Insane in the Supply Chain

I’ve noticed that plenty of students in the course have taken the time to either present or write about how technology and social media has impacted the world of fashion. We’ve seen a variety changes across the industry, whether it be the new socialized way to shop or instant live stream of runway shows. There is not doubt that the way the fashion world works has changed, but I’ve yet to see a piece on debatably the sexiest part of fashion itself. That’s right, I’m talking about the supply chain.

Image result for mike jersey shore wearing abercrombie and fitchAt the end of the day, the logistics behind the inventory of a clothing line will have a major impact on how the company selling said clothing pulls a profit. Consider this, if Abercrombie and Fitch orders 100,000 units of blue sweatpants, but only 30,000 males want to be like Mike (“The Situation”) from Jersey Shore, then A&F’s inventory is going to be huge at the end of the fiscal year. Eventually, the company will want to push out the old and get in with the new. So A&F will have to sell their pants at a discount and suffer a smaller margin given that the costs of goods sold will reflect that of their original order cost, not their discounted price going to the customer. While obscure, I made this example up in order to quickly show how poor ordering can negatively harm business. In fact, the example I made up is now impossible. A&F literally pays The Situation to not wear their clothes. That’s how bad it got. You think I’m kidding? Well, I’m not. There was a lawsuit and everything.

So despite the confounding variable of a guido in this situation, the bottom line is this: What you order, how many you order, and from where you order matters. And technology has managed to ease the process.

At a bare minimum, think of how the process of the supply chain has changed just like how it has changed when you order a pizza from Domino’s. The old days you used to call in to a store, give your order and then wait for the knock at your door by the friendly pizza delivery guy. Nowadays do you expected me to just anxiously wait for my meal to arrive? Of course not. We use to the Domino’s tracker to know exactly who is making our pizza, when it leaves the oven, and when it’s on the way to my unclean, off-campus house.

Image result for domino's pizza tracker

In a sense, the supply chain is a lot like Domino’s Pizza Tracker. Companies depend on social media to see reviews on material goods, understand the nature of the delivery, and know when the shipment will arrive. Rather than go into detail on full logistics, I found a good image to explain a sense of the supply chain nowadays with reference to social media and technology so we can focus on the more important stuff.

supply chain technology applications social media infographic

Now if you followed the images above, you can tell that there are multilple steps to running an efficient supply chain. It’s all about how you use technology to prepare distribution plans, meet the right supplier, understand what your customer wants and record data for future planning.

In my opinion, Zara one of the best players in the game regarding the execution of the supply chain in fashion. They have a unique business model that allows for an optimal operational strategy that is unique to each store with their quick inventory turnover that allows for lower markdowns and a higher profit margin on their units for sale. But before I dive into how Zara pulls such a high-profit margin, it’s important to know what the traditional retail for clothing chain looks like.

Consider Gap. Their designers use data and try to guess the next trend for the

Image result for supply chain meme

I had to choose between an Episode II meme, or an Episode IV meme. You’re welcome MBA students.

upcoming season. They slay away coming up with their best designs and try to guess their best on what will sell based on their reports. The designs get approved and the company works to purchase the raw materials, assemble them and eventually distribute them across the nation to their stores. And this is where my A&F example comes into play. If the designs made by Gap miss their target audience preference, lack enough of a specific unit in one store, or the customer just doesn’t like the way the new line of clothes fit, then that’s a tough quarter for Gap. There is nothing they can do about it and they have to keep their heads down and hope for the best for the next season trends.

 

Zara, on the other hand, has a completely adaptable system. With a close knit, vertically integrated supply chain, it can purchase its raw materials for cheap. But what’s more important is how they decide to purchase new materials. Each employee at a Zara store is equipped with a Personal Digital Assistant which can track data on customer preference. With more than 2,100 stores, Zara has been able to successfully gather data to accurately adjust to their customer’s preferences. They order in small amounts to each store so that a fashionable item retains its prestigious perspective and doesn’t drop from full price.

For example, a customer shopping in a Zara sees a dress and likes the design of the item, but would prefer a different fabric and a slightly lighter color. The information put into the Personal Digital Assistant by the employee after talking to the customer could signal a new shipment of that exact same design with the more preferred qualities in a 2-3 week turnaround. No Zara store is the same as it was half a month before, and no two Zara’s are the same. It’s what fashion was originally intended to be: unique, changing, and popular.

At the end of the day, the shareholder’s are very happy about their profit maximization. Overtime, Zara has been able to rise to #53 for most valuable brand name. And I’m just skimming the surface at the practical applications of technology and supply chain. Big data, AI, and machine learning will become a factor in how to optimize selling a product. Soon we could move beyond the plan-o-gram system, and truly automate how our retailers work to maximize their profits.

 

 

 

 

6 comments

  1. Nice post! Zara is doing incredible things with “fast fashion” using data to keep supply chain super efficient and getting new styles on the shelves that respond to consumers’ feedback practically in real time as compared to the traditional way clothing retailers have been doing things.

  2. Great post! I agree that Zara has been a retailer that is really good at using digital technology to improve both its operations and customer service. It has sometimes made me wonder why competitor companies like Gap have not tried to learn from Zara. I am excited to see how retailers in general will continue to use data to improve their supply chains.

  3. Really liked this post! As someone who shops at Zara, I have appreciated the fast fashion benefits of their responsive supply chain first hand. However, I have also been exposed to potential quality downsides as well. At the Zara in my hometown, a woman purchased a dress and later came to the realization while at work that there was a rodent sewn into the lining of it… While this may have occurred even if Zara did use a traditional supply chain, it begs the question of whether they are so concerned with fast production to capitalize on fashion trends that their quality is suffering?

    http://www.nydailynews.com/new-york/manhattan-woman-sues-zara-finding-dead-rat-sewn-dress-article-1.2872780

  4. Nice post. I taught about Zara for years in ISYS0021 (COmputers in Management) and its nice to get an update on what they’re up to.

  5. Interesting post! I think Zara is an interesting company. While studying abroad I saw how in each country the styles were a little different based on local customs. Studying in Milan made me appreciate all the fashion trends more than I do back home so I was specifically interested in how fast fashion works. Zara’s inventory management is so fine-tuned but also really customer friendly. I needed a different size of a product that was at the end of its lifecycle so the Zara I was at ordered it from another one.

    One thing that rubs me the wrong way about Zara/ fast fashion is the impact on the environment. Because people are just buying, buying, buying, they are throwing away more, there are more shipments happening, and more fabric being used. Zara will have to work to maintain it’s popularity in the face of rising environmental awareness.

  6. Nice post! I am a big fan of Zara and I am also fascinated by the way their business is run. It is so successful that the CEO and the owner (he is also the founder) of the company is a billionaire and the second-richest person in the whole world. Their supply chain is at the heart of their success. Beyond what you mentioned in the post, they also utilize “modular” layout for their factories, where designers work on desinging new items and are surrounded by all the materials and fabrics they need (which were clearly selected based on data), and once the design is completed it is moved into production. And the whole process takes less than 2 weeks – Zara is notorious for adding new items every two weeks, if not every week. And by following the data, they can always choose to add more of a “good” item in the upcoming week, or to stop the production in favor of something that is more popular. It very different from the way other fashion retailers run their operations but it is what makes Zara such a giant – Gap’s CEO has even mentioned that although they would love to do what Zara does, it would require them to reorganize the whole company in order to be able to do so.

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