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Innovation

NRF Big Show 2019 – My EXPO Hall Tour Notes

February 16, 2019 by Brian Laung Aoaeh

My Supply Chain Credo

Disclaimer: This blog post reflects my personal opinions only. It does not represent the opinions of REFASHIOND Ventures, or REFASHIOND CO:LAB. It does not represent the opinions of The New York Supply Chain Meetup, or The Worldwide Supply Chain Federation. It does not reflect the opinions of any other person who is associated with any of those entities. This blog post does not represent the opinion of any other individual or organization that is mentioned by the author. I do not have any business or commercial relationship with organizations mentioned in this article, however CIM Tours paid The New York Supply Chain Meetup a stipend for my services as a tour guide during NRF’s Big Show 2019.

Background

During the fall of 2018, my co-founder, Lisa Morales-Hellebo and I met Daniel Hodges for coffee in NYC. We discussed what we were working on, and he told us about his company, Consumers in Motion Tours (CIM Tours). Paraphrasing the description from Dan’s LinkedIn profile; CIM Tours creates experiences that transform business. They guide CEOs, BODs and CMOs through technological, and consumer behavioral changes and the resulting disruption by exposing them to innovative ideas and technologies being used by startups and other cutting-edge companies. They utilize major conferences and workshops to accomplish this task. When he asked us if we’d be interested in leading the tours for the National Retail Federation’s 2019 Big Show Conference, we immediately said yes – after all, supply chain is our thing.

What is the National Retail Federation (NRF), you ask? It is a retail-industry trade organization that has existed for more than a hundred years. According to its website, the retail industry contributes $2.6 trillion to the United States’ gross domestic product – far outstripping any other industry. As an industry, retail is the largest private sector employer in the United States. The Big Show is the NRF’s annual flagship conference – the world’s largest retail conference and expo. This year it attracted 38,000 attendees, 16,000 retailers, and 800 exhibitors, representing 99 countries.

CIM helps delegates and attendees at conferences like NRF’s Big Show, the Consumer Electronics Show (CES), Cannes Lions, C2 Montreal, and the IoT Solutions World Congress, etc., navigate and explore the technologies and trends at the forefront of change today.

You can understand why Lisa and I were excited about this. Below are the notes I prepared for Lisa and I as we were getting ready to lead the tours. We led 3 tours, each 2 hours in duration, on each day from January 13 to January 15.

can you tell Lisa and I had just failed to find acceptably strong coffee to help us get through the first day of tours? The lines at Starbucks in the Javitz Center were too long, and we ran out of time.

Note: These notes are prepared directly from materials the participating companies provided us directly, or that I found on their websites. Any direct similarities between my notes and descriptions and other materials on their respective websites is deliberate.

ACCUSTORE

AccuStore is a store-intelligence software platform that helps retailers maintain and update store data in real-time. It helps retailers base decisions on a single-source of data to help execute store-specific initiatives.

Here are two examples of how AccuStore helps retailers.

Walgreens is one of the largest pharmacy chains in the United States. Walgreens implemented AccuStore to help them with marketing cost savings. With over 8,000 stores, they were throwing away money on marketing overages by sending the same generic sign kits to every store. Since each store had unique requirements, such as the number of windows or the number of fixtures, these sign kits were not only confusing for employees to install, but stores ended up throwing away up to half of what was being sent to them.

By using AccuStore’s store-specific profile data, store distributions are created for each individual store. So, each store receives only the signs that are appropriate for that location. Plus, marketing can now tailor POP by store to eliminate waste. Walgreens has saved over half a million dollars this year alone!

Another example of how retailers are using AccuStore is with the company, Crocs.

Crocs is a footwear brand. Crocs has saved tens of thousands of dollars during a single campaign because of accurate sign types and quantities. They needed to right-size their inventory so AccuStore developed a plan to gather and maintain their store profile data so they could send stores exactly what each store needed. Now, the information is available 24/7 via AccuStore’s cloud-based mobile platform. Plus, AccuStore helps Crocs gather store-specific information for inventory planning and store walks.

RELEX SOLUTIONS

RELEX Solutions helps retail businesses improve their competitiveness through localized assortments, profitable use of retail space, accurate forecasting and replenishment, and optimized workforce planning.

Here are two examples of how RELEX Solutions helps their customers.

Musti Group is the leading pet supplies and accessories retailer in the Nordics, with 264 stores in Finland, Norway, and Sweden. They needed supply chain integration between the company’s 5 distribution centers and 264 stores as managing changes and disruption in their supply chain was becoming a significant headache.

With an implementation period of a few months in 2015, RELEX Solutions; Optimized the flow of goods, for example, with deliveries scheduled for quieter days. Simplified Musti’s supply chain management – the complex supply chain is now managed by a single super-user – reducing the chaos that previously reigned when many managers at individual stores were involved. Improved campaigns the company runs by ensuring that there is adequate availability of promoted products. Inventory control now happens on a bottom-up basis using store-level data and optimizing transportation requirements.

Saarionen is a leading Finnish convenience foods manufacturer, with operations in Estonia as well. They needed demand planning software that is comprehensive, flexible, and transparent. They also wanted to introduce automation, so that planners could focus on exception management.

With an implementation period of 4 months in 2016, RELEX Solutions; Installed a system with error margins of less than 5% in weekly and monthly baseline forecasts for some standard high volume products. Improved efficacy for forecasting exceptions by incorporating the human expertise of the demand planners. Strengthened Saarionen’s position in its market.

Other Notes: Relex Solutions just raised a $200M growth equity round from Technology Crossover Ventures.

BOARD INTERNATIONAL

BOARD is a software platform for unified business intelligence, performance management, and predictive analytics.

Here is one example of how BOARD International helps its customers.

Coca-Cola European Partners is the world’s largest independent Coca-Cola bottler. It is the market leader in one of the biggest fast-moving consumer goods markets, worth over 100 billion euros. The business serves over 300 million consumers in 13 European countries.

Coca-Cola European Partners needed a supply chain finance solution to deploy across 48 manufacturing plants, 85 warehousing locations, cold drinks operations sites, and across its supply chain logistics organization. The company also needed the solution to be used by divisional CFO, heads of supply chain management, controllers, and department and plant managers. The company wanted to achieve: leaner financial operations, automated planning, and optimized reporting – underpinning a new way of doing planning based on comprehensive communication across the company.

Using BOARD, Coca-Cola European Partners has; Increased the efficiency of its finance activities with 10 percent manual inputs based on country specific data, and 90 percent pre-populated data. Reduced data transfer times from 24 hours to 15 minutes. Implemented a live status tracker based on BOARD’s automation capabilities. Implemented consolidation with one click, simplifying the process of performing full country consolidation for all of Coca-Cola European Partners’ operations. Implemented data transparency by effectively enabling automation and standardization. Increased ease communication around supply chain management and planning across the company.

Other Notes: I had the most fun with the team from Board International. We kept cracking jokes with one another, and it always seemed like we were old friends meeting after a long time apart. They also had an espresso station on the second day. The name “board” is supposed to evoke the flexibility that comes with working with a whiteboard to design a robust supply chain management solution for each customer – with no need to write a single line of code.

ANAPLAN

Anaplan is a software platform for enterprise-wide planning needs. The software enables financial planning, budgeting and analysis, demand and supply chain planning, sales compensation and territory management by connecting data, people, and plans.

Here is one example of how Anaplan helps its customers.

Sonos is a consumer electronics company with a complex supply chain enabling sales in 60 countries, and relying on more than 200 suppliers. Before Anaplan, Sonos was managing its sales, component sourcing, and supply chain through countless spreadsheets. As you can imagine, planning and forecasting was slow and prone to mistakes.

Sonos is now using the Anaplan platform to build end-to-end supply chain visibility and connect plans across resources, spend, and product lines.

The Sonos team started their implementation with supply and demand balancing. Then, they added a supply planning module, which enables a granular view of products at the factory level. Lastly, they incorporated demand planning to add forecasting into the mix.

Anaplan has helped Sonos:

  • Reduce tedious and mistake laden manual data entry and increase value-added work
  • Cut down the amount of time integrating spreadsheets from 70% to 10% of analysts’ time
  • The Global Planning Team can now execute a change in demand in one day, when this activity used to take 2 weeks.

Other Notes: Imagine what a surprise it was to see Vivek Soneja, a member of The New York Supply Chain Meetup at the Anaplan booth! We have grown so quickly that it’s hard to get to know everyone – especially since I am usually running around trying to make sure that our events go on without a major hitch . . . So it was cool to see one of our members in action outside the context of one of our meetups. Lisa and I must have beamed with pride when he turned around and told everyone within earshot about how great The New York Supply Chain’s events are. In his words; “You have to check it out. They are doing an amazing job.”

Booth 1304: Anaplan at #NRFBigShow2019

MANHATTAN ASSOCIATES

Manhattan Associates designs and builds supply chain software that connects front-end customer facing solutions with back-end operations and execution.

Here is one example of how Manhattan Associates helps its customers.

Adidas Group is the second largest sportswear manufacturer in the world. Adidas sought to improve its supply chain systems across all its brands, with a global implementation.

Manhattan Associates’ Distribution Management software has been implemented at 3 strategic sites in the United States, Europe, and Asia.

This has led to; A standardized distribution systems model for Adidas, enhanced supply chain control and visibility, and improved inventory accuracy.

Other Notes: They refused to let me have a cup of coffee during the first tour, on the first day. I’ll leave it at that. I had just spent a few minutes talking up their company to the delegates on the tour, and they wouldn’t even let me have a fucking cup of coffee!?

DSI

DSI delivers mobile supply chain technology solutions focused on helping companies advance their business to meet the accelerated demands of the digital economy.

Here is one example of how DSI helps its customers.

Rally House is a national sports apparel and gift store. It specializes in immersing its customers in hometown pride by stocking products unique to each local areas professional and college teams. To do this, the company needs an efficient inventory management system, moving away from centralized planning and distribution and more towards in-store fulfillment. This became more of an issue as the company expanded to 61 stores, in 9 states, with products for hundreds of different teams, represented by thousands of SKUs.

Rally House was  already using DSI’s warehouse inventory management software, and so by implementing in-store logistics, the company transformed its stores from showrooms into warehouses.

DSI enabled Rally House to eliminate their central distribution center within a few months and move all shipments direct to store from their vendors using their existing apps. This change eliminated weeks of costly lag time associated with the movement of warehouse shipments and expanded available inventory to customers.

Rally House’s distribution processes have been simplified significantly on every level. As demand ebbs and flows for products or for specific team merchandise, stores can stock accordingly and have inventory on the floor in days instead of weeks. Individual stores can now respond faster to time sensitive and regional events—such as World Series Championships—by moving product direct to their stores.

Other Notes: DSI was the most mobile-focused of the companies on the tour. I’d even perhaps go as far as describing them as mobile-first and mobile-only – obviously an exaggeration, but you get the point.

ENVISTA CORP

enVista is a global consulting and software solutions firm that helps its customers to optimize supply chain efficiencies to drive cost savings, and unify commerce to drive customer engagement and revenue.

Here is one example of how enVista helps its customers.

Saddle Creek Logistics Services is a privately held, asset-based 3rd-party logistics provider. It provides omnichannel fulfillment, warehousing, and transportation services. It operates 19 million square feet of space, across 45 locations with 3,300+ employees.

Saddle Creek wanted an order management system as it grew. Because of the nature of its business it was important for such a system to work for various types of clients . . . from those who ship hundreds of orders per month, to those who ship millions of orders per month. It also had to integrate with a variety of supply chain software solutions used by Saddle Creek’s clients and suppliers.

enVista provided an out-of-the-box multi-tenant order management system. Saddle Creek’s developers work closely with enVista to enhance the product for Saddle Creek as well as Saddle Creek’s clients. The enhancements include automated order processing and exception handling.

Saddle Creek now has:

  • Full visibility to all clients using the order management system in a single snapshot.
  • The system is seamlessly connected to 14 different systems between Saddle Creek and its customers, with as many as 80 different integration points.
  • Greatly reduced manual order processing for Saddle Creek’s customers and clients.

Other Notes: During one of the tours – I do not recall which, we were lucky enough to catch Jim Barnes, CEO of enVista at the booth. Watching him engage with the delegates on the tour reminded me why it’s so important for early stage startup founders to be able to sell and engage with customers. His intensity level and mastery of the issues the delegates were curious about was without comparison throughout the tours we gave during the event. You could tell that in affected the delegates, they paid rapt attention. For example, he went fairly deep into the philosophical underpinning of enVista’s approach to unified commerce in a way no one did during the remainder of the event.

Booth 4249: enVista Corp. at #NRFBigShow2019, Jim Barnes – facing me, speaking with the delegates on the tour.

MAGSTAR

Magstar provides enterprise resource planning solutions with integrated POS and CRM software for retail supply chains. The company provides Enterprise Resource Planning, Point-of-Sale, Customer Relationship Management, Warehouse Management, Business Intelligence and Analytics, and Mobile Solutions specifically designed for the SMB market. It promises the same functionality and support provided by the big vendors, without the cost. For example, they said each customer is assigned to a specific customer support employee at Magstar for the duration of that customer’s relationship with Magstar.

Here is one example of how Magstar helps its customers.

Fields Canada is a mid-sized retailer with 62 locations and a warehouse. The company needed to reduce inventory cycle time, and gain full control over in-store inventory.

Using Magstar’s Total Warehouse, Fields was able to:

  • Gain real-time visibility into inventory.
  • Reduce time to store by 14+ days.
  • Reduce cycle time by 70%.
  • Implement a paperless warehouse – no more missing pallets.
  • Simplify ship-to-store processes
  • Implement instant purchase order creation.
  • View inventory trends across peak seasons.
I do not always attend conferences, but when I do it is most likely a supply chain conference where I’ll be trying to learn about supply chain, technology, innovation, and startups.

WHAT DID I GET OUT OF DOING THIS?

I always find it fascinating to understand how customers describe the problem that they want technology to solve. Many times technologists and entrepreneurs think they are solving one problem, when customers think about the problem from a completely different perspective. The number one cause of failure among startups is the failure to find product-market-fit, which is an indication that the startup has solved a problem that customers are unwilling to pay for. Activities like this help me gain a better understanding of how customers see their world and the role that technology can play in helping them achieve their goals. One may say that on the rare occasion when I attend a conference it is to enable me do market research. I met executives from all over the world, and got to see the various perspectives from which they were thinking about deploying technology where they live and do business.

About The Worldwide Supply Chain Federation

The Worldwide Supply Chain Federation is the collaborative, and mutually supportive coalition of open and multidisciplinary grassroots communities focused on technology and innovation in the global supply chain industry. Founded in August, 2017, The New York Supply Chain Meetup is its founding chapter. Local chapters are run by volunteer organizers who each build a team to manage chapter activities and events. You can learn more here: The Worldwide Supply Chain Federation – Our Manifesto.

About REFASHIOND Ventures

REFASHIOND Ventures is an emerging early stage venture capital firm that is being built to invest in early-stage startups creating innovations to reinvent global supply chain networks. REFASHIOND Ventures is based in New York City. The Worldwide Supply Chain Federation and The New York Supply Chain Meetup are initiatives of REFASHIOND Ventures.

Update #01, at 23:54 EST on Sat Feb 16, 2019: Removed ghost bullets by changing from bullets to paragraphs for Board, and Manhattan Associates. Added whiteboard analogy for Board International.

Filed Under: #TNYSCM, Conferences, Industry Study, Innovation, Investing, Investment Themes, REFASHIOND Ventures, Supply Chain, Technology, Venture Capital Tagged With: Conferences, Disruptive Innovation, Innovation, Logistics & Supply Chain, Logistics and Supply Chain, Retail, Supply Chain, Supply Chain Finance, Supply Chain Logistics, Supply Chain Management, Technology, Venture Capital

#UnderConstruction | #TNYSCM15: Supply Chain Tech – From The World To NYC

February 16, 2019 by Brian Laung Aoaeh

A shot of Manhattan, taken from the 48th Floor of 10 Hudson Yards, New York, NY

WHAT IS A SUPPLY CHAIN?

A network of connected and interdependent organisations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users.

— Martin Christopher, Logistics & Supply Chain Management: Creating Value-Adding Networks, 4th ed, Pearson Education Limited 2011, p4

For the month of June, The New York Supply Chain Meetup aka The Worldwide Supply Chain Federation is thinking of hosting a “Supply Chain Tech – From The World To NYC” themed event. 

It would be a “showcase + demo” event, and each company/startup would get our customary 15 minutes, perhaps 20, to talk about what the company does and give a product demo. We are targeting 6 – 8 startups, but we could make room for more depending on the level of interest.

We already have a company from Germany earmarked – this is pending confirmation. We have confirmed participation from a startup from India. We have a request out to startups from Greece and Australia as well – and we can easily get many more if we really tap into our network. We are starting with startups we have been engaged with for more than 6 months. Obviously, that is only a small pool of all the supply chain technology startups that exist around the world.

The dates we have earmarked for June are a weekday during the week of June 17 (Ideally June 19 or 20), or during the week of June 27 (Ideally, June 26 or 27).

Here’s a form that you can fill if you are a startup or a small to medium size company that builds supply chain technology and want to be considered for the final list of participants. We would like participation in this event to be free, except for the cost of making the trip to NYC. So we will try to find sponsors to help us with space for the event, and food for the people who attend.

Cross-sections of the audience at #TNYSCM02 in January 2018 at SAP in NYC.

Background

A small group of us in New York City started building The New York Supply Chain Meetup in Summer 2017. In that time we have become the largest, most active, and fastest growing community on Meetup that focuses on supply chain, technology and innovation. Here are some of the things we have accomplished;

  • Our public launch was on November 16, 2017. We have had 10 events, at which we have attracted an average of 100+ attendees. We had roughly 150 at our very first event.
  • Our events have attracted speakers from emerging supply chain technology startups, as well as companies like SAP, IBM, Maersk, UPS, Tapestry, A.T. Kearny, L’Oreal, ALDO Group, EY, and GS1-US over the course of our first year.
  • We now have more than 1,600 members in The New York Supply Chain Meetup, and more than 1,700 across the network.
  • We are in the process of scaling to other cities (based on demand) and created the Worldwide Supply Chain Federation to facilitate that process.
  • We are launching The Charleston Supply Chain Meetup on March 27, 2019 and we launched The Bangalore Supply Chain Meetup on November 24, 2018. Other cities in which communities are in the process of forming are Athens, Singapore, Vancouver, Chicago, Jakarta, and Lusaka.

According to Mercedes Delgado and Karen Mills, in their book The Supply Chain Economy: A New Framework for Understanding Innovation and Services; “The U.S. supply chain contains 37% of all jobs, employing 44 million people. These jobs have significantly higher than average wages, and account for much of the innovative activity in the economy.” I believe similar conclusions can be inferred about the role supply chain plays in any growing economy around the world.

This makes the community we have set out to build one that offers enormous promise for collaboration between cities, states, and companies as well about how supply chain can function as a foundation for economic growth. The work we are doing to build this community is driven by our motivation to bring together two key groups of people;

  • The people inventing new technologies and developing the new innovations that will refashion the world’s supply chain networks, and
  • The people who make buying decisions related to deploying new technologies and innovations within the supply chains on which businesses are reliant for their commercial operations.
    • I believe firmly that supply chain is the basis on which companies win or lose competitive advantage. It is arguably the basis on which communities, countries, and societies prosper or fail.

Selfishly, we also want every growing supply chain technology startup, from any part of the world, to eventually set up a United States headquarters in New York City, with The New York Supply Chain Meetup as the community of first call, based on prior engagement with a local chapter of The Worldwide Supply Chain Federation. Moving to a new place is hard – I know, I came to the United States in 1997 from Ghana, after growing up in Nigeria. Knowing that you have friends when you arrive makes a big difference.

My Supply Chain Credo

About The Worldwide Supply Chain Federation

The Worldwide Supply Chain Federation is the collaborative, and mutually supportive coalition of open and multidisciplinary grassroots communities focused on technology and innovation in the global supply chain industry. Founded in August, 2017, The New York Supply Chain Meetup is its founding chapter. Local chapters are run by volunteer organizers who each build a team to manage chapter activities and events. You can learn more here: The Worldwide Supply Chain Federation – Our Manifesto.

About REFASHIOND Ventures

REFASHIOND Ventures is an emerging early stage venture capital firm that is being built to invest in early-stage startups creating innovations to reinvent global supply chain networks. REFASHIOND Ventures is based in New York City. The Worldwide Supply Chain Federation and The New York Supply Chain Meetup are initiatives of REFASHIOND Ventures.

#TWSCF & #TNYSCM Mantra

Filed Under: #TNYSCM, Communities, Conferences, Entrepreneurship, Innovation, Meetups, REFASHIOND CO:LAB, REFASHIOND Ventures, Supply Chain, Technology, Uncategorized Tagged With: Disruptive Innovation, Early Stage Startups, Innovation, REFASHIOND Ventures, Startup Communities, Supply Chain, Supply Chain Logistics, Technology, Venture Capital

#UnderConstruction | Why Is A Global Grassroots Supply Chain Community Starting in NYC, and Charleston, SC?

February 14, 2019 by Brian Laung Aoaeh

Disclaimer: This blog post reflects my personal opinions only. It does not represent the opinions of REFASHIOND Ventures, or REFASHIOND CO:LAB. It does not represent the opinions of The New York Supply Chain Meetup, or The Worldwide Supply Chain Federation. It does not reflect the opinions of any other person who is associated with any of those entities. This blog post does not represent the opinion of any other individual or organization that is mentioned by the author.

ANNOUNCEMENT – We’re Coming to Charleston, SC!

The Worldwide Supply Chain Federation is launching a sister chapter in Charleston, South Carolina: The Charleston Supply Chain Meetup (#TCHSSCM). It is being organized by G. Michael Rentz, Jr., CEO and Co-founder of Antimatter.

The Charleston Supply Chain Meetup will host its launch event on Wednesday, March 27 from 6:00 PM – 8:30 PM at the South Carolina Ports Authority’s new headquarters. The event will be highlighted by a keynote address by Jim Newsome, President and Chief Executive Officer of The South Carolina Ports Authority. Other details are being finalized, and will be posted to the event page on Meetup.com.

When I asked Michael about his motivations for wanting to start organizing The Charleston Supply Chain Meetup, he said: “After nearly 3 years working in global trade and logistics at Maersk, I was amazed by the enthusiasm and expertise that I encountered in the community in New York City. I believe that enthusiasm and expertise exists in other places too, and I am excited to start building the community in Charleston, South Carolina, to harness that potential entrepreneurial energy and passion and to build collaborative connections with the other chapters in our growing and global network of communities.” He goes further to say: “The goal of The Charleston Supply Chain Meetup is to leverage the existing assets, players, and progress already accomplished in the state by both people, agencies, and companies – by bringing them together, nurturing conversations, building relationships, and then watching something special develop.”

A Shot of the NYC Skyline – January 2018

HOW DID WE GET HERE?

After launching The New York Supply Chain Meetup in November 2017, we attracted speakers from emerging supply chain technology startups, as well as companies like SAP, IBM, Maersk, UPS, Tapestry, A.T. Kearny, L’Oreal, ALDO Group, EY, and GS1-US over the course of our first year.

We celebrated the one year anniversary of our public launch in NYC with an anniversary party on November 15, 2018. We followed that with the launch of a sister chapter in Bangalore on November 24, 2018.

Since our launch in NYC;

  • We have become the largest, most active, and fastest growing community on Meetup that focuses on the intersection of supply chains, technology and innovation.
  • We have more than 1,600 members in The New York Supply Chain Meetup, and more than 1,700 across the network.
  • Other chapters in process include; Vancouver, Athens, Singapore, and Chicago.

According to Mercedes Delgado and Karen Mills, in their book The Supply Chain Economy: A New Framework for Understanding Innovation and Services; “The U.S. supply chain contains 37% of all jobs, employing 44 million people. These jobs have significantly higher than average wages, and account for much of the innovative activity in the economy.” This makes the community we have set out to build one that offers enormous promise for collaboration between cities, states, and companies as well about how supply chain can function as a foundation for economic growth. The work we are doing to build this community is driven by our motivation to bring together two key groups of people;

  • The people inventing new technologies and developing new innovations for supply chains, and
  • The people who make buying decisions related to deploying new technologies and innovations within the supply chains on which businesses are reliant for their commercial operations.
    • I believe firmly that supply chain is the basis on which companies win or lose competitive advantage. It is arguably the basis on which communities, countries, and societies prosper or fail.
#TNYSCM02 – January 2018 at SAP in NYC

WHY ARE WE BUILDING THIS COMMUNITY?

When I asked Lisa Morales-Hellebo to help me build The New York Supply Chain Meetup in August 2017, it was because we share the belief that the world is in the early stages of one of the largest sector-driven opportunities of our lifetime, the secular refashioning of global supply chains. The innovations that drive the technology-led reinvention of global supply chains will begin at the grassroots. We started in New York City, but our vision has always been that we would ultimately build a global network of interconnected, and mutually cooperative communities that nurture, champion, and support the entrepreneurs, innovators, and technologists who will propel this transformation.

We also believe that software-enabled technologies will lead to the rearrangement of supply chains all over the world. This process will cause the reorganization of industrial processes, the displacement of incumbent market leaders, and the disruption of formerly stable markets. We are building a decentralized network of open and multidisciplinary communities to act as catalysts in the adoption of the technological innovations that accelerate the reinvention of global supply chain networks.

Our strategic goals for 2019 are:

  • To grow the number of chapters in our global network of communities – both internationally and within the United States,
  • To continue to engage our members with rich programming and networking opportunities,
  • To recruit sponsors and other partners who believe that supply chain, technology, and innovation serve as a powerful economic multiplier and as a catalyst for a sustainable and profitable future.

I am excited that we can formally announce the new chapter in Charleston, SC. I met Michael in early 2018. We have become friends over that period – talking on the phone, and texting one another multiple times each week. I believe he’s exactly the sort of person who can act as a catalyst around which a thriving community develops.

About The Worldwide Supply Chain Federation

The Worldwide Supply Chain Federation is the collaborative, and mutually supportive coalition of open and multidisciplinary grassroots communities focused on technology and innovation in the global supply chain industry. Founded in August, 2017, The New York Supply Chain Meetup is its founding chapter. Local chapters are run by volunteer organizers who each build a team to manage chapter activities and events. You can learn more here: The Worldwide Supply Chain Federation – Our Manifesto.

About REFASHIOND Ventures

REFASHIOND Ventures is an emerging early stage venture capital firm that is being built to invest in early-stage startups creating innovations to reinvent global supply chain networks. REFASHIOND Ventures is based in New York City. The Worldwide Supply Chain Federation and The New York Supply Chain Meetup are initiatives of REFASHIOND Ventures.

Update #1, Thu Feb 14 2019, at 21:05 EST: To fix some mechanical errors, and add bullet about supply chain and competitive advantage.

Filed Under: #TNYSCM, Entrepreneurship, Innovation, Meetups, REFASHIOND Ventures, Startups, Supply Chain, Technology, Venture Capital Tagged With: Community Building, Innovation, REFASHIOND Ventures, Startup Communities, Startups, Supply Chain, Technology, The New York Supply Chain Meetup, The Worldwide Supply Chain Federation, Venture Capital

#UnderConstruction | Why Is A Global Grassroots Supply Chain Community Starting in NYC, and Bangalore?

November 6, 2018 by Brian Laung Aoaeh

Disclaimer: This blog post reflects my personal opinions only. It does not represent the opinions of REFASHIOND Ventures, or REFASHIOND CO:LAB. It does not represent the opinions of The New York Supply Chain Meetup, or The Worldwide Supply Chain Federation. It does not reflect the opinions of any other person who is associated with any of those entities. This blog post does not represent the opinion of any other individual or organization that is mentioned by the author.

Acknowledgement: I am grateful to Anisha Surana, of Locus, for helping me with research about Bangalore, and India. She’s also been the point-person as we’ve worked across time zones to get things going in Bangalore. She’s been phenomenally helpful, even when our team in NYC has been stretched for time and other resources, and therefore less responsive than we should be.

Introduction

After thinking about value chains and supply chains since August 2014, I decided in August 2017 that I should focus the remainder of my career as a venture capitalist on becoming a supply chain specialist. So on August 23, 2017 I decided to start The New York Supply Chain Meetup. You can read about how I got there here: #UnderConstruction | Why A Supply Chain Meetup in New York? In summary: New York City does an enormous amount of business with the rest of the world. Therefore, it is a wonderful laboratory for stress-testing technological innovations for supply chain. Moreover, it is also a great gateway for supply chain tech startups that seek to grow in the North American market.

We Started In NYC! We optimize for enthusiasm.

Friday, November 16, 2018 will mark one year since our first public event, which you can read about here: Progress Report | #TNYSCM Minimum Viable Launch – Building A Supply Chain Community. We are celebrating that milestone with an event on Thursday, November 15 which you can read about here: #TNYSCM09 / Keynote, Showcase & 1 Year Anniversary Celebration.

Over the course of our first year:

  • Our kickoff on November 16, 2017 attracted about 150 people.
  • We have grown to 1,370+ members in NYC.
  • We typically have 100+ people attend each meetup . . . and they do not show up for the food or alcohol, as one of our members who has travelled from Philadelphia to attend our meetups on more than three occasions told a friend who was visiting from Europe. Our gatherings are very engaging affairs, and people have always tended to stay well after the end of each event to talk to one another.
  • We have helped some of our members connect with potential customers, and some of our speakers have gone on to raise significant amounts of capital from VCs or are on the verge of raising capital from early stage investors.
  • With far less in terms of resources, we have become the biggest  and most active community on Meetup.com that focuses on supply chain, technology, and innovation. We’re more than 10x as big as the Supply Chain Meetup of NYC – It turns out copying our name  and our mantra was insufficient to foster growth, and they have not had an event since April 2018. We’re more than 3x as big as the Future of Supply Chain & Logistics which is in Sunnyvale, California and is organized by Plug and Play Supply Chain & Logistics – They have not organized an event since October 2017; This is pretty amazing given that Plug and Play’s many corporate partners are reported to each pay $300K per year for the privilege of being part of that community. To be fair to Plug and Play, perhaps they have invested in a proprietary platform and so meetup.com is no longer a fair reflection of their size and scale.
  • We published The Worldwide Supply Chain Federation – Our Manifesto as a rallying cry to gather people who share our obsessive enthusiasm for supply chain, technology, innovation, and startups.

We started The New York Supply Chain Meetup with a deceptively simple but ambitious mission:

To nurture and grow the world’s foremost open, global, multidisciplinary community of people devoted to building the supply chain networks of the future — starting in NYC.

Soon after that we built on that mission statement by developing this vision:

To create a global movement; the largest community on the planet of people obsessed with supply chain technology, who are trying to develop new products and build new companies – while learning from each other, and supporting one another.

Now, We Are Launching A Community In Bangalore!

During this year of bootstrapping our community, we have built on our early progress in NYC, and are now on the verge of launching chapters outside New York City. On November 24, 2018, The Bangalore Supply Chain Meetup will have its public launch, establishing itself as the first international chapter of The Worldwide Supply Chain Federation.

We are excited that Bangalore is the next chapter to launch after NYC. In all the time that I have been studying about the economic impact more efficient supply chains can have on the world, it has become clear to me that the developing world stands to benefit the most from technological innovation in supply chain. As a boy growing up in Northern Ghana and Northern Nigeria, I was always amazed by the durability of buses made by Tata Motors. I find it personally meaningful, that a supply chain community I am helping to start is building its first international presence in the home of Tata Motors. Here are some highlights about India, and Bangalore specifically:

  • According to the IMF’s Country Focus (August 2018): “India’s economy is picking up and growth prospects look bright—partly thanks to the implementation of recent policies, such as the nationwide goods and services tax. As one of the world’s fastest-growing economies—accounting for about 15 percent of global growth—India’s economy has helped to lift millions out of poverty.”
  • Information technology firms in Bangalore employ about 35% of India’s aggregate pool of about 2.5 million information technology professionals. Bangalore’s IT firms account for the highest IT-related exports from India. Bangalore’s growth as India’s IT capital has been helped by heavy investments by India’s Central Government as well as support from the Karnataka State Government. Bangalore accounts for 87% of Karnataka’s economy and 98% of the state’s software exports.
  • According to a 2016 report from the Associated Chambers of Commerce & Industry of India; The country could save $50 billion if logistics costs as a percentage of India’s GDP were to decrease from 13 percent to 9 percent. In other words, every percentage point gain in supply chain logistics efficiency could lead to $12.5 billion of savings for India’s economy. That is $12.5 billion that could be invested in more productive areas to spur more economic growth in India.

What is even more exciting than that? Our chapter in Bangalore is being launched through the dedicated effort of the team at Locus. I met Nishith Rastogi, Co-Founder & CEO of Locus, in June 2018, in NYC, while he was visiting the United States. We originally planned to chat for about 30 minutes. Instead we wound up spending nearly two hours chatting about the problems Locus is solving for its customers. This is a problem I have been interested in since 2016 – In fact, I discussed it at considerable length when I published: Industry Study: Freight Trucking (#Startups) and Updates – Industry Study: Freight Trucking (#Startups).

According to CrunchBase: Locus is an intelligent logistics automation platform with a built-in route planning and vehicle allocation engine which improves consistency and efficiency of operations, higher customer satisfaction with high adherence to service-level agreements (SLAs) & last-mile live tracking. The platform helps companies and enterprises in e-commerce, food delivery, fast moving consumer goods (FMCG) and other verticals to automate and optimize their logistics. The product suite comprises of a route deviation engine, order dispatch automation, a field user app, route optimizations, scheduling, tracking for end-customer, predictive analytics and other services and products. Locus offers the entire technology stack, in the form of a platform as a service.

According to CBInsights; Locus has raised $6.75 million from angel investors and institutional venture capitalists in India, Singapore, Japan, and California. Locus is also a graduate of Microsoft ScaleUp. When I met Nishith, he told me that the company was growing its business very rapidly in India, Indonesia, and other markets in Asia. Locus is now looking to grow it’s business in the United States, and has opted to begin that process by establishing a presence in New York City.

Finally, Nishith and I talked about the idea that propelled the formation of The New York Supply Chain Meetup. He grasped it immediately, and expressed a desire to build a community in Bangalore, one that would be connected with our community in New York City, and that would also subsequently be connected with every other chapter that launches in other parts of the world.

I explained that one of the goals of the community we were forming in NYC was for startups like Locus, and entrepreneurs like Nishith and his co-founders, to have a ready-made community of like-minded and helpful people they could connect with in NYC once they were ready to establish a presence here. That benefit should also work in reverse  . . . Obviously, that becomes more effective if the community in NYC collaborates actively with a similar community in Bangalore. That is how the idea for The Bangalore Supply Chain Meetup (#TBLRSCM) was born. It is a microcosm of how we hope The Worldwide Supply Chain Federation will function in helping early-stage startups building new technologies and new innovations to make global supply chains more efficient connect with New York City for customers, for talent and expertise, and for financial capital . . . . . No matter where they were founded, if they are expanding into the United States, we want them to call NYC home first, and we will become the community that welcomes them here.

Since our conversation in June, Nishith and his team at Locus have been hard at work putting things in place for the public launch. We would not have made it this far without the dedicated hard work of the team at Locus. They have taken on this initiative on top of their already very demanding responsibilities.

Our team in NYC could not be more excited about seeing The Bangalore Supply Chain Meetup get off the ground. You can help by telling anyone you know in Bangalore who may want to be part of the community that is forming there to look for the group on meetup.com. You may also signup for the launch of The Bangalore Supply Chain Meetup on the event page here.

What Problems Will Our Community Help To Solve?

Some of the complaints I’ve heard from startup founders who are building new technology for the supply chain market, or new technology-enabled products with supply chain functionality are:

  • How do we find enterprise partners for our first pilot? How do we find the individuals who will be our internal champions as we try to win our very first enterprise customers? 
  • How do we find supply chain professionals who can help us understand how our product would be used by professionals in the industry?
  • How do we identify talented people who understand technology but also understand supply chain so that we can recruit them to join our team?
  • How do we find professional service providers who understand the nuances of what we’re trying to do and can help us with tailored advice?
  • How do we find other investors like you?

From large companies we’ve heard comments like; We’ve been grappling with this problem for decades, and we can no longer afford to do things the way we have done them in the past. However, we do not know the people doing the kind of research that could lead to a better solution. Do you know anyone we may not have heard about who’s thinking about this?

So, as part of The New York Supply Chain Meetup, and ultimately as part of The Worldwide Supply Chain Federation, we will create a partnership network which will help us tackle those sorts of concerns very directly.

The Worldwide Supply Chain Federation is the collaborative, and mutually supportive coalition of grassroots communities focused on technology and innovation in the global supply chain industry. The New York Supply Chain Meetup is its founding chapter.

We wouldn’t have made it this far without the generous support of the following people and organizations;

  • Jessica Lin and Allie Felix from Work-Bench: Who reached out to me even before I had clearly organized my thinking. Allie now runs programming and partnerships at the Embarc Collective. Work-Bench sponsored us by donating space for our events during our first year.
  • Michelle Shen from UPS: UPS supported us by contributing towards food and beverage for our launch last November. Michelle has also been a sounding board for us when we’ve had questions about how large organizations like UPS might think about working with nascent communities like ours.
  • Akshata Philar from SAP.iO. SAP.iO hosted us on alternate months at their office in NYC, providing space as well as food and drink for our members. Her colleague, Kange Kaneene of SAP Ariba has road-tested some of our ideas as we’ve worked on growing during the course of 2018.
  • Matt Turk of FirstMark, and founder of Data Driven NYC, and Jon Zanoff of Techstars, and Founder of Empire Startups, both graciously shared their individual experiences of getting startup communities off the ground in NYC.
  • My former teammates at KEC Ventures/Particle Ventures, indulged me when I told them I had started a supply chain meetup – this is after I had decided to become a supply chain specialist. KEC Ventures/Particle Ventures supported the meetup financially by covering the cost of food and drink for some of #TNYSCM’s events. My teammates gave me ideas about how to get things off the ground, and Susan Belding came to my rescue by helping me figure out some of the event-day logistics as we got going.

Last but not least: Lisa agreed to become my co-founder when I called her in a “panic” on August 24, 2017. We have been learning about supply chain, technology, and innovation together since we first met in June 2016. We are now in the early days of building a specialist supply chain early-stage technology venture capital firm. She shares my obsessive enthusiasm for all things supply chain + technology + innovation. I couldn’t have done this without her help.

We have been lucky to have a large team of volunteer co-organizers: Brian Lindquist, Paula Cadman-Mendoza, Christian McKenzie, Nathan Sjoholm, Tina Kang, Santosh Sankar, Joy Fan, Elizabeth Salcedo, Leslie Cohen, Natan Reddy, and Daniel James. I have a firm belief that nothing of significance can be accomplished without the concerted and significant effort of a team. As I look back on the past year, I am grateful for the contributions from every member of our team. It’s through their efforts that we have been able to accomplish so much with so little.

Looking Forward: Our Plans For 2019

We figured that 2018 would be our experimental year: We have small groups of people who expressed interest in forming communities in Vancouver, Singapore, and Athens over the course of 2018. However, we have deliberately moved slowly in order to allow the chapter that demonstrates the most enthusiasm to get organized first, while we learn the lessons we can from that experience. We expect 2019 to be a year in which The Worldwide Supply Chain Federation grows by launching at least one additional chapter per quarter . . . In other words, I expect that we will have at least 6 active chapters around the world a year from now. Ultimately, our goal is to bring our community together for an annual conference in NYC, starting sometime in 2020.

If you would like to help us make this happen: Consider joining one of the communities we’ve already started, or consider starting one where you live. We can always use more volunteers. We do not yet have a committed sponsor. If you’re a company that wants to discuss becoming a sponsor, let us know. Our contact information is available via our manifesto, and we’re easy to find online.

Forward!

My Supply Chain Credo

About Locus: Locus is a decision-making platform in the supply chain that automates human decisions required to transport a package or a person, between any two points on earth, delivering gains along efficiency, consistency, and transparency in operations. The company’s premier logistics optimisation solutions include route optimisation, real-time tracking of orders, insights and analytics, optimised permanent journey plans and automated shipment sorting.

Update #1: November 8, 2018 at 12:45 to update disclaimer, add link to event page at Locus’ website, and add “About Locus” section.

Update #2: November 9, 2018 at 22:53 to update event links for #TBLRSCM in order to avoid confusing people.

Filed Under: #TNYSCM, Communities, Entrepreneurship, Meetups, Shipping, Startups, Strategy, Supply Chain, Technology, Trucking, Venture Capital Tagged With: #TNYSCM, #TWSCF, Community Building, Early Stage Startups, Entrepreneurship, Innovation, Logistics & Supply Chain, Logistics and Supply Chain, Startups, Technology, Venture Capital

Where Will Technological Disruption in The Fashion Supply Chain Come From?

October 25, 2018 by Brian Laung Aoaeh

If you know how to learn, you know enough.

Originally published at www.refashiond.com on October 25, 2018.

By Brian Laung Aoaeh and Lisa Morales-Hellebo

Authors’ Note: This is the second in a series of six articles about problems and opportunities in global supply chains, with a focus on the fashion industry. In this article we focus on trying to learn how executives at fashion industry incumbents may learn how to predict technological disruption in order to develop appropriate responses to the evolving environment that surrounds their companies. We start by briefly surveying some of the theory about disruption. Then, we delve into a series of brief historical analyses of technological disruptions in a number of industries. We try to understand those episodes by using the theoretical foundations developed earlier. Finally we ask the question that forms the basis for this article, by posing questions about potential sources of disruption in the global fashion industry, the issues that every team of c-level executives in the industry worries about daily. If you have not read the first article in the series you may do so using this link: The Fashion Supply Chain Is Broken. However, reading the first article is not a prerequisite for following this discussion.

Acknowledgement: We are grateful to Tayo Akinyemi for reading and critiquing previous versions of this article.

The fashion supply chain is broken and must be refashioned. This is the conclusion we have come to after studying the issue, starting in 2014.

Background

We each independently became interested in supply chains in 2014. We have collaborated with one another in learning about supply chain since June 2016. In August 2017 we teamed up to start The New York Supply Chain Meetup, and building on that work are on the verge of launching The Worldwide Supply Chain Federation when The Bangalore Supply Chain Meetup hosts its kickoff event in November. In September 2018, we teamed up to start building REFASHIOND: a venture firm that will invest in early-stage startups creating innovations that make global supply chains more efficient. We will initially focus on startups at the intersection of fashion and retail. You can learn more about us by visiting REFASHIOND’s website. We also provide more detail about our background in the first article in this series.

In order to ensure that everyone is on the same page about disruption, we have chosen to conduct a brief survey of the key ideas that underpin the concept. We believe this is necessary to ensure that any dialogue that ensues is on the basis of a shared mental model. In writing this article we took inspiration from the work of Joshua Gans, author of “The Innovation Dilemma.” His work has greatly helped our understanding of innovation and disruption theory.

We do not claim to have a special talent for predicting disruption, however Lisa has a track record of leading disruptive innovations and has been featured in the book, “Disrupters: Success Strategies from Women Who Break the Mold.” This is not an article in which we are going to provide canned answers. Rather, our focus in writing this article is two-pronged: First, we will briefly examine the theory behind disruption, and attempt to connect the dots between various schools of thought on the subject. Second, using the lessons from that exercise, we will then look at some historical examples of disruption and see what insights we might glean from them.[1] We conclude the article by considering where disruption in the fashion industry may come from.

Our goal is to foster and participate actively in industry-wide dialogue about the future of the global fashion industry. We hope the result of such dialogue will be inter-industry collaboration aimed at making the future reality more prosperous and sustainable than the present or the past. We’re excited about participating in such conversations with startup founders and fashion industry executives.

Do not hesitate to email us if you would like to speak with us about our work, and possible collaborations in the future.

We can be reached at:

  • Lisa Morales-Hellebo — lisa@refashiond.com, and
  • Brian Laung Aoaeh — brian@refashiond.com.

What Is Disruption?[2]

Creative Destruction — A Result of Fundamental Market Shifts

Joseph Schumpeter (1883–1950) is the first person to have clearly described the concept on which subsequent work on developing a theory of disruption is based.[3] He describes “Creative Destruction” as:

“The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation — if I may use that biological term — that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”

He goes on to say that Creative Destruction is about more than price competition:

“But in capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance) — competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. This kind of competition is as much more effective than the other as a bombardment is in comparison with forcing a door, and so much more important that it becomes a matter of comparative indifference whether competition in the ordinary sense functions more or less promptly; the powerful lever that in the long run expands output and brings down prices is in any case made of other stuff.”

Finally, he makes the observation that:

“The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.”

Disruption — A Result Of Movement Up The Technology S Curve

Richard Foster examined the role that technology plays in disruption, and used technology S curves to advance our understanding of disruption in his 1986 book, “Innovation: The Attacker’s Advantage.” An S curve is a graph of a logistic growth process. In such a process, growth is initially slow, speeds up in the middle period, and then levels off after that, as it approaches some upper maximum limit at the end of the growth period. Foster’s key realization was that technological innovations can result in a change in the underlying process, leading to a fundamentally new S curve with a discontinuity between the original S curve and the new S curve. Using this formulation, disruption happens during the shift in customer demand from the products along the old S curve trajectory to those products along the new S curve trajectory. On a long enough time-horizon, it should be easy to understand that an industry may experience multiple waves of disruption depending on the rate of technological advancement and entrepreneurial innovation within the industry.[4]

Disruptive Innovation — S Curves & Discontinuities in Market Structure

Clayton Christensen pushed our understanding of disruption further with the publication of “The Innovator’s Dilemma: When New technologies Cause Great Firms to Fail.” Below, we highlight and summarize some of the main ideas.[5]

A Sustaining Innovation: leads to product improvements without fundamentally changing the underlying structures of the market to which it applies; it enables the same set of market competitors to serve the same customer base, while typically extracting more value from them. It is important to note that sustaining innovations may lead to a rearrangement of the competitive landscape, but rarely will they lead to the outright failure of a leading incumbent. Sustaining innovations can be radical, revolutionary, or discontinuous if they lead to dramatic and unexpected product improvement. In Foster’s formulation, a sustaining innovation merely advances a technology up the same S curve.

A Disruptive Innovation: starts out with worse product performance relative to the available alternative from market incumbents, and is often not very complex technologically. As a result the new product is attractive to a small niche of the customer base. However, if product performance improves quickly enough, at a certain point the new product provides superior product performance relative to the alternative that is available from market incumbents. This process leads to a significant, dramatic, and fundamental shift in market structure, that is to say, suddenly the new entrants go from serving a niche customer base to gaining a majority of the market while, at best, erstwhile incumbents become mere shells of their former selves or even go out of business entirely. To use Foster’s formulation, a disruptive innovation moves the product to a new S curve.

Clayton Christensen also differentiates a low-end disruption from a new-market disruption. In a low-end disruption, the attacker enters the market with a product that is inferior relative to the needs of mainstream customers. In a new-market disruption the attacker enters the market by serving a customer niche that was previously unserved by the existing incumbents.[6] A low-end disruption results from a low-end innovation while a new-market disruption is the result of a new-market innovation.

Architectural Innovation — A Fundamental Change in Systems

Rebecca Henderson and her co-author, Kim Clark, focus on another important component that adds to our understanding of disruption: Why is it so difficult for incumbent firms to respond even when they possess the technical expertise to do so? In “Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms,”[7] they make the distinction between the components that are combined to form a product and the system that makes it possible to combine disparate components into a single product or a unified service offering.

Component Innovation: is innovation in the modular design of a product. Such innovations are easy for incumbents to respond to because they arise from using technical knowledge about each component of a product to make improvements to the overall product, within existing organization structures and business models. Component innovation arises from component knowledge.

Architectural Innovation: is innovation in the end-to-end system that enables the combination of various, disparate components to form a product. Incumbent firms find it difficult to adapt to such innovations because the innovations render the incumbent’s component knowledge useless, given that the innovation is in a new organizational structure or a new business model that reconfigures the end-to-end system leading to the creation of a product using the same core body of component knowledge. Architectural innovation arises from architectural knowledge.

A key observation in Henderson and Clark’s work is that a market disruption — the attacking new entrant quickly supplants the incumbent in terms of market share and market power, leading to financial distress for the incumbent, can occur in a market when a sustaining innovation is married with architectural innovation. This helps explain certain market disruptions that would not qualify as disruptions if we only used the Christensen formulation.

Technology, Innovation, and Disruption — Two Sides To The Story

Joshua Gans helps us connect the dots more fully between Clayton Christensen’s Disruptive Innovation and Rebecca Henderson and Kim Clark’s Architectural Innovation. In “The Disruption Dilemma” he introduces us to the concept of a Demand-Side Disruption and Supply-Side Disruption. Below, we explore those ideas in more depth.[8]

The Demand-Side Theory of Disruption is an outgrowth of the Christensen School, wherein as attackers enter a new market incumbent firms perform a demand-based risk assessment and decide that mainstream customers are highly unlikely to desire the product on offer from the attackers. In fact, in many cases, the appearance of such inferior products is welcome because unprofitable customers move to adopt the products now being offered by the upstart attackers, freeing incumbents to focus all their resources on their most profitable customers. This is all well and good, until, through the process of iterative improvement, the attacker’s product moves rapidly up the new technology S Curve and quickly achieves performance-parity with the incumbents’ product at a significantly more attractive price-point. It is at this stage that customers abandon the incumbent in favor of the attacking firm in cascading waves, causing seemingly sudden failures of once dominant incumbent firms. This is a vast simplification of the discussion by Gans, however the key to understanding demand-side disruption is that it is driven by changing consumer tastes and expectations.[b]

The key to understanding demand-side disruption is that it is driven by changing consumer tastes and expectations.

The Supply-Side Theory of Disruption is an outgrowth of the Henderson-Clark School, wherein as attackers enter the market it becomes extremely difficult for incumbents to respond because the basis on which they have achieved success attaches them to a certain foundation of architectural knowledge from which they cannot detach themselves even if they admit that that their core business is at risk. To respond, incumbents must develop an entirely new system of doing things. This is difficult for incumbents to do since, at the outset, there is no guarantee that the new system will succeed any better than the existing architecture which has been the basis of the incumbent’s historical success. In other words, uncertainty causes incumbents to drag their feet about making the difficult choices they must make in order to adapt, assuming they know what changes need to be made. Remember that the architectural knowledge which forms the basis on which attackers enter the market is invisible to incumbents, and the attendant uncertainty makes an already daunting task even more difficult.[c]

The architectural knowledge which forms the basis on which attackers enter the market is invisible to incumbents, and the attendant uncertainty makes an already daunting task even more difficult.

So What?

Now that we have surveyed some of the key ideas in disruption theory, we’ll explore how disruption has played out in a few industries. Before we do so, it is worthwhile to reconcile the ideas we have encountered in the preceding discussion.

First, if emerging technologies progress quickly enough up the technology S Curve and gain sufficient customer adoption, the probability that a disruptive event will occur in a given industry increases until it becomes practically inevitable. This evolution is accompanied by a high degree of uncertainty about future states of the world. The uncertainty complicates decision-making for the executives who must decide how incumbent firms should react when attackers enter the market with a low-end or new-market offering.

Second, architectural innovation will always lead to a degree of market disruption if it catches a wave of changing and favorable consumer expectations. A sustaining innovation that is combined with architectural innovation will lead to an outcome to which incumbents cannot respond even though they possess the technical knowledge to respond to the component-level innovations. Since architectural knowledge is invisible, there is no way for incumbent’s and other competitors to respond to architectural innovation without assuming risks of an existential nature given that they have no real understanding about how the innovation works, assuming they recognize and admit there’s an innovation before it is too late.

A disruptive innovation married with architectural innovation will lead to potentially more extreme market dislocations because incumbents can only respond to the component-level innovation on the basis of old architectural knowledge. This will cause their offerings to consistently underperform the products introduced by the attacking firms along the dimensions that now matter most to customers. Eventually waves of customers will abandon the incumbent product in favor of the new product offered by attacking new entrant firms. In other words, the new architecture supplants the old.

Third, the forms of innovation we have discussed above are not mutually exclusive. Rather, it is often the case that each form of innovation is present to a certain degree in any case of market disruption that one studies

Fourth, and this bears repeating, it is a mistake to ignore the role that uncertainty plays in complicating the decision-making process that individuals in positions of authority within incumbent firms face.Uncertainty is the factor that causes decision-paralysis, buying attackers time to gain strength and ultimately dislodge once powerful incumbents.

Uncertainty is the factor that causes decision-paralysis, buying attackers time to gain strength and ultimately dislodge once powerful incumbents.

Does this sound frightening? It is. Why? It means that, on average, chief executives, chief technology officers, chief strategists, heads of innovation, and other senior executives, are altogether incapable of protecting leading incumbent firms from failure. Not unless the entire firm adopts a culture whose strategic choices are informed by assessments of demand-side and supply-side innovations. Even then, as Schumpeter observed, it’s just a matter of time before every incumbent is overwhelmed by waves of creative destruction. To a certain extent, this may explain why over the course of the recent past, companies that continue to be led by members of the founding team demonstrate a greater capacity to cause and respond to potential market disruptions than incumbents managed by teams of professional executive managers who did not found the company.[9]

We now turn our attention to some historical examples of disruption. For brevity’s sake, we have intentionally left out many details.

Disruption In Action

Tech Ate Books

Between 1960 and 1970 mall-based chain bookstores started supplanting independent bookstores. This process continued till about 1980, when mall-based chain bookstores suffered a similar fate with the rise of big-box bookstore chains. By 2000 big-box chains like Barnes & Noble, and Borders dominated the market. However, with the advent of the internet and its adoption for online retail; Borders is already out of business, while Barnes & Noble is struggling to reorganize and sustain its business.

We believe this is an example in which architectural innovation is the dominant factor at play. However, one should not underestimate the contribution of changes in consumer behavior. As our teenage and pre-teen children remind us; “Amazon’s supply chain is so awesome! You do not have to go anywhere, they will just bring your stuff to you while you stay home and play video games.” As time has progressed and digital media technology that is delivered over the internet has improved, disruptive innovation has come increasingly to the fore as ebooks and audiobooks began gaining in popularity.[10]

Tech Ate Video

Film projection technology started to become available between 1900 and 1930. As the technology matured, the period between 1930 and 1950 came to represent the Golden Age of Hollywood. Between 1950 and 1960, broadcast TV, small screen, and videotape recording gained a foothold in the market. The three decades between 1960 and 1990 saw the proliferation of color TV, and home video recorders. Notably, Blockbuster was founded in 1985. From 1990 to 2000 flat screen TVs, laser discs, and video CDs appeared as technologies in this market. Netflix was founded in 1997. Between 2000 and 2010, DVDs and mobile viewing become more mainstream. Netflix expanded its DVD rental business by introducing an over-the-top (OTT) streaming option in 2007. Since 2010, Video-Over Internet Protocol (Video-Over IP) and OTT video have gained dominance in terms of consumer consumption of video content. Blockbuster filed for bankruptcy protection in 2010, eventually becoming part of DISH Network which acquired the assets of Blockbuster in a bankruptcy auction in 2011. In 2013, DISH announced that it would close all of Blockbuster’s store and DVD-by-mail operations in early 2014. Meanwhile, Netflix is now available in 190 countries with 130.1 million paid subscribers and 137.1 million subscribers overall. Netflix generated more than $11 billion in global revenues in 2017.[11]

Once again, from the perspective of an incumbent’s chief strategist, or a head of innovation worried about protecting the incumbent from disruption, a more complete explanation of the circumstances that surrounded this episode can only be found by combining the Christensen School’s Theory of Disruptive Innovation with the Henderson-Clark School’s Theory of Architectural Innovation.

At the outset, Netflix entered the market with an architectural innovation: Blockbuster was not designed around a system of mailing videotapes or DVDs to people’s homes. As internet technology matured and broadband connections to people’s homes became ubiquitous, the low-end innovation of streaming video provided the final punch required to send Blockbuster crashing to the proverbial canvas of bankruptcy court. As OTT and Video-Over IP technology travelled up the technology S-Curve, Netflix had the advantage of far less in overhead costs than Blockbuster, allowing it to invest more aggressively in streaming technology, and winning the market.

Tech Ate Music Stores

The Acoustic Era stretched from 1877 to 1925. During this period the phonograph and the theremin resulted from experiments in sound recording and the technology started being applied to recording music. This was followed by The Electrical Era, when electrically recorded LP records supplanted acoustic phonographs. It extended from 1925 to 1945. Between 1945 and 1975, The Magnetic Era, magnetic 8-Track Tapes and cassette tapes supplanted LP records and other electrically recorded media. The Magnetic Era was followed by The Digital Era, between 1975 and 1993. It is during this period that MP3s started supplanting magnetic tapes and LPs. The Streaming Era started around 1993 and extends till today, MP3s lead to an explosion in peer-to-peer (p2P) file-sharing platforms. These platforms have supplanted old ways of packaging and selling music, and physical music stores have now largely been replaced by online streaming services.[12]

Although, it is popular to assume that the music industry was disrupted by MP3 technology, it is not so clear to us that such a sweeping statement captures the nuance of the situation. It is certainly true that music stores as a channel of distribution for the music industry have succumbed to digital formats and channels. It is also true that sales of physical albums have plummeted as the Streaming Era has progressed. However, Warner Music Group, Universal Music Group, and Sony Corporation together control more than 70% of the market. As a result streaming platforms like Spotify, Pandora, and Soundcloud are subject to the pricing power of the big music companies. Apple’s iTunes, Amazon’s Music, and Google’s Play are somewhat protected from the supplier power wielded by the music companies because of the power that is in turn wielded by Apple, Amazon, and Google respectively.[13]

Tech Ate Phones

The history of telephony dates as far back as 1876, when Alexander Graham Bell placed the first phone call. Early advances in telephony were made by the U.S. Army Signal Corps Engineering Laboratories, Motorola, Bell System, and Ericson between 1915 and 1956. By 1956, Bell Labs had begun work on conference calling systems, and in 1964, the first video conference call was made between New York and California using a Bell Labs Picturephone. Phones began to get lighter, but they still weighed 20 pounds or more. The first mobile phone call was made in 1973 using a Motorola DynaTac prototype which weighed 2.5 pounds. The technology continued to mature after 1973, with notable developments in 1989 when Motorola introduced the MicroTac, the world’s first flip phone.

In 1992, Motorola introduced the 3200, a hand-sized digital mobile phone that used GSM technology. That was followed in 1993 by the IBM Simon, arguably the world’s first smartphone, with a pager, a fax machine, a PDA, a calendar, an address book, a calculator, a notepad, email, games, a touchscreen, and a QWERTY keyboard all included in the same mobile phone. In 1997, Nokia kickstarted the smartphone era with the Nokia 9000 Communicator. Nokia continued to improve on its phones with the 8810 in 1998, and the 3210 in 1999 — selling over 160 million units. The Nokia 7110 introduced web access to mobile phones, and GeoSentric brought GPS navigation to mobile phones. Sharp introduced the J-SH04 in 2000 — it was the first camera phone. In 2002, the Sanyo 5300 became the first camera phone to be sold in North America. Also in 2002, RIM introduced the BlackBerry 5810, it was the first device to combine a mobile phone with a data-only device that targeted white-collar professionals. Mobile phone technology kept improving incrementally, with Nokia, RIM, and Motorola featuring as dominant incumbents in the North American Market.

Apple introduced the iPhone in 2007. Google introduced its Android OS for smartphones in 2008.[14] Since then Apple’s iOS and Google’s Android OS have gone on to dominate market share in the mobile phone OS market. Apple, Samsung, Huawei, Xiaomi, and OPPO occupy the top 5 spots in terms of smartphone shipments and market share as of the fourth quarter of 2017, according to IDC Worldwide.[15] Nokia sold its mobile phone business to Microsoft in 2014 and has instead shifted into telecommunications infrastructure and network equipment manufacturing. Motorola was bought by Google in 2012 and then sold to Lenovo in 2014. RIM has ceased manufacturing mobile phones and is now focused on developing software.

Is the iPhone disruptive? Clayton Christensen did not think so in 2006, 2007, or even in 2012. Is Android OS disruptive? From the outside looking in, it appeared that the iPhone + iOS, and Android OS represented sustaining innovations based on the Christensen School, or component innovations only, based on the Henderson-Clark School.

But, what was really happening? First Apple and Google shifted the focus away from being entirely focused on hardware engineering as a source of competitive differentiation and moved the focus more towards software platforms as the source of competitive advantage. Second, this shift coincided with a growing desire from consumers for mobile devices that performed more functions than Nokia, RIM, Motorola, and the other incumbents in the market at the time offered on their mobile devices. It is generally difficult for firms that grew to prominence on the basis of skill in hardware engineering disciplines to adjust to a market where skill in software engineering forms the basis for survival.

Tech Ate Cameras

The history of cameras and photography goes farther back in history than one would ordinarily think. Although the historical details are useful,[16] we will skip the vast majority of them up to the point in 1884 and 1888 when George Eastman patented photographic film, and the Kodak roll-film camera respectively. Edwin Land launched the Polaroid camera in 1948. Eventually Kodak, Agfa-Gevaert, and Fujifilm dominated the market for analog photography and camera equipment.[17] The market for analog cameras and photography was characterized by very complex and advanced manufacturing processes, and high barriers to entry, enabling Kodak and its peers to build highly profitable consumer franchises on the basis of that technology.

Ideas and concepts related to digital photography first appeared in the early 1960s and 1970s. In 1975, an engineer at Kodak invented and built the first digital camera. Digital Single-Lens Reflex (DSLR) cameras appeared on the market in the 1980s and 1990s, and had supplanted analog film cameras by the mid-2000s. In 2000, Sharp introduced the first mobile phone that incorporated a digital camera. Now every smartphone has an integrated digital camera.

Polaroid, Agfa and Kodak filed for bankruptcy in 2001, 2005 and 2012, respectively. Meanwhile, Fujifilm continues to record some of the most profitable years in the company’s history. What gives?

Most analyses about Kodak’s fate focus on explanations based on the Christensen School of Innovation. Others assume that executives at Kodak sought to protect its photographic film and analog camera business, the company’s cash cow. However, in “The Real Lessons From Kodak’s Decline”, Willy Shih points out that such arguments mischaracterize what was really happening within the company.[18] He arrived at Kodak in 1997, and ran a division of the company charged with exploring how Kodak might exploit the opportunity presented by digital photography.[19]

The shift from analog to digital photography posed challenges on many levels. First, there were dramatic shifts in the technology of photography. Second, the nature of the technological shifts lowered barriers to entry and significantly increased the scope of the competitive landscape. Third, as a result of these shifts in the market, Kodak’s legacy business, once the source of its unrivaled dominance, now became an albatross around its neck, imposing a severe handicap from which it could not very easily escape to contend with the horde of attackers. Fourth, these changes introduced a shift in the balance of power between the players in the market, weakening Kodak’s hand while strengthening that of its ecosystem partners and counterparts.

How did Fujifilm navigate this crisis? This is the focus of Shigetaka Komori’s book: “Innovating out of Crisis: How Fujifilm Survived (and Thrived) as Its Core Business Was Vanishing.”[20] Mr. Komori is CEO of Fujifilm. In reading the book, it becomes clear that Fujifilm is alive today because it accomplished the rare feat of adjusting its business to account for both the demand-side (disruptive) and supply-side (architectural) innovations that were taking place in the global camera and photography market. Fujifilm developed three strategies to help it contend with the coming digital era: First, Fujifilm invented original digital technology of its own — it affirmatively chose to adjust and adapt to the unfolding architectural innovation. Second, the company extended the life of its analog photography business by developing innovations to increase the gap between its existing analog products and the attacking wave of early digital alternatives — responding to disruptive innovations by building sustaining innovations to buy itself some time for its efforts in adapting to the new architectural innovations to bear fruit. Third, recognizing that the digital photography business would impose low margins on the market overall, it developed new businesses that were peripheral to its analog and digital photography businesses, but that could command high margins — though, some of these businesses were sold as revenues and profits from the analog business deceptively continued to rise and show strength. Quoting Mr. Komori;

No matter how good business is, you have to foresee and prepare for a coming crisis. Looking directly at reality, you have to recognize what is happening at the moment, as well as what is going to happen in the future. You have to read the situation, understand it, think about it, and decide what needs to be done. This is what management is all about.

Tech Is Eating Tech

In “The Scale of Tech Winners”, Benedict Evans discusses how Google, Apple, Facebook, and Amazon have supplanted the companies that defined the the preceding technology era which was characterized by the partnership between Microsoft and Intel, and IBM to some extent. Here are some quotations from that blog post:[21]

1. “So, the four leading tech companies of the current cycle (outside China), Google, Apple, Facebook and Amazon, or ‘GAFA’, have together over three times the revenue of Microsoft and Intel combined (‘Wintel’, the dominant partnership of the previous cycle), and close to six times that of IBM. They have far more employees, and they invest far more.”

2. “Scale means these companies can do a lot more. They can make smart speakers and watches and VR and glasses, they can commission their own microchips, and they can think about upending the $1.2tr car industry. They can pay more than many established players for content — in the past, tech companies always talked about buying premium TV shows but didn’t actually have the cash, but now it’s part of the marketing budget. Some of these things are a lot cheaper to do than in the past (smart speakers[22], for example, are just commodity smartphone components), but not all of them are, and the ability to do so many large experimental projects, as side-projects, without betting the company, is a consequence of this scale, and headcount.”

3. “Google, Facebook, and Amazon are still controlled by their founders, and they are aggressive street fighters.”

In Essence, Ben is saying that no industry that offers attractive enough margins is immune from the attentions of large tech companies with ambitions of global domination. Or, as Jeff Bezos of Amazon puts it;

Your margin is my opportunity.

What Factors Lead To Market Disruption?

When an attacker emerges with a new design concept, it is rational for incumbents to ignore it, since it is uncertain whether the new design concept will gain overall market acceptance. Moreover, evidence may suggest that mainstream customers do not value the new product that the attacker is introducing to the market. This is true, up until the point at which the new design introduced by the attacker wins the allegiance of customers and other parties in the market — in effect making the new design the dominant design. In the process the design standards on which incumbents built their businesses become obsolete, and incumbents now need to adjust to a fundamentally new and unfamiliar basis of competition. It is at this inflection point that attackers start to pull away from, or catch up with, incumbents with such speed that it is rare for any of the incumbents to recover, or protect, a position of dominance.[23]

As incumbents struggle to adjust to the new paradigm, their efforts fall short of customer expectations because they may have component knowledge, but insufficient architectural knowledge to enable them to build products that meet the entirely new performance thresholds established by the attacking firms. In the examples we have discussed above;

  • Ecommerce has become the dominant distribution channel for book retail.
  • OTT and video-over IP has become the dominant distribution channel for video content.
  • Streaming platforms have become the dominant distribution channel for people who wish to buy and consume music.
  • Mobile phones now function as small computers, with software design being as important, if not more important, than hardware engineering. Moreover, despite the ridicule that mobile phone industry executives first showered on the iPhone after its initial launch, the design it introduced in 2007 now dominates the market.
  • A smartphone that incorporates a digital camera has become the dominant design for the consumer photography market with further differentiation arising from computational photography, building on the strengths both Apple and Google possess in software engineering.
  • Finally, technology companies that embraced the internet as a platform for their business models are supplanting those technology companies that were slow to recognize the internet’s promise.

Conclusion: Will Tech Eat Fashion?

Yes. It is just a matter of time. We believe that the global fashion industry is approaching a tipping point that is similar to one of those we described in the preceding examples. Consumer perceptions and expectations in the major fashion markets of Western Europe and North America are slowly beginning to favor speed, customization or personalization, and environmental sustainability, over lowest price. These are issues we have already touched on in the article preceding this one, and that we will discuss again in a subsequent article, so we will not belabor the point here.

It would seem that the most obvious threat comes from digital native marketplaces like Alibaba, Amazon, Asos, Farfetch, JD.com, and Yoox Net-A-Porter Group. The next most obvious potential source of danger are the vertically integrated digital native brands like Bonobos, Boohoo, Eloqui, eShakti, Everlane, Fame Partners, Forever 21, Lesara, ModCloth, Outdoor Voices, and Reformation. Another obvious potential source of threat is sharing economy and recommerce digital native companies and startups like Ebay, Gwynnie Bee, LePrix, Material World, Rent The Runway, and ThredUp.[24]

Uncertainty stems from sources one least expects. So, we decided to analyse the financial statements of the tech companies, to see what we would find. We have been surprised by how much cash they carry on their books. Leading us to conclude that tech incumbents have the cash, knowhow, appetite for risk, and other resources to initiate experiments in any industry they determine provides attractive opportunities. Along those lines we have been asking ourselves many questions, here are a couple — note we do not know if these are the right questions, but we have to start somewhere:

  • Could the global fashion and accessories market attract the interest of companies whose core competence is building and deploying general-purpose software technology platforms[25]? If it did, how might that play out over time?
  • Are the technologies on which global fashion industry supply chains run at risk of becoming modularized into interchangeable and rapidly evolving components? What impact will that have on the specialized knowledge that current fashion industry incumbents have accumulated? Will it make that knowledge more valuable or less valuable? How will that affect profit margins?
  • How will legacy assets enable or hinder fashion industry incumbents’ ability to respond to demand-side or supply-side disruption?
  • How will the competitive landscape shift if fashion industry incumbents come under increased and sustained attack from digital native competitors? This is already happening and the large incumbents — digital immigrants, are responding by acquiring digital native brands. It remains to be seen if this will enable or hinder the acquired companies’ once they become attached to incumbents. How will these digital native brands be integrated into an existing incumbents’ culture, systems, and marketing strategies?
  • In what ways will concerns and awareness about climate change, and environmentally sustainable supply chains impact how the fashion industry evolves over the next decade or two? Can the industry approach this proactively?
  • Is there anything fashion incumbents can do beyond iterative improvements to their existing supply chains? Circularity, customization, and localization require an entirely new supply chain architecture. How will incumbents adapt? How should they adapt? The MacArthur Foundation is doing a lot of work on this topic through its Make Fashion Circular initiative. We refer to that shortly.

The Role of Leadership

After we published the first article in this series, we received some comments from people who read the article. The following comment comes from Steve Hochman. Steve was chief operating officer at Bolt Threads from April 2017 till September 2018 after serving as an executive at Nike for over nine years. Bolt Threads harnesses proteins found in nature to create fibers and fabrics with both practical and revolutionary uses, starting with spider silk. Here’s Steve’s comment:

“Nice post today. A few thoughts: It seems there’s growing consensus that speed and flexibility is key to brands’ and suppliers’ survival and much more inter-enterprise collaboration is needed to achieve it. Thanks to Zara and others, that’s an increasingly visible insight. The harder question to me is about the leadership required to make it happen. Who will emerge to make it safe to behave this way, ie to drive and choreograph the necessary confidence and trust between historically adversarial members of the same ecosystem, and what are the first moves that will bridge us from old to new? Would love to see us explore that question, because all the technology and process investment in the world is for naught without that other answer first, I think! Thanks again for pushing the dialogue.”[26]

Steve’s comment reflects our beliefs. As Fujifilm demonstrates, proactive leadership makes it more likely that entrenched incumbents can predict and react quickly to impending market disruptions. Indeed, that is the topic of Clayton Christensen’s most recent book, “Competing Against Luck.” To paraphrase his words: Fashion industry incumbents must proactively decide that surviving market disruptions is not something they can afford to approach with a hit-or-miss attitude. Rather, they must proactively choose to predict what demand-side or supply-side innovations have a potential to disrupt their business, and then act to ensure they are among the beneficiaries of these developments. As Andy Grove, former CEO of Intel put it: “Only the paranoid survive.”

Taking control of uncertainty is the fundamental leadership challenge of our time.

– Ram Charan, The Attacker’s Advantage

We are in full agreement with the following statement from The Ellen MacArthur Foundation’s report: “A New Textiles Economy: Redesigning Fashion’s Future.”

“Transforming the industry to usher in a new textiles economy requires system-level change with an unprecedented degree of commitment, collaboration, and innovation. Existing activities focused on sustainability or partial aspects of the circular economy should be complemented by a concerted, global approach that matches the scale of the opportunity. Such an approach would rally key industry players and other stakeholders behind the objective of a new textiles economy, set ambitious joint commitments, kick-start cross-value chain demonstrator projects, and orchestrate and reinforce complementary initiatives. Maximising the potential for success would require establishing a coordinating vehicle that guarantees alignment and the pace of delivery necessary.”[27]

Transforming the industry to usher in a new textiles economy requires system-level change with an unprecedented degree of commitment, collaboration, and innovation.

We believe it is the responsibility of leaders within the global fashion industry to strive to understand the causal mechanisms of disruption, and to ask the questions that lead them towards answers that enable their respective companies to successfully navigate the waves of creative destruction that characterize capitalist economies. This is a dialogue in which we are eager to participate as early stage venture capitalists investing in supply chain startups, and as thought partners working with executives in the global fashion industry.

Next in the series: What Are The Established and Emerging Business Models in The Global Fashion Industry Today?

About REFASHIOND Ventures: REFASHIOND Ventures is an early-stage venture capital investment firm that is being formed to invest in early-stage startups creating innovations that make global supply chains more efficient, starting with startups at the intersection of fashion and retail.

About REFASHIOND CO:LAB: REFASHIOND CO:LAB is the systems design, research, and strategy consulting arm of REFASHIOND Ventures. REFASHIOND CO:LAB helps organizations create competitive advantage through supply chain innovation.

About The Worldwide Supply Chain Federation: The Worldwide Supply Chain Federation is the collaborative, and mutually supportive coalition of grassroots communities focused on technology and innovation in the global supply chain industry. The New York Supply Chain Meetup is its founding chapter.

________________

[1] We realize there’s a great risk of hindsight bias. However, analyses of this sort is one of the best tools in chief executive officers’, chief strategists’, or chief innovation officers’ toolkits and we feel it would be foolish not to use it if it helps us develop a good theoretical framework for correctly predicting, reacting to, and exploiting new innovations that threaten to reorder an industry.

[2] This discussion builds on Aoaeh, Brian Laung. “Notes on Strategy; Where Does Disruption Come From?” Innovation Footprints, 19 July 2015. innovationfootprints.com/notes-on-strategy-where-does-disruption-come-from/.

[3] Schumpeter, Joseph Alois. Capitalism, Socialism and Democracy. Routledge, 1994. Chapter VII

[4] Foster, Richard N. Innovation the Attacker’s Advantage. Summit Books, 1986.

[5] Christensen, Clayton M. Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Management of Innovation and Change Series). Harvard Business Review, 1997.

[6] The Innovator’s Solution: Creating and Sustaining Successful Growth, by Clayton M. Christensen and Michael E. Raynor, Harvard Business Review Press, 2013, p. 45.

[7] Henderson, Rebecca M., and Kim B. Clark. “Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms.” Administrative Science Quarterly, vol. 35, no. 1, 1990, p. 9., doi:10.2307/2393549.

[8] “Chapter 3.” The Disruption Dilemma, by Joshua Gans, MIT Press, 2016.

[9] For an accessible discussion of the issues see: Kidder, David, and John Geraci. “CEOs Should Think Like Founders, Not Just Managers.” Harvard Business Review, 13 Nov. 2017, hbr.org/2017/11/ceos-should-think-like-founders-not-just-managers. Accessed 25 Oct. 2018.

[10] The Case for E-Commerce Acceleration (Aka, Bye Bye BBY?), by Jeff Jordan, a16z.com/2012/06/29/the-case-for-e-commerce-acceleration-aka-bye-bye-bby/. Adapted. Accessed October 21, 2018.

[11] Boricha, Mehul. “A Brief History of Video Technology [Infographic].” Tech Arrival, 12 May 2018, www.techrrival.com/video-technology-history-infographic/. Accessed 21 October 2018.

[12] Wedding, Nicole. “How Tech Disrupted The Music Industry: A Timeline.” Hybrid World Adelaide, 20 Sept. 2018, hybridworldadelaide.org/2018/03/27/tech-disrupted-music-industry-timeline/. Accessed 21 October 2018.

[13] In this case, generally, the music companies extract profits from the streaming platforms because there are fewer music companies than music streaming platforms. See Porter, Michael E. “The Five Competitive Forces That Shape Strategy.” Harvard Business Review, January 2008.

[14] Meyers, Justin. “From Backpack Transceiver to Smartphone: A Visual History of the Mobile Phone.” Gadget Hacks, Gadget Hacks, 5 May 2011, smartphones.gadgethacks.com/news/from-backpack-transceiver-smartphone-visual-history-mobile-phone-0127134/#ixzz1La40vQTO.

[15] Samsung, Huawei, Xiaomi, and OPPO all ship smartphones using Google’s Android OS.

[16] “Timeline of Photography Technology.” Wikipedia, Wikimedia Foundation, 4 Sept. 2018, en.wikipedia.org/wiki/Timeline_of_photography_technology. Accessed 22 October 2018.

[17] Analog photography relies on a chemical or electronic recording medium, with photographs ultimately printed on paper through chemical processing. In digital photography, arrays of electronic photodetectors capture and store images which are then processed as digital files only. Computational photography refers to the application of algorithmic processing to digital photography.

[18] Shih, Willy. “The Real Lessons From Kodak’s Decline.” MIT Sloan Management Review, 20 May 2016, sloanreview.mit.edu/article/the-real-lessons-from-kodaks-decline/?use_credit=a6ae29dde4b8fea84677452a90228c83. Accessed 22 October 2018.

[19] Kodak is trying to resurrect itself by focusing on new consumer demands and connecting with millennials — see Kodak + Forever21, InstantPrint Cameras, KodakOne and KodakCoin.

[20] Komori, Shigetaka. Innovating out of Crisis: How Fujifilm Survived (and Thrived) as Its Core Business Was Vanishing. Stone Bridge Press, 2015.

[21] Evans, Benedict. “The Scale of Tech Winners.” Benedict Evans, 13 Oct. 2017, www.ben-evans.com/benedictevans/2017/10/12/scale-wetxp.

[22] Amazon Alexa, Google Dot, Apple HomePod, for example.

[23] Gans, Joshua. “The Disruption Dilemma”, MIT Press, 2016. Page 40.

[24] This list is by no means exhaustive.

[25] Such a platform would make it relatively easy for a team of engineers to establish competing fashion companies using modular technology-enabled components which replicate everything large fashion incumbents do well, while simultaneously doing something that is valued by customers but which current incumbents cannot replicate without significant effort.

[26] Comment sent by Steve Hochman, via LinkedIn Messaging to Lisa Morales-Hellebo, on 15 October 2018.

[27] Ellen MacArthur Foundation, A new textiles economy: Redesigning fashion’s future, (2017, http://www.ellenmacarthurfoundation.org/publications). Accessed 23 October 2018.

Filed Under: Entrepreneurship, How and Why, Innovation, Investment Themes, Investment Thesis, Startups, Strategy, Supply Chain, Technology, Venture Capital Tagged With: Early Stage Startups, Entrepreneurship, Fashion, Innovation, REFASHIOND, Supply Chain, Technology, Venture Capital

The Fashion Supply Chain Is Broken

October 15, 2018 by Brian Laung Aoaeh

By Brian Laung Aoaeh and Lisa Morales-Hellebo

Originally published at www.refashiond.com on October 14, 2018.

Authors’ Note: This is the first in a series of six articles about problems and opportunities in global supply chains, with a focus on the fashion industry. This article frames the problem. The next article will delve into a historical analyses of technological disruption, from the perspective of risks and uncertainties for the fashion industry.

Executive Summary: Recent trends present incumbent companies in the global fashion industry with challenges and opportunities related to innovation in supply chain. In this article, we discuss how a historical top-down approach to business is giving way to an emerging bottom-up approach that is driven by consumer preferences. This is placing stresses on fashion supply chains which the industry can only address by adopting a collective, collaborative, ecosystem-driven approach to innovation.

The fashion supply chain is broken and must be refashioned. This is the conclusion we have come to after studying the issue, starting in 2014.

About The Authors

After 19 years in tech, Lisa Morales-Hellebo founded and launched the New York Fashion Tech Lab in 2014 with Springboard Enterprises and the Partnership Fund for NYC while serving as Executive Director for the first year. She then spent a year traveling to Puerto Rico to visit apparel factories, maker labs, cut-and-sew shops, ateliers, and universities in order to learn about the existing apparel supply chain and the challenges it faces.

Brian Laung Aoaeh, CFA spent 10 years in investment research and management, with 2 of those 10 years as the first and only member of the corporate development team at KEC Holdings, a single family office, and 8 of those 10 years as the first member of the small team that built KEC Ventures, an early-stage venture capital investment firm based in New York City. KEC Ventures grew to $98M of AUM across two funds, with 51 investments. Brian was a partner at the fund from its inception till his departure in September 2018.

Our interest in supply chain originated independent of one another. We first met in June 2016, and spent hours talking about supply chain at our first encounter.

After having started thinking about value chains[1] in 2014, by August 2017 Brian had decided to become a specialist early stage investor in supply chain technology after having been a generalist early stage venture capitalist up till that point. So we teamed up and started The New York Supply Chain Meetup: to nurture and grow the world’s foremost open, global, multidisciplinary community of people devoted to building the supply chain networks of the future. Driven by our shared enthusiasm for all things supply chain and our belief in what the future of supply chain will resemble, we are now on the verge of launching sister chapters of The Worldwide Supply Chain Federation: a collaborative, and mutually supportive coalition of grassroots communities focused on technology and innovation in the global supply chain industry.

In September 2018 we decided to team up to build REFASHIOND; an early-stage venture fund that will invest in the startups creating innovations to make global supply chain networks more efficient, starting with those reinventing the fashion supply chain.

Our Goal: To Catalyse Industry-wide Dialogue & Action

In engaging in the work that has gone into this article, and those that will follow, we hope to start an industry-wide conversation about tangible steps that participants in the fashion industry can take to arrive at a common framing of the problems confronting the industry, and then to find ways to work together to address those problems that can only be solved effectively through collective action. We encourage you to reach out to us if you’d like to discuss any aspects of this work, or if you’d like to collaborate with us in some way. Given our conversations with the industry executives in our network with whom we have the closest relationships we know supply chain, technology, and innovation are topics that every executive management team in the fashion industry is discussing and thinking about to some extent. It is time to start taking collective action to tackle the big issues. Please reach out to us by email;

  • Lisa Morales-Hellebo — lisa@refashiond.com, and
  • Brian Aoaeh — brian@refashiond.com.

A Bit of Historical Perspective

It is easy for outsiders to assume that the history of the fashion industry is completely divorced from that of technological innovation. That is wrong. In fact, the history of fashion, apparel, and textiles can be linked directly to some of the most important inventions of the industrial revolution.[2] A few key examples are the Fly Shuttle Wheel to allow one weaver to do the work of two; the Spinning Jenny, which increased wool mills productivity, the Cotton Gin, Power Loom, yarn Spinning Mule, the first factory, and even materials and textile innovations, like those used in the Mackintosh Raincoat.

Having acknowledged the role technological innovation has played in the history of the fashion industry, it is fair to ask: Has the industry’s more recent history lived up to the technological promise of the current era? That depends. We argue that the fashion industry’s incumbents’ collective investments in the industry’s supply chain have failed to keep pace with changing consumer expectations, expectations that change ever more quickly as advances in digital media and telecommunications unfold and shape consumers’ expectations of when and how to shop.

This is creating challenges for the industry as a trend towards shorter, less complex supply chains appears to be in the early stages of supplanting the long, global, and highly complex supply chains that accompanied globalization and large companies’ insatiable quest to outsource their manufacturing to foreign markets with the lowest combination of fixed and variable costs.

A Definition, And A Reiteration Of The Problem

Throughout this discussion, we will rely on the following definition of supply chain. A supply chain is:

A network of connected and interdependent organisations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users.[3]

To reiterate the problem;

  • First: The fashion and apparel supply chain is broken and must be refashioned.
  • Second: Innovation is happening so fast and is so complicated that there isn’t a single company in the fashion and apparel industry that can reinvent itself quickly enough to take full advantage of new technologies and innovations. Instead, the industry needs to consider taking an industry-wide ecosystem approach to adopting technology and innovation.
  • Third: Because fashion and apparel is the world’s second largest polluting industry, the future of our planet depends on the industry adopting technologies that will accelerate the move towards more economically and environmentally sustainable supply chains.

According to FashionUnited, the global fashion industry is valued at $3 trillion in annual sales, with the United States accounting for approximately $400 billion of the global total. According to the New York City Economic Development Corporation’s Fashion.NYC.2020 report, New York City’s fashion and apparel retailers generate about $15 billion in sales, annually. It is inevitable that an industry of this scale will face supply chain challenges. Yet, as a whole, the industry has been slow to adopt digital technologies to aid in solving the supply chain issues it encounters.

The Current Paradigm

Predicting & Dictating Trends: Style and fashion has historically been dictated by a top-down system of influential designers and tastemakers who set the standards for beauty, taste, trend, and style. The rise of social media has created an unprecedented shift from top-down to bottom-up style and trend mandates, where the designers and tastemakers are now looking to street style, emerging brands, and influencers for inspiration and ideas about what consumers want. A team of trend-trackers monitors global social phenomena, hoping to observe the behavior of youth tribes and other emergent youth-driven phenomena that may be transformed into global fashion trends. The trend-trackers job is to record such phenomena and supply the information to industry clients, while also advising on brand strategies, developing marketing tactics, organizing events, and even providing designers and stylists who may design an entire collection for a brand. This process can take anywhere from 6 to 18 months. By the time it is complete the trend may already be out of style, and the result may be unsold inventory.

Sourcing & Materials[4]: Apparel sourcing is becoming more challenging due to; rising labor costs in foreign markets, increasing compliance costs due to alleged and documented labor abuses in far flung apparel manufacturing hubs in developing countries, and increasing consumer preference for sustainable methods of production as the effects of climate change come into stark relief.

Design: Designers work very closely with trend-trackers to anticipate consumer tastes, and to design clothes that they expect consumers to buy. However, by the time new designs find their way into retail showrooms, consumer tastes may have evolved away from the trend that inspired the designs.

Manufacturing: Apparel manufacturing is largely labor-intensive, concentrated in low-wage countries that are far away from most major fashion and apparel consumer markets, and subject to abuses such as the use of child-labor and slave labor. The process is inefficient, slow, and prone to quality control issues.

Distribution: Consumer behavior is forcing a convergence towards omni-channel and multi-channel distribution with increasingly decentralized warehousing, technological complexity arising from multi-platform selling channels, last-mile logistics, and automation all playing parts in making todays apparel supply chain more complex to manage than in the past.

Sales & Marketing: Technology has provided numerous distractions and shortened attention spans, making it more difficult for fashion and apparel brands to cut through the noise long enough to generate sales. Technology is also making it much easier for consumers to engage in comparison-shopping before they make a purchase.

With the proliferation and popularity of on-demand business models, consumers’ shopping behavior is shifting away from norms the global fashion and apparel industry is accustomed to and can control, and towards norms that favor consumers’ preferences. This shift is resulting in the hyper-segmentation of consumers who used to be seen as too “niche” to address because expectations built around sales volume didn’t make sense, or the industry deemed certain consumer segments as not meeting the standards for beauty imposed from the top. Plus-sized clothing is only recently being accepted as the untapped opportunity that it has always been in the United States where the average woman is a size 16, according to Racked.com’s article, “Size by the Numbers.”

Factors Driving Industry Profitability

Below, we highlight a few measures of profitability. There are others, but for brevity we have chosen to focus on a handful. To do analyses of this sort it is most useful to analyze trends over time for a company, and then compare that data on a relative basis to data for the industry as a whole or to data for a designated subset of peers.

Gross Profit Margin: Gross profit is measured by deducting cost of goods sold from revenue, and gross profit margin is calculated by taking the ratio of gross profit to revenue. Gross profit and gross profit margin reflect a company’s pricing power, the power exerted by its suppliers as reflected in its cost of goods sold, as well as the impact of competition.

Operating Profit Margin: This is also often referred to as EBIT Margin. It is calculated as the ratio of operating profit to revenue, with operating profit obtained by subtracting operating expenses from gross profit. Operating profit margin is a measure of how variable costs affect a company’s profit margins, and can be used to assess how much control a company has over the costs associated with running its operations. One-time charges should be excluded from the calculation. In the fashion and apparel industry generally, we expect that IT infrastructure investments that are required to operate in a multi-platform and multi-channel environment, increasing freight and supply chain logistics costs, as well as labor inflation in foreign markets will each have a negative impact on operating profit margins. Moreover, as we have previously stated, the trend towards increasing marketing expenditure in order to hold consumers’ attention long enough to generate sales will also have a negative impact on operating profit margins.

Return on Equity (ROE): A firm’s return on equity is calculated as the ratio of net income to average shareholders’ equity. It is a measure of how effective a company is at converting its assets into earnings growth. For example, if ROE is 15%, a dollar invested generates 15 cents of assets for the business. ROE is affected by revenue, selling and general administration expenses, taxation, operating efficiency, and inventory management. Management may use share buybacks to offset declines in ROE.

Inventory Turnover: The inventory turnover ratio is an efficiency ratio that measures a company’s effectiveness at generating sales from the inventory it holds. It is calculated as the ratio of cost of goods sold to average inventory. Inventory turnover ratio is affected by the rate at which sales occurs, which, in-turn is dependent on consumer sentiment. Companies in the industry often overestimate how much to stock in inventory, leading to steep wholesale and retail discounts. In the worst cases, inventory that cannot be sold is destroyed.

Earnings Per Share (EPS) Growth: Earnings per share is calculated as a company’s net income minus its preferred dividend payments, divided by the weighted average number of shares outstanding. Generally, earnings per share is affected most negatively by factors that reduce net income. As the industry generates increasing proportions of sales from the BRIC nations and other emerging markets, foreign exchange risk imposes negative pressures on revenues and net income. It is important to note that companies can easily manipulate earnings per share growth by instituting share-buyback programs.

Inventory Forecasting & Management Issues

The issues at play here are illustrated best in H&M, a Fashion Giant, Has a Problem: $4.3 Billion in Unsold Clothes a story by Elizabeth Paton that appeared in The New York Times on March 27, 2018. The article highlights a drop in quarterly sales accompanied by an increase in unsold inventory. According to the article, H&M’s customers have either moved to doing more of their shopping online or have gone seeking lower-cost offerings elsewhere. This is ironic since H&M has been a fast fashion stalwart for two decades during which it has experienced massive growth. The article describes some of the supply chain challenges H&M is grappling with, and how the company intends to respond: “H&M has insisted it has a plan, saying it would slash prices to reduce the stockpile and slow its expansion in stores. It said it hoped its online business would expand 25 percent this year.”

Lack of Efficient & Agile Supply Chain

What happens when the information or forecasts at one node in a company’s supply chain is incorrect? Incorrect information at any node in a supply chain creates a phenomena wherein the flow of goods is unexpectedly distorted over time due to differences between actual demand by end-consumers and forecasted demand by suppliers.

The phenomenon is known as the bullwhip effect, and it arises because demand signals are incorrectly amplified as information is transmitted along the supply chain. The bullwhip effect arises due to; poor coordination along the various nodes in a supply chain, and rational decisions that are made by supply chain participants using the best information at their disposal. The distortions are made worse because of the uncertainty that accompanies activities at every point in a company’s supply chain. The general consequence of the bullwhip effect is poor customer service.

How might a fashion company counteract the bullwhip effect? First, some companies are reversing the effects of globalization by creating the cyber-physical infrastructure required to enable networks of small-batch, quick-turn, and localized manufacturing hubs in order to make it possible to manufacture goods for consumers in the key markets of Western Europe and North America in small batches, closer to the ultimate end-consumers. Second, some companies are developing and using more advanced software for predictive analytics. Advances in artificial intelligence make this a much more feasible proposition today than at any time in the past. Third, some companies are improving the real-time flow of predictive information and data between key nodes in the supply chain. This allows every participant in the supply chain to anticipate future demand more accurately, and to stock raw-materials inventory more efficiently. We will discuss the technology trends that are making solutions to this problem possible in the fifth article in this series.

Conclusion: A Race To The Bottom?

Prevailing economic, social, and technological trends point towards a challenging future for the global fashion industry. Incumbent players may choose to operate with a business-as-usual attitude. Alternatively, they may opt to address the industry’s supply chain challenges by adopting an ecosystem-based approach to solving the problems that are too big for a single company to solve on its own. This will require adopting a systems-thinking approach to how companies in the industry are run, and how they view their relationships with one another.

The companies that win will adapt to the changing landscape by building on their historical strengths, while simultaneously developing new supply chain capabilities through partnerships with former sworn rivals or relatively new technology startups.

The companies that lose will remain entrenched in the old ways of doing business, following one extreme round of price-cuts by even more extreme discounts. This race to the bottom will be exacerbated by additional measures like reducing the number of brick-and-mortar locations — measures that do nothing to solve the fundamental problem: The fashion and apparel supply chain is broken and must be refashioned.

Next in the series: Where Will Technological Disruption In Fashion Come From?

About REFASHIOND Ventures: REFASHIOND Ventures is an early-stage venture capital investment firm that is being formed in order to invest in early-stage startups creating innovations that make global supply chains more efficient, starting with startups at the intersection of fashion and retail.

About REFASHIOND CO:LAB: REFASHIOND CO:LAB is the systems design, research, and strategy consulting arm of REFASHIOND Ventures. REFASHIOND CO:LAB helps organizations create competitive advantage through supply chain innovation.

________________

[1] One may think of a value chain as a company’s internal supply chain. The term is used to distinguish internal operations from operations that rely on a network of external parties.

[2] McFadden, Christopher. “27 Industrial Revolution Inventions That Changed the World.” Interesting Engineering, 18 Feb. 2018, interestingengineering.com/27-inventions-of-the-industrial-revolution-that-changed-the-world. Accessed Oct. 12, 2018

[3] Christopher, Martin. Logistics & Supply Chain Management: Creating Value-Adding Networks. 4th ed., Financial Times Prentice Hall, 2011.

[4] Berg, Achim, and Saskia Hedrich. “What’s next in Apparel Sourcing?” McKinsey & Company, May 2014, www.mckinsey.com/industries/retail/our-insights/whats-next-in-apparel-sourcing. Accessed Oct. 8, 2018.


Originally published at www.refashiond.com on October 14, 2018.

Filed Under: Entrepreneurship, Industry Study, Innovation, Investment Themes, Investment Thesis, Long Read, Supply Chain, Technology, Venture Capital Tagged With: Apparel, Entrepreneurship, Fashion, Innovation, Logistics & Supply Chain, Logistics and Supply Chain, Long Read, Luxury Goods, REFASHIOND, Startups, Strategy, Technology, Venture Capital

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