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Sustainability: Moving from Common Sense to Common Practice
2016 International Conference
Leesburg, VA - National Conference Center

September 18th - 21st

Applying the Distribution Solution for Achieving Business Growth in Fashion Retail

Mickey Granot - Tefen Management Consulting

Throughout the years the TOC knowledge has been developing immensely, adding content, solutions and industries where this knowledge is being applied, while continuously creating more and more successful case studies. At the same time the development of the knowledge faced a growing challenge – How to simplify the knowledge applicability so that almost anyone can implement it, if they had the relevant knowledge.

If one reviews the TOC solutions it is clear that they are introduced as "recipes”, a formula one can repeat when implementing the solution, for example:

  • The distribution solution the formula suggests: Implement a central warehouse, Order daily and Replenish frequently.
  • The project management solution suggests: Cut task estimates into half, identify =the critical chain, locate buffers sized at half of the cut time at the end of the task sequences, Stagger the release of projects
Similarly, one can create this list of core changes to any of the solutions. However, is this sufficient to ensure the solution can be implemented? That it will deliver the expected results? That the results achieved are sustainable?

Do we have alongside the successful case studies, failure ones? What are we learning from these cases? Unfortunately, it seems we tend to focus on our successes (naturally) and less so on our failures. I had the luck to participate in a few failures along the years and (not surprisingly) I came to realize the fault is with me (hate to admit, much easier to blame others). One of my ley learnings was that companies, even when they look similar are still sufficiently different. Sufficiently means that at least one of the core assumptions of the basic solution does not apply. And in these cases, insisting on implementing the recipe just cannot do the job.

One of the interesting environments where I found this to be true is the fashion retail one. As always, the starting point is "it is retail no?” and "a retailer is a retailer, no?” and so on to "validate” the solution fits. However if we consider the replenishment solution and try to fit it to the fashion retail industry we may find immediately one (and there are more) interesting inconsistency – Basically the concept of replenishment calls for renewing inventory of products sold, based on their rate of sales. For that we need to have a central stock location, where the inventory for replenishing is ready to be shipped leaving the transportation time as the only relevant lead-time in the resupply. But what if not only there is no inventory of the sold product for replenishment but more so there is absolutely no interest in having such inventory? What if "sold out” is actually a desired effect?

More than that, the replenishment solution calls for setting inventory norms at each stock location, monitor level of sales and set priorities based on the remaining inventory. The fashion retail industry not only celebrates stock-outs, it is so dynamic that the assortment held at each stock location changes in a very high frequency. Products held today may be removed tomorrow and products never held before may be introduced at any given time. This also limits the ability of managing the products in groups instead of SKU level.

Moreover, what about dynamic buffer management? If inventory levels cannot be set, how can they be adjusted? If being in the red is a desired reality, what priorities do we have? Is there any inventory to be increased?

These are some of the profound questions that we need to answer so that we can; modify the solution, adopt it to the circumstances of the environment and implement it so it delivers the desired results without altering the company’s strategy.

One of the characteristics of a fashion retailer is that they would order a huge variety of products with a very low quantity form each one (the smallest possible) and in relatively high frequency (depending on the specifics can range from as little as 2 times a year and up to as high as 52 times a year). The large number of different products, even though purchased in small quantities results with large amounts of "left overs”, tail products that sell poorly.

The fashion-retail supply chain is in a way disconnected, consumption cannot be translated directly to replenishment and definitely not to buying. Decisions of product renewal can be only partially automated and manual (smart) intervention is constantly required. The modified solution changes the purchasing decisions of the retailer, and reacts to sales using the concept of renewal (instead of replenishment) which is a way of continuously changing the mix of products in the store, where the quantities sold are only a trigger for the quantities renewed but not to the actual products. Renewal does not lean solely on a central depository (and can be implemented even without) and allows cross-transfers (which are highly cost effective in this environment).

Results wise the implementation has immense effect on sales, reduces significantly the quantities of the "left-overs”, increases the average selling price and obviously increases profit and profitability.

Mickey Granot has more than 20 years of experience in TOC. For many years, he has worked alongside Eli Goldratt and has been a part of the development dissemination and implementation of the body of knowledge, solutions and processes. Throughout the years, he has worked with and has been a consultant to numerous companies worldwide, in a wide range of industries and sizes helping them achieve meaningful improvements in their operational and business performance. Processes, practices, systems, and applications he developed continue to be used successfully by consultants and companies all around the globe.

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