Amazon’s website “The Drop” describes its process as consisting of collections that are available for 30 hours, are designed by influencers and inspired by street trends. Their limited availability reflects supply constraints based on fabric availability. But the limited availability also creates a rush to buy immediately. How would you plan supply to meet an unknown demand ? Would Amazon be better off to have a lower fill rate to create a sense of urgency to purchase i.e., is it a case of build and they shall not come ? Should the apparel be built in advance of demand, with inventory being used to satisfy demand, or should these products be made to order with a longer fulfillment lead time ?
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The first is to research the influencers and learn about their viewership base. Understand their demographics, their buying power, and spending trends; since Amazon collects tremendous amounts of data on its current customers, there is a high likelihood that the influencers’ fan base is also Amazon customers. With that information, demand for the “The Drop” products could be determined. By understanding demand, then supply is easier to select.
Second, it is crucial to have a lower fill rate creating a sense of urgency, but there needs to be a sense of scarcity, meaning that the quantity that “dropped” may be all the quantity available. While there may be more supply for a second “drop” to happen, it is essential to have customers believe this is a once and a lifetime event for this drop. Inventory should not be built to satisfy demand because that removes a layer of scarcity for the product. The products should be made to order with a more extended fulfillment lead time, but there needs to be a limit on the quantity that could be made, even if orders are placed within the 30 hour drop period.
The first order of business is to classify the type of influencers based on Volume and Profit/unit criteria. According to the segmentation, the demand can be extrapolated in terms of number of units. The fill rate should be lower to induce higher attractiveness to the product by making it scarce. Moreover, the volume based influencers would create more traffic into certain clothing segments of amazon where we can use our cross-sell capabilities with pre-existing Amazon customer information to suggest top picks for the customer apart from the “Drop” collection. The higher profit/unit segment can be provided with extra layer of customization and limit the number of suggestion proportional to the level of profit/unit garnered by the segment. When it comes to supply chains, we can follow a strategy of offering the product during limited time and then fulfill the order within the next 7 days. This will provide enough room to coordinate the supply chain to satisfy the demand and customize our strategy for different types of influencers and their respective product categories.
Since the products are only available in 30 hours, Amazon can produce after the orders, and this method is what it is using now. The benefit of this method is that Amazon doesn’t need to take efforts to forecast demand so that it saves the inventory cost and product’s excess cost. In fact, producing attire 30 hours earlier won’t bring too much change for the model in this case, so decreasing forecasting error is more important. Although producing after orders also means a higher lead time, I think a longer lead time exactly matches the concept of “The Drop”. One of the reasons that customers are eager to order within this short time window is because they want something rare, and a longer lead time can strengthen the feeling of the value of scarcity. Yet, it still exists the risk that people might cancel orders, so it is better to set a comprehensive policy.
As for the 30 hours’ time window, in my opinion, it is already really short so that Amazon doesn’t need to reduce available order time to reduce the fill rate. Customers need time to see the information from influencers and click on the order button, If the available time is too short, some potential sales might be lost. Besides, it is more profitable to produce more due to the economy of scale. Take an extreme example, if Amazon only gets one order in a really short order time, the setup cost might account for a large amount of revenue and lead to a thin profit.
Overall, Amazon should decide on a good available time of collecting orders considering the value of scarcity and profit and then produce products after knowing the demand.
I think in this instance, Amazon would be better off having a lower fill rate to create that sense of urgency. The limited time availability and limited stock creates a much more exclusive feel. In planning demand for these drops, they could use other similar drops as a baseline for demand projections and see how many people tried to buy but couldn’t because it was out of stock. They could adjust from this baseline based on influencer popularity and other factors. In terms of apparel inventory, it depends on the type. The more custom/exclusive the apparel is, the more likely a longer fulfillment lead time will be accepted by customers. However, for simpler and more common products, people frequently want a short lead time until they get their products. Alternatively, a small inventory could be had for people willing to pay a quick shipping premium, while the rest of the inventory will be made to order to match time, for those unwilling to pay for the shorter lead time.
For Amazon, the lower fill rate is by choice, and the idea of limited availability is bait to induce users to purchase something they would have never bought in the first place. But what Amazon can do at the user interface to present lower inventory or “limited stock” to users but at the back end use the data traffic flow to ensure almost all orders are fulfilled. The limited availability window also stimulates influencers to innovate and provide new trends. By doing this, Amazon can satisfy demand and ensure buyers are interested in the latest designs.
One of the defining characteristics of the fashion industry is that supply must be planned before demand is known due to the lead times to source fabric and sew the clothing. Designers and companies must make production decisions before fully understanding what trends and styles are going to be most popular among consumers. In order to plan for this unknown demand, it would be beneficial for companies to conduct market research on their core group of consumers to understand what they have been buying recently as well as indications for what trends could be popular. In regards to Amazon’s The Drop, they could work with influencers to better understand what trends and styles the influencers believe will become popular and plan for higher supply of items in that category.
There are benefits to Amazon having a lower fill rate, such as creating a sense of urgency and less inventory that must be salvaged if the design is not popular among consumers. However, one of the downsides to this strategy is that money could be left on the table for items that are very popular among consumers. Given how consumers’ shopping habits have demanded things to be delivered faster, it would be recommended that the apparel be built in advance of demand and use inventory to satisfy the demand. Consumers are growing impatient with longer lead times and are looking for things instantaneously, so in order to entice consumers to purchase, a shorter lead time would be more favorable.
Fashion changes every day; it’s difficult to keep certain fashionable products as safety stocks. Therefore, Amazon “The Drop” should work closely with its influencers and utilize historical data to project the demand for certain products so that the suppliers can react accordingly to the requests for specific fashion trends.
For specific collections available for 30 hours, Amazon has enticed its customers to believe that those products are scarce, and they should order them while those collections are known to be purchased. Therefore, Amazon does not need to lower its fill rate and built-in advance of demand. However, “The Drop” should calculate the optimal quantities for certain products, obtain the demand rate, and satisfy customer’s needs.
First of all, Amazon can judge the possibility of demand through its own big data based on the influence style and trend information collected in 30 hours. Then use some professional statistical websites, such as TagWalk, to compare the uncertainty demand of your forecast, and finally calculate your own supply. The last step is to conduct a group questionnaire experiment to test and compare the data calculated by yourself. If you can do market research for different geographical groups of people to ask whether they will buy this type of product, then you can roughly get a data report. In this way, Amazon can obtain demand information from three channels in different directions and finally can obtain demand according to different factors and parameters.
Lowering the ‘fill rate’ can create a sense of purchase tension. This is to stimulate customers’ desire to purchase and guide them to make rapid consumption to meet their own needs. At the same time, Amazon can also quickly record the characteristics of the product to facilitate subsequent data analysis of the same type of product.
The apparel should be built in advance of demand, with inventory being used to satisfy demand. Because the clothing category has always been a fast-wind-oriented industry, it has been updated very quickly. The leftover clothes may only produce very little salvage value after the season. So it may be a better choice to make clothes according to your needs.
I think for the unknown demand, the first thing to start with is to find if there is any related data or the historical data that can be referred. Just like the case of Braille, if we want to make forecast on the demand, it will be critical to collect the empirical data to see the trend and the preference of the targeted customers. Either to use the retrospective analysis or to use the algorithm to build the model, it will help us have a benchmark to work on the optimization. I think if Amazon is trying to sell the sense of the urgency to attract the customers to buy immediately, even the fill rate is not high, it can generate the high profit by this marketing strategy. Amazon can still keep the low fill rate, but they have to prove that the products will not be replenished to build the credibility of this strategy.
For the apparel industry, like the discussion in the class, there are two types of apparel, one is the basic type and the other one is fashionable to catch up the seasonal trend. I will say that the basic type of apparel can be produced in advance because the demand is comparatively stable and not fluctuated greatly. However, for the fashion apparel, customers might have higher tolerance on the longer lead time. For example, the stores can encourage the customers to place the order before the season starts and get their clothes at the beginning of the season. The lead time is longer, but the timing of when the retailer promote to the customers might be the key points to persuade customers waiting for longer.
It is very difficult to plan supply for an unknown demand, so I think designers and influencers will need to make production decisions before being able to fully understand which trends and styles are going to do best during the seasons. Amazon will be better off to have a lower fill rate to create a sense of urgency. Limited availability and stock make customers feel like they absolutely need to have the item before it is out of stock and to feel like they are in with the trends. I think some apparel should be made in advance and customers could pay a higher cost for the short lead time. But I also think there should be another option for a longer fulfillment lead time, while the products are being made to order.
Since “The Drop” has a limited availability window to purchase the products, collections should be made to order to ensure the greatest profit for Amazon. In this case, Amazon lowers the forecast error and can capture the demand accurately before producing these apparels. The 30-hour time limit gives the shoppers enough time to be exposed to the products and trends, while leaving them with a sense of urgency to make an impulsive purchase. Amazon will benefit from a low fill rate for the same reason, and customers who are not able to make an order will maintain the curiosity to come back in the next sales in hopes of finding something during a short period.
To survive in the competitive fashion industry, organizations fine-tune their production and distribution as per actual demand given by customer in a pull-oriented supply chain. Amazon will need to do comprehensive research on most of their customers and pull data on daily basis to gather more information on styles and what kind of apparel consumers are frequently checking out. Having a lower fill rate might not be the best option for a company like Amazon, who does not want to lose customers due to stockout. If the apparel are built in advance of demand, what will then happen to the left over stock that are not sold? The company will lose money. It does make more sense to fulfill with a longer lead time. The customer will be more than willing to wait a little longer for their order to deliver if they are getting a specific design.
Amazon would be better off having a lower fill rate, as the idea of limited availability, along with only 30 hours to buy, would entice customers to buy. Planning for the unknown demand would be difficult, as in most cases, you are going to be leaving money on the table, assuming you have a lower fill rate. However, over time, Amazon would be able to develop a baseline for demand projections varying based on influencers or street trends that the drop is associated with. As for fulfillment lead time, it should vary based on the drop. If the drop is very exclusive, custom-made, and inspired by an A-List influencer/celebrity, people are okay with having some lead time. However, the less it has of these factors, the less people are willing to wait. The top-of-the-line drops should most likely be made to order with longer fulfillment time, while the bottom portion of the drops should have apparel made in advance. Usually, due to having to source the fabrics and sewing the apparel, inventory is made ahead of time in the fashion industry. However, due to Amazon’s size, capital, and existing infrastructure, they have the capability to carry a plethora of fabrics on hand and have machines and labor to make the apparel. The bottom portion of the drops will most likely have leftover inventory that will have to be sold at a discount/salvage value. Usually though, if these bottom end fabrics are made out of cheaper fabrics, they are losing less money after they discount/salvage them anyway.
The drop concept portrays how the trends in the fashion business change every single day, unlike the Grocery industry it’s very difficult to forecast the demand in High-end fashion due to its high uncertainty.
Amazon could use historical demand of the model items to get a mean sale but again each item is very different in its features using model items may induce high forecast error. But as the availability is only for 30 hours it creates urgency among the followers and if it’s their favorite designer/ influencer the consumer might purchase the merchandise in no time.
since the availability is only for 30 hours Amazon carries less inventory having a low fill rate. One of the factors influencing inventory may be the number of followers for an influencer and the popularity of the designers.
As discussed by the professor Fashion industry can be classified into basics and Fashion. For the items which belong to basics, which are sold on the Amazon website (like Amazon basics) building inventory based on the historical sales is a viable option. But for the High-end fashion apparel sold on the “The Drop” it’s not feasible to carry lots of inventory, as the life cycle of the product is minimal.
To get hold over the fashion business the lesser lead time the better it is. If the lead time is less the apparel could be manufactured after the demand is realized. This helps to catch up with the trend and generate revenue.
If the ordering window is only 30 hours, then Amazon should make the apparel after the ordering window. This limited window will push customers to make a decision that will likely increase sales. I like to put stuff in the cart and think about it for a couple days or maybe try to find something else. With only a day to think about it, if I like it, then I’ve got to get it now. One issue would be the availably of fabric to meet the demand after the fact. One way to combat that is to offer products using the same material in each of those selling periods to ensure you could stockpile fabric and use it over time. If it is foreseen that fabric may run out, shift the fulfillment time on the website to a longer period. Amazon has the ability to create algorithms using their extreme data processing to reconfigure shipping and fulfillment time estimates.
The fashion industry is ultimately risky, as the demand for a certain SKU will only be known when it is getting closer to the start of the season. In the class, we were shown how a brand had successfully increased their net profit(the overall revenue was decreased while the profit was increased on the contrary) by first selling their SKUs and then fulfilling the demands later on. It turned out that the mode made the company become more profitable, because the orders they acquired in advance, which was the demand, would become almost certain in such case and would not be impacted by other variances. As a result, it would be less risky for the company to make their products for orders, even if there might be a longer fulfillment lead time. It is true that customers might be displeased by the longer waiting time for a certain SKU. However, when we look at the case of Zara, it is also the scarcity of the SKUs that made them so succeed. In reality, when it comes to fashion, people usually tend to spend more time waiting for a specific item, because there are so many SKUs in the industry and each could be unique or irreplaceable.
I think the best way for Amazon to handle a situation like this would be to take all of the orders, and then make the products that were ordered. This can be a good solution for a few different reasons. The first reason is this will allow you to cut down on inventory costs that would be there if they had the inventory already created before the event. It will also allow them to cut down on waste costs. This will happen because if not all of your inventory gets ordered, you won’t be able to do anything with it. This way, you will be able to just make what you need, which will also help cut down on ordering costs. All of this would rely on the consumers be willing to wait a little bit longer for their order to get there. Which, if the products are as rare as they say, I would think the customers would be willing to wait a little bit for their products to arrive. So, overall I think this is the best way for Amazon to proceed with their clothing events.
The marketing strategy behind these limited collections is different from those ordinary products sold on Amazon web. The key is not to satisfy as many customers as they can but creating a sense of urgency for those who are interested in the collections with limited access. Therefore, Amazon just needs to plan the supply right less than the demand. The reason people are chasing this kind of product is due to the scarcity. If customers can buy these product evetime they want, then this market will soon fall apart.
In general, forecasting error in apparel industry is greater than other industries, because of continuous change in demand, consumer behaviour and tough market competition, considering all this facts and still planning to maintain an advance inventory for limited collection (Amazon Drop platform : open for 30 Hour only) would not be a wise decision.
But with strategic plan and sourcing from apparel supplier that can manufacture clothes in shorter duration, amazon can achieve higher fill rate. Using drop platform, amazon can accumulate orders in shorter duration of time (by creating an urgency) and leverage apparel supplier in delivering customers orders as soon as possible.
But as mentioned in Blog, major constraint amazon team will face in effectively managing the supply chain would be limited availability of fabric material, to manage drop platform effectively amazon team could utilise historical sales data and convince suppliers to maintain sufficient inventory of fabric material. By drop concept, amazon team can reduce forecast error and inventory cost simultaneously.
Demand in the apparel industry is very difficult to predict. So, Amazon can work closely with influencers to work out which trends can be popular so as to make an advanced inventory of the apparel. As Amazon is the biggest apparel retailer so it is much important for them to satisfy customer demand.
Amazon should continue to present lower inventory as this is one of the ways to create a sense of urgency to buy the latest trend but at the back keep on updating the inventory on a frequent basis. Through this way, the buyer will have the urgency to buy the product and Amazon can satisfy the demand by maintaining inventory. Due to faster delivery time, customer has become impatient to get the product as soon as possible, so in my view apparel should be built in advance with inventory being used to satisfy demand.
Amazon the drop, would be better to just have a lower fill rate. With a lower fill rate, it means that the supply of each apparel is limited, however, the customer could enjoy a shorter lead time. The reason is as follows. First, customers who visit the drop website are likely to purchase the most trendy outfits. To be trendy, they think it’s important that they could receive the order within a short delivery time so that the new cloth inside the order would ensure them to have trendy look compare to other people on the street. Second, the limited supply quantity and sales time could further strengthen the urgency to check out.
Customer satisfaction being the primary criteria for Amazon, lower fill rate will affect its brands standing. Given the limited sale period and the demand is captured over 30 hours for a particular product, it is better for Amazon to make the product after the demand is known. This way there is lower inventory costs, nil wastage and sense of exclusivity can be traded off with the delivery timelines. If it is built in advance there are many factors that come to stake such as fill rate, inventory costs, wastages and customer satisfaction. The leftovers would accumulate to carry little value and add to inventory costs, disposal costs. Satisfying exclusivity brings more loyalty and stickiness to Amazon’s business keeping its brand image intact.
I would plan to forecast demand based on the number of influencer followers, which can act as a proxy for the overall amount of units needed. Furthermore, data collaboration with influencers can yield good results due to current interactions between audiences and influencers.
I do think that a lower fill rate can create a sense of urgency, provided Amazon wants to promote constant innovation within product lines. Due to the irregularities in this platform and the newly introduced ideas, forecast errors will tend to be higher, and its always up to influencers to promote products. I think that the lower fill rate will be more successful for Amazon, primarily because it will increase innovation.
I think that apparel should be manufactured in advance, but in limited quantities to ensure that no excess inventory is kept. I do think that short lead time is essential within this industry, seeing that customer tastes alter very quickly.
Fashion, especially fast fashion, has created large supply chain waste issues. Some brands have deemed itself more sustainable by having customers order the clothes before they are made to appropriate estimates on what the demand. For Amazon’s “The Drop” fashion is only available for 30 hours with limited availability. I believe that supply should wait to see what the demand is and then create the clothes. Another option is to have limited supply to have an item sell out. If an item sells out, it could generate a larger desire for it from the public. I think Amazon would be better off having a lower fill rate because it will allow more customers to get a sense of urgency to purchase. I think the products should be made to order, because it will let customers know that the company is more sustainable and will not product to go to waste.
Planning supply for unknown demand is the delineating factor between a successful clothing company and a store closing. Demand must be predicted using market research, analyzing fashion trends online, and being adaptable. Amazon would be better off having a lower fill rate to create a sense of urgency to purchase, similar to Zara’s successful model. Deciding whether to manufacture clothing in advance of demand or after is a difficult dance, however, I think in most cases, customers aren’t willing to wait for longer lead times so manufacturing in advance of demand is necessary.
A study on the influencers can be a a starting point for amazon to understand the demand. Drivers like fan base, trends, demographics etc can be analyzed to predict the demand. Once amazon is able to understand the demand the supply can be planned accordingly.
On the other note, if amazon’s policy for “the drop” is to replicate ZARA’s working, then having low fill rate can create a sense of urgency for the customers to buy. Just meeting the supply in that case should be the goal in apparel industry as it is sensitive to on going trend. So, manufacturing in advance may not be the best strategy and we know this with the examples of South Korea and ZARA. Products can be made with longer fulfillment lead time as we have seen that most of the time customers are willing to wait for the exact product they want. However, there needs to be a balance of supply to meet the demand to tune the notion of scarcity of the product.
I believe the first order of business should be to research about the influencers and the buying pattern of their demographics. This way by identifying the demand, the supplier selection process will become easier. It is better to have a lower fill rate to create a sense of urgency. While there may be enough supply for a second “drop,” purchasers must believe this is a unique opportunity for this drop. Inventory should not be built to meet demand because this removes the product’s layer of rarity. Even if orders are received inside the 30 hour drop period, the products should be created to order with a longer fulfillment lead time. However, there should be a limit on the number that can be made and a balance should be maintained between supply and demand so that the overall supply chain sustainability is maintained
Especially in the apparel industry, it’s difficult to predict which item will be popular and how much demand. Leftover cost and stockout cost are two main factors due to inaccurate forecasts. The feasible solution is to postpone the production until more fashion trends are released. The forecast error is extremely high at the beginning because of the volatility of the fashion market. Therefore, we could obtain more market data and make a more accurate forecast when we postpone production.
I don’t think a low fill rate will be a good strategy. It is costly if the order is urgent. Also, due to uncertainty of production and transportation time, it will probably lose potential customers, or the manufacturing cost would be extremely high because of the crashing. I think building up inventory is necessary, but the question is how much to stock. BAYESIAN forecast could be a better approach to gain more expected profit by categorizing different demands and generating a negative binomial distribution. Hence, it’s all about how to forecast before the season starts.
The demand generated by “The Drop” is forecasted in advance and based upon reasonable forecast accuracy, and the supply is planned accordingly for the fabric. The idea of artificial scarcity is already taken advantage of by Amazon by making it available for a limited 30-hour window.
In response to the second question, lowering the fill rate would adversely impact the customer shopping experience on Amazon. Amazon is a customer-obsessed company, and in my perspective, they would not intentionally lower the fill rate to increase their revenue. It would be a short-term gain over long-term sacrifice, something that again counters Amazon’s principle of “Ownership”.
Manufacturing apparel in advance is also not a good idea unless it’s a daily wear with consistent demand. Apparel is a fashion industry with constant changes in trends and demand. Without understanding what is trending, manufacturing well in advance will lead to vast piles of unsaleable inventory of finished goods. That will have cascading effect with increasing storage/warehousing cost and mounting final disposal costs for unsalable finished goods.
Analyzing demands is always a difficult task and could influence the supply chain costs when the demand is not predicted accurately. It is not wise to use PUSH strategy to build inventories before knowing the demand or other accurate information. Especially in Fashion industry, trends are difficult to predict and catch. Rather then normal and classic apparels, such collections designed by current influencers and inspired by current street trends may lead to extreme results, whether being sold out quickly if customers buy the trend or being ignored if they do not buy the trend. They could make those products with longer fulfillment lead time, thus enable manufacturers to start producing after receive the orders. If we are pretty sure about our influencer or street trends are popular, we can build up inventories. If not, a conservative strategy may be less risky to take.
Planning supply to meet an unknown demand is always difficult in the apparel industry. I think there are two methods to overcome this issue. First, “The Drop” can predict demand by history demand data. Second, “The Drop” can let customers order first then receive goods for a longer time. Take Reebok as an example, Reebok will release new shoes on the website and will receive the goods after 9 weeks.
Amazon definitely should provide a lower fill rate because of the time limitation in trendy apparel. The way of lower fill rate can benefit Amazon for lower inventory costs and reduce waste. In my opinion, whether Amazon should build in advance of demand according to what type of apparel which we discussed in class. If the apparels are the basic type with longer customer fashion tolerance, Amazon should build inventory in advance. On another side, if the apparel is customized or trendy, the customer would like to have the clothes immediately. Therefore, trendy apparel with influencers needs a lower fill rate than “Amazon Basics” clothes.
To realize this, we would first need to think strategically and consider every impact along the supply chain. A starting point would be to analyze target audience and their shopping data to get a sense of demand.
Since the collection is available only for 30 hours, Amazon can also enhance the urgency by creating a notion of scarcity as can offer till the stock lasts. This will ensure that both their fill rate and latency is low. The concept of Drop also plays around with the ideas of exclusivity and urgency, hence customers would also not mind seeing an item being out of stock within the 30 hr window. Amazon can use this data and re-visit the limited order quantity to ensure more customers are satisfied within the timeframe.
The model itself is built on uncertainty; for each item, there would be a lot of uncertainty but at an overall level, this variation decreases. Like Hp’s printer model standardization, where the company got 3 colored inks to build printers based on the demand. Amazon could standardize the raw materials which could be used across a variety of designs. Since the collection would be available for only 30 hours, amazon could manufacture the products based on the demand and ship them at a later point in time. To create the sense of limited availability, amazon could limit the number of pieces such that 80% of the demand could be met in a drop. Based on the number of views the product is receiving, amazon could have estimates on the future demand and plan for consecutive drops.
Fashion is an area that I consider very versatile but at the same time it is changing every month; and this is seen more and more as we have a boom of influencers marketing all types of product to different targets. Understanding this would help better plan supply as we can look more into each influencer and the type of audience they usually market to. For each category of apparel, understanding the dynamics of constant style change can also help analyze the impact of unknown demand. Working with influencers, who are industry experts in fashion trends and changes, can definitely help see the bigger picture. Lower fill rates can be beneficial to Amazon but the company should proceed with caution. It does create a sense of urgency and an indirect sense of need as people seek trendy clothing as fast as possible. The disadvantage would be that they might lose some customers to other platforms that might have a wider availability window. I think that apparel should be built with both the strategy of having them built before demand and after demand. It all depends on what brands want to convey to their customers. If a brand decides that they want to build product after demand, it might appear more prestigious. On the contrary, if they decide to build the apparel before demand, it might help with sales but also create a sense of “too much availability.”
Textile and clothing manufacturing has long been a pioneer of globalization, with the industry’s earliest industrial shifts making Asia the basic hub of the garment supply chain. With fast-fashion brands like Forever 21, Zara, and H&M offering cheap clothes, dizzying price tags are now appearing in the luxury department, with a Gucci T-shirt costing $950 and a pair of jeans from H&M costing $9.90. The middle market in apparel is like a missing hole, pulled ever wider by fast fashion and high fashion, which are moving towards the extremes of price. While high-end brands claim better raw materials, more expensive accessories, and higher manufacturing costs, they are not six to eight times more expensive prices beyond the cost of pure production. Therefore, the Drop Brand under Amazon should follow the other fast fashion brand to keep a low fill rate and create a sense of urgency to purchase. In pursuit of speed and price cuts, fast fashion supply chains are often undocumented contractors and subcontractors, mostly made up of low-cost labor and cheap land. Constantly shifting production bases in search of lower wages, cheaper land, and partners willing to produce at lower costs. In conclusion, the apparel can be built in advance of demand for the low cost. The short period can satisfy the demand even with a low inventory level.
This is quintessential of the fashion industry. If one focuses on fill rate (i.e., trying to keep it as high as possible) then the risk for high costs is also elevated, therefore margins and profits will suffer. On the other hand, if one focuses on producing more profits, then fill rate may not be as high (or important), meaning many customers may come out the store not satisfied due to stock-outs. Either way there is a risk associated with both scenarios; the goal here would be to find the right balance between producing interesting profits while ensuring customer satisfaction when they look to purchase products. In this case, a lower fill rate per item may not be such a bad thing; in fact, the objective should be to convert a good size of “no-fill” rate from missing items to fill rate of available items. This is supposed to be a fast-moving operation, and success should be always selling the available inventory while making sure customers are returning for the next batch, regardless of missed purchases previously. The use of influencers here is a great way to generate the sense of urgency among buyers, everyone would want to have “that item” before there is no more in stock. It is understandable that large investments into marketing activities would be needed to sustain that sense of urgency and attract traffic in the stores. Branding would also be key for success, prices should not only encompass products value and quality… the value for perception (and social status/value) is to be included, and that is where margins and profits would be greatly achieved.
Making this a made to order operations might be too costly and much more complex to manage. It would require collaboration among large number of partners in the chain, leaving the operations more opportunities for mistake and failures. Focusing on excellent marketing/promotion activities to ensure more traffic than even available inventory should be the primary objective. Next, is figuring out the inventory level needed to produce maximum profits. If they can sell the available stocks, then sustaining the sense of urgency from buyers is all that is needed. Improvement can be made long term in this system by establishing an information system that is quick and most accurate to be able to make almost perfect predictions/forecasts, when contemplating increasing inventory level and fill rate.
The Drop is a series of influencer-designed collections that highlight current fashion trends and deliver “of-the-moment” pieces. Every few weeks, Amazon releases a new collection designed by a feature influencer. Amazon has discovered the perfect strategy for launching clothing lines. When a collection “drops,” shoppers have just 30 hours to preorder pieces. Many items and even entire collections have sold out in minutes. This sense of urgency increases engagement and sales while Amazon is able to limit leftover inventory at the end of the launch.
With the ever-changing apparel market lower fill rate has been a profitable strategy as it creates a sense of urgency in the buyers which increases the sales. Similar strategies are used by many huge apparel manufacturers like Zara H&M etc. given the limited period of the offer it is very difficult to predict the demand of specific products so Amazon should try to decide on base fabrics for these products and manufacture the clothes after the demand is realized. This way it can lower its inventory and cut back on wastage while not compromising on the customer satisfaction.
Apparel is an unpredictable market. It is difficult to understand if a particular model or design would sell more or not. So to avoid this risk, ‘The Drop’ should try manufacturing based on customer demand. In simple words, they should manufacture and deliver the apparel once a customer has ordered it after seeing a prototype. In this way they would be able to meet the supply better, given that they have a fast manufacturing and delivering facility. Having a low fill rate will help, since it would create a feel of urgency. Since they already are marketing their brand as designed by influencers, it is easy to believe the urgency to buy considering the premium class of product. The apparel should not be built in advance. They might have a large collection of designs and predicting which ones will sell more is difficult. They should be made based on orders, since they can give a prototype for the customer to decide.
Due to the long lead times in the fashion industry, it is important to plan supply to meet an unknown demand. It is easier to predict demand and reduce forecast error in the fashion industry when approaching the new season because designers, influencers, and businesses have more idea about what trends are going to be popular in the new season and what type of collections are likely going to be bought by customers. So, Amazon can meet an unknown demand by focusing on potential trends of the new season and plan supply based on that in order to avoid inventory shortages. Amazon can also collaborate with fashion designers and influencers in predicting new season trends since they are the ones who have more experience in predicting potential trends and styles of the new season.
Amazon would be better off to have a lower fill rate to create a sense of urgency in only some cases because it could also result in a ‘lost’ profit scenario for the products for which there is high demand. On the other side, maintaining a lower fill rate means that the company should carry less inventory, and therefore incur less inventory holding costs, but I think it is always a better idea to maintain higher fill rates in order to avoid ‘lost profit’ scenarios.
Finally, I think apparel should be built in advance of demand, with inventory being used to satisfy the demand. This strategy would help Amazon to maintain shorter lead times and higher fill rates which are two important factors in the fashion industry. This strategy can cost the company higher inventory cost and safety stock cost, but it will definitely provide more convenience to the customers and help the company to increase the market share in the fashion industry.
I believe that in this case for Amazon’s The Drop, the supply should be planned based on the types of the products. A lower fill rate can be set for the products that are marketed as limited collections, such as designer pieces, to create a sense of urgency to purchase. This will mark the products as exclusive and drive the customers to purchase immediately as the products come out. These products are usually bringing a high profit margin, and revenues come in fast as the products are sold out quickly.
For the other products which are sold as regular collections without limited inventories, Amazon can accept orders first and build the products after the demand is known. In this way of planning the supply, overage or shortage of supply can be effectively eliminated, and when further demand is recognized, supplies can come in backorders without showing “Out of Stock” on the website. With this method, although the profit will be slimmer and revenue will be generated slower than selling exclusive items, Amazon will not need to deal with any overage or shortage costs.
In this situation where no historical data can be used for prediction, Amazon could use a questionnaire to get more information about the market as well as the customer preferences. There are some other options to decrease the possible loss for unfilled demand. For example, Amazon can let potential customers know the trend before the actual product is made.
If Amazon’s goal is to maximize the profit, then a low fill rate strategy is not considered proper. When Amazon gets feedback from the market that the demand exceeds the inventory, they can keep manufacturing the top-selling products and let customers prepay for what they want to buy to secure the profit. However, I agree that the hunger marketing strategy works in some unique cases like a business newcomer in a certain market to quickly get market share.
Whether the product should be built before knowing the demand in the appeal industry should be considered based on each company’s unique performance and operation level. If the appeal company, like Zara, has a strong capability to design and produce a product in a very quick time, this strategy can be used. However, if a lead time is too long for the customer to wait, this strategy is hard to be kept long. Because competitors who have a higher level of the supply chain will win the run to get a larger market share.
This is a very difficult question to answer, because how are you to know the demand on unique items that will have extremely varying demand? If the public would accept it then a make-to-order system would be the best option because there would be no waste and you could make the exact amount that are ordered. As this isn’t strictly realistic then getting an understanding of the influencers and the fanbases that you are working with will be able to give you a better understanding of the demand that will result in reaction to the ‘drops.’
A popular product structure among heavily influenced products, which are similar to the products seen at, ‘The Drop’ is creating a limited supply so the demand is increased and it becomes a heavily sought after product. This creates a large aftermarket demand for these products, but there is no gain in this market for the supplier. Overall, Amazon would have the best success in a make-to-order system, but this would have potential to reduce demand because of long lead times for these products to the consumer.
I think that having a lower fill rate would be helpful in creating the sense of urgency. Zara, follows this in order for people to go out and buy certain products while they can because they know it might not be available next time they go to the store due to the constant changes in design. The apparel should be built in advance and the amount of people that these influencers can grasp would be helpful in planning the quantity that could be demanded.
I believe Amazon should work with the influencers to create their initial forecasts based on historical data. Influencers have product releases with limited quantities to create a sense of urgency and exclusivity at a higher price. Using that strategy, in this case, will be beneficial because it will encourage the customers to take action and get more sales upfront. If additional demand is required Amazon, could implement make to order to satisfy the demand with a longer lead time.
There are different characteristics of customers that should be considered for Amazon in order to satisfy its demand. Amazon’s goal is to minimize its forecasting error and to maximize the number of units they sell. For some cases, customers may wait some hours to get their orders, that way Amazon could have more time to satisfy its demand and they also will be focusing on customer obsession. Other customers are less patients and their willingness to pay is higher than those more patients. Why I say this? because Amazon knows this. This company has a lot of information related with customer behavior and trends. To generate this “sense of scarcity” is a good strategy, but not for all. I believe that a mix of both strategies is the best to satisfy demand, inventory in advance and also pre-ordered items. To minimize forecast errors, historical data of trends and reactions, customers’ behavior, and working together with influencers is needed.
I think it is better to keep it the way it is. My reasons are based on Nike’s Jordan shoes which comes at limited quantities and there is a huge demand along with its own black-market. Same thing goes with the another brand Supreme. Same concept and same reaction from the customers. Scarcity makes Amazon to charge premium on those products.
To meet the unknown demand, accuracy of forecast predictions is important, especially in the fast fashion apparel industry. I think it is a good option for Amazon to work with influencers because they are on the fashion trend and know well about what their followers like and tend to buy. Therefore, the cooperation could reduce the forecast error and promote certain styles/clothes that are already made.
Given the order time limit of 30 hours and normally long production lead time, Amazon would be better off to have a low fill rate with low inventory so consumers would be pushed to purchase immediately, and may increase their impulse buying. Besides, prices are always higher when a new product just releases, which means higher profit margins are expected.
As mentioned in the article, about limited availability of the fabric, to satisfy the demand, I think Amazon The Drop can build in advance the inventory of fabrics, which may have longer lead time, based on the historical data and fashion trends observed by the influencers. When it’s about the timing that they have more confidence that forecast on the fashion trend is more accurate, they can start to produce the safety stock for the finished goods to shorten the manufacturing lead time of the first orders. Therefore, both forecast error and inventory costs are reduced.
Demand can be hard to predict so we are unsure which is the correct strategy. Working with popular faces on internet can be helpful to identify where trends will go. Having sense of urgency could potentially be satisfied by low fill rate because fashion industry is very uncertain. Maintaining low inventory can benefit Amazon short term but then incorporating short review period to address items that were “hot” so you can maybe offer in different color. Short window time to shop makes it hard for us, customers, to get what we want but I think that is the whole point of the system to exhaust the highest possible demand within short period of time. I think they should have hidden safety stock where they identify item, based on selling rate, and release LE after initial offering of the item.
Basically, I think suppliers should first prepare the products that meet the lowest level of demand, and as stocks start to sell off and by observing customers’ buying behaviors, they can gradually buy more products from their upstream suppliers. By offering a high fill rate, Amazon is well known for its efficient delivery, and customers use Amazon mainly for this. But if Amazon tries to lower its service level and removes this fast-delivery feature, customer experience may become worse and even Amazon may lose these customers. Though lowering the service level may generate an urgency to purchase and increase sales potentially, customer loss from this adjustment may be significant as well.
The apparel industry, on the other hand, may require a small amount of safe stock in some situations. If we produce a very small amount before the demand starts, and when products are starting to sell off, customers will have a sentiment of urgency to purchase. Apparel products have a specialty in uniqueness, and when there are lesser products, customers may rather buy more. By producing this purchasing sentiment, apparel suppliers can build a small amount of inventory in advance of demand to satisfy customer needs, and lengthen the selling cycle and time to deal with the fluctuating demand.
I think Amazon is doing it right with the lower fill rate creating a sense of urgency especially in the apparel industry. This is because fashion designers work with a great uncertainty of whether their products will sell out to the consumers or not. If not, then that counts for big losses if a lot of inventory was pre made before demand. My opinion would be to do it as amazon does it, have a few in the market and if they sell out then continue making them just enough to meet current demand thus ensuring minimal losses with unsold inventory. The other alternative would be to make to order which would increase lead time and risk losing customer interest in the product since newer items might be flying off the shelves from other retailers.
We already know that demand is highly fluctuating in apparel industry and hence is very difficult to predict. Therefore, building the apparel in advance might not be a viable option for Drop. “The Drop” should manufacture and deliver the apparel when the order has been placed. This also helps bring down the inventory costs and eliminate the problem of demand uncertainty however increasing the lead times. Also, I believe that the company should continue to have a lower fill rate to give a strong incentive to the customers to buy the apparel immediately when they like it. Such a strategy has already proven successful with companies like Zara.
I would propose that manufacturing products at some levels for initial inventory allocation, and then do the replenishment to fill the demand later on. By doing so, it would be less risky for the company to respond these orders, even it comes with longer fulfillment lead time. Also, the lower fill rate can somehow create a sense of urgency or perception of scarcity, leading to more people interested in purchase. At that time, all the unpleasure due to the long waiting time would be offset. Another good point is the company can be more confident to forecast the market and trend accurately, they can start planning safety stock and thus reduce forecast error and inventory costs.
It is always a struggle to plan supply for unknown demand as customers will never want the product unless they see it or get it. Therefore it is typically best to have a few branch stores with the most demand to test-sell the new products and see how well sales would be. For apparel, it would not be good to always have limited availability as many customers don’t even know enough or feel any attachment for certain products. Therefore, for apparel, I think we should have them built in advance of demand as apparel have longer shelf life.
Utilizing historical data to identify demand pattern and learn the customer preference is important for company to set up its business plan. In my opinion, creating a sense of urgency is a great way to drive the customers to buy. Although the fill rate is not high, these limited collections bring high margin especially when the collections quickly sold out.
For the basic collection, Amazon could expect more stable demand pattern (unlike the volatility of fashion apparel products). Therefore, getting into production for the basic type of collection in advance might be a better way to wait for the market reflection.
The drop is inherently a pop-culture fueled platform, as such trends and outfits change rapidly. With this in mind, it is paramount that demand can be quickly met by suppliers or they risk losing sales opportunity. However, it is hard to predict demand because suppliers have no forecast of what outfit or “look” may gain traction incur high demand. The only way I can envision making a sustainable profit off this model is to create an inventory of the product simultaneous to the initial release of the product, and work in parallel with influencers and celebrities to identify when they will wear the product to prepare for potential demand. This way supply is ready to meet demand, and the customer will be able to wear their clothes before the next trend comes along.