For clothing, electronics and other products with short lifecycles, managers aim to minimize the time spent at the point of sale. Fast fashion churns out new collections to keep consumers buying, and electronics makers innovate constantly for the same reason. Quick turnover is the goal. Sold-out products are generally not reissued, but replaced with the next new thing.
As with all rules of thumb, there are exceptions. When a particular product is expected to be a runaway success, retailers may wish to order more. So, how should they do it? Restock from their original supplier — who often guaranteed them a good price but may require a long lead time? Or, go for a faster, more local, but perhaps also more expensive, alternative supplier?
Professors Eduard Calvo and Víctor Martínez de Albéniz of IESE challenge the received wisdom that firms should aim for as much responsiveness and flexibility as possible, and develop a model that breaks the decision down according to specific factors. Key questions include: Are prices set in advance or in the moment? Do suppliers know their role in the business model? How does that knowledge change the rules of engagement?
With their model, the authors find that working with a single supplier may lead to better results for both planned and urgent orders, as long as prices are decided up front.
Firms like H&M work with a single supplier, and if they urgently need to restock an item, they ask for a quick turnaround. For instance, if jean skirts keep selling out before their season is over, reorders will cost more. Meanwhile, retail rivals like Zara and Bershka, part of the Inditex group, will place their initial orders with a cheaper, long-lead-time supplier. And when “reprise” orders are placed, Zara or Bershka generally look beyond the initial supplier for faster, closer and pricier options. These two ways of doing business are known as single and dual sourcing, respectively.
Dual sourcing is clearly the more responsive, and therefore flexible, option. But how do suppliers react when they know they are part of a dual supply chain?
“Fast fashion” presents a perfect case study for the single- and dual-supply-chain dilemma. Prices are set when products are in the design stage and often only reduced for end-of-season sales. The window of time to sell the product is short, and the number of customers who wish to buy any given design is unknown. Forecasting is used to decide order sizes, and forecasts become more reliable over time, right up into the selling season.
The dilemma is that supplier prices are lower when lead times are longer. Indeed, forecast quality is lower, quantity orders are less accurate so suppliers need to offer cheaper prices to remain competitive. On the other hand, when lead times are shorter, more accurate forecasts come with more expensive supplier prices.
The stage at which prices are set is key to the success of dual sourcing.
- With up-front price commitment, companies agree to a price at the beginning of the process and honor it throughout. H&M, for example, enters into price commitments with their suppliers that often span many years.
- With delayed price commitment, there are no guarantees, and prices are chosen opportunistically based on up-to-date supply and demand information.
It is to be expected that when buyers do not form a long-term commitment with their suppliers, prices will be less predictable, and may well be higher. But how does this affect single- or dual-sourcing strategies?
“When prices are set up front,” the co-authors assert, “we find that dual sourcing [makes] suppliers end up pricing higher… than in single sourcing.” The reason can be found in faster suppliers’ strategies. They explain: “Indeed, the fast supplier may price high and still receive orders while, under single sourcing, it would have been excluded completely.”
As a result, the faster supplier raises its prices, which tend to have a knock-on effect to raise slower suppliers’ prices, too. In sum, the net advantage to dual sourcing goes to the suppliers.
But note that the same is not true of delayed price commitment. In this situation, companies are wise to aim for dual-sourcing strategies, as early purchases through the slow channel may “force the fast supplier to reduce prices in order to sell.” Meanwhile, committing to single sourcing, but not to prices, may leave the single supplier with a powerful monopoly when it comes to urgent top-up orders.
In the end, much of the choice comes down to the kind of relationship a buyer wishes to foment with their suppliers. When a company is known to use single sourcing, there is more competition between suppliers to get the business, which can lower prices and lead to a long and stable partnership. Off-the-cuff pricing and purchasing will have the opposite effect.
Flying in the face of conventional logic, that responsiveness is the main aim of a supply chain, the authors suggest that single sourcing — and the implied volume of manufacturing up for grabs — may well lead to better prices for both planned and urgent orders — so long as those prices are agreed in advance.
Mainstream advertising is expensive cluster bombing, whereas sponsored posts in excellent blogs, such as Venitism, bring quality clients at low cost. Small is beautiful! Most organizations are now marketing with sponsored posts, going beyond the traditional sales pitches and instead enhancing brands by publishing or passing along relevant information, ideas, and entertainment that customers will value. Sponsored post is the most respected social medium. https://venitism.wordpress.com is a platform of unique sponsored posts, costing only one hundred euros.
The success of sponsored posts has radicalized the way companies communicate. The sponsored post revolution signals more than a mere marketing fad. It marks an important new chapter in the history of business communications, the era of corporate enlightenment. The phenomenon of sponsored posts has unfolded rapidly because it responds to consumer preference. Most people would rather learn about a company via a sponsored post than an ad. Sponsored posts in Venitism allow companies to react in real time, provide increased transparency, and create a strong brand identity at a fraction of the price of traditional marketing tactics, and in less time.
Sponsored posts in https://venitism.wordpress.com can be the means by which a brand shapes and impacts business and consumer landscapes. Sponsored posts can be a thoughtful investment in a company’s legacy. Armed with quality sponsored posts, corporations can become thought leaders, change agents, and experts. They can, in fact, become enlightened. Branded content is a powerful movement, and for good reason. In an always-on digital world, netizens have places to go and destinies to meet. To get their attention, you have to offer something valuable in return with no more than a couple links. Great stories persuade by uniting an idea with an emotion. Weave a story with information that makes your audience’s heart beat faster, and you have a good chance of winning them over.
https://venitism.wordpress.com offers sponsored posts for companies that want to highlight their thought leadership expertise, while gaining objectivity and credibility through content marketing initiatives. As a sponsor, your company can gain a powerful advantage, exceptional visibility, and access to a global audience for only one hundred euros! Venitists have power, influence, and potential. They are successful executives, independent thinkers who embrace new ideas, rising stars who are aiming for the top. Our readers demand accurate, original reporting, untainted by establishment spin and linkbait. Venitism is a first-in-class blog that provides warp speed, on the ground reporting from anywhere in the world. For more information, email firstname.lastname@example.org