Supply chain management strategies for competing in Japan's fashion retail market

Supply Chain Management at World Co Case Study

Supply Chain Management at World Co., Ltd. Case Study

List five primary features of fashion apparel retailing in Japan. How can a company use its supply chain to compete in the Japanese retail environment?

The following are the five primary features of the fashion apparel retailing industry of Japan:

Due to the extremely high costs of retail estate, there are several different retail formats that vendors rely on in this market. These formats include company-owned stand-alone stores, shops in fashion malls and shops within department stores.

Department store chains dominate relationships with vendors, even to the product mix and promotional strategy level. The case explains that department stores often will share the risk of carrying inventory, yet have been known to require the vendor to also assume all risk for inventory as well, which is a major financial liability to undertake just to gain distribution through this channel.

The Japan Quality Association mandates standards for sizing, labeling and fabric specifications for all clothing sold in Japan. For clothing targeted at younger women (under 25) there is very little variation of sizing, which only two or three bottom sizes and only a single size for tips and dresses. This translates into significant demand management challenges as there is less variation in sizing options to minimize risk.

Climate does not vary as significantly in Japan as it does in the U.S., therefore there is less in-store variations in weight and style of fabric and variations for hot vs. cool weather. This dynamic of the Japanese market lends to the challenges of predicting demand for clothing significantly, given the shortened, accentuated selling seasons.

Japanese retailers promote the concept of customers getting a "one of a kind" garment, despite their supply chain, manufacturing and channel management practices supporting more homogenous and mass-market processes, practices and systems. As a result, it is common for Japanese retailers across all channels that World sells through to hide their inventories in the back of the store. In the U.S., the exact opposite is the case, where multiple items of the same size and style connote to the shopper that the retailer has a wide enough selection to fulfill their preferences in a given garment type.

For any company to compete in the Japanese retail market by relying on its supply chain, several factors need to be taken into account. First the rapid pace of new product introductions with relatively little variation in garment sizing requires exceptional knowledge of demand management and forecasting processes. Second, supply chain networks much be agile enough to respond to high levels of seasonality, and during the 50% sales, the ability to operate with relatively little data during these periods. Third, for any supply chain to be effective in competing within the Japanese retail market, the supply chain systems and supporting processes must also be designed to provide for support to supplier networks while at the same time taking into account the significant variation in reseller and retailing relationships. Fourth, to be competitive, a supply chain would need to be efficient enough to average 5 inventory turns a year at the very least or up to 8 (as the case study indicates), and have expertise in managing high-margin, highly seasonal products which generate 45% to 48 & Gross Contribution Margins (GCM)s per year. Fifth, as there is high levels of seasonality and the need for rapid new product introductions, any supply chain system hoping to be competitive in the Japanese market also will require integration at the process and system level between product planning development, production and marketing. In addition, the supply chain system must also have the ability to generate analytics and reporting to give the status of each specific retail location in terms of inventory levels, in addition to providing supply chain visibility multiple layers deep into the supply chain itself. Sixth, a supply chain that will be competitive in the Japanese retail market it must also be designed to support demand management, both from an initial demand and aggregate demand standpoint. What is most critical for a demand management set of processes and systems is the ability to manage both distribution-side and category-side forecasts and then arbitrate to define the optimal forecast levels for each Japanese distribution channel sold through. Further, there must be the flexibility of supporting iterative forecasting workflows, which is a key aspect of how World manages to successfully keep inventory costs low and product mix accurately defined to the store level. Ultimately all of these factors need to contribute to a combined supply chain and financial management strategy that seeks optimal gross margins (Lee, Rhee, 330, 331) through the minimizing of risk while seeking demand management and inventory planning optimization. The SPARCS system encompasses these areas, some better than others.

Identify the important features/components of World's supply chain, focusing on the processes for manufacturing, demand forecasting, and inventory planning. For each of the important features/components, briefly describe how it contributes to the company's accomplishment of remarkably short lead times (relative to U.S.A. apparel supply chains). Use bullet points to answer this question. Example: For "manufacturing" have one bullet point with 1-2 sentences underneath it describing the contribution.

Manufacturing

Reliance on domestic manufacturers exclusively, in order to ensure rapid response and accuracy of orders, which are critical for timing seasonality and new product introductions. Worlds' managers had also determined that relying on offshore manufactures would increase the likelihood that inventory turns would be reduced, costing the companies millions of dollars in costs.

Supplier Quality Control & Supplier Audits

Fabric inspections completed entirely at the factory as part of the fabric relax process, which allowed it to settle prior to be cut using a Computer-Aided Design (CAD) application that optimizes the use of fabrics. Completing fabric inspections right at the factories saved the step of having to inventory these materials, therefore increasing turn-around times and reducing inventory carrying costs.

Inventory and Production Planning

World relies on the Accurate Response approach to inventory and production planning, a technique that centers on a three-stage approach to minimizing inventory risk. First, materials preparation calculates total fabric requirements given demand forecasts. The material preparation process looks to also define optimal use of fabrics and materials to meet forecasting requirements. The second phase, First Order Quantity, front-end loads procurement processes and systems so that competing manufacturers do not gain any competitive advantage with regard to popular fabrics. This specific step in the inventory and production planning process also compensates for exceptionally popular SKUs by having available materials on hand in the event demand begins to exceed forecasts. The third aspect of Replenishment Quantity concentrates on anticipating additional demand based on sales forecast analysis. The overage of garments created during these iterative cycles is sold at 50% off at the end of the specific selling season they were forecast in.

Can World's supply chain processes be replicated at other apparel companies - why or why not? What about non-apparel supply chains - why or why not? Identify potential barriers to both situations.

The supply chain processes at World are so specific to their approach to managing suppliers and their tightly integrated to their processes for ensuring forecasting validity while at the same time concentrating on demand forecasting, that it would be very difficult for any other apparel companies to replicate it. In addition to these aspects of their supply chain, there is the efficiencies of processes and systems that give the company the ability to consistently achieve 8 inventory turns a year and attain over 48% gross contribution margins on a consistent basis. The level of process integration necessary to attain optimal gross contribution margins is so significant, it has been shown to be interrelated to interprocess integration and optimization at the demand forecasting level of supply chain execution (Lee, Rhee, 332, 333). In addition to all these forecasts, the unique strategy to Inventory and Production Management would be extremely difficult to replicate as well.

For non-apparel chains, it would be impossible to replicate the World supply chain unless a team of managers immersed themselves in the Japanese retail industry for at least five to seven years to understand its dynamics. The Japanese retail industry has intricate processes that keep demand management and inventory and production management efficient as a hybrid process that mixes automation and manual work. Given how many of the processes in the Japanese retail industry are comprised of manual and automated approaches to coordinating and communicating, it would take years for an outsider to understand how these specific processes interrelate to each other. Another factor that would significantly limit the potential of a non-apparel chain to replicate World's supply chain is the intensive coordination it allows production workers have, including their ability to create higher levels of process innovation vs. more traditional assembly line workers. Another factor is the intricate demand forecasting and aggregate demand practices World relies on. The specific approaches to forecasting for the Untitled line is also highly specific to Japanese retailing, and could not be easily imitated by outsiders, as this process builds on knowledge generated within the retail stores. Foremost among all these limitations is the fact that World is becoming a learning organization, and has defined processes for transforming learning into more efficiency and accuracy in their supply chains.

Consider chapter 4 ("The demand management process") in the text. List approximately ten (10) key issues/points from the case and then integrate/support them with material from chapter 4. Provide specific page numbers to identify the material from chapter 4. In your opinion, does the World Co. policy and procedures support the text's perspective on demand management - yes or no, and why? Use bullet points to answer the "ten key issues/points" portion of this question.

The World Co supports the text's perspective on demand due to the following key factors. World Co has worked to define demand management as integral to their forecasting, inventory production and planning, manufacturing and retailing operations. The following are the ten key issues or points that support the demand management process:

The iterative approach to defining forecasts based on developing initial demand forecasts, then updating these forecasts based on sales data is consistent with the text.

Segmenting distribution-side and category-side forecasts seeks to balance the requirements from suppliers with the demands from the distribution channels while attaining optimal product mix levels.

Aggregate demand forecasting processes that include macro-economic variables and the development of a Market Management System (MMS) that consolidates all data and interprets its impact on forecasting is also mentioned in the text.

Development of interactive forecasting strategies based on the Plan Do Check Act (PDCA) approach to iteratively refining forecasts.

Aligning demand management to support more rapid and accurate new product introduction strategies, including the continual refining of underlying processes to make the new product development and introduction process more efficient.

Individualized SKU forecasting and ranking by seasonality, including supply chain forecasting to the raw material level.

Using Inventory and Production Planning to seek Economic order Quantities (EOQ) for products with rapid product lifecycles. This is the case of how World is using Materials Preparation to accomplish more efficient planning at the beginning of each product's lifecycle.

Development of a coordinated supply chain system (SPARCS) that encompasses product planning, product development, production, manufacturing and logistics is consistent with the texts' analysis of demand management platforms.

Use of Pareto Analysis to define the optimal mix of SKUs by fabric and size, as is shown by the Obermeyer Method. The use of Pareto Analysis to gain insights into how the optimal mix of products can be forecasted as part of the demand management phase of supply chain operations.

Reliance on channel and retail sales management to assist in fine-turning demand forecasts, which is shown in t he case study through the use of the Obermeyer Method.