In our article: Even faster fashion - from catwalk to customer…, we talked about how the fashion retail operating model is in constant evolution with a tendency to focus even more on design’s proximity to end customers. Product development is now being done in a continuous cycle instead of seasonal “bursts” demanding even shorter cycle times to the entire supply chain. Considering high street brands, these trends are even stronger and should also be paired with the concern to maintain a sustainable supply chain while delivering the desired quality for its garments and keeping costs at bay.
This article focuses in the challenges and opportunities presented to suppliers by the current trends and how high street brands can go a step further into growing their relationship with suppliers to build a more collaborative way of working.
Challenges to being ‘fast’
Let’s consider the retail giant Inditex (owners of brands such as Zara and Massimo Dutti) and how they got to their current astonishing level of success: by working on a rapid fire model always trying to be in the fashion forefront and working in a vertically integrated pull system supported on a vast and well developed supplier network. Just in the south of Europe and the Mediterranean region, this network is formed by more than a quarter million workers, working directly or indirectly with their suppliers.
Their supply chain is aligned with their operating model and the group has been focusing into proximity to suppliers, helping them grow and develop by forming strategic clusters that already count for 91% of their production (2015 data). At the basis of their supplier relationships stands the group’s code for manufacturers and suppliers, their compliance programme and their audit and corrective plans to keep suppliers on track as well as rank them. Inditex goes a step further by bringing their suppliers more into product development, shortening the distance between Consumer-Brand-Supplier.
Being a supplier in this kind of chain is at a minimum challenging, it means having the capacity to work in a fast fashion model while having the capacity to face the risks that come from that model. All of this whilst keeping up with robust retailer policies that set stringent requirements on a broad spectrum of areas from working conditions to chemical usage or fibres used to manufacture raw materials. We can group these common challenges into 3 areas that most fashion suppliers will face:
1) Operational: the expectation for suppliers within a high street fashion retailer supply chain is to regularly start a new season with less than a quarter of the collection defined at the start. This means granting the availability and allocation of capacity to a short cycle time and highly variable model, whilst ensuring continuity in performance from its own supplier network. It also means facing the risks of uncertainty and not benefiting from economies of scale.
2) Compliance: high street fashion brands support themselves in long supply chains involving suppliers from around the world. Such a network demands for a higher concern to build a more sustainable business and ensuring suppliers comply with policies. Many high street brands have developed compliance frameworks for suppliers to follow and looked into further developing their relationship by setting up rating systems and regional clusters to boost the development of a sustainable operation and driving continuous improvement.
3) Competition: typically high street brands offer clothing in a low to medium price range demanding proportional costs to suppliers and a perfect balance between garment cost and stock. This makes them often go to their suppliers with low margins and tight delivery dates, making them bid against the entire network in a low bargaining power environment. This rises the threat of suppliers cannibalising their own business in a price war to attract more volume while causing operational costs to go up and increasing the risk of quality coming down in order for them to be able to deal with the tight deadlines.
Picking up again on Inditex (and its operating model) there is an opportunity in working with suppliers in closer proximity. As some retailers already do, it is all about integrating suppliers: helping the underperformers perform better by developing their operation and compliance levels and rewarding the performers by pulling them up the chain and giving them more relevance.
Working closer with suppliers to develop and reward is also common practice with proven success in other industries such as the automotive industry. A great example of this is when Toyota entered the United States market beating companies such as Ford, General Motors or Chrysler by developing their relationships with suppliers and applying what they called a Supplier Partnering Hierarchy:
1) Understand how your suppliers work;
2) Turn supplier rivalry into an opportunity;
3) Supervise your suppliers;
4) Develop suppliers’ technical capabilities;
5) Share information intensively but selectively;
6) Conduct joint improvement activities.
Some might argue that a high street brand product margin doesn’t allow retailers to fully apply such efforts however long term results, time, volume, quality and sustainability certainly do.
Bringing the supplier into the design stage
If our previous article stated that there is a trend of bringing design closer to customers, there’s also an opportunity for retailers and suppliers to integrate further into product development. This gives suppliers a broader view into trends or, as some brands already do, the opportunity to present their own trend inspired designs to buying teams using “internal catwalks” where products can be bought on the spot or taken on for further product development.
For the retailer this move means adding more variation and innovation to their offer and doing product development in a more agile way by involving suppliers in a much earlier stage - this allows them to learn, grow and build a stronger relationship while having better control over risk. On the supplier side they can start adding value not only by supplying the garments but also by supplying “creativity”, becoming much more relevant to the retailer. At the same time the supplier gains a deeper insight into the retailer’s way of “thinking design” and planning collections through learning from their ways of working.
Product development also becomes much more agile and the interaction between retailer and supplier much stronger. This is already happening with major players in the high street who don’t only send audit teams to their supplier sites but now, increasingly, they also send buyers, stylists and designers to do further development on site and provide their suppliers with insight into seasonal collections and major trends.
Going a step further
Working closer with suppliers and nurturing this relationship should be at the top of the agenda for any high street retailer or any player with high street aspirations. They should go the extra mile by shortening the distance between the end customer by involving suppliers more into early stages of a product life cycle, creating a win-win environment. This approach can be broken down into 6 key areas of focus:
1) Formalising and structuring relationship growth: to focus not only in improving supplier relationships and performance but also to grow capability and work towards sustainability;
2) Investing more in collaboration: creating new ways of working with the supplier focused on making product development more collaborative and agile;
3) Investing in technology: to support a higher degree of collaboration and enable processes to be executed in a more intelligent way supported in the right information;
4) Systemising and formalising innovation: including recognition programmes with suppliers;
5) Information sharing: focusing on bringing suppliers more into the information loop by sharing more insights on major trends on earlier stages of the product life-cycle;
6) Researching and benchmarking: on industries with mature supplier relationship management strategies such as the automotive industry;
Right now and in the near future it is key for high street brands to develop their supply chain in order to move closer to their customer while bringing their supplier network along the journey. Collaboration levels must be increased and the paradigm must shift from a chain model to a community model where all partners work collaboratively to achieve a common goal. Technology must leverage and accelerate this change creating new opportunities and positively contributing to reinvent the current operating model.
The high street supply chain needs to transform into a more connected and tight knitted community that operates in a collaborative and sustained way where all its elements relate to the end customer, synergies are created and the capacity to rapidly innovate and rapidly release to market is present.