Wednesday, September 11, 2013

Planning and Managing inventories in the fashion industry – A case of "Victoria’s" Secret

The fashion industry is a typical example of a very complex supply chain. How does a retailer in the fashion industry mange inventories considering the volatile nature of a “trend”? A research conducted by Sumit Kumar on the "Supply Chain Strategies in the Apparel Industry: The Case of Victoria’s Secret" illustrates this. 

How does Victoria’s Secret, with its short times to market avoid the “Bullwhip” effect? How does it fine tune supply based on the fluctuations in demand?

Victoria’s Secret (VS) has 2 supply chains running in parallel. One is the “Basic” supply chain, which has a constant demand year round and the “Fashion” supply chain that changes based on seasons. The inventory management for the “Basic” has a safety stock level of 4 weeks, whereas the inventory management for the “Fashion” line is very different. VS uses a “pull-based” allocation for basic categories for which historical data is available. 52 weeks forecasts are evaluated weekly and monthly to ensure that the supply meets demand. Further, stores are replenished once in 2 weeks.

Manufacturing and Sourcing without the “bull-whip”?
VS owns Mast, which is responsible for 80% of the sourcing and manufacturing. Apart from having a list of vendors in India and Sri Lanka, VS has a very strategic sourcing process carried out in 4 steps. The sourcing group estimates possibilities of distortions at an operational level such as natural calamities, selects vendors and assesses the worldwide trade situation.

As a method of managing its inventory, Mast ensures the inventory is manged in the initial phases of manufacturing itself.
Step1: Check points during Plan Execution
Once all the assessments are made, a PO is written and supported by the planning, merchant and Mast teams. Mast now lays “decision gates” to incorporate possible changes that might be applied to the original PO. These are placed at points when the raw material is ordered, when it is cut and when it is colored.
Step 2: Involve Vendors and create a Sourcing Network
VS has a vendor council that includes finished good and raw material producers. “Collaboration” is the key. Fabric is dual sourced; raw materials are single sourced within one geographical site.
Step3: Tactical selection of Vendors
VS has Launch and non-launch vendors. Non-launch vendors produce basic and large volume orders. The launch vendors are established, innovative vendors, with no minimum volume commitments who do most of VS’ manufacturing. The “no minimum volume commitment” does not necessarily put the supplier in danger as the vendors are part of the whole product selection process (through the vendor council) and commit to the product with prior knowledge.

The VS stores have warehouses that store an extra 20% inventory that is tracked and replenished twice a week.

If the apparel industry has managed their inventory so effectively with such small windows of change, why is it that the Thailand floods in 2011 almost crippled hard drive suppliers? Why did the hardware industry not anticipate and build in correction mechanisms in its supply chain?


Building a Flexible Supply Chain for Uncertain Times (Glatzel, Helmcke, and Wine, McKinsey Quarterly,March 2009)
Ten Ways to Improve Inventory Management (Bain and Company,July 6, 2011)
Supply Chain Strategies in the Apparel Industry:The Case of Victoria's Secret(MIT, June 2005)

Thailand Flooding Cripples Hard-Drive suppliers (NY Times, November 6,2011)

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