With Next, Marks & Spencer and others announcing disappointing results in their fashion retailing businesses we ask where has it gone wrong for these retail giants? Their explanation is that the unexpectedly mild weather has resulted in the wrong ranges being stocked both online and in stores.
The impact of such a miscalculation is far reaching. It can cause brand damage as customers are unable to buy what they want, when they want it and worse, stores are stocked with product they don’t want. It also hurts margins as they subsequently discount to move unwanted stock.
The root of the problem is twofold. Firstly, by a focus on managing the upstream supply chain for lowest cost and secondly, buying decisions being made sometimes as much as eighteen months before the start of a new season.
There is another approach that involves building more agility into the upstream supply chain. This requires not just a change to physical distribution infrastructure, but impacts marketing, sourcing and supplier relationships and many other aspects of the retailer’s business. It’s a completely different operating philosophy which needs leadership from the whole executive to succeed. It can be more expensive in purely physical distribution terms but by avoiding the above problems the benefits far outweigh these incremental costs.
This being the case, it is perhaps surprising that more retailers do not invest in creating a more agile supply chain. Arguably it is because they have failed to answer three fundamental questions:
- What causes retailers to focus principally on creating a low cost supply chain rather than consider other options?
- What are the trade-offs between cost and agility? Do the benefits of agility outweigh the incremental costs?
- Under what circumstances or for which categories should agility be considered and when is a more traditional, cost-down approach more relevant?