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Exploring replenishment Luxury

fashion
in the luxury fashion Italian Italian firms
firms: evidence from case studies
Elisa d’Avolio and Romeo Bandinelli 967
Department of Industrial Engineering, University of Florence, Florence, Italy Received 11 July 2014
Margherita Pero Revised 10 November 2014
28 February 2015
Department of Management, Economics and Industrial Engineering, Accepted 6 May 2015
Politecnico di Milano, Milano, Italy, and
Rinaldo Rinaldi
Department of Industrial Engineering, University of Florence, Florence, Italy

Abstract
Purpose – The purpose of this paper is to investigate how luxury Italian fashion companies manage
the replenishment process, and how they leverage supply chain (SC) to be able to match supply and
demand of fashion products.
Design/methodology/approach – Literature review was the first step performed; then, a case study
research has been conducted in order to have a comprehensive view of the real context of luxury Italian
fashion companies concerning merchandise planning and replenishment processes. After the sample was
individuated, a questionnaire has guided the interviews and then data have been collected. Analysing data
has concerned a primary case analysis and then cross-case patterns have been searched. Finally, several
variables coherent to the aim of the study have been pinpointed and a framework has been designed.
Findings – The paper provides a characterization of the luxury Italian fashion industry concerning
merchandise planning constraints and the replenishment processes. To guarantee the flexibility
required to match supply and demand when there is a high percentage of seasonal products in the
collection, companies leverage on both downstream and upstream SC alignment.
Originality/value – The enhancement of performance within the fashion SC is a topic not too much
examined in depth, in particular referring to the luxury fashion companies and to the Italian context.
Aligning upstream and downstream activities, information sharing between vendor and retailer and
securing strategic alliances with the suppliers constitute important steps to reach flexibility and
reactivity and to be in step with the market needs. The paper provides valuable insights to companies
that are trying to decrease their lost sales and to increase their sell-out and customer service through a
review of their SC processes.
Keywords Luxury, Fashion, Alignment, Supply chain management, Replenishment
Paper type Case study

1. Introduction
Managing fashion products is challenging, not only for creative and stylists, but also
for supply chain (SC) managers. Customers are more and more demanding high
product variety and innovative products (Caniato et al., 2013), and competition in the
fashion industry is more and more centred on the ability to react timely to changes in
customers desires. Therefore, fashion companies have to balance the need to reduce
lead times of the collections, while minimizing stocks and the obsolescence risk. In this
International Journal of Retail &
context, being able to manage the SC, e.g., by achieving partnership between all the SC Distribution Management
players, is becoming a strategic imperative in the fashion industry. Vol. 43 No. 10/11, 2015
pp. 967-987
These represent highly ambitious objectives, given the key characteristics of © Emerald Group Publishing Limited
0959-0552
the fashion product (Chrstopher et al., 2004): short life-cycles, high volatility DOI 10.1108/IJRDM-07-2014-0098
IJRDM (the demand for these products is rarely stable or linear), low predictability and
43,10/11 high impulse purchasing.
To be able to cope with such challenges, fashion companies have to make the SC
more flexible, by changing the way they manage their processes. Flexible SCs are able
to adapt effectively to disruptions in supply and changes in demand whilst maintaining
customer service levels (Stevenson and Spring, 2007). Moreover, increasing
968 collaboration, both inside and among SC partners, is often seen as a powerful
instrument in achieving effective and efficient SC management (de Leeuw and Fransoo,
2009), as well as higher SC agility (van Hoek et al., 2001).
Being replenishment the process that encompasses all the activities related to the
fulfilment of stores during the selling season, it is the one key process to be managed to
increase company ability to be closer to the customers and ready to the new emerging
trends. Researchers have proposed different approaches to redesign and automate it
(Iannone et al., 2013), e.g., identifying the variables influencing the replenishment process.
The paper presents a case study research conducted in a sample of Italian luxury
fashion companies with the aim to study the replenishment process in the fashion
luxury industry, and how they coordinate with the other partners of their SCs to be
more effective and demand driven.
Many classifications concerning the fashion industry exist in literature. Saviolo and
Testa (2005) distinguish five market segments basing on price and quality of the
products: Couture (or High Fashion), Prêt-à-porter, Diffusion, Bridge and Mass. Moving
from the high fashion to the lower segments companies sell products having less quality
and a lower price. High fashion companies favour style and premium quality and their
products are often unique pieces (Brun and Castelli, 2013). The most important critical
success factors (CSF) are brand image, innovation and quality (Bandinelli et al., 2013).
François Pinault (founder of the Kering holding company) identifies three different
market segments, basing on price: high luxury, accessible luxury and mass market. The
first one is based on exclusivity and unaffordable price and firms belonging to this
category are almost trendsetters. The accessible luxury companies focuses on the
availability of the product to the customer and the price is still high, but affordable. Finally,
the mass market is centred on low price and its companies are essentially trend followers.
Another important classification that will be a leitmotiv within the paper is that one
concerning the product classification, distinguishing from basic, seasonal and fashion
(Şen, 2008). Fashion products, with a ten-week product life (approximately 35 per cent
of the market); seasonal products, with a 20-week product life (approximately 45 per cent
of the market) and basic products, sold throughout the year (approximately 20 per cent of
the market).
Given this background, the paper is arranged as follows. Section 2 presents a
literature review about the fashion merchandise planning, showing also the main
characteristics of the replenishment process. Section 3 better outline the research
questions whilst in Section 4 the methodology is presented, introducing the main
features of the companies involved in the performed case studies. Section 5 regards the
findings of the research, as an analysis of the results. Finally, Section 6 presents some
concluding remarks and suggests further developments.

2. Literature review
In this section a presentation of the main literature about replenishment process is provided.
It should be noted that replenishment process is highly connected to the merchandise
planning process. In fact, on the one hand, variables, e.g., the planned overproduction,
defined during the merchandise planning process influence how the replenishment Luxury
process has to be managed. On the other hand, the merchandise plan definition and the fashion
percentage of the OTB used by the companies, derived from the product’s characteristics
(e.g. seasonable or not) and the characteristic of the SC (e.g. production offshored or
Italian firms
outsourced) can determine several constraints to the replenishment process.
Moreover, both replenishment and merchandise planning are processes specific of
fashion companies: authors like Şen (2008) and Jacobs (2006) wrote about their main 969
characteristics and implication in the fashion companies.
The merchandise planning process includes all the activities of planning the
delivery of finished products to retailers before the beginning of the season and the
continuous improvement of the delivery plan during the season (Şen, 2008). At this
level, every item is defined uniquely through a code named stock keeping unit (SKU).
Main actors of this process are the merchandise manager and the buyers of the stores.
Buyers are in charge to decide what (the SKUs) and how much (the quantities) have to
be delivered to the stores. The merchandise manager, supported by the operation
manager, has the responsibility to ensure the production and the delivery of the
products to stores. The buyer’s decisions are controlled by a budget set by the
merchandise managers. A buyer’s budget is usually updated each season based on his
performance and consumer trends in the apparel line she/he is buying.
The replenishment process encompasses all the activities carried out by the retailers and
the brand owning companies to issue and gather orders, allocate and delivery products from
the company warehouse to the stores, within a season. Replenishment programmes can be
also used in order to reduce merchandise planning process errors (Castelli and Brun, 2010).

2.1 The merchandise planning process and the open-to-buy

Şen (2008) provided a comprehensive analysis of the main processes carried out within
the upstream and downstream SC. Within the second one, merchandise planning
process and a particular metric known as OTB (Goodwin, 1992; Fiorito et al., 1998),
mostly used to in the in-season ordering, are described.
Merchandise planning process is performed by the brand owning company, and
consists of planning finished product availability at the retailers, with the aim to offer
consumers a balanced assortment of merchandise in the right store, at the right time,
trying to meet corporate financial goals. In fact, merchandise plan errors result in either
stock outs, thus margin lost, or excessive inventory levels (Abernathy et al., 1999).
Two different planning periods may be distinguished:
(1) Pre-season planning. Planes are developed at least six months before the selling
season. Even if historical data are used to identify trends and seasonality, a
proactive approach to management is crucial. The planner, in fact, must be
farsighted and look to the future (e.g. planning promotional activities much time
early), without renouncing to the opportunities to maximize profits and return
on investment. In fact, since production and distribution lead times usually
exceed the length of the delivery times expected by customers, production
planning and procurement of raw materials have to start before the end of the
order gathering period, using forecasts of total demand, thus increasing the
complexity of planning (Ait-Alla et al., 2014).
(2) In-season planning. It ensures accurate management of the business through
continuous comparison between current and planned pre-season performance.
Planner updates forecasting using data extracted from in-season sales and
IJRDM determines whether or not stocks are enough to support the demand. In this
43,10/11 phase, planners use the abovementioned metric called OTB, which measures
the deviation between planned stock and the stock on-hand, giving indications
on whether or not to buy more merchandise.
In addition to pre-season and in-season planning, a third period should be considered
(e.g. the post-season), in which analyses are conducted to evaluate the real performance
970 during the selling season and the objectives previously determined.
The OTB represents the availability of funds for a given period, in order to reach the
planned stock level. Therefore, the maximum amount of funds the buyer can allocate
for new purchases OTB. OTB is calculated using the following formula (Şen, 2008):

OTB ¼ budgeted closing stock + budgeted sales + budgeted reductions (markdowns,

thefts) − opening inventory − purchases already received − purchase orders
placed but not yet received.

The goal in using OTB as a control instrument is to align orders and loads to ensure the
maximum result in selling with a minimum investment in merchandise.
The main goal of the entire planning in-season process is to control trends in a
proactive way, optimizing inventory levels in order to maximize margins. In practice,
OTB tries to maintain a minimum level of liquidity to enable purchasing activities or as
a safety buffer, when sales do not reach the planned level.
The budgeted components of OTB, developed before the start of any season, comes
from the corporate merchandising budget. First, demand forecasts are used to
determine budgeted sales, which are then used to calculate the budgeted closing stock
level. During the season, the opening inventory is updated by the flow of merchandise
that occurred since the beginning of the season. This updates the OTB formula, which
drives the new purchases, sales or reductions.
Such a system has two potential criticalities. First, the calculation of OTB uses only
the predicted market demand (i.e. budgeted sales), without taking into consideration
the uncertain nature of the fashion industry. Second, most retailers do not update their
budgeted sales (thus budgeted closing stocks) during the season. Therefore, especially
when the preseason forecast is conservative, the service level deteriorates, because of
the fact that new orders can be placed only if OTB becomes available.
At soon as the season starts, some buyers choose to spend all of their OTBs, some
others choose to hold back some of their OTBs for opportunistic buying placed after a
more understanding of popular styles, colours and trends of the current season. Initial
orders constitute between 60 and 100 per cent of the total order for a given product
category (Bandinelli et al., 2012).
Another important aspect of merchandise planning process is assortment planning,
i.e., the process conducted by a retailer to decide how many and which products to
include in the product line (Rajaram, 2001). Merchandise is grouped in various levels
and each level is comprised of product subsets. The questions of how many and which
products to include at each level relate to other basic issues such as determining the
mix between basic and fashion products and the level of inventory depth and variety
breadth for a given level of budgetary constraint.

2.2 The replenishment process

Replenishment management is one of the most critical tasks in the downstream
SC in fashion industry. Literature supports that replenishment systems are used to
mitigate merchandise planning errors, by employing demand estimation and multiple Luxury
deliveries along the selling period to adjust merchandise volume and assortment fashion
(Hunter et al., 1996; Kunz, 2005).
To this aim, replenishment process can be differently managed (Bandinelli et al.,
Italian firms
2012). In particular, during the selling season, brand owning companies may decide to
develop and then sell other items than the one already launched into the market, or to
replenish the products already presented to the customers. The first one is the case of 971
fast-fashion companies (Bhardwaj and Fairhurst, 2010), that generate mini-collection
during the selling season, such as Zara. They need a partnership with the upstream
company able to create quickly new items, having massive raw materials stock. A fast
fashion system is able to both design “hot” products that capture the latest consumer
trends and exploit minimal production lead times to match supply with uncertain
demand (Cachon and Swinney, 2011). In the latter case, brand owning companies have
already developed their collection during pre-season and they react to retailers order
for new quantities of the same item. This is the case for example of the companies
producing Prêt-à-porter products. A mix of the two cases is also possible.
Because most fashion firms rely on other partners for an important part of their
value systems, shortening the SC requires increased fine-tuning with these partners.
From the moment that re-ordering becomes an important part of the business model,
make more agile the pipelines is the main issue to be addressed ( Jacobs, 2006).
Since 1990s, many authors focused their attention on automatic replenishment (AR),
as a system enabling the improvement of collaboration and partnership among the
main actors along the entire SC. In fact, AR systems trigger inventory restocking by
immediately identifying what has been sold and the actual needs of the store, rather
than relying on long-range forecasts and layers of safety stock (Bandinelli et al., 2012).
Nowadays a number of AR programmes are in use. The most common type includes
Vendor-Managed Inventory and Continuous Replenishment Programs. Industry-
specific programmes such as Efficient Consumer Response in the grocery industry and
Quick Response (QR) in the apparel industry have also been developed.
QR has been widely adopted by fashion retailers (Al-Zubaidi and Tyler, 2004;
Birtwistle et al., 2006) and their suppliers in response to the fast fashion trend, and it is
focused on the possibility for retailers to store and replenish stock using customer
demand rather than forecasts. This is done by applying an industry standard in
information technologies (e.g. barcode, EDI, shipping container marking, roll ID, etc.)
and contractual procedures among the SC members (Fernie and Azuma, 2004).
The most significant difference between QR and more traditional apparel SCs is the
focus on collaboration and vertical integration in order to improve efficiency in the SC.
Like agile SCs QR SCs are considered to be information driven, but rely on a measure of
trust in sharing information. Within the fashion industry, QR is centred on the notion of
minimal pre-season ordering, taking advantage of improved speed and flexibility in the
SC by placing more frequent, in-season, small orders (Bruce and Daly, 2006).
Production may be pre-booked, but final product specification is not confirmed until
nearer delivery time: the proportion of OTB budget may increase significantly.
Several case study researches suggest that these programmes have been widely
used in the Australian textile, clothing and footwear industry (McMichael et al., 2000;
Perry and Sohal 2001) and in the US apparel industry (Ko et al., 2000).
The replenishment process is affected by several variables, related to upstream SC,
downstream SC and structure of the collection offered by the brand owning company.
Lead-times in the apparel industry are traditionally long (Mattila et al., 2002). To reduce
IJRDM lead time, thus allowing for fast and frequent replenishment during selling period,
43,10/11 the SC should be changed. For example, shortening of the supply pipeline can be achieved
by moving onshore production facilities, thus choosing local suppliers, by improving
information exchange, and collaborative relationships between organizations along the SC
(Ernst and Whinney, 1988; Al-Zubaidi and Tyler, 2004; Caridi et al., 2010). Merchandise
assortment has been found to affect the ability of replenishment strategies in mitigating
972 merchandise planning errors (Yu and Kunz, 2010).

3. Research questions
Literature review has provided an overview of replenishment management-related issues.
Different approaches emerged, due to the peculiarities related to the considered geographical
area and businesses. In particular, literature has mainly focused on the management
of replenishment process in the Australian and US companies. However, the specificity of
Italian fashion luxury industry structure may show other approaches and solutions to the
replenishment process management problem. Therefore, two research questions emerge:
RQ1. How do Italian fashion brand owning companies manage the replenishment
processes in order to meet customer’s demand?
Replenishment process can be differently managed, by mixing and matching the
following elements: first, mini collections: replenishment of new item developed during
the selling season; second, replenishment of all the product range already developed in
the pre-selling season; third, replenishment of part of the product range already
developed in the pre-selling season. Replenishment process is tightly linked to
merchandise planning. Merchandise planning can be done both in pre-season and
in-season, with a certain percentage of OTB, or only pre-season:
RQ2. How do these companies coordinate upstream and downstream SC in the
replenishment process?
Coordination with upstream and downstream SC seems fundamental for assuring
replenishment process efficiency and effectiveness. We aim at investigating how Italian
companies manage the upstream and downstream SC in the replenishment process.
In particular, as far as the upstream SC is concerned, literature suggests the following
variables:
(1) Degree of upstream SC alignment: it is measured against the level of vertical
integration and the degree of information sharing with suppliers (Christopher
et al., 2004).
(2) Degree of local sourcing: offshoring does not help the replenishment process,
due to the costs of using suppliers that are inflexible and unresponsive to
changes in demand (Christopher et al., 2004).
(3) Strength of suppliers’ relationships: it measures the width of the supplier base
and the strength of the relationships with suppliers. Replenishment is more
suitable in case of single sourcing and the propensity for strategic alliances
(Christopher et al., 2004).
As far as the downstream SC, replenishment process is affected by the degree
of downstream SC alignment (Castelli and Brun, 2010). In line with Castelli and
Brun (2010), this variable encompasses several items presented in Table I. To measure
the variable, a score has been assigned to each item according to Table I.
Finally, the percentage of basic products over the whole collection determines the Luxury
frequency of replenishment: the longer the products’ shelf-life is, the more frequent fashion
replenishments are ( Jacobs, 2006).
This preliminary list has been integrated with the results coming out of the
Italian firms
interviews and reported in Section 4.

4. Methodology 973
In order to achieve the aim of the research, a case study research has been conducted to
describe the SC of the luxury Italian fashion companies and to identify links between
variables related to organization, process, information and management choices.
In fact, case studies are normally used to gain a more in-depth understanding of the
research, often in an effort to answer “how” and “why” questions (Yin, 1984).
Multiple-case sampling was used to increase confidence in the findings (Miles and
Huberman, 1984) and supports their external validity. The research involved a sample of
seven fashion companies (Table II), belonging to the luxury fashion industry, internationally
recognized and facing the challenge of competing globally. In order to be included in the
sample, the fashion firms considered must have some key features: have at least a business
unit in Italy, an international profile, to be medium or large fashion companies in different
market segments and have been established in the fashion business for several years.
The cases investigated regard medium and large firms, who usually face great
challenges in designing their collection and replenish products in their retail channels.
In the fashion industry the number of SKUs treated by a company may be an indicator
of its dimensions: companies interviewed manage at least 500 SKUs per season.
Most of the firms considered manage their own brands in Europe and Asia through
direct operated stores and franchising mono brand: the research is focused on brand
owner companies. They belong to the higher segments of the fashion market and their
core business is mainly based on apparel and accessories. This homogeneity is due to
the features of the industrial area in which the case study has been conducted: the
Tuscan-Emilian district includes especially apparel- and leather-based firms.
The sample appears more heterogeneous in the percentage of basic, seasonal and
fashion product treated: in two cases, more than 50 per cent of basic product is
managed, while in the other cases the seasonal product predominates. The companies’
market segment is clearly reflected in the low percentage of products having a ten-week
shelf life: high fashion companies generally launch two collections per year, differing
by the mass cases such as H&M or Zara.

Items Instances Points (%)

Kind of information exchanged between Orders 25

retailer and manufacturer Sales information 25
Inventory information 25
Demand forecast 25
Communication tools Telephone/fax 25
Internet 25
Barcodes 25 Table I.
Integrated information systems 25 Items explaining
Alignment through Incentives 33.3 the degree of
Contract obligations 33.3 downstream
Vertical integration 33.3 alignment
 974

Sample
Table II.
IJRDM
43,10/11

Fashion
Case Turnover market Main Percentage of basic Assortment
study Employees (Million €) No of SKU Interviewees’ role segment product product/seasonal/fashion width Channels

1 ≈250 150 500-1,000 ICT Manager Prêt-à-porter Apparel 10/80/10 Low R+F
2 W100 100 500-1,000 ICT and Retail Diffusion Apparel 0/90/10 High R+F
Managers
3 ≈120 45 W1,000 ICT and Retail Diffusion Apparel, 60/30/10 Low R+F+W
Managers Accessories
4 ≈394 230 W1,000 ICT, Retail Managers Prêt-à-porter Apparel, 3/97/0 Medium R+F
and buying team Accessories
5 W3000 625 W1,000 SC Manager High Fashion Leather 90/10/0 Medium R+F
accessories
6 ≈625 204 500-1,000 SC and Retail Managers High Fashion Apparel 0/100/0 Low R+F
7 ≈700 160 W1,000 ICT Manager Prêt-à-porter Accessories, 20/80/0 Medium R+F+W
Apparel
Notes: R, retailer; W, wholesale; F, Franchisers
The case study is a research strategy, which focuses on understanding the dynamics Luxury
present within single settings. According to Eisenhardt (1989) a number between four fashion
and ten cases usually works well in these researches, so the considered sample is
sufficient to give an accurate account in an empirical research.
Italian firms
A questionnaire has been designed in order to support the interviews conducted.
The direct contact to SC and ICT managers allowed us to carry out structured
interviews, often backed up by unstructured interviews and interactions. Multiple 975
methods such as questionnaires, direct observations and content analysis of document
has been used to perform data triangulation. The latter, through the employment
of different methods of data collection, has been used in order to strengthen the validity
of the research (Voss et al., 2002). Data collected have been recorded and then analysed.
The interviews were carried out basing on a questionnaire divided into three
sections. In the first one, general information about the companies have been gathered,
e.g., the competitive context and the organizational structure; the second section is
devoted to describe the features of upstream and downstream SC. Finally, the third
section aims to understand how the companies decide to manage the replenishment
process and consequently the OTB.
In order to become familiar to each case as a standalone entity a primary within case
analysis has been performed. Then a comparison between the cases has been
conducted and a cross-case analysis has been carried out. Moreover, qualitative
and quantitative evidences have been combined: the qualitative data are useful in
the understanding the rationale of theory, underlying relationships revealed in the
quantitative data, or may suggest directly theories, which can then be strengthened by
quantitative support (Eisenhardt, 1989).

4.1 Case studies

Before reporting the case studies, it is important to present the full set of variables used
in order to analyse the replenishment process. As introduced in Section 2, variables
coming from the literature have been validated and, during the interviews, other ones
have been introduced:
• enabling technologies implementation: the kind of technologies used to manage
replenishment and coordinate with upstream and/or downstream SC partners;
• production restart of fashion collection: companies manage differently the
production of fashion items during selling period;
• order frequency: the interval between and order from a store and the following
one;
• trans-shipment: the movement of a good to a store and then to another store at
the same level of the SC; and
• lead time: the replenishment lead time, i.e., the time needed from the re-order to
the delivery of the product to the store.
This way, the full set of variables considered in this paper is reported in Table III.
Any other alternative approaches has to be considered depending from the specific
business and its needs and therefore not to be included in this list.
Case 1 sells basically apparel products, belonging to the high fashion segment.
In season, replenishment of both retailers and wholesales is done by using goods stored
in a central warehouse, both already produced before the selling season and
 976
IJRDM

Table III.
43,10/11

Case studies data

Case 1 Case 2 Case 3 Case 4 Case 5 Case 6 Case 7

Replenishment Mini collections No replenishment, Replenishment of Mini collections No Replenishment Replenishment of

process and except for part of the fashion replenishment, of part of the part of the fashion
management replenishment transhipment and collection except for fashion collection
of all the fashion substitution transhipment collection
items during and substitution t
selling season
Merchandise Pre-season Pre-season Pre-season Pre-season Pre-season Pre-season Pre-season
planning planning and planning planning and planning and planning and planning planning
management overproduction overproduction overproduction overproduction
Degree of Medium: the Medium: the firm is Medium: the firm is Medium: the firm is Low: the firm is Low: the firm is Medium: the firm is
upstream firm is not not vertically not vertically not vertically not vertically not vertically not vertically
alignment vertically integrated and integrated and integrated and integrated and integrated and integrated and
integrate information sharing information sharing information sharing information information information sharing
is not completely is not completely is not completely sharing is not sharing is not is not completely
achieved achieved achieved achieved achieved achieved
Degree of local Medium: Low: offshoring is a Low: offshoring is a Low: offshoring is a Low: offshoring Medium: near Low: offshoring is a
sourcing offshore for consolidated consolidated consolidated is a consolidated shore consolidated
seasonal practice practice practice practice practice
products,
onshore for
fashion ones
Strength of Low: multiple Low: multiple Low: multiple Low: multiple Medium: several Medium: several Low: multiple
suppliers’ suppliers suppliers without suppliers without suppliers without strategic strategic suppliers without
relationships without drawing up drawing up drawing up alliances alliances with drawing up
drawing up strategic alliances strategic alliances strategic alliances skilled suppliers strategic alliances
strategic
alliances

(continued )
 Case 1 Case 2 Case 3 Case 4 Case 5 Case 6 Case 7
Percentage of Low: majority of Low: majority of Medium: Low: majority of High Low: majority of Low: majority of
basic products seasonal seasonal products coexistence of seasonal products seasonal seasonal products
products basic, seasonal and products
fashion products
Enabling High: ERP High: ERP High: ERP Medium: ERP Medium: ERP Low: High: ERP
technologies integrated to integrated to EDI integrated to EDI spreadsheets integrated to EDI
implementation EDI
Kind of Orders, sales Orders and sales Orders Orders None Orders Orders
information information, information
exchanged inventory
between retailer information,
and demand forecast
manufacturer
Communication Telephone, Telephone, internet, Telephone, internet Telephone, internet, Telephone and Telephone and Telephone, internet,
tools internet, barcode, IIS and barcode barcode, IIS internet internet barcode, IIS
barcode, IIS
Alignment Contract None None None None Contract Contract
through obligations obligations obligations
Production Restart the None Restart part of the Replacement None Restart part of Replacement
restart of entire collection collection campaign the collection campaign
fashion
collection
Order frequency Weekly Weekly Weekly Weekly Weekly Weekly Weekly
Trans-shipment Yes Yes Yes Yes Yes Yes No
OTB percentage ≈20% 0 ≈20% ≈20% ≈20% 0 0
Lead time W 4 months (but W4 months 2-3 months W 4 months 2-3 months 2-3 months 2-3 months
shorter for
fashion
products
manufactured
onshore)
Luxury

Italian firms
fashion

Table III.
977
IJRDM manufactured during the season. The firm manages replenishment orders coming from
43,10/11 all the stores, that are different in terms of shop dimensions (e.g. assortment), its
geographic area and its flagship importance. A structured process for managing
replenishment does not exist. Buyers use forecasts, trends and their experience without
a standardized approach to pre-define the quantities to replenish. Retail manager
makes the final decisions regarding replenishment. The configuration of the SC
978 (e.g. production sites located outside Italy) does not permit to reduce lead times.
Nonetheless, some suppliers are able to manufacture the entire collection within
the season.
Case 2 sells apparel product and belongs mostly to the diffusion segment.
The company has just opened its own retail channel. This innovation is the cause of
lots of changes within the company. Each store (either retail or wholesale) makes a first
order, at the beginning of the selling seasons, considering the entire new collection
according to its demand forecast. The head of retail manages the replenishment
process, analysing the top seller, the selling capability of the stores and the
merchandise available in the central warehouse. In fact, stores are replenished with
goods produced before the beginning of the season (based on a forecast), and then
stored in a central warehouse.
Case 3 sells both apparel and accessories mostly for the diffusion sector. The
company has both the retail than the wholesale channels, where is able to replenish
goods in season, picking them from a central warehouse. Part of items of the collection
can be manufactured again during the season, to be used for replenishment.
A merchandise plan during the season supports the replenishment decisions: sell-out is
weekly analysed to understand the product trend. The orders of the stores are
coordinated: the store manager decides the replenishment quantities of the single store,
whereas the district manager coordinates the overall orders, to be sent to the central
warehouse.
Case 4 is a competitor of Case 1, since it sells the same kind of products in the same
fashion segment (apparel in the high fashion segment). Orders depend from several
variables, including the typology of store, (e.g. its number of shop windows),
geographic area and selling performance. Store managers and buyers takes decision
regarding the replenishment process without a structured process, according to the
availability of products in the central warehouse composed by substituted items and a
portion of overproduction decided before the selling season. Several replacement
campaigns are also possible among the owned stores.
Case 5 sells leather accessories for the Prêt-à-porter sector. The replenishment
process of this company differs from the previous ones, because it is managed locally
by boutique managers. They have in fact the responsibility to decide which items to
replenish. Items are replenished using merchandise available in the central warehouse.
Orders are satisfied using first in first served rule: the first replenishment order arrived
at the central warehouse is the first that is satisfied. When there is no more good in the
central warehouse, replenishment orders are not satisfied any more.
Case 6 sells apparel product and belongs to the high fashion segment. The company
owns a small part of flagship stores, taking advantage mostly of the wholesale channel.
For each store, a list of “must have” has been decided. Based on it, during the season,
the retail manager and the buyer together define whether and how much to replenish.
Stores are replenished using good available in the central warehouse. The SC manager,
together with the retail manager, may decide to restart the production of some items, if
their lead time is compatible with market needs.
 Case 7 sells high fashion accessories and apparel products for the Prêt-à-porter Luxury
sector. They do not restart the production during the selling season and replenishment fashion
orders are satisfied using overproduction of pre-season or replacement campaigns
among the owned stores. Buyers and retail managers use the stores’ sell-out
Italian firms
information to monitor trends, to improve the replenishment process and to draw up
the merchandise plan for the same season of the next year.
Table III summarizes the gathered data. 979
5. Findings
The seven case studies examined allowed us to identify the main characteristics of the
sample in order to describe the Italian context and how Italian companies manage the
merchandising and replenishment process. With the purpose to obtain comparable
descriptions of the different firms, data obtained during the interviews has been organized
in defining, as a first step, the typology of product sold by the firm and describing its SC
structure. In the following sub-section several variables influencing the replenishment
process are presented in order to perform a cross-case analysis and answer to the RQ1.
Then, variables influencing the coordination between upstream and downstream SC have
been deepened in relationship with the replenishment process, answering to the RQ2.

5.1 The SC in the analysed sample

The majority of the firms interviewed manages seasonal product. In fact, the Italian
luxury fashion industry is based mostly on two seasonal collections (F/W and S/S); just
in two cases the majority of product is basic because of the presence of accessories sold
throughout the entire year. This evidence is coherent to the CSF that the firms choose
as the most important: time to market and quality. These are two opposed factors
because it is not easy to reach, at the same time, the maximum velocity in the market
and a superior product quality. Time to market is the most critical time that has to be
managed by an organization that seeks to compete successfully in fashion markets
(Christopher et al., 2004) and expresses the necessary time for the business to recognize
a market opportunity and to translate it into a product to bring on the shelves. An agile
SC and an automatized replenishment process may help companies who choose time to
market as their CSF to be more efficient and effective.
Given this primary information about the firms, the case study research allowed us
to investigate the SC structure of the companies interviewed. Even if each firm defines
its pipeline according to its needing and strategy, it is possible to describe a generalized
SC configuration. During the first interviews, we realized that the players and roles
were almost the same in each organization.
The upstream SC is represented by the suppliers, who manufacture the merchandise.
In fact, by analysing the collected data from the case studies, on average the companies in
the sample are not vertically integrated. The consequence in the outsourcing of the
manufacturing process is that the suppliers are often really far from the retailing zone
(Asia and North Africa). The effect is a long lead time and the difficulty to restart
production during the selling season. Consequently, the analysis of the sample reveals
that the analysed companies seems to be not strongly integrated with suppliers neither.
Coming to the variables related to management of onshore processes, companies tend to
avoid strategic alliances with suppliers.
A set of central warehouses ensures to stock the end product; then, company-specific
rules decide to assign products to retail stores or to the wholesaler. The downstream SC is
dominated by the retailer, who sells in his owned stores, and by the wholesaler: both allow
IJRDM the product to reach the final customer. Warehouses are present both in the central
43,10/11 warehouses than in the stores.
Additionally, the case studies showed the importance of product development and
style in the fashion industry: product design can make the product unique and the
customer is really able to recognize it. In the fashion companies, style is the department
that mostly influences the downstream SC: during the merchandise planning,
980 managers have to respect the choices of the style department. Therefore, product
development is an activity that is not outsourced in the companies interviewed. Instead,
production is the most outsourced task in the sample considered: the rationale is that
the firms prefer to take advantage of the cheap labour and to retain in house their
know-how contained in the ideation and development of the product.
RQ1. How do Italian fashion brand owning companies manage the replenishment
processes in order to meet customer’s demand?
All the interviewed companies perform similarly the merchandise planning process.
Interestingly, it is not as structured as literature suggests, nor it is divided into three phases.
In fact, all the companies perform it only in pre-season. This might be due also the
predominance of seasonal products in the merchandise assortment, and the length of the
lead time (always more than two weeks). On the other side, the OTB is not applied in season,
in fact it is low in all the cases, but retailers and store managers can resort on the planned (in
pre-season) overproduction or transhipment. It should be noted that the cases resorting to
overproduction, are those where an OTB is 20 per cent, with the only exception of Case 5
that also operates changes and return among retail stores in order to increase the OTB.
The pervasive role of style department in the process, normally used to more
qualitative and creative approaches, make standardization of the same process
difficult. Their decisions have an impact also on the other departments, which cannot
define a budget independently. In the buying teams, the figure of the buyer emerges
compared to the planner and the controller. Also the definition of OTB never follows
the mathematic formula, but it is indeed treated as the amount of funds that the buying
team decides to allocate for a particular SKU or collection.
Despite they share the same value of OTB (e.g. Cases 1, 3, 4 and 5 have 20 per cent),
the same merchandise planning management approach and same lead time (less than
four months), the interviewed companies show different approaches to replenishment.
The following main different approaches have been observed:
(1) No replenishment, except for transhipment and substitution. This is the case of
Cases 2 and 5. Case 5 manages mainly basic products, while updates every year
its products with the main trends. In case of transhipment, it up to the store
manager and retail manager to ask for the product availability to another store,
and then the merchandise is exchanged among the stores. In case of
substitution, merchandise is instead requested to the central warehouse. Then a
change between different products having the same value is performed.
(2) Replenishment through mini collections or replenishment of part of the fashion
collection. Case 4 proposes several new mini-collections within the selling season
in order to satisfy the needs of a customer more and more exigent. While Cases
3, 6 and 7 are able to replenish stores during the selling season, only with a part
of the fashion collection. In these cases, store managers request the “best seller”
products to the retail manager. This request is shared with production manager.
If it is feasible, then, part of the fashion collection is manufactured again.
 (3) Replenishment through Mini collections and replenishment of all the fashion Luxury
collection. Only Case 1 is able to replenish all the fashion collection during the fashion
season. As it happens for the case described above, store managers request
products to the retail manager. If the demand of replenishment is higher than the
Italian firms
availability in the warehouse, the retail manager, together with the production
manager, can decide to manufacture the product again within the season. This
process can be done for every SKU of the actual season, up to the entire collection. 981
As a result for RQ1 it is possible to observe a general lack of use among the interviewed
Italian fashion companies, differently from the experience reported in literature in
Australia and USA, of frequent and in season replenishments by small orders.
Therefore, it seems there is a difficulty in applying QR approaches in Italian fashion
companies. This is exacerbated also by the fact that these companies, as it emerge from
the case studies, have to manage a merchandise assortment made up mainly of
seasonal and fashion products.
RQ2. How do these companies coordinate upstream and downstream SC in the
replenishment process?
By comparing the different ways of managing the replenishment processes, it can be
observed that Case 1 is, differently from the other cases, able to propose mini
collections along the selling season and to replenish all the fashion items. The opposite
apply for Cases 2 and 5. Seeking to find the variables that might help in understanding
such a difference, a comparison between the ways in which the analysed cases
coordinate the downstream and upstream SC has been done, by considering upstream
and downstream alignment. Additionally to the listed drivers, during the interviews,
we observed that a major recurrent topic, outlined by the SC managers and
merchandise planners, as a relevant element shaping the replenishment process, is the
production restart of fashion collection.
This refers to the ability of the company to leverage on suppliers able to
manufacture, during the selling season, part of or the whole collection. In particular,
four situations apply:
(1) None: the company’s suppliers are not able to produce again, during the season,
the items of the fashion collection.
(2) Replacement campaign: the company does not restart the production during the
selling season, but it is able to move products to the stores where they are
required.
(3) Restart of part of the collection: the suppliers are able to produce again part of
the collection. The brand owning company decides to restart just a part of its
collection, following the recommendations of the style department.
(4) Restart of the entire collection: the suppliers are able to produce again the entire
collection during the selling season.
By comparing Cases 1, 2 and 4, we noticed that one of the main differences among them
is that their ability to follow market trends is limited by both their ability to gather
information from the downstream SC (e.g. trends and sales) and their ability to restart
the whole collection production. Therefore, we have plotted the case studies in a matrix
(see Figure 1) composed of two axes: downstream alignment and production restart of
fashion collection.
IJRDM Production restart of fashion
collection
43,10/11
Restart the entire
collection 1

982
Restart part of the
6 3
collection

Replacement 4 7
campaign

None 5 2
Figure 1.
Matrix alignment/ Downstream alignment
Low Medium High
production restart:
the cases analysed
No replenishment Mini or partial collection replenishment Entire collection replenishment

5.2 Characteristics of cases of “no replenishment, except for transhipment and

substitution”
Case 5 and 2 are both not able to leverage on production restart and share no or limited
information with downstream SC. In fact Case 5 sells mainly basic products, and,
differently from all the other cases in the analysed sample, resorts mainly on strong
upstream alignment (as strategic alliances with its suppliers), without leveraging on
production restart and downstream alignment for following demand. Vice versa, in all
the other cases the percentage of basic products is low, and the companies, with different
levels, are able to restart production and/or exchange information with downstream SC.
Case 2 represents a company that is not fully exploiting the potential of having medium
alignment in the SC; at the moment, it controls a small number of owned stores: the retail
channel is grown recently. Even if these stores are able to exchange information through
advanced systems, there is a lack in the alignment with upstream SC that impedes the
firm to restart the production and to manage an in-season planning. In the near future the
company will improve its policy to restart the production (moving up in the matrix),
given the increasing importance of the retail channel.

5.3 Characteristics of cases of replenishment through mini collections or replenishment

of part of the fashion collection
Case 3, 4, 6 and 7 are similar in terms of strategies in responding to market needs.
Moreover they are trend setter or trend follower companies. Therefore, they either
restart part of the collection or only perform replacement campaigns. In particular,
Case 6 represents a company that sells a luxury niche product. Its merchandise
planning process is not structured and the company owner forces to restart partly the
production only based on qualitative considerations. Hence, a high alignment through
the SC is not needed. In Case 7, overproduction is used to satisfy the in-season orders.
The company takes advantage of wholesale and retail channel. While the first does not
manage trans-shipment and production restarting, alignment with the owned stores is Luxury
leveraged to manage replacement campaign. As for as Case 3, it shows good fashion
performance in the organizational activities, such as the possibility to conduct
trans-shipment and to manage OTB; however, medium skills in the policy adopted to
Italian firms
restart the production correspond to a medium alignment through the SC. Finally,
Case 4 is able to successfully follow market trends but it is limited to mini collections
and to sporadic replacement campaign, since it shows a lack in advanced 983
communication tools and information exchanged.
5.4 Characteristics of cases of replenishment through mini collections and
replenishment of all the fashion collection
Case 1 can propose mini collections and replenish all fashion products of the collection
leveraging on: the one hand, the ability to restart production of the whole collection
resorting on onshore suppliers with which information sharing is high; and on the
other, its strong connection with downstream SC, with which Case 1 shares information
to plan the production replenishment. For example, the company uses data regarding
sell-out per item to decide whether a production restart is necessary.
It is interesting to observe that the characteristics of the distribution channel (retail,
franchising or wholesale) do not affect the way companies manage the replenishment
process. For instance, Case 3 and 7 have the same behaviour of the others, even if they
distribute through wholesales. In the same way, companies having the same
distribution channel show different behaviour.
Summarizing, based on the matrix presented in Figure 2, it can be argued that the
companies having a lack in advanced communication tools and information exchanged
with downstream SC are not able to restart the production of the entire fashion
collection because of the dearth of integration within the SC. On the other hand, despite

Production restart of fashion

collection

Restart the entire

collection

Restart part of the Management Info shared for

collection by sensation production restart

Replacement
campaign

No info Loss of
used opportunity Figure 2.
Matrix alignment/
None production restart:
Alignment four main areas
Low Medium High
IJRDM they do not use AR systems, companies that resort on communication tools with
43,10/11 downstream SC, as well as on local suppliers with whom information exchange is high,
succeed to manage to replenish the collection during the selling season.

6. Conclusion and further developments

In this paper, replenishment strategies of a sample of Italian fashion companies have
984 been investigated. A literature review has been conducted concerning the topics of
merchandise planning and replenishment process. Given the results obtained, a case
study research has been designed and several interviews have been addressed to retail
managers, SC managers, buying teams and ICT managers.
It is possible to underline one of the main gap in the literature and how we sought to
fill it through our case study research. The papers analysed in the state-of-the-art
mostly present cases from Australia and USA. Our sample is composed by Italian
fashion firms, that have shown particular features and often unique needs different
from the ones already deeply studied in the literature.
Furthermore, the merchandise planning process discussed in literature has been
presented as a structured process. The companies of our sample behave differently.
In fact, most of the planning process is conducted pre-season with an unstructured
approach, and OTB is not calculated using the formula.
The research has revealed that the replenishment process in not yet automatized,
due to the difficulties in aligning processes within the entire SC and to the kind of
product sold by the companies. Nevertheless, there are companies able to propose
customers mini collections and replenish fashion products during the selling season.
These are resorting on a complete alignment along the SC, obtained by strong
communication with downstream channels, as well as with upstream local suppliers. In
fact, being able to exchange information with downstream SC is by itself not enough:
this information should be used to activate upstream SC.
In particular, four different situations might happen (see Figure 2): the bottom left
area represents the situation of misaligned companies in which information is
completely unused. Therefore, companies cannot replenish any item during selling
season, but should resort on available stock through overproduction or transhipment,
to satisfy demand. In the bottom right area, we find companies that have information
regarding downstream SC, but they are not able to use the information. They are not
able to communicate with their supplier in order to speed the production process. The
opportunities to use information to support the replenishment process are lost.
Companies in the upper left are still not able to gather proper information from the
downstream SC, but they have understood the importance to restart the production in
season and to have strategic alliances with the suppliers. Therefore, replenishment
decisions are based on “sensations” coming of the managers. This is unluckily – based
on the experience in the sector of the authors – a common situation in the fashion
industry: processes are mostly managed by sensation, basing just on qualitative
decisions. Finally, the upper right area stands for the context in which information from
retailers really supports the decision to restart the production during the selling season.
The matrix can support companies in defining in which direction to move to increase
their ability to match supply and demand. In fact, companies can find their positioning in
the matrix, to have a preliminary insight on their weak points in terms of downstream and
upstream alignment. Along the x-axis, they can see whether they need to rethink the
replenishment process, leveraging on information sharing with their suppliers and
distribution channels or, along the y-axis, whether they need to improve their capability to
restart the production within the season. Moreover, we believe that companies might need Luxury
to improve their ability to perform in-season planning, also by adopting OTB as a fashion
quantitative metric. This could improve the overall planning and replenishment processes,
supporting the already used qualitative analyses.
Italian firms
The present study has also provided implications for researchers, analysing the
current situation of the fashion luxury segment in Italy, deepening its SC configuration,
criticalities faced in managing replenishment and implementing ARPs that are, instead, 985
adopted in other countries (according to the relevant literature).
A further emerging issue is to extend the case study research to other kind of fashion
products, in order to understand the different approaches to replenishment deriving from
the product typology sold. A research may be conducted in a context of companies, which
are able to restart the production in order to understand how much the alignment of
processes permits to reach an optimization of the replenishment process. In fact, it is
expected that renouncing to offshoring, a major partnership between vendor and retailer
might be triggered and the replenishment process may be optimized. The development of
tools and algorithms optimizing merchandise planning and OTB management may
represent the future research being carried out as a result of this first study. Finally, an
investigation of the main KPIs used by the luxury fashion firms may be an interesting
insight. In fact, a correlation between an organized replenishment process and the
consecutive improvement of performance could be carried out in order to understand the
different capabilities linked to strategic choices concerning SC management.

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Corresponding author
Dr Romeo Bandinelli can be contacted at: [email protected]

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