Making the right sourcing decisions are of paramount importance to the success of your business. Failing to plan how, where and from whom you decide to source your goods can have detrimental effects – so get this right from the outset and your trajectory will be much smoother.
Starting out: the customer trifecta
With ever-increasing customer demands and a multitude of options to consider when it comes to global supply networks, it is becoming increasingly important to start at first principles and work out what factors are the most valuable to your customers. What your customers value most is going to dictate the best supply chain strategy for your business. This allows you to provide what the customer cares about most, whilst delivering what your business needs to be profitable.
When categorising your customer, you will primarily be considering three factors:
- How quickly do your customers want their goods?
- What are they willing to pay for the goods?
- What quality/complexity of product do they expect for the price?
As a general rule, businesses often find that they can only optimise for one or two of these factors at a time, with the others taking a backseat. However, being able to successfully optimise two and even all three factors is now where we are seeing the biggest competitive edges between companies. Some of the most advanced brands are successfully differentiating themselves from the competition by scoring well with two factors and even pushing total supply chain solutions that allow them to optimise for all three.
Best in class
When it comes to speed, one of the most widely applauded supply chains belongs to Spanish fashion retailer, Zara. It places speed as its top priority – which it does not compromise on – and then looks to optimise price and quality around this. The company is now able to deliver finished products inspired by the catwalk onto its shelves within two weeks of items being seen.
This timeframe is a miraculous achievement – but isn’t without compromise. Zara chose to place many of its manufacturing units very close to the design head office in Spain and book out 85% of the production capacity of the facility for in-season adjustments. The production costs are inevitably higher than if it produced in Asia, however the ability to make and distribute short batch order runs to its global network of stores has many other advantages which counteract this. Being the first to market gives Zara a huge competitive edge and allows it to sell 85% of its stock at full price, compared to an industry average of 65%. This also has additional plus points such as not having to store dead stock. What this means is that whilst the total cost of production might be higher, the lifetime cost to the business is much better.
Whilst fast fashion brands are racing to achieve the quickest turnaround times, we are increasingly seeing brands (in both fashion and furniture) differentiate themselves by offering the highest quality product at the best price – with much less focus on the delivery time. The most well-known of these is online homewares and furniture company, Made.com, which offers made-to-order furniture on an eight-week delivery schedule. Made.com has managed to achieve the ability to house its manufacturing facilities in low-cost destinations without the need to do large orders of goods, as well as stocking product close to consumers.
What both of these companies do so effectively is maintain their ability to be reactive to customer demand and changing trends. How both companies achieve this is by ensuring they never hold more stock than they need and having extremely well-oiled design development processes which allow them to go from initial design concept quickly and efficiently.
A final thought… Interconnectivity through digitisation
The big change which sits at the centre of this change is the rise of digitisation within the supply chain. Digitisation is bringing new levels of insight and efficiency to multiple silos of the supply chain, allowing such things as low order, quick turn-around, and competitive lead production. However, the areas where digitisation has the ability to have truly transformational impact for businesses is the interconnectivity between all silos of the supply chain, and the smart and reactive data that will reduce the man-hours and wastage that still currently occurs within so many global supply chains.
Our aim at Supplycompass is to bring global supply chains into the digital age, and save companies time and money – for example reducing the time from design to delivery by 50% and saving up to 45% on production costs. Whilst so much can be digitised, the need for personal relationships and interactions will never disappear; technology simply has the ability to improve communication, standardise processes, drive efficiency and help brands bring products to market faster.