Manufacturers of Luxury Products Must Synchronize Their Supply Chains

Luxury Connected Supply Chain Blog

Read the first part here.

Manufacturers who produce luxury or high end items in a variety of categories face many challenges.  Raw materials can be expensive and have specialty geographic sources. Production can be a combination of discrete, process and mix-mode.  Distribution is complicated due to many factors from special transportation needs, critical inventory management (bonding) and tax and customs regulations.  All these factors necessitate a connected, flexible and efficient supply chain to enable the effective enterprise.

To begin, start with an analysis of pieces or links of the supply chain. Analyze the supply chain by breaking up the pieces and reconnecting it together.  Each link in the chain has its own unique characteristics and business objectives which at times conflict.

For luxury item manufacturers, the three most critical parts of the supply chain are:

Distribution – Many luxury items have a high end value and have special storage and transportation needs. Inventory value is high and accuracy is paramount and most likely needs to have a high level of traceability.  The distribution process begins from the end of manufacturing to the point where the product becomes the financial obligation of the customer.

Manufacturing – This includes all facilities where finished and work in process products are made as well as any outside contributors such as co-packers and contract manufacturing.

Procurement – In the case of luxury and high end products, many materials are extremely expensive, rare and could be sourced from specific geographical locations and could be high end commodities.  This necessitates a process that includes traceability and effective communication with suppliers.

Each link needs to be managed thoroughly due to the sensitive nature of raw materials and finished products, separately, they can impact profits.  However, disconnected, and a myriad of problems can occur. The key is to link them together by both materials and information. The supply chain is not just about materials or physical goods.  Managing information is just as important.

Manufacturers of luxury items need to start with forecast accuracy of the finished product. The value added costs in these businesses are staggering. The first step is accurate demand forecast as this triggers the process of planning production capacities and is the first step in the procurement process.  For all luxury product manufacturers, item location forecast is crucial. Having the right product at the right time is not just essential for customer service but to minimize inventory and transportation costs. Re-deploying inventory to other locations due to inaccurate forecasts is a profit killer.  

All producers of luxury items face similar issues regarding their supply chains.  However, there are specific needs based on the business category.

Jewelry and High End Fashion manufacturers operate with expensive inventories.  Raw materials, work-in-process, and finished goods require traceability and extremely tight inventory control.  A synchronized supply chain can ensure that inventory is managed and synchronizes with all the other processes. Companies that deal with precious metals, gems and high end profits need to always consider counterfeiting, theft and security issues, a synchronized supply chain is a valuable asset to manage these issues.

Producers of Gourmet and Fine Foods have many issues that a synchronized supply chain can manage.  These issues range from variable product shelf lives at all inventory levels as well as seasonality.  Product lifecycles are short as consumers preferences are changing. Producers need to manage hundreds if not thousands of SKU’s in addition to commodity based raw materials that have limited availability.  Many times, demand can be high but ingredient supply can be low and times inventory supply can be high with low demand.

Manufacturers of High End Electronics and Appliances also face critical supply chain issues.  Inventory is a major issue but costs of raw materials and components are high as many are sourced from other world regions.  Lead times are long and with the advances in technology today, product lifecycles are short. Supplier relationships are critical for success and a solid, accurate procurement forecast linked through the supply chain can minimize purchasing costs.

The bottom line is that manufacturers of luxury items need all processes and systems to work in unison to ensure success. They need to and have:

  • Maintain service levels
  • Improve forecasts at the item level
  • Optimize planning
  • Flexible planning tools
  • Decision support tools
  • Sales and Operations Planning

The major advantage for luxury manufacturers whose supply chain is synchronized is visibility.  Having the ability to see further ahead and linking accurate forecasts with distribution, production and procurement plans allows for profit maximization and the ability manage the entire supply chain and business processes.  For industries that are subject to demand spikes and inconsistency, the ones who will succeed will be those who have integrated business processes and a seamless uninterrupted supply chain.


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