Planning and allocation management is a fascinating subject, never more so than in an area like fashion inventory management where the science of SCM is fused with the ‘art’ of judging emerging trends and creating new products to meet the resulting demand.
In this blog series we would like to share some of our ideas on season management to help you make the optimal planning and allocation decisions.
The latest technology can help manage the complexity of fashion, textile, and sportswear retail and deal with much of the routine workload, so that your expertise can be deployed in areas where technology has yet to catch up with humans.
At RELEX we’re in something of a privileged position. We work with retailers and wholesalers across the spectrum, which gives us an overview of supply chain in its many forms. Some of the principles and approaches we’ve seen, or have helped develop, translate very well from one area of retail to another. In other respects the fashion, sportswear, and textiles sector faces unique challenges, and in close collaboration with our customers in the field we’ve tried to move the science, the art, and the technology of fashion supply chain management forward.
So we thought it would be worthwhile to share what we have learned about how to manage seasons; from pre-season orders to end-of-season markdowns. In this instance by “seasonal” we mean scenarios where traditional pull-based replenishment (where store orders are automatically generated based on their demand and forecasts) can’t be really applied as items are typically bought well in advance of the season itself. Once the season has begun there is limited, if any, opportunity for re-ordering from the supplier, and quite often no chance to replenish the stores during the season either. In such environments it is crucial to get the demand forecast right before actual sales begin, and also to allocate orders accurately across stores.
We divide the in-season management process into four steps, each will be looked at in detail in the subsequent blog posts.
Four Steps to Successful Retail Planning and Allocation in Fashion and Sportswear:
It’s January and seasonal assortment planning time; as likely as not you are guesstimating how many of a particular shirt you will sell from September. It isn’t the easiest task, but it has to be done and it is doable. Typically we’d recommend building the season’s forecast bottom-up and then comparing the aggregate forecast to, for example, budget and sales from previous years, making adjustments where needed. We will look at how to come up with that bottom-up forecast in the next chapter. However we would like to stress that best results are typically achieved when an initial, automatically-generated order and statistical forecasting are combined with human judgment, getting the right balance between the two.
For some apparel companies a further challenge comes from prepacking: To reduce logistics costs it makes sense to prepack items so that in one pack you have a style to size-colour split that reflects the projected sales profile at a given location. Thus you might have, for instance, one S, two M’s, three L’s and an XL in a given pack with a few pack variations. Finding the right composition for different packs and then the right number of each pack to order is indeed possible but the (logic and) mathematics behind it are remarkably complex.
2. Season launch
The initial allocations to stores are surprisingly important: the more accurate the split, the less the need for markdowns or redistribution later in the season. For businesses using prepacks, finding the right pre-pack mix is the first step to getting that split right. When allocating items that are bought ‘loose’ (as opposed to prepacked) there are no artificial limits on how accurate you can make the first split, so it comes down to the accuracy of your forecasts and the smoothness of your process, (i.e. how easily you can apply different allocation strategies across different categories, brands, stores and channels). Taking capacity constraints into account adds to the complexity – there is a limit to how much you can pick on one day or how much stores can receive, especially if they are also getting other deliveries over and above the seasonal assortment.
Depending on the length of the season, it often makes sense to allocate only part of your central stock or inbound orders: as soon as you start gathering actual sales data it becomes much easier to decide where to allocate stock, as you have first-hand information on where sales are strongest and weakest
The options available to you during the season depend a lot on the season’s length as well as lead times, availability of products, and the size of the initial allocation. If possible it’s preferable to use pull-based replenishment, as it allows you to replenish stores based on their precise needs. If it’s not possible then the key is to stay on top of your KPIs: are the items selling as planned, are there shortages or excesses, do you need to take action in order to achieve your goals? If there is the chance that you may need to mark down some items then planning for it early is important.
4. End of season
The top priority for almost all garment businesses is ensuring minimal end of season stock, at the best possible margins. A clear view beforehand about the items that will sell out of their own accord, and those that are likely to need help is key. For items that are selling well it’s about allocating any remaining central stock to stores, taking into account both individual store forecasts and their current stock position. If your stock levels at the central warehouse are low, then you might want to consider a different strategy – instead of distributing stock evenly across all available sales channels it might be more efficient to allocate it just to a handful of stores, or even just sell it online.
Of course the big issue at the end of the season is markdowns – deciding when, and by how much, to cut prices in order to maximize margins. We will be discussing markdown optimization later in our chapter about end-of-season management