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Efficient Decision-Making Matters: Costing Contributes to Competitive Edge of Luxury Retail Busines

Efficient Decision-Making Matters: Costing Contributes to Competitive Edge of Luxury Retail Busines


by Peter Hopper, Partner, Managing Director, Strategic Decisions Group

By their very nature, decisions involving the allocation of significant resources often involve uncertainty and shifting dynamics. As
such, these decisions are best approached using advanced analytics, such as probabilistic analysis and the modeling of system

In the fashion business, the time to market is critical and rapid, thus making efficient decision-making essential to remain up to date
with the most current product trends. As such, moving a design through development, manufacturing and eventually into stores must be
accomplished both quickly and at the right cost point. However, costing new designs is a time-consuming, negotiation-based exchange,
with much back and forth between designers and outsourced suppliers.

Increasing the need for fast and well-orchestrated management of suppliers

Take a multinational luxury handbag producer as an example; it experienced rapid growth with 100 per cent outsourced manufacturing, primarily in Asia. The manufacturing environment in Asia is no longer a one-stop for cheap solutions; more often, supplier organisations are spread out over several countries, requiring companies to have nimble and efficient operations. This company has several large groups of external suppliers in different countries, and the need for speedy and well-orchestrated management of these relationships was becoming increasingly important in order to stay competitive.

That being said, the company wanted to find a way to make decisions more efficiently and get new designs into stores more quickly. It was therefore imperative to shorten the design cycle while simultaneously managing the supply base with fewer resources.

Establish costing in seconds with the use of a tailored tool

Unable to solve the problem on their own, the team brought in external experts to help its operations group significantly speed up the costing process by using a tailored tool which allowed the team to make quicker decisions regarding the choice of supplier and price point for an entire upcoming season.

The team performed a deep and detailed analysis of the company’s design process to determine the full scope of its suppliers’ cost drivers to create a handbag. Then, a tailored tool that incorporates all of the detailed elements of the design and construction processes, including labour, materials, and fabrication on the factory floor, was developed. This new tool allows for a cost to be established in seconds, when it had previously taken weeks to determine.

By working directly with suppliers, the need for time-consuming negotiation was reduced significantly. Having a standard approach to costing also allowed supplier comparisons to be made, providing valuable insights into the relative performance of different designs.

Efficient costing enables an enhanced focus on other strategic decisions

The project turned what had previously been slow, intuitive, and negotiated decision-making processes into a fact-based, rational approach to supplier interaction that takes a fraction of the time.

The focus was shifted from spending significant management attention on minutia to an enhanced focus on the strategic decisions that needs to be taken. Several specific results were also worth noting, including:

• The ability to pre-cost at the design stage. Decisions could be made quicker, allowing relatively final designs to be taken to suppliers. With new designs being released on a monthly basis, taking two to three weeks out of the development timeline was a significant advantage.
• Product negotiations limited to the exceptions. A full 90 per cent of designs were costed automatically through the tool, with client and suppliers agreeing on the costing principles incorporated in the tool. Significantly less management and administration time was needed, resulting in the ability to consolidate costing and planning functions. There were also significant headcount savings.
• Comparable supplier performance established. With common performance criteria built into the tool, agreements could be made on allowances for new location rampup and category acceptance—with a clear agreement for improvement over time. This meant that underperforming (or overcharging) suppliers could be easily identified, with decisions on product allocation becoming fact-based and rational. Ultimately, potential cost savings through productivity of up to 20 per cent were identified.
• Underpinning strategic supplier decisions. Understanding the drivers of cost and productivity, relative supplier performance, future design trends, and the need to underpin future supplier strategy were all significantly improved. This allowed the company to quickly answer questions such as: “How fast can we expect new suppliers to move up the experience curve?”; “How much of our business should we move from country A to county B?”; “Has Supplier A’s performance been good enough to warrant extra allocation?”; and “Which suppliers are most committed to productivity improvement?”

Decision and risk analytics provide a way for companies to cut through the clutter and noise and hone in on what’s relevant. They go beyond traditional quantitative metrics and analytics, modeling the company’s decision process in a way that makes sure the right data is collected and analysed. With the use of sophisticated analytics tools, companies will be able to assess and facilitate complex risk and reward valuations.

About the Author

Peter Hopper is a Partner and Managing Director of Strategic Decisions Group (SDG) with responsibility for the Asia Pacific region. With over 30 years of operating experience in a wide range of technology and manufacturing-based industries, Peter has handson experience managing complex portfolios and working with large and medium-sized companies in periods of fast growth and industry restructuring. He also leads the firm’s Hong Kong office, which supports all of SDG’s global operations in sourcing, energy, oil & gas, life sciences and education in Greater China and the region as a whole.