Far East Supply - Case Study
Thursday 24th May 2018

Far East Supply, a case study

The company (a household name in retailing) had switched sourcing to Low Cost Countries but then found very weird things were happening in the supply chain.

Stock was up yet service level was down.

Everybody had their own 'angle' on the perfect solution, largely (and sadly) 'making my bit better but everyone else's worse'.

This was ultimately more a political battle than a factual one, although the facts won in the end.


Issues with Long Supply Chains

We had modelled this years before it was really seen as a problem, although the retail chain 'Zara' had taken a very farsighted view. [1]

When a client did ask a closely related question, it was interesting to see how the actuals (low ex-DC service levels yet high leftovers and potential markdowns) matched the original predictions. Not exactly (they were doing other things wrong!), but very close.

In a one month sample, no DC had continuous stock of sampled SKUs; and no day had stock of that same SKU in every DC.

In the real world, it's no longer appropriate to think of 90% or 95% ex-DC stock availability. We should start the discussion at 70%.

If your company is at 65%, or 75%, the structural issue doesn't change. You're not at 95%, never will be again, and need to learn how to run a chain to reflect the new reality.

The solution was a mix of conventional and highly unconventional. The latter is still client confidential.

The former relies on two features of all stocked supply chains

  1. Goods get sent to the stock point in the hope they might sell, not the certainty they will. When the planned amount sells on fewer than 4 days in ten, it's time to concentrate on how we react every bit as much as how we plan.
  2. A well tuned supply chain is extraordinarily resilient to brief stockouts.

Coincidentally, this alters the role (and thereby the design) of all national and regional distribution centres.

They no longer need to do a single task. They need to do 3 quite dissimilar tasks requiring very different skills and kit.

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  1. Zara bring cloth in from long lead time, low cost countries. They make the garments up locally, on short lead times.
    They also set customers expectations that supply is discontinuous - 'when its gone, its gone', aka WIGIG.
    At the risk of overstating it simply to make the point, they have 'decided it's better to sometimes run out than to try and keep in continuous supply'.
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