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Vertical harmonisation:

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As the fashion retail industry continues to evolve, levels of competition are continually increasing and consumer demand is at an all-time high. With technological innovations enhancing the speed in which business is conducted, consumers not only want their products – they want them now!

While we have seen how today’s fashion retail industry is being driven by four critical forces, further complicating matters is the fact that the lines between manufacturer, wholesaler and retailer are blurring and not as pronounced as it was before. With so much overlap and interdependency between them, all three of these functions must deal with many of the same challenges and contest for the same resources and off course the same inventory.

Inventory visibility and availability is the biggest challenge for fashion retailers. They need to maintain a perfect equilibrium of carrying sufficient inventory to minimise stock out situations, and simultaneously balancing the store demand without facing the issue of over stocking and affecting the overall profitability. In other words the profitability of fashion retailer is determined by the efficiency of his ability to match the supply and demand across channels and new age business processes and how well the supply chain has been harmonised across channels.

This gives emergence to ‘Vertical Harmonisation’—where the supply chain across channels are being harmonised in multiple ways – technically, organisationally and at a business process level. New business processes are emerging and focus is more on merging the silos within and outside a fashion retail organisation.

Omni-channel supply chain harmonisation depends on following critical factors

Inventory visibility
Inventory should be available and visible across all channels to manage inventory turns better. Vertical companies must develop a comprehensive and up-to-date view of inventory levels and consumer purchase behaviour across channels. This can be accomplished by integrating channels and combining inventory into a common pool and companies should integrate business processes across retail wholesale and vertically integrated operations within a single solution to deliver unprecedented visibility into supply and demand. In essence, it is the ability to optimise inventory that defines the quest to reduce out-of-stock situations and drive improvements to their top and bottom
line.

Segmentation & stock protection 
The ability to segment the stock logically and physically at product attributes level are also to be considered during all important business processes. This will help vertical companies to reduce overstocking, reduce out of stock and also minimise customer returns. Segmentation categorises demand and supply based on logical and/or physical aspects of a product. The segmentation philosophy helps to Stock protection implies the flexibility of being able to protect the stock planned for a particular channel or market using the segmentation philosophy and rules attached to it.

  1. Separate stock – on various characteristics level like quality, country of origin etc.
  2. Segment customer demand – retail, wholesale and e-commerce etc.
  3.  Define optimal matching logic – demand supply match rules can be defined to optimise supply chain

The retail orders will get consumed from the stock that has been segmented to retail and demand from other channels does not cannibalise the retail demand. Stock protection provides companies the opportunity to decide the profitable channel and fulfill its demands first before satisfying the demands from other channels.

Fast fashion & seasons
Today’s fashion industry moves at a high speed. Where the industry traditionally worked around fewer seasons per year in a predetermined pattern. Today’s industry must deal with unpredictable and complicated consumer tastes with a perennial consuming season round the year. Fashion retailers need to adapt to this new phenomenon of ‘Fast Fashion’. Companies like Zara have been successful in using such
strategies to affect their top and bottom line.

Emergence of new business processes due to the harmonisation
The omni-channel supply chain harmonisation provides a platform for fashion retailers to define new processes or enhance the existing processes to create new profit avenues or optimise the overall process.

Some of key emerging ideas are: Demand and supply match can now look at the overall
demand from all channels and then allocate using segmentation or stock protection rules
to right demand the right supply. This helps in reducing stock out or overstock situations
1. If a fashion retailer has an external procurement scenario, he now has an
overview of the complete demand from all channels, he has a better control on his
vendors and suppliers and better negotiation spectrum.
2. The fashion retailer now has the ability to allocate to channels that gives the best profit
using cost and profitability analysis against different type’s demands. When we marry the
idea of vertical harmonization of the supply chain with technological advancements
coupled with the reality of new age shopper, we are opened up to boundless opportunities
to optimise processes and maximise profits. It also provides us with hope to streamline
organisational siloes and redundancy and have a leaner and meaner look.

One such solution which has been launched in the market recently by SAP is the SAP
Fashion Management. This solution bases its fundamental philosophy on the concept
of ‘Vertical Harmonisation’ and provides the following benefits to the customers.
• Vertical fashion companies manage their business processes for retail, wholesale and
manufacturing in one single system
• Manage a company as a whole across all channels and businesses
• No need for complex integration and data synchronisation
• Shared processes across businesses increases productivity e.g. in procurement
• Better visibility into businesses and better synchronisation
• Real-time information and transparency on retail, wholesale and online business
leveraging SAP HANA
• Shared global inventories and visibility across businesses reduces inventory levels
• Order allocation for optimised demand and supply match for retail and wholesale business
• Multi-channel MRP (Material Requirements Planning)
• Simplified IT landscape with reduced data fragmentation and redundancies
• Increased revenues
• Higher fulfillment rates
• Higher customer satisfaction
• Less mark downs

(FMS) enabling a simpler, more flexible vertical company.

ABOUT THE AUTHOR
Ravindra prabhala, Head – Fashion Development & Product, SAP
Prabhala has over 24 years of experience in product development and program management in areas of supply chain and logistics for manufacturing industries and retail. He has diverse experience in design and development of HCM and C3I software products.