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Long lead times exacerbate the already difficult task of forecasting seasonal, fashion items like sunglasses. At AAi.FosterGrant, which sources much of its product overseas, the time between placing an order and having it available in the store was close to five months when Darrin Weigle, vice president of supply-chain management, joined the company two years ago. "We didn't chart supply-chain metrics then, but we knew that we rarely seemed to have had the right product in the right place at the right time," Weigle says. "As a result, we would often have to expedite inbound product to fight fires we were experiencing at that moment."
In addition to rising costs for expedited air service, inventory transfers also were eroding the company's profitability. Products arrived from overseas vendors specifically packaged and prepared for sale at different retail outlets. The very same product would carry a different SKU and different packaging depending on the destination store. When the mix wasn't right, the company had to use local contract services to re-package Customer A-destined products for presentation in Customer B's stores, or vice versa, a process "that can really can eat into your margin, when it typically costs between 14 and 20 cents per unit," Weigle says.
Part of the problem stemmed from the fact that the demand planning process the company then used failed to differentiate between orders that were placed in response to true demand, those that were in anticipation of a particular promotion, and those that were placed simply to use open-to-buy dollars.
"Basically, anything in the demand history, as far as customer orders and shipments were concerned, was considered viable demand that could be used to forecast on and project future sales," says Weigle. "That's obviously nonsense, if half of it is non-repeatable business. But if you can imagine a demand forecast based on everything that was shipped out of here over the past three years, you can envision how large our forecasts were. And there was really nobody even challenging whether the forecasts were anywhere near the realm of reality." Overflow warehouse facilities were needed to house incoming shipments, and handling and transport expenses were getting out of hand, he adds.
"We had to put in place the proper foundational elements for a successful, best-in-class supply-chain strategy."
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