Collaboration and orchestration of supply networks: the need for digital transformation in the Fashion & Apparel industry

Introduction

In a world where the volatility of consumers’ preferences is only matched by its intensity, the Fashion & Apparel industry is no exception. It is one of the most versatile since temporary styles dictate consumers’ choices, and products are often more of a fashion statement than a necessity.

Zara and most of the Inditex portfolio brands’ time-tomarket differentiated them from the rest of this ultracompetitive industry. While most fashion companies would take up to six months to conceive, produce and deliver a product to a store, the Spanish giant could do so in less than two weeks.

Amancio Ortega, founder and former chairman of Inditex, knew that the key was anticipating what the customers would want. Therefore, the concept was simple but innovative. It was not to create trends but to identify them from the designer runways and get them to the customers as quickly as possible, replenishing stores with new products weekly.

To achieve such a feat meant creating a unique business model. The model would be the basis for controlling the entire product lifecycle, for example, a vertical integration, from design to marketing through sourcing, manufacturing, and distribution, allowing for responsiveness and flexibility. The company would also operate with state-of-theart production and warehousing procedures and automated solutions that would link the stores to the factories to optimize inventory.

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Each contributor throughout the supply network belongs to the same company, being vertically integrated unlocks the standard boundaries of information sharing and streamlines cross-functional collaboration. This approach allows for better visibility and better supply chain management, enabling Inditex to be more responsive and flexible, constantly adjusting supply to the demand of its customers and successfully navigating through significant crises, even a worldwide pandemic.

The lesson learned from this business model is not to buy out contract manufacturers and raw material suppliers but rather to ensure that information flows from sales data from the stores to the last node of the supply network, back and across.

In a post-pandemic economy marked by inflation, volatility, and uncertainty, leveraging new technology to improve Supplier Collaboration across the global supply networks is a solution all industries and all contributors should embrace. But why is Supplier Collaboration so important? What are the benefits, and how is technology enabling this?

The importance of supplier collaboration

In an interview about their project with o9, Raymond Rey, Global Strategic Digital Transformation Lead at New Balance, shared his vision:

But why is Supplier Collaboration so critical? One of the first to theorize about the importance of Supplier Collaboration was Jay Wright Forrester while working on System Dynamics. Forrester created a game called ‘the Beer Distribution Game.’ This roleplay simulation game outlines the importance of information sharing and collaboration throughout the supply chain.

The goal is to meet customer demand with minimal expenditure on back orders and inventory. The task is to produce and deliver units of beer to the customers. The factory produces the beer, and the other three stages deliver the beer units until it reaches the customer at the downstream end of the chain.

There is a two-week communication gap of orders toward the upstream and a two-week supply chain delay of products towards the downstream. There is a one-point cost for holding excess inventory and a one-point cost for any backlog ( old backlog + orders - current inventory ). The key point is players cannot see anything other than what is communicated through pieces of paper with numbers written on them, signifying orders or products. The retailer draws from a deck of cards for what the customer demands, and the manufacturer places an order which, in turn, becomes a product in four weeks.

Each group can highly influence the supply chain by ordering too much or too little, leading to a bullwhip effect.

Due to a lack of information, suppliers, manufacturers, salespeople, and customers often need a complete understanding of an order’s real demand. The most interesting part of the game is that each group has no control over another part of the supply chain. Therefore, each group has only significant control over its part of the supply chain. Each group can highly influence the supply chain by ordering too much or too little, leading to a bullwhip effect. Therefore, the order taking of a group also highly depends on the decisions of the other groups.

Sharing information and allowing collaboration allows us to better manage the overall supply chain and prevent the bullwhip effect, a long-known challenge exacerbated by today’s complex environment.

Figure 1: Supply chain flow in the Beer Game

The benefits of supplier collaboration

Figure 2: Examples of supply chain without collaboration vs. with collaboration/visibility

Supplier Collaboration and lead times

To demonstrate the importance of communication, the Beer Distribution Game cuts all aspects of communication between the different actors of the supply chain. Taking a similar approach, what would happen if we remove all types of collaboration between clients and their suppliers?

Of course, this is an overly simplified version in a case where there would be no collaboration. The reality of the situation is more nuanced as most companies have already engaged in some form of collaboration with their suppliers. Here is a look at what the process usually looks like in most retail companies.

The graph identifies that Supplier Collaboration reduces lead times.

Another impact on lead time enabled by collaboration is allowing delayed decisions. Without collaboration and visibility on a bill of material (BOM), a client would have to place their full order by a specific deadline to allow the manufacturer to start manufacturing the finished product. As they provide detailed information about the production process, manufacturers can collaborate with their clients on what exact information they need and when. By understanding the exact requests, clients can provide more accurate information on time, and by delaying the need for specific details, the client will be more flexible.

Let’s use the example of a fashion company ordering products from their contract manufacturer. The standard process would be to first communicate to the supplier the upcoming volumes from a Style/ Fabric/Color standpoint X month before. The second step would be to place the PO with the details about sizing and destination Y weeks.

By enhancing the frequency and the transparency of the collaboration, sharing details about the BOM and the production schedule, only the fabric information would have to be communicated by X, considering that it is the constraint. The client would later be able to communicate the details about the color, then the style. By creating more decision dates, this process allows the fashion company to be faster to market based on their trend analysis.

Supplier Collaboration and margins improvement

Supplier Collaboration enables companies to reduce the overall cost of serving the consumer. Indeed, by providing their forecast, companies allow their suppliers to understand their demand and, therefore, to prepare for it.

fore, to prepare for it. If a supplier knows the upcoming volumes as accurately as possible, it allows them to determine if they can meet the demand at the required time. If not, they can accommodate and plan for the surplus ( investments, pre-build, etc. ). Alternatively, they can inform the client in advance that they will not be able to meet the demand request, allowing them to source the product from another supplier or adjust their production plans.

By leveraging their upstream demand, suppliers can better forecast and order the required raw materials with an appropriate lead time, allowing their suppliers ( i.e., clients’ tier-2 suppliers ) to ship the materials with standard freight options, preventing the use of expedited costs. Suppliers can combine orders and optimize freight by getting visibility into all their clients’ demands, reducing costs and impacting the planet.

Collaboration with suppliers should also go both ways. Contract manufacturers and materials suppliers should provide details about their capacity, allowing their clients to create rough-cut capacity scenario plans and identify the best approach to meet their unconstrained demand.

Supplier Collaboration and waste

Another aspect to consider with the forecast collaboration at different levels of the supply chain is that it not only removes a large part of the “guessing” process for the suppliers but by increasing the forecast accuracy. This also reduces the overstock due to safety stocks.

Suppliers can apply their stock policies based on an accurate number, enabling them to focus on manufacturing what they need without compromising the revenues. This helps free up capacity from their resources, eliminating the additional cost of carrying or not selling the extra inventory. The focus on optimizing inventory impacts all steps of the supply chain, limiting an industry’s impact on the planet’s precious resources without reducing sales or margins.

Supplier relationships have always been an essential part of businesses. As for the other supply chain processes, their importance has been exacerbated by the pandemic, putting them at the forefront of the game. But how is technology improving Supplier Collaboration?

Key capabilities of supplier collaboration

Supplier Collaboration is familiar, as most planners, purchasers, or procurement leads already share information with their suppliers. The platforms and tools to support this workflow have considerably evolved, fixing most of the previous gaps.

o9 Supplier Collaboration solution operates as part of the o9 end-to-end cloud-based platform. It offers a secured portal that brings suppliers and contract manufacturers into the planning process. Leveraging all the existing capabilities that :o9 offers, such as setup flexibility, easy-to-run what-ifs, limited interfaces, and unique data workflow, the Supplier Collaboration workspace allows the management of multiple workflows.

Forecast Collaboration

• Real-time visibility and collaboration on the suppliers’ requirements and forecast
• Supplier’s ability to commit to the forecast
• Automatically convert forecast in the frozen period to suggested POs

Capacity Collaboration

• Visibility and collaboration on supplier’s capacities
• Ability to commit to requested capacity and collaborate on the production plan
• Collaborate on BOM and lead time details

Order Collaboration

• Purchase Order Lifecycle Management, Flexible PO State Management
• Visibility and Collaboration on Shipments, Goods Receipt, and Invoices via interfaces with ERP systems
• 3-way/4-way match across PO, Shipment, Receipts, and/or Invoices

Inventory Collaboration

• Current and Projected Inventory Invisibility
• Collaboration on Safety Stock and Days / Weeks of Cover

Sourcing Collaboration

• Visibility and collaboration on supplier contracts
• Analytics on supplier spend
• Supplier scorecards are based on various attributes, like OTIF, Cost, etc.

This level of collaboration enables the team to make key decisions:

• Safety stock targets need to meet service levels
• Pre-builds required due to capacity constraints and seasonal demand surges
• Pre-builds due to minimum capacity utilization targets
• Pre-build high volume/popular items to fill up underutilized capacity
• Material/component pre-buy needed to fulfill projected orders
• Material end-of-life decisions and risks
• Investments required to add capacity
• Capacity improvement project planning- to improve yield or throughput, or quality
• Evaluate lead time reductions to be more responsive to changing and volatile demand picture

Last but not least, the o9 platform allows all users to chat, comment within specific cells and event tag threads they want to follow, and receive the appropriate notifications, all within the platform. These communication tools are directly embedded in the system and improve communication between all users, removing the need to use external communication solutions.

There will be no more emails with tedious circled screenshots or lengthy recorded meetings with screen sharing. The tools track all interactions and help with accountability in conflict resolution.

Conclusion

With a digital twin and solid planning capabilities, next-generation platforms enable Supplier Collaboration, which is key to building a resilient supply chain. End-to-end planning is no longer about the direct ramifications of a company but extends beyond the first tier of suppliers. With the increasing need for transparency and traceability, easily accessing and reporting this information will be non-negotiable for customers.

Another aspect that will benefit customers will be to have the ability to not only sense demand but to sense supply. The visibility enabled by a planning system that includes all the supply steps will allow suppliers to anticipate supplier factory closure or weather impact on raw material sourcing.

Do you want to learn more about Supplier Collaboration capabilities? Please request a demo and our team would be happy to walk you through the :o9 Digital Brain Supplier Collaboration solution.

Master multi-tier collaboration for Supply Chain synchronization

Harmonize efforts, break silos, align goals, and optimize the flow of goods for delighted customers.

Download now