Day 30 in MIT Sloan Fellows Class 2023, Introduction to Operation management 3 - SHEIN
Before fast fashion era
Zara, H&M, and Uniqlo changed the paradigm in the fashion industry.
Before these fast fashion companies, traditional manufacturers such as GAP order massive production and sell them with discounts. So mass production creates margin.
How to design the optimal amount of orders?
The optimal amount of order
To calculate optimal order, we need two pieces of information.
- Your margin structure( Revenue per item, cost per item, and salvage cost)
- Your item's demand
The second factor is uncontrollable. So we assume normal distribution or non-parametric distribution.
And then we can calculate them as follows.
Fast fashion excellence
However, fast fashion companies changed this paradigm in the following two points.
- More item lines and thinner inventory(lower service rate)
- Shorter frequency of item update
These two factors cooperate to accelerate their capabilities. Fast fashion, as they are named, their production span from design to delivery is really short. So they can propose a new lineup every 4-6 weeks.
This factor motivates customers to revisit the stores.
Then, they can reduce the variance of demand and get enough margin even if pricing is lower and production cost is higher.
Different paradigm
However, even fast fashion may become obsolete nowadays.
SHEIN, Chinese fashion giant, would propose 15K different items per week. What makes it possible is a social network such as Instagram and Tiktok.
If you are interested in deeper information, please check this blog.
