Compressing the supply chain through E-commerce for the customer benefit in the fashion industry - Dissertation Example

? Compressing the supply chain through e-commerce for benefit in the fashion industry BY YOU YOUR SCHOOL INFO HERE HERE Background In the last decades of the 20th Century, time based competition was what drove supply chain methodology in the fashion industry. Prior to the advent of the e-commerce model, fashion procurement had to pay strict attention to the dynamics of consumer demand, usually establishing agile supply networks consisting of multiple layers in the supply chain process. Fashion products typically have a shorter product life cycle than other non-related merchandise, thus timing was and often has been critical to establishing adequate supply of finished apparel products. The multiple layers required in the supply chain, historically, have included establishing partnerships and cooperation with distribution intermediaries or being forced to set-up distribution networks, geographically, near the consumer target consumer groups. This has led to higher costs and much less flexibility in establishing a more rigorous supply chain methodology by being constricted to one area of operations. Collaboration methodology required significant investment on behalf of management to identify the most viable partners for supply and also distribution. Determining which partners maintained the most supplier commitment, communication viability and environmental barriers needed to be determined to maximize time efficiency and also adequate supply of finished merchandise (de Leeuw and Fransoo 2009). There have, historically, been many risks imposed on collaborative supply chains that stems from lack of commitment or even competition that provides a more inviting contract that alters supplier inputs. Costs associated with failed collaborations often have to be transferred to consumers with higher retail price tags, not to mention the higher executive compensation for partnership development. It becomes harder and harder to minimize and manage disruptions in the supply chain with such dependence on collaboration (Fernie, Sparks and McKinnon 2010). Growth in Internet usage for fashion consumption has given fashion marketers new business and sales opportunities as customers start adopting an online purchasing mentality. The ability to reach higher volumes of consumers across the world due to high adoption levels of Internet consumption has reduced dependency on decentralized procurement and distribution systems, allowing them to centralize these functions for efficiency, time, and also cost savings. In Sweden, as one example, 90 percent of consumers use the Internet (Entertainment NewsWeekly 2011). In Singapore, younger consumers are buying fashion products via the Internet at a growth rate of approximately 10 percent annually (Ramchandani 2011). In the United States, e-commerce sales are estimated, currently, at $227.6 billion (Steigrad 2011). It is these growth patterns in online fashion consumption that continue to provide new opportunities to compress traditional supply chains to include more efficiency and replenishment for fashion products that have very limited life cycles. Reducing the dependency on traditional collaborations, the newer, unrestricted geographic boundaries imposed by less efficient procurement and distribution systems and even changing consumer trends for purchasing and demand continue to drive new synergies for using e-commerce as a fashion supply model. Research aims and objectives This research project aims to identify how to achieve maximized customer benefit by using e-commerce as a tool to compress the supply chain. Cost-reduction, improved efficiency, streamlined supply chain processes and fashion replenishment will be examined to determine how to gain outputs that lead to customer benefits. The research objectives are as follows: 1. Determine the nature of consumer fashion market demand driving new e-commerce procurement and distribution models. 2. Identify the current e-commerce supply chain models currently finding success in key fashion markets. 3. Determine how forecasting occurs using an e-commerce model and compare these findings to consumer demand and product life cycle for a variety of fashion products. Since this research project cannot accurately measure all aspects of a working fashion supply chain, including textile production all the way through final delivery, only certain aspects that can be attributed to the concept of ultimate consumer benefit should be measured. By conducting case study comparisons to existing e-commerce models and consumer-driven trends driving online consumption, this research project can determine efficiency, cost savings and strategies that provide maximum customer benefits through a compressed supply chain system. It is hypothesized that an e-commerce model in the supply chain will result in removing both vertical and horizontal layers of collaboration that provides consumers with faster replenishment and also cost savings as it relates to the pricing model for certain fashion products. This research project will tackle the issues of e-commerce within the supply chain under the premise that there is no pre-existing template that provides greater benefit to the customer. Thus, the project will be wholly exploratory in design. Literature Review The traditional agile supply chain methodology involves demand-driven systems. In such a chain, market data and information are exchanged from the business to all layers of the supply chain process in order to forecast and deliver replenishment to meet consumer demand (Barnes and Lea-Greenwood 2010). However, agile supply networks seem to only have this title for their ability to provide merchandise by moving sourcing closer to specific target consumer markets (Barnes and Lea-Greenwood). Even under agile systems, merchandise planning failures have caused price increases on consumer goods, high levels of excess inventories, and significantly lower margins that come from demand uncertainty and collaborative failures within this vast network of procurement and distribution (Yu and Kunz 2010). Why is this? In the sourcing process, considerable investment is included in testing procedures once the textile raw materials have been purchased. All quality assurance processes are different depending on the fashion merchandiser, however it usually includes quality checks of threads, buttons, zipper durability, and testing fabric swatches/samples against existing quality standards templates (Chen, Murray and Jones 2007). The Hong Kong Clothing Company, as one example, boasts an agile supply chain network that includes rigorous quality checks prior to even distributing the raw materials/textiles to the production floor in-house. The Merchandising Director checks every fabric sample and then provides QA approval, a process that is dependent on third-party agents within the supply network. This appears to be a time-consuming scenario for some fashion marketers that have opted for an agile supply network, leading to higher costs to the consumer. Further, in most supply chain systems for fashion marketers that have considerable competition, suppliers have much leveraging power for pricing as it relates to commodity products (Porter 2011). In agile supply networks or any other that has not adopted e-commerce systems to support greater efficiency, pricing is not easily negotiated that, in turn, ultimately gets passed on to consumers. The research project will determine whether e-commerce can actually replace some third-party suppliers as a means of improving cost efficiency through a more compressed supply system. It was previously suggested that collaborations in traditional supply chain systems can lead to high dependency and higher costs/risks based on supplier commitment levels. However, high-end fashion retailers Aurora Fashions and Karen Millen, as two examples, developed an e-commerce partnership with BT Fresca to assist in greater efficiency and cost savings. BT Fresca agreed to assist in the sales process, providing technology support for development of promotions, payment systems online, and website development that is tailored in local languages (Normans Media 2011). These high-end retailers included e-commerce in their order fulfilment process, thus impacting cost savings on the tangible distribution of product over the Internet. Having a third-party vendor handle the tangible sales and distribution of the product brought these retailers considerable cost advantages that improved customer relationship management; as the output benefit to buyers. Marks and Spencer, one of the largest UK multi-goods retailers, introduced an e-commerce model that is linked directly with final product distribution. Known as the Marks and Spencer click and collect service, customers are able to purchase their fashion merchandise online and have it delivered to non-apparel bricks-and-mortar stores to improve convenience (Felsted 2009). This retailer was able to streamline their warehousing and inventory systems in order to improve cost efficiency, rather than absorbing the operational cost of new retail centre development. In this case, e-commerce again improves the final distribution process and the cost savings incurred from facilities management is passed onto consumers; thus pricing being a positive output benefit. Marks and Spencer was able to capitalize on its already-established Simply Food stores that would provide the in-house labour and warehousing for click and collect services. Zara, a fast fashion merchandiser, developed a supply system that has often been benchmarked by competitors. This retailer maintains powerful control over its supply chain. E-commerce was included in its supply model as a means to reduce its dependency on advertising so as to provide customers better pricing value (Strategic Direction 2005). Zara utilizes e-commerce systems as an information exchange, providing customers with advanced knowledge of when to expect replenishment of their fast fashion merchandise. By promoting the final distribution of product whilst still in the production stages, customers can place advanced orders which improves relationship management outputs and also improves forecasting so that efficiencies are realized in inventory purchasing volume. Businesses that adopt an e-commerce model, it would seem, can abandon their traditionalist supply systems with multiple layers and change their restrictions associated with geographic procurement systems. “The Internet eliminates the economic consequences of geographic distance which opens up substantial opportunities for reaching international markets” (Aziz and Yasin 2004: 3). In most supply systems, foreign tariffs and associated taxation become cost burdens that must be offset by higher prices. Tariff rates and pricing strategies are considerable factors for determining the most efficient and cost effective supply chain methodology (Carbaugh 2009). If, for instance, a fashion retailer maintains a target market in China, using an agile supply system, it is common to develop either inventory capacity in China or source its products from this environment. E-commerce provides the ability for marketers to revamp their supply chain to include development of business-to-business relationships with more localized suppliers and maintain quality of communications and responsiveness. The output benefit to customers, in this case, would be raw materials cost savings and operational/facility management cost savings that can be passed on to consumers. “The nature of today’s marketplace demands that firms interact with their customers and business partners using technology to provide services instantaneously across borders” (Aziz and Yasin 2004: 3). Thus, suppliers or other third-party agents involved in the supply chain system are demanding better communication in order to guarantee a contracted agreement for procurement, quality assurance testing, or even inventory/distribution activities. E-commerce, in this case, improves the quality of relationships with business and improves response time for better service to customers. The end output is better service provision that stems from improved communication systems and international procurement options that reduce supplier leverage when localizing procurement under agile systems. Methodology As identified, since there are so many different variations associated with the traditionalist or e-commerce fashion procurement and distribution models, this study will be deductive and exploratory. Determining the most important customer benefits received through the variety of e-commerce model developed would be difficult to measure quantitatively. This is due to the varying psychology of consumer consumption behaviour, their trend-based demand, and the perceptions of service, price and quality that is valued by diverse consumer groups. The study requires a qualitative approach that makes subjective analyses of buyer and business behaviours in order to determine how compressed supply systems and e-commerce can best benefit buyers in local and international markets. The study will consist of interviews conducted with various management personnel of different fashion retailers. Through secondary research, the researcher will determine what local retailers have included e-commerce in their supply chain systems. Once this has been identified, management will be targeted for personal interviews. The interviews will consist of a sample population between 5-10 managers. It is intended to coordinate online interviews that will occur via telecommunications systems in order to maximize responses due to the researcher limitations for conducting large-scale interview sessions. The goal of the research recruitment methodology is to gain the perspective of multiple retailers that operate in very different operating environments with a variety of different fashion offerings. Each business will maintain their own supply chain methodology and will have included e-commerce systems differently as a means to maximize their competitive advantage. Thus, a random sampling will occur to gain this cross-section of different systems perspectives. The data achieved from the interviews will be compared to existing secondary literature on the psychology of consumer behaviour as well as case studies of the benefits achieved by other retailers that have included e-commerce in their supply models. The study hypothesis is that an e-commerce model in the supply chain will result in removing both vertical and horizontal layers of collaboration that provides consumers with faster replenishment and also cost savings as it relates to the pricing model for certain fashion products. Thus, the interview will be structured to include questions relating to how pricing structures have changed or become more flexible due to e-commerce. Additionally, the interview will be structured with questions involving the different third-party or corporately-owned layers within the supply chain to determine what efficiencies, if any, have been achieved by potentially removing layers through e-commerce. The study will also focus on the different leveraging improvements that might have been attained through changing suppliers, if applicable, to determine what type of value this has brought customers in the long-run. The study will also consult with a variety of different fashion blogs associated with these retailers that have adopted an e-commerce system and also provide online sales for consumers. This portion of the study will be conducted to determine how customers view the total value of the company and then make appropriate comparisons to historical studies on consumer behaviour related to the selected retailers for interview. One method of gaining significant consumer-based attitude and knowledge of perceived benefit is to get to the heart of the buzz that is being promoted about each fashion retailer. Any commentaries that are linked directly with the e-commerce system will be noted and analysed as it is related to consumption psychology, fashion psychology, or other theories of marketing. The study, during analysis, will also perform consultation with various theories of management indicated by the response of the interview participants. The literature review provided in this proposal only reviewed certain concepts of a compressed supply chain system using e-commerce as a tool or model, therefore there might be other elements of using e-commerce that have yet to be uncovered through research. If there are any obvious gains to customers associated with management philosophy using e-commerce they should be explored to provide a well-rounded and valid study. Timeline for completion The secondary research examination in this study is anticipated to occur within a 4 week period before being able to develop a valid questionnaire template that addresses the most common themes of a compressed supply chain system and outputs of customer benefit. The interviews, based on expected recruitment time and processes needed for analysis, will occur over a two month period. Secondary consultation with literature on psychology and fashion consumption, as well as e-commerce case studies, will require an additional six weeks for fulfilment. The researcher anticipates 16-18 weeks for completion of the study to ensure validity, ensuring that the interviews are designed to accurately measure what is intended to be explored. Limitations E-commerce, depending on the size of the fashion business and their target sales audiences, will be utilizing e-commerce in distinctly different ways to compress their supply chains and provide outputs of improved customer benefit. For instance, customers might benefit from cost savings that are associated with limiting the time for quality assurance testing of raw textiles that are not easily observable by anyone other than the management team that has access to the corporate balance sheet or cash flow report. In this case, the customer receives benefit that is not highly transparent. A limitation to the study is in its scope with the inability to review all factors in e-commerce systems that are used to compress one or more dimensions of the supply chain process. Customers might be achieving unanticipated benefits that the study will not be able to capture through secondary or primary research as it has been designed. A further limitation to the study is the nature of competitive advantage and the ability to access data associated with internal processes. Supply chain methodology, cost leveraging and partnerships under contract with particular vendors are often privy information that could lead to trade secrets or other advantages being exposed. There are risks to the study that the level of inquisition associated with the samples’ supply chain methodologies could be minimized as they attempt to protect their business advantages. Anonymity will be guaranteed to the recruited fashion leadership sample as a means to reduce this risk. Thus, unless granted permission to utilize the fashion brand name, they will be obscured from the final results. Conclusion This study maintains the ability to determine how to best maximize a variety of customer output benefits by compressing the supply chain using e-commerce as a model. E-commerce can be utilized significantly different by a variety of different retailers or fashion marketers, thus demanding an exploratory study that examines multiple factors of compression. The case study examination of other retailers that have utilized e-commerce will assist in determining how many potential advantages that e-commerce extends to the customers when supply chain methodology is adjusted or improved. Whether it is removing multiple layers that lead to business risks or time delays or whether e-commerce simply improves cost efficiency, this study maintains the ability to provide businesses with a valuable template for adjusting their supply chains using e-commerce in a way that maximizes total customer benefit. The study can potentially act as an operational benchmark based on the data uncovered for the uses of e-commerce in compression of the supply chain. References Aziz, N. and Yasin, N. (2004) The influence of market orientation on marketing competency and the effect of internet-marketing integration, Asia Pacific Journal of Marketing and Logistics 16(2), 3. Barnes, L. and Lea-Greenwood, G. (2010) Fast fashion in the retail store environment, International Journal of Retail & Distribution Management 38(10), 760-772. Carbaugh, R. (2009) International Economics, 12th ed. South-Western Cengage Learning Chen, Z., Murray, R. and Jones, R.M. (2007) Fashion supply chain organisation and management between the UK and China, Journal of Fashion Marketing and Management 11(3), 380-397. De Leeuw, S. and Fransoo, J. (2009) Drivers of close supply chain collaboration: one size fits all?, International Journal of Operations & Production Management 29(7), 720-739. Entertainment Newsweekly. (2011) Research and markets: Sweden leading in Internet use, 2 December, 191. Felsted, A. (2009). M&S in further push online, Financial Times, 12 October. Fernie, J., Sparks, L. and McKinnon, A.C. (2010) Retail logistics in the UK: past, present and future, International Journal of Retail & Distribution Management 38(11/12), 894-914. Normans Media. (2011). BT Fresca signs new e-commerce agreement with Aurora Fashions and Karen Millen, Telecomworldwire, 15 August. Porter, M. (2011) [internet] Porter’s five forces – a model for industry analysis [accessed November 22, 2011 at http://www.quickmba.com/strategy/porter.shtml] Ramchandani, N. (2011) E-commerce a challenge retailers must tackle, The Business Times, 13 October. Steigrad, A. (2011). Web ground zero in ongoing war on counterfeits: women’s wear daily, WWD 201(85). Strategic Direction. (2005) How Zara fashions its supply chain: home is where the heart is 21(10), 28-32. Yu, U. and Kunz, G. (2010) Financial productivity issues related to assortment diversity and supply chain merchandise replenishment strategies, Journal of Fashion Marketing and Management 14(3), 486-500. Bibliography Castelli, C. and Brun, A. (2010). Alignment of retail channels in the fashion supply chain: An empirical study of Italian fashion retailers, International Journal of Retail & Distribution Management 38(1), 24-44. Choudhury, B., Agarwal, Y., Singh, K. and Bandyopadhyay, D. (2008) Value of information in a capacitated supply chain, DK Infor 46(2), 117-127. Read More