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Two changes profoundly affect the problems faced by suppliers of consumer industries: the spread of a new form of retail distribution “lean retailing,” that now characterizes much of the retail sector; and increasing product proliferation of consumer goods. Lean retailing and product proliferation together change the basic production problem facing suppliers and supply chains. As we will develop below, this in turn changes one of the key drivers of international sourcing of apparel products.In contrast to the infrequent, large bulk shipments between apparel manufacturers and retailers under the traditional retail model, lean retailers require frequent shipments made on the basis of ongoing replenishment orders placed by the retailer. These orders are made based on real-time sales information at the stock keeping unit level (or SKU, the specification of the product at the most detailed level), that is collected at the retailer's registers via bar code scanning, and aggregated centrally. Orders based on these data are sent to suppliers, often on a weekly basis for each store. With the advent of lean retailing, suppliers must replenish a higher percentage of their products within a selling season. Rather than specifying that manufacturers respond to a single, fixed order placed far in advance of required delivery time, leading lean retailers require that a replenishment order be filled in as little as 3 days The diffusion of lean retailing across different channels of retail distribution—mass merchants, department stores, specialty stores—means that apparel and textile suppliers now replenish a high percentage of their products withina selling season. Product proliferation compounds the problem posed by lean retailing because suppliers must provide a growing number of products on a replenishment basis. Even the apparent sameness of products like men’s dress shirts masks a much larger set of offerings. A Lands’ End pinpoint oxford dress shirt, made of 80s two-ply cotton, and available only in white or blue seems the most basic of apparel. Along with the usual choiceof neck and sleeve length, the customer may choose from four collar types and three cuts (regular, trim, and tall).
Product proliferation means that a quantity of demand that might have been spread across 100 different products in 1980 might now be spread across 1000. If those products are provided on a replenishment basis, each week the supplier awaits the electronic “call” of its retail customers to tell which one should be sent. For many products, the call may be an infrequent and unpredictable event—even for a large manufacturer. The influence of product proliferation and lean retailing profoundly changes the problem faced by a supplier. Supplier responsiveness to replenishment orders is central to lean retailing. Dealing with variability in demand has therefore become crucial to suppliers competing in a lean retailing world. Even for basic products, demand varies from day-to- day and from week-to-week. Thus, even if a retailer follows the simplest strategy of ordering at the beginning of each week exactly those items that sold during the previous week, manufacturers must be prepared to ship an unknown number of items each week. Since very few manufacturers can produce items in the limited lead time retailers allow for replenishment, they must fill such orders from their finished goods inventory. And, as one would expect, the higher the variation in week-to-week demand, the more inventory relative to average demand a manufacturer must hold to meet retailer’s high service expectations.
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