Bullwhip Effect Is The Root Cause Of Traditional Clothing Industry. Extensive Marketing Is The Root Cause.

When the news about the crisis of American state clothing inventory has been spreading rapidly on the newspaper network, more people in the industry do not seem to care about the problems of the US itself. The so-called "ZARA" represented by the United States and the United States. Fast fashion The brand itself is characterized by "quick" win. The so-called fast, in many people's view, is unique in its marketing strategy. Inventory crisis In any case, it should not be related to these fast selling brands. But the unexpected thing is that it happened inadvertently.

When a thousand waves of rock slowly calm down, people can not help thinking: for the traditional clothing industry, how much is the stock ratio reasonable? What kind of marketing mode can effectively reduce inventory? Is that kind of zero inventory idealism mode really exist?

Bullwhip effect caused by extensive marketing

In fact, people in the industry understand that the deep-seated cause of inventory backlog is the fact that traditional extensive production has led to exaggerated demand and excessive production. At present, most garment enterprises plan to determine the quantity of production, most of which are determined by ordering. This mode, because of relying on channel providers to provide information rather than consumers, often causes clothing sales to be lower than expected, resulting in backlog of inventory. In addition, enterprises usually exaggerate demand when making inventory turnover plans. For example, the customer needs 100 clothes, and the retailer thinks 150 pieces are needed. The agent thinks that 200 items need to be extended to the manufacturer, and 250 items are extended to the manufacturer. That is to say, for every 1 items sold, the manufacturer should prepare at least 2.5 items for inventory turnover, sometimes exceeding this proportion, thus forming a large quantity of stock.

"How large a stock is reasonable? This is a matter of great concern to all of us. At present, the industry standard is 15% return rate, but the 15% return rate is enough? Recently, the turnover times of some listed companies were very low, and some stocks accounted for more than 58% of the assets, which seriously affected the development. Yao Yujian, chairman of Zhejiang impression industrial Limited by Share Ltd, said that although the name of the high inventory company was not pointed out in the discourse, anyone who knew a little bit about the clothing industry would guess who he was referring to.

According to the practice of clothing enterprises, the normal brand sales (refer to the minimum retail discount of more than 50 percent off), the stock rate is between 35%-45%, these stocks are basically distributed according to three parts: first, brand manufacturers, stock 15%-20% (in accordance with the implementation of 15% return rate, plus stock); two is regional general agent, inventory 5%-10%; three is franchisee, inventory accounts for about 10%-15%. "However, with such inventory standards, there are not many enterprises that can guarantee an average level. The current situation is that the higher the brand is, the more inventory will be." Yao Yujian said.

Chinese clothing brands are basically implementing the traditional RMI mode, that is, the Retailer Managed Inventory mode, ordering goods, replenishing goods and digesting inventory. The traditional RMI mode is destined for its high inventory rate. For example, the general agent mechanism, the general agent takes the franchisee to the company to attend the order meeting, the franchisee forecasts the order, the general agent carries on the stock according to the franchisee's forecast order, the franchisee starts to replenish the goods according to the actual sales, the general agent carries on the stock according to the franchisee's replenishment quantity, the company then carries on the stock according to the general agent's replenishment quantity again. And inventory is constantly being replenishment. This is the famous " bullwhip effect "

Weak sales caused by bullwhip effect

Systematically speaking, the bullwhip effect is one of the basic principles of supply chain management. It is a term in economics. It refers to a phenomenon of demand amplification and amplification in supply chain. When information flow is passed from the end client to the original supplier, it can not effectively share information, enlarge the information distortion, and cause the fluctuation of demand information. The amplification of information distortion is very much like a Bullwhip in the graph, so it is known as the bullwhip effect. That is to say, the upstream suppliers can be compared to the top parts, and the downstream users compare to the roots. Once the roots shake, there will be great fluctuations in the terminal end.

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"The first reason for this consequence is that the sales plan is incorrect. Many agents do not have a sales plan when ordering." Yao Yujian said.

In Yao Yujian's view, the first order is not accurate, the overall accuracy of the franchisee is not high, and the replenishment is not allowed. This is another major reason for the inventory. The main reason for the inaccuracy of orders is that they do not understand the purchasing logic of consumers. If the consumer's consumption concept and logic are not mastered, it is easy to make the first inaccurate, so that the whole inventory is not sold. " Yao Yujian said, "at present, the contract between the brand agent and the agent is either buyout, or there is a certain rate of return or exchange rate, and there is no real mutual benefit for the digestion. Although some brands have set up some ways to allocate agents to the agents, because of the lack of systematic data analysis, the effective reduction of the inventory of agents has not played a real role.

Secondly, the ordering mode relies on distributors rather than consumers to provide market information. In this mode, the real demand becomes a product that takes longer time. Most manufacturers in China need an average of 90 days from receiving orders to finished products, and some can reach more than 120 days. This resulted in many stores selling last season's fashions.

In addition, ignoring the design itself and ignoring the needs of consumers is also a problem. Many producers believe that "the current international fashion can be sold in second tier and three line cities after being sold in the first tier cities in China," which can only lead to backlog of products, because they ignore the power and role of the Internet, and neglect the rapid change of consumer's consumption concept caused by traffic and other reasons.

Lowering inventory is not equivalent to zero inventory.

In Yao Yujian's view, the average gross profit margin of the clothing industry is generally 20%, even if there is no inventory, minus 10% of the cost, the remaining profit is only about 10%. "Now that there is stock, the profit may be further reduced to 6%. If the average 50 percent off is sold, the final profit will be very poor. If the inventory is bigger, it may even become zero profit. That's why we earn all our hard work for a year. It can be said that whoever solves the inventory problem becomes the master of the channel. But fundamentally solving inventory is impossible for us now. " Yao Yujian said.

Take Zhejiang impression industrial Limited by Share Ltd's "autumn Yi people" brand as an example, the implementation of the "autumn people" is not the traditional RMI mode, but the VMI (VendorManagedInventory) vendor managed inventory mode, which is an advanced supply chain management mode. The "zero inventory full return" is a more advantageous marketing policy. In short, it refers to the zero inventory of customers, 100% returns, and the realization of inventory optimization and redistribution. By integrating the upstream production resources, relying on the support of terminal information management (TOC management system) and logistics, the sales terminal can be sold one by one.

"In the terminal operation of VIM mode, the performance of autumn water rose from 600 million yuan in 2010 to 900 million yuan in 2011 and 1 billion 300 million yuan in 2012. The profit reached 70 million yuan in 2011 from 2010, 140 million yuan in 2011, a profit doubled in one year, and 200 million yuan in 2012 target. Terminal single store profit rate increased by more than 20% on average, and the overall inventory rate was controlled at around 25%. Yao Yujian said.

In the industry, the VMI mode is also known as the "Mafia proposal". This mode attracts customers to open stores on a large scale, while the closing rate has dropped sharply. This also proves that in the production period, there are not only excess crises but also opportunities for brand development.

But solving inventory problems does not mean that zero inventory is the highest level of enterprise operation. Gadola Te, an American Israeli, once proposed the theory of limitation (TOC), which means the weakest link in the physical system determines the output or efficiency of the whole system. This is similar to the "bucket law" which is well known to all. The biggest bottleneck in the operation of a company is selling output. When mining the maximum capacity of sales, it must buffer it to maximize the sales output, which is the inventory. That is to say, if we want to maximize sales, we need certain inventory as buffer, no buffer, no performance, zero inventory is impossible. For apparel enterprises, the most important thing is how to break away from the original business model, replace it with a more effective and meticulous management method to effectively reduce inventory, keep inventory balance among enterprises, agents and terminals, and effectively allocate regional and inter regional spanfers, so as to achieve the increasing performance of companies, general agents and franchisees and the operation of low inventory.