The fast changing scenario in the retail sector does call for a new outlook and some strategic changes. Of course, change is not easy, even at the best of times. At the worst of times, change is difficult and frightening, but also necessary. Structural change- through department reorganisation, corporate downsizing or merger- is particularly difficult and frightening because the company must choose who among its employees has the greater skill to perform each specific task.
However, the most difficult and frightening of all is systemic change; because that calls into question whether those skills have any value or even relevance. A person devotes a working lifetime gaining experience and knowledge to develop a specific set of skills, only to be told those skills are no longer relevant and therefore he or she is no longer relevant. We are used to thinking of systemic changes as something affecting blue-collar workers replaced by automated machinery, or clerical and lower management employees replaced by computers.
We do not think of systemic change effecting senior management because not only because they are more highly educated and therefore supposedly more difficult to replace, but more importantly they are the ones who usually decide who is no longer relevant and who should be phased out. However, once in a very long while, the systemic problems become so fundamental that senior managers- the arbiters of survival are the ones who must be replaced. At that point those running the company must make a decision either change the system and fire their colleagues who lack the ability to adapt, or see their company die.
Supply chain management
For example, in our industry, we have sub-industry called supply chain management. Every importer/retailer has a seemingly indispensable sourcing department responsible for supply chain management. Some very large and highly successful companies' entire reason for being is supply chain management. Nevertheless, this is one area where fundamental systemic change must take place, because the supply chain concept is deeply and irredeemably flawed. The purpose of supply chain management is to deliver the product in the shortest period of time and at the lowest cost.
The reality is that in today's industry the supply chain system substantially increases both delivery time and product costs. The problem is neither the structure of the department nor the skill-sets of its members. In fact the better the sourcing department structure, the more experienced its members and the greater their supply-chain management skills, the longer the delivery time and the higher the product cost. The supply chain system has become dysfunctional and in one sense, all professionals know this.
A major moderate price retailer requires 48 weeks to deliver a pair of jeans- from first sketch to in-store delivery. This is more time than the Boeing aircraft company requires to deliver a 747 jet. What professionals do not realise is that the cost of their $60 retail jeans is higher than a pair of Diesel jeans with a retail price tag of $150. The head of sourcing at the moderate price retailer is not stupid, nor is he incompetent. He is simply trapped in a dysfunctional system which mandates that he overpay for bad quality product, with irrationally long lead times. Most often he can see that the dysfunctional supply-chain system is slowly strangling his company but there is nothing he can do. How did this occur? And what are the alternatives?
Back to basics
To understand just what has happened, we have to go back to basics. The supply chain system has two parts.
- The supply-chain process chart the list of steps in the supply process together with the body selected to carry out each step in the process. The supply-chain process chart begins at the point when the customer has a product which he wants supplied and ends when that product arrives at its final destination.
- The product cost-sheet -a breakdown of costs for each material and step.
In our industry we term this process garment sourcing, which we define as breaking the style into a series of materials and processes which the customer controls. The supply chain has gone through three evolutionary phases: