The Digital Supply Chain: Better, Faster, Cheaper
COVID-19 has created significant market and supply chain disruptions due to unprecedented shifts in both supply and demand. With retailers and brands cutting inventory, resulting in limited product availability, it's more important than ever that retailers and brands make fast, accurate product design, selection, and pricing decisions to lock in their share of scarce supply. Furthermore, with constantly changing consumer behavior and both supply and store traffic reduced, picking the products that customers will love and pricing them correctly leaves little room for error.
I recently sat down with retail supply chain expert Sean Coxall, CEO at 707 Limited and former president of supply chain solutions at Li & Fung. His message in a nutshell: the old way of doing things no longer works. Retailers and brands no longer have a 20-week to 30-week window to develop a product before putting it on shelves to see if consumers like it. Consumers know what they want, and if retailers can’t keep up and anticipate what the consumer wants and give it to them quickly, they won’t be around for much longer. The supply chain needs to be re-imagined, starting with digitalization.
Jim Shea: Digitalization is both a mouthful and a buzzword. What does it actually mean?
Sean Coxall: Digitalization is a key strategic initiative. It’s using technology to reinvent the whole retail environment to make it more exciting for consumers to shop. As consumers continue to change, it’s more important than ever to connect and listen to them. The end-to-end product development process is being redefined and retooled to discover, create, make and sell products in a new way.
JS: How can retailers and designers utilize digital technology to shorten the supply chain?
SC: 3D design and development has been around for a while, but COVID-19 has accelerated the use of this technology due to its ability to reduce sampling cycles and cost while increasing speed to market and reducing waste. In the old way, which is still considered “normal,” you have an idea or concept, and then work on creating that idea physically. Then designers review it and decide if it's what they imagined, whether they like it or they want to change it, and back into the cycle it goes. The traditional wholesale calendar is typically about 40 weeks, and the production and logistics side usually take about 10 weeks. Retailers and brands waste about 30 weeks from the start of the development cycle developing a product before putting it on shelves to see if consumers even like it to actually making a purchase. Digitalizing the supply chain cuts that time in half to about 20 weeks.
With 3D design technology, design teams can visualize the product much faster and create additional digital assets to show how it will look. Brands can make and review design iterations without creating physical samples. This, combined with digital product testing, enables retailers and brands to make customer-informed product selection decisions fast while improving sustainability. The process can cut months off the typical supply chain and product development cycle, as it allows data and information to flow seamlessly from end-to-end.
JS: How much of an investment for a retailer or brand is product sampling? Why should companies consider reducing that through digital design and testing?
SC: Product development investments can be estimated to cost anywhere between 2 percent and 3 percent of retail sales, which seems small until you consider the cost of choosing the wrong product plus markdowns due to the poor decision. I had one large customer spend $10 million on sampling and $300 million on markdowns. The $10 million investment is a lot, but think about the $300 million loss. Consumer-driven data analytics combined with product development decision making offers brands the ability to significantly increase margins. We’ve seen examples of cost reduction in sampling by about 68 percent.
JS: How does digital product testing work with 3D design?
SC: The industry has made huge progress on artificial intelligence and big data. 3D designs can be created merely hours after a designer has an idea, which can then be tested through the First Insight platform to collect consumer feedback. Within 48 hours, the brand has data and insight on whether consumers like the product or not. In 72 hours, the brand can go from a raw idea to knowing if it’s a winning product that consumers want to buy as well as how much they would pay. This allows the brand to make smarter buying decisions. This entire process would have taken 20 weeks in the old analog way with no guarantee on product performance.
JS: How can this impact the success of new products and overall margins?
SC: Digitizing the supply chain can impact the success of new products and overall margins. With the current supply chain processes, new products in the fashion industry fail at a relatively high rate. Many sources have quoted failure rates of 50 percent, and we’ve seen it as high as 60 percent to 75 percent. And that’s really baked into the markdown budgets that are extremely bloated in the retail industry.
JS: How is this process more sustainable?
SC: This process eliminates the need for physical samples and allows companies to gauge consumer appetite for a product before manufacturing at scale, which significantly cuts down on physical waste and resource usage while successfully increasing speed to market. It can eliminate entirely the need for small sample runs for sell-in or in-store testing.
JS: How will retailers and brands that embrace digitalization and technology succeed in today’s market?
SC: COVID-19 brought many challenges to the retail industry, but with every challenge comes opportunity. Leveraging technology to create a digital end-to-end product development process is a winning solution for retailers and brands to outsmart future environmental and market disruptions. Incorporating data and feedback through voice-of-the-customer analytics can help retailers and brands make better informed decisions to innovate and succeed.
JS: You’ve discussed the supply chain, but what about the new demand chain?
SC: The unprecedented rate and scope of change in customer preferences has spawned this new demand chain. Retailers need to test and react quickly to keep up, and agile virtual manufacturing platforms like 707 Limited create a solution to meet the demand. These flexible new manufacturing models allow for smaller minimum order quantities (MOQs) and then provide the ability to repeat at larger volumes, increasing speed to market for brands and retailers to understand and respond to the fast-changing demand.
Digitizing the supply chain will help retailers and brands survive and thrive, but as we look towards the future, it really is just as important to digitize the selling chain. Learn more about the future of retail at www.firstinsight.com and join us for an exclusive webinar with Sean Coxall, CEO at 707 Limited, on April 14, to learn “How to Win With the New Demand Chain.”
Jim Shea is chief commercial officer for First Insight, the leading customer-centric merchandising platform used by retailers and brands worldwide. Jim’s role spans all market- and customer-facing functions, including strategy, marketing, product management and business development.
Jim has held CMO and general management roles in multiple industries, including medical devices, research laboratory products, telecommunications and enterprise software. Jim has also been a driving force behind the IPOs of two venture/private equity-backed companies. At First Insight, Jim is excited about the opportunity to transform the retail industry through enabling better product decision making through data and analytics.
Jim holds a MBA from Stanford University and a BS in Electrical Engineering from the University of Notre Dame.