Tag: lead times

OM in the News: Nike Becomes a Supply Chain “Changemaker”

Sportswear giant Nike has cut lead times for orders from 60 days to just 10 days by installing over a thousand automated machines at supplier factories across manufacturing processes. The machines handle cutting, cementing, shoe assembly and solemaking, helping to increase efficiency and reduce labor times. Nike has also developed methods to produce footwear with 30% fewer production steps, and 50% less labor.

These “supply chain responsiveness” innovations are part of what makes the company a retail supply chain “changemaker”, that is, a firm bringing new technology to its supply chain operations.  Retailers and brands are trying to overcome the turbulent backdrop of rapid inflation, shifting geopolitical disruption, and fragile global supply chains, writes Supply Management (July 18, 2023).

Nike has adopted radio-frequency identification and QR technologies over the past four years as part of efforts to create a single view of stock across global operations, which helped boost inventory visibility throughout the organization. The switch to more digital-led customer relations granted the company tighter control of its supply chain – now, its product distribution operations are centered around just 40 retail partners, compared to 30,000 at its peak.

Nike has aspirations to compete with Amazon’s delivery model by speeding up delivery times. The premise is of consolidating inventory from stores, retail partners and warehouses – meaning, for example, if a retail partner does not have stock it could connect with a Nike store nearby that does.

“Consumer preferences have changed forever, which will continue to send shockwaves up and down the supply chain. One day it’s out-of-stocks, the next month a glut of inventory is on the books. To get ahead of these supply chain shocks and manage unforeseen black swan events, complete supply chain visibility with trusted data has become a modern mandate,” says one industry leader.

Aldi and Tesco are two other top retail changemakers thanks to their investments in logistical efficiency, their integration of digital solutions, and their focus on reducing waste and emissions across their supply chains.

Classroom discussion questions:

  1. What is a “changemaker” in the supply chain world?
  2. What are some of the challenges of managing supply chains in today’s global economy?

Guest Post: How Machine Learning Can Heal a Supply Chain

Our Guest Post today comes from Polly Mitchell-Guthrie, who is VP, Industry Outreach and Thought Leadership, at Kinaxis.

Machine learning has great potential to improve supply chains. So at my company, Kinaxis, when analysis of data from a major customer revealed that 55% of their lead times were wrong as designed, we began applying machine learning.

Lead times matter because overly optimistic planning assumptions mean supplies are expected to arrive sooner than they actually do. Waiting delays production and on-time customer delivery while building up parts that arrived on time but cannot be used until remaining parts needed arrive. Overly pessimistic planning assumptions mean actual lead times shorter than planned, so some parts arrive early, building up inventory and storage costs, while others are still in transit. If demand is slower than expected, parts accrue in inventory, unused due to obsolete needs.

More accurate planned lead times allow on-time customer orders, minimize inventory, and reduce buffer stocks necessary to ensure production. Predicting lead times is a problem well-suited to machine learning and automation. The planner sets tolerances for variations in lead times, which we use to configure processing rules for what actions to take. Our machine learning models use historical data to predict actual lead times, compare them to designed lead times, and then use the processing rules to improve decisions, leading to more realistic results.

We have taken a similar approach to predicting yield times. The results from these projects can be significant – for one company we were able to save $17 million in late revenues for their North American region over their 6 month planning horizon.

Minor deviations not worth the time to analyze but deemed worthy of a change are automatically accepted by the model, thereby “self-healing” the deviation. Those with a significant enough impact are flagged for manual review. Minor deviations with minimal impact are simply ignored by the processing rules. Planners can focus on decisions that matter most and let math automatically handle those that do not.

Here is a link to a longer version of the article I published in Analytics.

OM in the News: Department Stores Keeping a Tight Lid on Inventory This Year

“With foot traffic at their stores in decline, department stores that would have stocked up for the biggest shopping season of the year months ago are still in the process of placing new orders,” writes Supply & Demand Chain Executive (Nov. 8, 2017). The strategy is aimed to keep their inventory costs down and avoid the experience of previous holiday seasons, when large piles of unsold stock led to deep markdowns that eroded profits. But these retailers risk losing sales if supplies run out at a time when many are struggling to keep up with Amazon and the shift towards online shopping.

Macy’s, J.C Penney, Kohl’s, Nordstrom, Dillard’s, Lord & Taylor are among the retailers buying in smaller batches with shorter lead times this year and relying on a more dynamic demand forecasting process than in the past. Keeping inventory levels low helps manage costs, and may also instill urgency in consumers to spend now rather than hold off on purchases in search of a better deal. But it also risks alienating customers who may end up having less choice, and is also putting strain on vendors to deliver on shorter lead times.

The high-stakes strategy takes a page from the playbook of  Zara, H&M, and other “fast fashion” retailers that consistently keep low inventories of trendy clothes and try to win customers with cheap prices. Traditionally, retailers lock in most of their purchases 9-12 months in advance. This year, retailers started placing a large portion of their holiday orders 3-4 months before the holiday season, and are refreshing fast-selling items within as little as 6-8 weeks.

The risk: Department stores rely on vendors whose traditional supply chains are not built for a fast turnaround, because they handle orders for several brands. Fast-fashion chains, on the other hand, have designed their supply chain to shift on a week to week basis and work with vendors who can deliver quickly on private label items they stock. So far this year, retailers have been willing to sacrifice some orders for tighter inventory management and higher margins.

Classroom discussion questions:

  1. What are the advantages and disadvantages of the smaller batch approach?
  2. What strategy do fast fashion retailers use?