The customers of the 21st century are spoilt for choice. With more and more categories and products moving away from being just a utility item to a differentiated, preferred brand, the marketers of competing brands are vying for attention and trying various tricks to outdo the other, while attempting to overwhelm the customer with choice.
The exposure to variety creates new niche and need-based segments in the market. But, at the same time, the demand gets disaggregated. The explosion of variety is causing what can be seen as ‘disaggregation of demand’. Such a demand disaggregation is seen in almost every product category. With competition reacting with more variety, consumers are now witnessing an explosion of variety in many product categories, such as garments, shoes, furniture, consumer durables, automobile, electronics, books, music, and even some industrial products.
Disaggregation of demand offers a huge challenge for production as well as distribution. With a large variety, increasing over the years, production facilities are being loaded with less and less volume per SKU. At the same time, with more variety, the demand for individual SKU also becomes erratic. The tussle between marketing and production has only intensified over the years, as production would want to meet their efficiency targets, and prefer bigger batches per SKU, but marketing would want less volume per SKU to meet the requirement of channel partners since the total volume sold by the company does not increase dramatically.
In distribution, the problem of erratic demand multiplies, as the disaggregated variety is further ‘pushed’ downstream to channel partners, such as the distributor and retailer. With time, and increasing variety, the turns are bound to deteriorate. With reducing inventory turns, the purchasing power or ‘Open to Buy’ budget (OTB) will deteriorate over time. This has already started happening for some fashion manufacturing and distribution companies in India.
The best way to deal with variety at the point of sales has to be a combination of a three-pronged strategy depending on the type of product and industry.
Supply Chain Strategy: From Push to Pull
If one has to have variety, and suffer from desegregated demand, the least one can do is stop taking actions that deteriorate the situation further. Hence, if the inventory has to move downstream, the amount moved should be as less as possible; more stock has to be held at the central location.
Bounded Creativity: Differential Supply Chains
Here arises the million dollar question: Do we actually need so much variety to excite the customer? We know that an increase in variety creates new niche segments, which are created only after the customer is actually exposed to the variety. This definitely helps in beating competition and diverting demand to one’s products. But, the pressure to add more and more variety also leads to situations where more variety does not create more niche segments or, even worse, the customer becomes indifferent to the variety.
Most fashion products have plants, which are ‘V’ types (many end-items are created from few common raw material; as we progress in the manufacturing flow, each step creates more variety using the WIP sent from the previous department) or ‘T’ types (where variety is created at the assembly point in manufacturing as a mix-and-match of common components).
The way to integrate designs with a supply chain strategy is to limit the boundary of creativity of designers by limiting the pallet of designs from the divergent point of ‘V’ plant or the common component pallet of the ‘T’ plant. Awareness among designers of the supply chain advantages will help them take better decisions on how to use the ingredients for a final product. However, they are also allowed to create new designs from the start of the manufacturing process, fully aware that this adds to the lead-time of supply.
Managing Merchandise: Selling Without the Inventory
The decision to offer differing service levels to different products offers a challenge in selling, particularly in cases where a product is stored only at the aggregated location. The problem gets aggravated, particularly in cases where a product has to be experienced before the actual sale.
The buying experience usually consists of three components for decision-making:
Look: The customer prefers to physically look at the product before buying.
Feel: The customer prefers to touch and get a feel of the product before buying it.
Sample: The customer wants to use the product as a sample before deciding.
Buying a consumer product involves one or more combinations of the above three factors. In many products, the actual inventory of the SKU is used to provide the experience. If we are able to provide the above three experiences without having the specific inventory then we can afford to keep the inventory at a central location, while having effective props to provide the experience to the customer at the time of purchase decision. For instance, Amazon is able to provide the experience of ‘sample’ for a book by allowing people to read through a few pages of the book before they place an order through its website having the specific inventory.
