Push or Pull, two approaches to distribution

When you imagine a supply chain, you always think that a consumer’s purchases create a demand that moves up the supply chain. In this scenario, the stock sold to the final consumer is replenished from the shop’s warehouse, generating a replenishment order to the warehouses distributed along the supply chain to the production site; therefore, the stock moves from the factory to the shop while the information and sales forecasts go up the chain in reverse.

As we read in the article “Fashion&Luxury after covid-19: Supply Chain planning and collaboration is no longer an option“, the reality of this sector is changing and accelerating the transformation processes that were already underway. Focusing on the distribution supply chain, is the model described above still applicable and can it still adapt to this industry, particularly to the period of great transformation we are experiencing?

Sara Magnani, Solution architect Fashion&Luxury for the sedApta Group answers: the model described above (the pull model) applies to sectors where products are continuous and where the business model and consumer purchasing attitude can be continuous (basic necessities). Actually, however, the world is changing. The transformation has been going on for some years and is accelerating due to the pandemic – in the Fashion&Luxury sector above all – and the business model that best suits this context is a mixed pull/push model depending on the timing of the seasons and the types of products.

In recent years, how have the changes in season and collection management influenced the distribution supply chain?

Allocation has played an increasingly important role for companies doing business in Fashion and Retail, the latter based on seasons and events where the weather or sales period is a key factor. If you consider the seasons, you think of the two main ones that have always characterized the general public’s imagination and which are represented by the Spring-Summer and Autumn-Winter fashion shows. Over the last few years, driven by fast fashion (such as Zara and H&M), companies have increasingly shifted towards a form of collection management (also called themes, launches, or delivery windows) that require the shops to change every month: merchandisers plan the collections in advance and create the corresponding stock to allocate it (push) to the shops at the beginning of the season. It is not possible to know in advance when sales of that season/collection will start, but merchandisers have predicted the start, peak, and leftover behaviour in advance. This planning makes it possible to allocate to the shops only the quantity of goods required for physical display and to start the sales. 

Based on the experience gained with your fashion customers, what is the balance between push and pull logic? 

Normally the initial allocation covers between 20% and 50% of planned sales depending on the size of the shop, the product, and the expected sales. A fitting example is strollers for children, seasonal products that take up a lot of display space inside the store and whose initial allocation must also be calculated taking into account the capacity of the store itself. The stock along the chain (central and/or regional warehouses) must then be moved (pull model) based on actual sales to consumers. This decoupling is increasingly critical to maximise sales, and therefore turnover, and is called Demand Driven Distribution.

Events (such as Christmas, Chinese New Year, Easter, Valentine’s Day) have an important impact on the company’s turnover. The same applies to promotions and end-of-season sales. What type of management do you think is most appropriate in these cases?  

For events, sales do not follow the same curve as the seasons described above, but have a rapid peak and collapse immediately after the end of the event.

The products that are suited to these peaks are either part of collections created for the occasion or are the same seasonal products that are ordered/produced months in advance in limited quantities based on the analysis of historical data from previous years. In these cases, the pull model is not applicable because the time available to replenish stock in shops is too limited and a replenishment model would not be applicable because forecast-based distribution models are not suitable to react to sudden peaks in demand.

As with events, promotions very often envisage a demand peak that is not very manageable with an exclusively pull model, in addition to the fact that they often include an overhaul of the shop’s visuals due to the inclusion of new stands/displays that must be filled with the product being promoted.

A different approach applies to end-of-season sales, where the goods in stock are distributed entirely to the shops where they are most likely to be sold.

Focusing on the push process, what are the critical issues that the fashion industry is trying to address to optimise the distribution of stocks among the various channels and markets?

One of the major critical issues that is arising from companies is that of being able to manage a simulative allocation. The calculation of the link between the stock, but above all between future stock increments (in transit, purchase and/or production plans) and customer orders (where the shop is seen as a customer) is fundamental; without adequate software to help planners identify bottlenecks and critical issues in advance, the work required is costly and very often close to impossible.

The support tools not only make it possible to promptly push suppliers, but also to simulate and proactively identify solutions so as to gain a competitive advantage in terms of efficiency (higher sales thanks to prompter deliveries, and lower costs thanks to less use of expensive modes of transport for urgent shipments.

The lockdowns of the first wave of covid-19, which led to the general closure of fashion and luxury shops, accelerated the shifting of demand among the various channels. E-commerce has also begun to play a more central role for the different brands. How will this situation affect the planning and distribution processes?

The issue of omni-channel sales came to the forefront during the pandemic, but it is a fundamental concept for the retail supply chain that has become increasingly important in recent years due to changes in consumer purchasing behaviour. Monitoring the performance of the different channels and the resulting creation/remodulation of logical warehouses to provide adequate service levels is crucial to design a multi-channel distribution system. In order to support a process of this kind, it will be increasingly essential to acquire IT tools that are capable of supporting decisions, which make it possible to simulate the revenues and service levels resulting from different allocation strategies.