonal products must be ‘cleared’ by the end of the season. It makes some sense: when you have a mess, you need to clean it up. But what if the mess is entirely avoidable to begin with?
Despite our good intentions of wanting to shift old stock, markdowns are bad for business, and rarely induce consumers to buy something they don’t want. We cannot force the customer to buy anything at a particular time, even when it is convenient for us. Instead, retailers must consider the consumer first.
You can only sell what the consumer wants, so this is what should be stocked. Nothing more, and nothing less. While this might sound an impossible task, some retailers have been very successful in this.
There are some leading retailers, including Zara, Shein and Levi, that have managed to adopt an agile, customer-centric business-model. This leads to a more accurate delivery of stock to its final destination: the consumer.
Shein has demonstrated remarkable growth due to its highly focused business model, which ensures a tantalizing selection of trendy products, at prices that are attractive to consumers and lower than other brands.
Shein’s business model features the following pillars
- Low pricing – This attracts a throng of interested buyers. In principle, if enough buyers can be found then they can be profitable.
- Supply Chain Investment – Shein uses Big Data, in combination with AI to scrape data from social media and other sources to form trend insights. This enables them to immediately identify shifts in trends.
- Quick turnaround – Without focusing on mass-production, Shein’s factories can turn new designs into shippable products within 3 days. Close partnerships with smaller factories and an ongoing quality assessment helps operations run smoothly in an integrated way, complemented by an agile supply chain that allows capacity to ramp up or reduce product flow as needed.
- Choice – The retailer offers between 4000 and 6000 styles every day, covering a full range of potential buyers with every imaginable lifestyle. There is something for everyone.
- Psychology – The gamified customer experience helps attract more users with the promise of a variable reward if you’re actively involved with the brand. Loyalty discounts and coupons help to drive repeat purchases and form new habits with positive buyer experiences.
- Sustainable credentials – Consumers are driven to make purchases from ethical and sustainable suppliers. Despite a lack of clear accountability for Shein, or an objective assessment of their impact, they certainly appeal to the consumer with ethical and environmentally friendly language.
The stratospheric ascent of Shein has been the result of numerous factors, including the pillars above. As a relative newcomer, it would seem they have been blessed by a fair degree of beginners’ luck.
However, it is because of their lack of bad habits and legacy thinking that they have been able to readily adopt a more consumer-focused business model from the very start. Other big brands, including Forever21, America
Today, and GAP – to name a few – have experienced much less impressive growth. This is because they are being held back by outdated working practices and processes that are out of step with the market – these impact their growth.
Taking steps towards a new rhythm
To adopt a new rhythm which is more in-step with consumer demand, retailers should take the following steps:
- Identify which items have a long shelf life (including Never Out of Stock or NOOS items)
- Determine their lead times
- Make an agreement with the manufacturer to order in small batches
- Order at regular intervals to ensure a steady flow of goods
- Avoid discounts, and keep the manufacturer updated about daily sales
- Seek out local manufacturers that can offer shorter lead times, even if this is more expensive.
These simple steps will start to build the foundation for a much healthier enterprise – one in which less capital is tied up in stock, and where stockouts are rare and very limited.
The deep rhythm of the old supply model can only be removed when it is replaced with a new rhythm.
By getting rid of long lead times and large batches, the retailer and manufacturer are both free to become more responsive to new trends and changes in demand.
Retailisation provides solutions and expert advice to companies that want to implement a Responsive Supply Chain.
With the expert guidance of Retailisation’s consultancy services, companies are empowered with tactics that help to dissolve barriers to progress and implement new working-methods that keep all teams aligned on the common goal.
Interested in learning how we can help? Let’s talk about what is possible for your company.