Professor Simon Croom on Multi-Million Dollar Operational Catastrophes with SupplyChainDive

Monday, February 3, 2020TOPICS: Research

Simon Croom, USD School of Business Professor of Supply Chain Management
begin quoteThat's the part that's really disconcerting. If they didn't pick up on it, how can they respond to it? It's either a system failure or a human failure.

In 2019, there were a number of avoidable operational supply chain problems that affected retailers all over the world due to simply not having the right systems, checks, or performance indicators in place. These catastrophes weighed heavy on retailers’ reputations and end of year revenues. In an article by the industry publication SupplyChainDive, Simon Croom, professor of supply chain management at the University of San Diego School of Business, shares his expert opinion on why such glitches may have been prevented.

3 Retail Supply Chain Fails of 2019 and How to Avoid Them in 2020

Faulty technology integrations created a few multi-million dollar supply chain disasters in 2019. Experts say with the right checks in place, they could have been prevented.

If an operational blunder rises to the level that investors hear about it straight from the CEO — that's bad. If the media holds it up as a cautionary tale, something has gone terribly wrong.

In 2019 there were a handful of such operational catastrophes and they demonstrate pitfalls that experts told Supply Chain Dive are easy to fall into, but also fairly easy to dodge with the right systems, checks, KPIs and talent in place.

Below are our examples of the biggest operational problems that affected retailers' reputations and bottom lines, and tips on how to avoid them in the future.

Asos and the case of the disappearing inventory

Near the end of July 2019, with peak season starting to come into view, e-commerce-driven fashion brand Asos told investors a major problem with its warehouse technology had cost the company millions. The problem centered around warehouse management software intended to register what was in the warehouse and update availability on the company's website.

Asos is a highly trend-driven brand, with 85,000 total SKUs, adding 5,000 SKUs per week, according to company statements. The automated system was adequately sending inventory out to complete orders, but not taking any in — new items, replenishments and customer returns — possibly for weeks.

"With the benefit of hindsight, we were not adequately prepared for the additional complexities of planning and trading across our expanded warehouse footprint," read the company's end of FY2019 statement.

Combine that with supplier issues, and available stock was seriously restricted for customers in Germany, France and the U.S. Margins for 2019 took a 250 basis-point hit from 2018 and profits dropped 68% year-over-year for the 2019 fiscal year.

It's impossible to know what really happened from outside the company, but Asos took months to identify and address a $30 million problem.

"That's the part that's really disconcerting is not picking up on it quickly enough. If they didn't pick up on it, how can they respond to it? It's either a system failure or a human failure," said Simon Croom, professor of supply chain management at the University of San Diego.

It's also very easy for e-commerce operations to overlook inventory levels when fast fulfillment is the number one priority, he told Supply Chain Dive.

"Quite often your KPIs are related to customer order fulfillment," he said, adding that incoming product and the proper classification thereof is commonly not seen as a performance measure across retailers. "You've got to manage the reverse flow incoming, not just outgoing, but … that is not always the case."

Inhi Cho Suh, general manager of IBM Watson customer engagement, told Supply Chain Dive it is essential for CIOs to look for software solutions that allow disparate data, like marketing and demand data and supply chain data, to come together smoothly. Beyond that basic requirement, whether in a fulfillment center or a store, managers needs to be able to see inventory at more than one moment in time.  

"It's not just about the physical inventory in the store and replenishment cycle in the store, it's about having a virtual view of what's available to purchase, in terms of what's coming from future distribution centers or future docks," she said. Such visibility would offer the possibility of alerting supply chain managers that low inventories showing on the website were not consistent with the amount of inventory in the entire network.

Rent the Runway's in-stock myopia

The stakes are high for Rent the Runway's logistical operation. Since many customers use the clothing rental service to find garments for a special occasion, they need that garment on time. Rent the Runway made national headlines when a self-described software glitch caused it to virtually cease operations and cancel all orders scheduled to arrive between Sept. 30 and Oct. 6. 

The company said it canceled orders because it was no longer confident in its inventory visibility, meaning the system may allow an order the company could not fulfill. It did not accept new orders or sign on new customers to its unlimited subscription service until after Oct. 9. Chief Supply Officer Marv Cunningham resigned at the end of September.

A software upgrade was the core of the problem, co-founder and CEO Jennifer Hyman said at the Gartner IT Symposium in October. During the upgrade process, a bug delayed...

Contact:

Renata Ramirez
renataramirez@sandiego.edu
(619) 260-4658