You’ve heard of “fashion felonies”, like wearing a striped shirt and plaid pants. (Who knew they didn’t go together?)

If you are a supply chain manager in the fashion industry, there is another fashion felony, one with larger potential consequences than just a little social embarrassment. This is the business that invented the term “overstock”. When inventory goes wrong in the fashion business, it can really go wrong. Owning millions of dollars of goods that you have no hope of moving can keep even the toughest manager up at night.

As you would expect from a company with an office in Milan, we have worked with quite a few customers in the fashion industry. Here are some of the inventory issues we see in this business.

1. Trading Off Margin for Short Lifecycle Products — Fashion-oriented businesses typically have short lifecycle products whose inventory planning requirements are complicated by seasonality, promotions, competitor actions and a certain “hit or miss” aspect to planning the inventory mix. Achieving high service levels is critical “in season” because out-of-stocks immediately translate into lost sales. At the end of the lifecycle, excess inventories leads to discounting, which severely impacts gross margins and also cannibalizes the next product launch. The trick is to successfully trade off between lost margin from in-season, while exiting gracefully at the end of life.
   
   
2. Managing Continuous Products — In addition to managing products with less than a yearlong lifecycle and seasonal behaviors, an important portion of most fashion businesses is based on continuous products with lifecycles longer than a single season. This means managing two dramatically different inventory types in parallel.
   
   
3. Optimizing Upstream/BOM constraints — Fashion-oriented companies that have vertically integrated or outsourced manufacturing are exposed to significant write-off risks for on-balance sheet raw material/component inventory as well as liability for off-balance sheet inventory at their suppliers. At the same time, a lack of accounting for upstream supply constraints such as lead times, supply unreliability, manufacturing frequencies, minimum order quantities, frozen periods, and flex limits can lead to finished goods shortages and expediting. Fashion-oriented companies face a balancing act of managing upstream component and downstream finished goods inventories in this short product lifecycle dynamic supply chain environment, requiring staging and postponement optimisation.
   
   
4. Complexity and Scale — The different styles, colors and sizes create a very high number of SKUs per brand. And the distribution networks are vast, often entailing networks of millions of SKU-Locations. On the supply side, globalization requires dynamic evolution of the supply networks and alternative sourcing.

More consumer-oriented businesses like electronics are exhibiting behaviors like the fashion industry. So maybe some of these issues are familiar to you.