Zencargo Supply Chain Fable

A Story About The Real Way The World Moves

“The best thing I’ve ever sat on”

You were unlikely to find Emma Holden at a gym. And as far as she was concerned, lycra was a fashion choice best left behind in the 80s. Not to say that she hadn’t given it a go back then, but a career spent in running operations in industrial manufacturing had pointed her sartorial choices in a much more practical direction.

So she was surprised when an email came in that Jane Kelly, CEO of BrightForm, wanted her to join the business as COO. And she certainly didn’t expect it to be a hot topic when she mentioned it to her family that evening at dinner. “You’ve got to take it,” said Iris, her daughter, pulling out her phone.

“Their stuff is gorgeous and it’s so comfortable,” Iris continued, already scrolling through a colourful Instagram feed, pointing out all the pieces that her mum could get her if she was working there.

Emma was even more surprised to hear her husband Keith chime in. “A few of the guys in the cycling club wear their shorts; I gave them a go. Honestly, they’re the best thing I’ve ever sat on. Maybe they’re worth a chat?”

Lycra at the LSE

BrightForm was founded on being different but now they were facing difficulties all too familiar to other fast-growth businesses.

When former designer Jane Kelly couldn’t find any activewear that gave her the feeling she wanted while working out, she decided to do something about it.

Early low-key marketing efforts went viral on social media, with women of all ages embracing BrightForm’s fun, unselfconscious designs that made exercise feel less serious and more enjoyable. And soon investors, keen to move into the world of lifestyle, were lining up.

After securing funding, and with Jane now CEO, BrightForm exploded in popularity, launching new designs, growing into new markets and racking up celebrity endorsements left and right. Four years after founding, they went public in a blaze of colour, with the leadership team all in lycra at the London Stock Exchange.

But one year later, some of that colour had begun to fade. BrightForm had missed three earnings calls in a row. Not only that, but their margins and balance sheet were all far off the mark, with their stock price down 20% since their public offering.

While there was no question of ousting Jane from her position, the board strongly suggested that it would be in BrightForm’s best interest to bring on a COO to take a closer look into what was slowing the business down. Jane agreed, but she wanted to pick her candidate.

Getting Back in Shape

“I don’t know anything about sportswear.” Emma was upfront when she met Jane about joining BrightForm.

She’d spent her career working in industrial manufacturing, where her main concerns were lag times, not leggings. Which was exactly what Jane was looking for.

“Our problem isn’t our products. We’re still leading trends in the market, we have strong sales numbers and high brand value. But we’re moving too slowly. Competitors are copying our designs and undercutting us on price,” explained Jane.

“We need to get our costs under control and get our agility back. I wanted you because of your experience building dynamic supply chains, so that’s where I need you to start.”

The Workout Plan

Emma didn’t rush into making changes when she started. From her experience, she had an idea what the issues might be but wanted to check her theories before she said anything. She introduced herself to her reports and requested information on ordering cycles, product lead times, freight spend and stock levels. She also sat in weekly trade meetings and supply chain meetings, saying nothing, but listening to everything.

In her third week, she called a meeting with three key supply chain stakeholders.

Firstly, there was Steve Harris, Head of Logistics. A shipping-industry veteran, he had been brought on last year to manage BrightForm’s expanding logistics network of Far East suppliers.

Next was Naomi Porter,?****Head of Merchandising. A fashion prodigy, she had worked for several fast-growth online retailers and had a remarkable talent for knowing what would sell.

Finally, there was Mark Morris, Warehousing Manager. Emma had already observed him to be assiduous and focused in his work, but he also seemed to be constantly stressed, and rarely had the time for a full conversation.

Emma opened the meeting, “Thank you for joining me today. The first thing I want to say is that I’m not here to tell any of you how to do your jobs. But I am here to help our supply chain as a whole function better.”

“As Jane told me on my first day, and as you all know, we have the best products on the market. Customers love us and we’re selling well, but we’re not achieving our potential. From my observations, there are three key reasons.”

“Firstly, our freight costs aren’t in line with our product revenue, which is cutting into our sales margins. Secondly, we frequently run out of our best selling items, losing out on potential sales. Thirdly, we are holding large amounts of unsold inventory, which is tying up working capital. I need your help to resolve these issues.”

Feeling the Burn

Naomi was the first to jump in. “We’re just not moving our products fast enough. That’s why we’re running out so often,” she said. “I know what sells, but I can never get it in time. I have to chase our logistics team every day to speed things up and even then I never know what’s coming in beyond the next two weeks.”

Steve had his response ready. “Why do you think we’re spending so much on freight? It’s because the merchandisers insist on everything as fast as possible. We keep having to use airfreight which means we have no time to consolidate orders to reduce overall cost,” he shot back.

“We need to get our orders in sooner so we can use more sea freight,” finished Steve, shooting an exasperated look at Naomi, who seemed not to notice.

“I’m not sure if it's just about when we order. I think it’s about what we order,” added Mark. “A lot of express orders are just adding to existing stock, which is why we’re holding too much inventory. We keep having to move stock between warehouses to make space, or to make it available for sale and we’re racking up extra storage costs as we’re not planning our inbound effectively.”

This was pretty much what Emma had expected. But to check, she asked one more question.

“I agree with everything you’ve all said. But without mentioning any other people, what can you do yourselves to solve these problems?”

Suddenly, everyone was much less eager to speak.

The Five Dysfunctions of a Supply Chain

At the end of her first month, Emma sat down with Jane to report on what she’d found.

“Well the bad news is that our supply chain isn’t working the way it should, but you already know that. The good news is that it’s fixable,” said Emma.

“As I see it, there are five key issues we need to solve.”

“The first is a data problem. Information on cargo is only available at the container level and it's frequently incorrect or not updated. The merchandising team can see their Purchase Orders at a high level, but it's hard to know how long any items really take, or when they’ll arrive. The logistics team can track containers, but rarely know what specific products or individual "Stock Keeping Units" (SKUs) are where. And the warehouse team can’t see what’s coming in the long term, so don’t know what space to hold back.”

"This leads to the second issue: every decision your team makes is based on a fear of running out of stock. Because there's no visibility around where products are in the supply chain, when they'll arrive and how much will actually make it here, there is a constant worry meeting demand. This leads to our commercial team placing larger orders 'just in case' and putting a lot of pressure on the logistics side to move things faster, and puts more pressure on warehouse capacity."

“This leads to our third issue. Because everything is being driven by stock panic, there's no space for effective collaboration. Any attempt by the logistics team to reduce costs by consolidating shipments or using less expensive transport options usually means an increase in lead time. But since stock levels are the top priority, they can't use any of these tools, which is driving up our freight costs significantly."

“The fourth issue is that since they can’t help each other, they end up focusing on actions that benefit their own specific KPIs. Merchandisers are focused on not running out of product, so they push for everything as fast as possible. Meanwhile logistics try and keep costs as low as possible, but have no visibility on how that impacts revenue. The warehouse team do their best to keep product moving in and out, but often end up having to store containers elsewhere in the short term.”

“Which leads, predictably, to dysfunction. Because everyone is optimising for their own KPIs, no one is optimising in the best interests of the business or the customers, which causes problems.”

“Without visibility, we can’t properly manage our inbound supply and end up focusing on volume and speed to cover potential stock outs. Our over use of express freight means we keep moving half full containers that incur demurrage charges because the warehouses are full. This drives up freight costs across the board, and ties up working capital in unsold inventory. And that shows in the revenue figures, the balance sheet and the product margin. But as I said, it’s fixable.”

Leading the Pack

Three months later, Naomi was the first to speak in their Monday morning trade meeting.

“Firstly, I wanted to thank Steve for his help expediting last week’s orders.?Strawberry Bombshell?leggings **are selling faster than anything else this year, and we’re all covered thanks to you.”

“Mark and I were looking over our Zencargo dashboard and our current inventory and inbound stock figures look pretty strong. I think we can delay three of our POs next month and consolidate them for August. We’re in pretty good health for all those SKUs, so this is a great chance to reduce our landed costs and minimise some inventory.”

“Does that sound like a good solution?”

Pain and Gain

Two months later, Emma was tired. She was exhausted. In fact, she nearly fell off the exercise bike. She hadn't meant to get into fitness, but she had felt obliged.

Three months into her time at BrightForm the business had missed another earnings call, but only by 0.25%, spurred by a 13% improvement in product margin. Three months after that, they beat their earnings target by 9%. In celebration, Jane had given her a full set of?Strawberry Bombshell?apparel. It seemed rude not to use it.

And now she was almost as proud of her Spin class performance as she was of the 16% cost reduction and 12% increase in operating profits she'd delivered.

That's because having worn BrightForm's products, and also joined the board, she could really say it was the best thing she'd ever sat on.