“In fashion retail, Speed to Market is of essence whether it is B2B or B2C. Speed becomes a very critical parameter as it allows decision making closer to the season. Earlier logistics was mainly focused on cost, but now speed is as important as cost because there is a significant difference in the customer experience if you are able to deliver them goods in 2 days vs. 5 days. If retailers are able to replenish and deliver faster, then the inventory that they hold at the stores and the warehouses will come down and makes the working capital deployed more efficient. That’s where supply chain comes to optimize the trade-off between doing the last mile delivery by small parcel carrier and express carrier,” elaborates Satish Karunakaran, Director – Transformation, Pepe Jeans India Ltd., during this exclusive interaction…
You have been a part of evolutionary journey of FMCG and Fashion retail sectors. What have been some of the most striking transformations during this phase?
Satish Karunakaran
I have been fortunate to play leadership roles in Supply Chain and Technology transformation with leading FMCG, Fashion and Retail companies. When I started my career, the first challenge was to standardize, optimize and digitize the business processes that were already existing in companies. Many business processes were done manually, and process flows were in a batch mode. Over time, these manual processes started getting replaced by SAP ERP systems. During that stage, implementing an ERP software and getting the processes streamlined to enhance efficiency and responsiveness was the prime objective of transformation. I was fortunate to have had a direct role in that transformation. With that transformation, organizations started becoming more tech savvy, and many processes started getting automated. At that time, it was a huge step up as far as efficiency is concerned. But we have come a long way from there.
If I have to pick two big things that have happened in the recent past, which would affect FMCG, Fashion and Retail, the biggest would be the rapid emergence of e-commerceas an important sales channel and a critical arm to communicate directly to the customer in a personalized manner. Most of the companies were managing just about 3-5% of their sales through e-commerce channel in the early 2010s. This was especially true as far as fashion industry was concerned, where older season merchandize would be sold through the online channel mostly through deep discounting. In hindsight, this was the first step that led consumers to shop online frequently. Later it evolved into more about promoting certain flagship products and sharing features and attributes to consumers through such platforms. Today we have come a long way, and the biggest transformation has happened in the last 3-4 years mostly necessitated by the constraints imposed during Covid.
Today most B2C brands are reaching out to the customer directly through own D2C websites or apps or marketplaces like Nykaa, Myntra and FlipKart, in addition to physical stores. D2C apps and e-commerce websites are functioning as the prime platform to offer an ultimate brand experience to the customer. To support this trend, there is a proliferation of innovative, cloud based SAAS tech infrastructure has been built up, such as product information management systems (PIM) where multiple images of products and personalized product stories can be presented to the customer, unified CXM platforms, sophisticated catalogue management systems and the logistics tracking apps.
And to top this all, vastly improved data tools that can harvest a vast trove of data and mine for critical customer and business insights has hyper-charged the ROI for these technology interventions.
How should Fashion and Lifestyle companies structure their supply chain to create the required responsiveness and speed?
The biggest step after ERP implementation across all the companies was taken during the early 2010-11 timeframe when companies started realising that they have a lot of data but are not getting actionable insights out of it. Data analytics started becoming a hot topic and various companies are at different stages of harvesting this opportunity using data strategy, tools and technology.
Omnichannel sales is another big game changer. In many businesses, the physical sales and e-commerce sales, which were competing with each other, but there is a greater realization of the synergistic roles that they can play to enhance the customer experience. Today almost every brand which has physical retail stores are seeing ecommerce becoming an additional asset to curate the customer experience.
Besides, in the last one year, the biggest change that has shaped the fashion landscape is the experimentation with AI to create mood boards or concepts. More than a few fashion apparel brands are experimenting with digital mock-up samples, which can generate sales from retailers before the garment is produced. This reduces the lead time to get a new design to market with less risk of an unsold inventory.
When it comes to digital transformation, most people think about it from a consumer-facing perspective. While the consumer-facing side is very important, the whole value chain has to synchronously evolve or transform to deliver the desired customer experience—right from design to sourcing and logistics.
We launched our own webstore (Pepejeans.in) more than two years back and have seen strong growth. We now have four regional warehouses just servicing the online orders and we do service orders from key stores. The most important thing we are focused on is to evolve the value chain also to the next level. For example, currently we have the tech enablement to track our products at various stages of manufacturing on a single dashboard. We are also able to seamlessly track and manage each of our customer shipments from order to delivery using technology.
What have been a few of the greatest learnings during the last few years that will stay with you forever and help you climb the success ladder?
One important learning that I would take from the last few years is the need to be ready for planning for multiple scenarios that may play out. Pre-Covid, most planners would have a single optimal plan and every team member would abide by that plan of action. But now, there are multiple plans with varying probability of any of these plans getting activated. This makes planning more complex but improves the ability to execute quickly if or when conditions change. We must have cost-effective backup plans in place to ensure that we don't run out of stocks and the consumer consistently gets the desired product experience they expect.
The second important lesson for me is about customer obsession. Customer obsession has generally been taken as something that the sales team would do. But now it is understood that all the stakeholders, be it the technology team, operations team or other functions including finance or supply chain have to be customer centric. Every process and function need to be sharply focused on the customer journey to keep it simple, enjoyable and seamless.
Lastly, there is a lot of intuition inside the organization based on experience and historical data. But if companies are able to add an additional layer of insights through data analytics in the right way, they will win big time. Consumers today are aware of choices and if you don’t solve their needs quickly, they will move to a different brand. For that, it is imperative for fashion retailers need to ace their data strategy and tech execution.
What has been one of the most challenging tasks that you have achieved in supply chain? Please elaborate…
As Alvin Toffler said more than 50 years ago “The illiterate of the 21st Century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.” With all of these changes happening at the same time, one of the most challenging tasks is change management within the organization. There are people with many years of experience who know intuitively this is how it works. Implementing meaningful change without actually hampering the creativity of the people is an arduous task. To ensure that things go as seamlessly, it is best to engage with the key stakeholders right from the start so that they understand the context, task on hand and need for the change. Technology deployment shouldn’t be seen as merely replacing human intuition or creativity. If change management is done well, it can lead to a far more agile and motivated high-performance organization.
To be impactful, sustainability has to be integrated with the largest number of products. Sustainability isn’t just a trend; it’s an important part of how we add value as a business. The importance of sustainability is undeniable. We are focusing on significantly reducing the use of water in denim washing. Through collaborative problem solving and regular third party audit, we support our vendors to maintain sustainable practices.
I would like to understand from you how is the global retail landscape different from the Indian retail landscape? How has the country evolved with the global transformation?
Retail in India also significantly benefited from the tailwind due to the growing young population and strong economic growth trajectory. In many ways, retail industry in India is starting to catch up with the rest of the world, if not a couple of steps ahead especially in retail tech. Many developed countries adopted technology in the 70's and 80s and they have upgraded the technology to some extent but have been slow to migrate to currently available tech innovations. In India, we have basically leapfrogged to new technology and business innovations especially in ecommerce. Some of the most innovative and low cost applications of tech in retail is happening in India.
How do you foresee India growth story unfolding for you?
Retail in India has become a consumer-centric industry and is focusing on trends and the digital side of the business. We have a very clear focus in terms of direct-to-consumer sales. So whether it is through online stores or physical stores, direct to consumer (D2C) is going to be our biggest growth drivers for the years to come.
Indian retail is getting a bigger proportion of its growth coming from tier II & III markets, amid rising disposable income and greater exposure to fashion trends. Today the aspirations of these consumers (tier II & III) are becoming similar to consumers in metro city. These cohorts have disposable incomes and are willing to buy fashion. e-commerce as a platform has provided us an opportunity where we can directly reach out to consumers in smaller cities So, accessibility has also become easier. The Indian ecommerce sector holds significant promise and displays substantial potential in the years ahead.
How do you synchronise or streamline the entire supply chain?
Two factors have to come together to give the customer the right experience that the brand wants to give. Firstly, the supply chain which ensures the physical movement of the goods from place to place and making sure that the right product is available at the right time in the right place. The second critical part is associated with technology that enables us in what is missing and what is selling. These two need to come together to be able to solve the problem.
Every store today has an electronic PoS system. This PoS generates tremendous amount of data. Coupled with in store video analytics and customer journey mapping, retailers can gauge why a product is selling or not selling and how to upsell and cross sell.
There are AI models available, which can read sales data and looking at the data of sales, it can prompt you when styles should be replenished or which style should be taken out of the store and send somewhere else, which new style should I bring back into the same store. There are three actions – Replenish, Remove and Add. Interestingly, Video analytics can predict the heat map of customer traffic to tweak the store layout. I think these two will help a long way in understanding customers’ behaviour better.
Earlier there used to be separate B2B and B2C logistics partners, but that’s not necessarily the case today. Most logistics partners have drastically reduced the lead times for deliveries, which is a big positive for fashion retailers like us and we are able to service customer faster and efficiently.
Second big change that is happening is in the infrastructure space. Companies today are laying tremendous emphasis on locating the warehouse infrastructure from where the customers can be serviced faster.
We have established regional warehouses to realize a better lead time to serve the customer. The infrastructure of the supply chain has to fall into place to support quicker deliveries to the customer and quicker replenishment to the store. And the technology has to be there to tell you where to send what, without which a sound supply chain will not be effective.
What are the criteria on the basis of which you select third part logistics service provider? What are the challenges that you have encountered in partnering with them?
TPL industry is booming in India in India and addresses a real need of the hour. It has gone through a consolidation phase in the last couple of years and is well placed to further evolve and mature overtime. Right now, it’s at a stage where there are many TPL’s that are credible partners to businesses.
One of the criteria for us to choose a partner is how stable is that partner as a company from the perspective of their financial and operations muscle. The other lens that we apply is on their commercial model. It has to be a transparent commercial model and it has to be win-win model, which works in favour of both the stakeholders. Another important criterion is the value add that a 3PL partner brings to the table. Some of the 3PL partners have brought in tech-enabled automation for improving shipping accuracy or reducing order fulfilment lead time.
What are the key trends in Omni channel space?
The primary trend that fuels omni channel model of order fulfilment is technology and that has evolved to a large extent. Earlier the store PoS and the omnichannel orders were not linked to each other in many cases. There was no single view of a customer across channels. In the early days, to fulfil omni channel orders, store employees had to punch that order into the PoS, do the billing and then again punch it into the order management system to dispatch it to the customer, which used to be an arduous task. This challenge has been solved and the newer systems are working out very well.
Another issue that required creative problem solving as about the internal staffing availability for omni order fulfilment. Retail staff is extremely busy during certain periods of time such as sale days. During that time, if an omnichannel order comes in, it was a challenge to fulfil the target SLA. Many retailers had to rejig the staffing model to improve Omni channel order fulfilment performance.
What are the key trends likely to shape the fashion retail landscape? What’s your take on fast shaping up supply chain dynamics in the country?
In fashion retail also, speed to market is of essence whether it is B2B or B2C. Speed becomes a very critical parameter as it allows decision making closer to the season. Earlier logistics was mainly focused on cost, but now speed is as important as cost because there is a significant difference in the customer experience if you are able to deliver them goods in 2 days vs. 5 days.
If retailers are able to replenish and deliver faster, then the inventory that they hold at the stores and the warehouses will come down and makes the working capital deployed more efficient. That’s where supply chain comes to optimize the trade-off between doing the last mile delivery by small parcel carrier and express carrier.
The second one is planning. It’s no longer possible to plan separately for each channel and then arrive at the sum total of all those plans as the masterplan. Planning has to be company-wide as the inventory visibility also has to be company-wide. We have to make sure that there are alternate mechanisms to service the orders without holding and reserving inventory in the warehouse.
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