Managing

Logistic Supply
Chain For Online
Market Fashion
Industry
Total words: 2002

Written by:
Sabilla Uzlifat R. (2513100018)
Ronald Harianto (2513100134)
Hafizh (2514100054)
Hannah Febriani (2514100136)
INTRODUCTION
The traditional marketing and management of fashion industry is
experiencing a revolution because of the emerging of online shops. Christopher
and Peck (1997) in their article defined fashion market as typically the following
characteristics:

 Short life cycles – the product is often designed to capture the mood of the
moment, consequently, the period in which it is saleable is likely to be very
short and seasonal, measured in months or even weeks.
 High vitality – demand for these products is rarely stable or linear. It may
be influenced by weathers, hit films or by advertising.
 Low predictability – because of the vitality of demand it is difficult to
forecast with any accuracy even total demand during a period, let alone
week-by-week.

Those characteristics that make fashion industry has to manage their
logistic supply chain in such a way yielding optimum results. Usually the main
drivers are cost and customer service level.

This analytical paper is going to discuss about product characteristics,
demand uncertainty, network design, and logistics and supply chain strategy of
fashion industry based on three given videos. The overall videos show the current
development of general and online logistic supply chain itself. There will be also
evaluation of current strategy used in each video supported by relevant
references.

DISCUSSION

Product Characteristics
It is assumed that the main product that will be discussed in this paper is
fashion products offered by the company (in this case is retailer company) in
each video. These types of product can be categorized as a customer product
because the product is directly delivered into customer. Because fashion is
something that people buy based on what’s trending at the moment it causes the
product to be categorize as an innovative product that has demand uncertainty.
The characteristics of innovative product is explained in the table below:

Table 1.1 Characteristics of Innovative Product
Innovative Product
N Type Description
o
1 Product life cycle 3 months to 1 year
2 Contribution margin 20-60%
3 Product variety High (often millions of variants per
category
4 Margin Error of Forecast 40-100%
5 Average Stock out rate 10-40%
6 Average forced of end-of- 10-25%
season markdown as
%age of full price
7 Lead time required for 1 day to 2 weeks
make made-to-order
products

Each fashion product has its own characteristics that helps the customer
differs them from one and the other. The examples of product characteristics are:
(1) colors, (2) size, (3) materials, (4) fashion line (sports, casual, formal, etc.).
Each characteristic may affect one another for example sports product are
usually using materials that can easily absorb the sweat or formal clothes for
male mostly have black or brown color. These product characteristics in this case
will affect how retailers deliver these products to their customers if the product is
easy to break then retailer needs to add some extra safety to its packages to
ensure when the product delivered to the customer there are no broken parts or
just by simply using plastic bags to deliver shirts, polo, dress and etc.

Demand Uncertainty
Recently there are a lot of companies start their business strategy in online
operation systems including fashion industries. Online operation systems behave
differently compared to the traditional operation system. Customer in online
operation system requires less seller-buyer interaction and the online selling
company cannot predict the customer satisfaction. Based on Pricewaterhouse
Cooper (PwC) that conduct a survey for what is make online shopping attractive,
it is shown that the highest value for the survey is the access, the customer had
24 hour access to do the shopping through internet also it is quicker and easier
than visiting the shops (Brand, 2014). Besides that, there are several advantages
of online retailer/shopping based on point of view of the customer such as there
are customer review and comment in the website, clear explanation about the
product, the selection is quite big, the customer can compare the price between
one online shop through another and usually have special discount or deal
(Rigby, 2011). However, the customers have biggest worries about
trustworthiness and the possibility to return commodities of the online shop
product (Commission of the European Communities, 2009). Nevertheless, offline
shop had their own advantages such as the customer do the shopping as an
event or an experience, they can try on the product so they know if it is fit or not,
they have personal help from the shop assistant, and convenient returns (Rigby,
2011).
So, from our opinion based on the journal and the previous article, from the
beginning fashion industries always have high demand uncertainty because of
their fluctuating trends. Not only that, but also it depends on the current weather
for some countries. Understanding the needs and interests of the customers is
very important to understanding the market demand. Online operation system
makes the demand uncertainty higher because they serve broad variety of
product.
Logistic and Supply Chain Strategy
Each videos talk about fashion product and online shopping. Since the
products are innovative products, which have high product variety and demand
uncertainty, fashion industry need to use responsive strategy. They need to put
the product closer to the customer because there are many stores that sell
fashion product which means that the customers are easy to changes their mind
to go to another store if they did not find what they want.
The first video and the second video is about Marks & Spencer and Fashion Days
online purchase. They have very good facilities to attract the customer, there is
no need for customers to come to the stores since now they can order it through
their tips of fingers. Marks & Spencer and Fashion Days have good interface of
the website in which customers can see every detail of the items that they want
to purchase. For the logistic strategy, online retailers use responsive strategy
because it sends the items directly to the customers. This strategy must be
supported by appropriate transportation to minimize delivery time. They use
third-party logistic to deliver the items to the customer. It is a good strategy
because they can minimize their investment for transportation and simplify their
system. They just need to evaluate their partner whether their service is good or
not.

The inventory strategy for innovative product should be local inventories to
minimize delivery time. However, in the real case, Fashion Days use centralized
inventories in Romania. It is a little bit different with the theory, but the market of
Fashion Days is located only in 7 countries which has nearby location for each
country. This condition may become a consideration to use centralized
inventories. Different with Fashion Days, Marks & Spencer has bigger market
area. They implement local inventories. Marks & Spencer and Fashion Days both
uses automated system in their warehouse. In my opinion it is very good because
it can reduce the percentage of error also maximize their speed since customers
want high quality and fast service.

For the third video, it has a little bit different case. The video tells about how
a shoes shop owner gets her shoes from the manufacturers. There are various
type of shoes with different raw material from all around the world. The
transportation strategy is divided into two types which are inbound and
outbound. The inbound process is the raw materials are sent into the factory in
China using truck or ship – depends on where the materials come from. From
China, it is shipped to California and transferred straight to the distributed
warehouse in St. Louis. The retailer store really depends on the warehouse which
means that if there are some problem on the transportation, the retailer store will
get the impact. The other problem is the retailer store does not have space for
many inventories, so their order is limited at single time – based on their sales
rate.

Since the retailer store really depends on the warehouse, and
simultaneously warehouse depends on the logistic transportation which transfers
the items, they need a good communication system. All the parties should work
professionally and make a good partnerships to make everyone happy. There
should be a binding agreement between the parties so that all parties feel safe
and comfortable in conducting business.

Network Design
Once the logistics and supply chain strategy comes into clearer view, then
the logistic network design comes into evaluation. The primary driver for
evaluating a logistic network design is sometimes an effort to reduce cost,
sometimes an effort to improve service, or often, both. The right network design
optimizes transportation, distribution operations, and inventory investment to
reach the ideal balance of cost and service.
However, this right network design is becoming harder to be realized due to
the fact that it is getting tougher to make long-term projection on how retailers
will need to have their distribution networks perform five to ten years out. This
happens because forecasting techniques and methodology can never deliver the
accuracy required for managing logistics in fast moving market of fashion
industry – even when they have continued to develop in their sophistication.

The Marks & Spencer and Fashion Days video show the interface between
retailers and logistics management in the online market. Both Marks & Spencer
and Fashion days try their best to strongly develop great relationships and trust
partnerships with clients by giving a good service such as letting customers to
track their order via online; improving customer service time due to installation of
full automated conveyor line which can handle thousands order per hour.

The warehouse of Fashion Days also contributes in optimizing network since
it manages its warehouse becomes smart storage in which it can minimize the
inventory cost. Besides that, Fashion Days teams up solely with a third-party
logistics which called dpd. It is smart move to strengthen distribution network
because it enables Fashion Days to deliver goods to its customers for 24 hours.
These can be a competitive advantage for them to meet customers’ unique
demands.

Actually, for online market, there is another way to minimize transportation
cost which taking approach of having a central location or hub in which they send
the products to. This lets the manufacturer sends the ordered products to that
central location and each customer is then responsible to collect their own order
from there. This means lower transportation costs as there will not be any door-
to-door deliveries done. This might be a good idea for start-up online stores.

The third video shows that the outbound cost is much higher than the
inbound cost. It is common since usually there is inverse relationship between
inbound and outbound costs, and therefore there will always be trade-off
between those decisions. Justine has an optimized network since her small shop
minimizes distance for customers to get high-quality shoes. Minimizing outbound
cost is unlikely due to the facts that Justine’s shoes are manufactured from
different countries such as China and Latvia. Then, the shoes are shipped to
Justine’s shop in smaller shipments resulting a larger impact on the total cost of
the network. The materials of shoes might come from all around the world.
However, the materials typically come in larger shipments (truckload) which can
minimize the transportation cost.

CONCLUSION
Managing logistic supply chain in fashion industry has become a problem
since it is difficult due to inability to match supply with demand. Thus, the ability
to respond to customer requirements on a timely basis is fundamental element
and it makes the all aspects of supply chain responsive. This paper discusses
about logistics supply chain in online market and general based on three given
videos. The whole aspects of supply chain are managed in such a way using
various strategies in order to create optimum supply chain which can be a win-
win solution for suppliers, manufacturers, distributors, retailers, and customer
itself. Several of those aspects are warehouse size and location, transport modes,
transport costs, network design, and service level requirements. Costs and
service are main two things that are used as main reasons why today’s markets,
online and offline, are always striving to be better.
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