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A Complete Supply Chain Transformation From Push to Demand-Pull

Until 2001, the world of supply chain management, especially in retail, had been driven by what we call the "push system," a very linear and slow-to-move-forward process. This approach, historically in retail, has been driven by an antiquated "middleman & merchandising" model involving "The Show", followed by design, material planning, production, then pushing product to stores, in anticipation of a "one season" market. A process fraught with risk to the bottom line. -Gregory L. Schlegel, Founder, The Supply Chain Risk Management Consortium, Executive-in-Residence, Center for Supply Chain Research, Lehigh University

A Complete Supply Chain Transformation From Push to Demand-Pull

Since 2001, when the internet became ubiquitous, the “pull system,” or demand-pull approach, has been making inroads across multiple industries. In a pull system, procurement, production and distribution are demand-driven rather than by a forecast. This approach follows the “supermarket model” where limited inventory is kept on hand and is requested as it is consumed. Another attribute of pull is a supply chain where a customer purchase initiates real-time information flows through the supply chain that consequently causes movement of product through the network. And one further differentiation is utilizing just-in-time (JIT) methods. These include zero defects, reduced lead times, reduced setup times and smaller production run or lot sizes. The net-net: The impact of this disruptive change has forced all mass market fashion players to attempt to speed up their supply chains, reduce lot sizes and make more frequent shipments to their stores. Unfortunately, many have not been successful and have filed for bankruptcy.

Needs for the next several years—It’s obvious to everyone that “seismic shifts” are now taking place within the retail industry, driven by this new “fast fashion” approach. “Retail is at the peak of the most dramatic shift it has likely seen since the late ‘90s. If the late ‘90s was the inflection point for many industries to move to “demand-pull”, 2015 was probably the year retail finally figured it out!” says Lee Peterson, EVP of WD Partners. And it seems many apparel companies are still chasing the lowest labor cost, which tends to be farthest from the point of demand. More and more retail companies are chasing ZARA, a division of Inditex. In June 2017, Inditex announced an 18 percent surge in net profit and a 14 percent jump in sales in their latest quarter. ZARA is driving this “retail transformation” utilizing demand-pull supply chain methodologies. This transformation is driven by supply chains that mobilize the financial metrics of speed and flexibility, valuing both over cost. The model allows ZARA to source and sell with lower investment and risk, resulting in unparalleled profitability. ZARA has leveraged this supply chain strategy to develop a “season-less” demand stream with its customer base, who tend to visit their stores over 17 times per year. They are truly driving their supply chain with the voice of the customer.

“The exciting opportunity for apparel companies will be to embrace demand-pull approaches to leverage their supply chains to improve profitability,” says Ashesh Amin, COO of Adrianna Papell. We couldn’t agree more. The industry will have to review their entire supply chain process, eliminate non-value-added work, focus on total supply chain visibility, partner collaboration, cost efficiencies and supply and demand responsiveness to transform and maintain their market share.

The Outlook

Invariably, there will be additional mergers, acquisitions and bankruptcies over the next five years. Whether this industry will be successful in this supply chain transformation is yet to be seen. As one European brand executive stated in a June 2017 conference: “It’s more than a matter of pure technology; it’s a matter of organizational will to change the decision process from the slow ‘merchandising model’ to this thing called demand-pull.”

Since 2001, when the internet became ubiquitous, the “pull system,” or demand-pull approach, has been making inroads across multiple industries. In a pull system, procurement, production and distribution are demand-driven rather than by a forecast. This approach follows the “supermarket model” where limited inventory is kept on hand and is requested as it is consumed. Another attribute of pull is a supply chain where a customer purchase initiates real-time information flows through the supply chain that consequently causes movement of product through the network. And one further differentiation is utilizing just-in-time (JIT) methods. These include zero defects, reduced lead times, reduced setup times and smaller production run or lot sizes. The net-net: The impact of this disruptive change has forced all mass market fashion players to attempt to speed up their supply chains, reduce lot sizes and make more frequent shipments to their stores. Unfortunately, many have not been successful and have filed for bankruptcy.

Needs for the next several years—It’s obvious to everyone that “seismic shifts” are now taking place within the retail industry, driven by this new “fast fashion” approach. “Retail is at the peak of the most dramatic shift it has likely seen since the late ‘90s. If the late ‘90s was the inflection point for many industries to move to “demand-pull”, 2015 was probably the year retail finally figured it out!” says Lee Peterson, EVP of WD Partners. And it seems many apparel companies are still chasing the lowest labor cost, which tends to be farthest from the point of demand. More and more retail companies are chasing ZARA, a division of Inditex. In June 2017, Inditex announced an 18 percent surge in net profit and a 14 percent jump in sales in their latest quarter. ZARA is driving this “retail transformation” utilizing demand-pull supply chain methodologies. This transformation is driven by supply chains that mobilize the financial metrics of speed and flexibility, valuing both over cost. The model allows ZARA to source and sell with lower investment and risk, resulting in unparalleled profitability. ZARA has leveraged this supply chain strategy to develop a “season-less” demand stream with its customer base, who tend to visit their stores over 17 times per year. They are truly driving their supply chain with the voice of the customer.

“The exciting opportunity for apparel companies will be to embrace demand-pull approaches to leverage their supply chains to improve profitability,” says Ashesh Amin, COO of Adrianna Papell. We couldn’t agree more. The industry will have to review their entire supply chain process, eliminate non-value-added work, focus on total supply chain visibility, partner collaboration, cost efficiencies and supply and demand responsiveness to transform and maintain their market share.

The Outlook

Invariably, there will be additional mergers, acquisitions and bankruptcies over the next five years. Whether this industry will be successful in this supply chain transformation is yet to be seen. As one European brand executive stated in a June 2017 conference: “It’s more than a matter of pure technology; it’s a matter of organizational will to change the decision process from the slow ‘merchandising model’ to this thing called demand-pull.”

A Complete Supply Chain Transformation From Push to Demand-Pull