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SAP S/4HANA and the Fashion Industry: Vertical Integration en Vogue

Feature Article | November 22, 2017 by Andreas Schmitz

SAP has created a system that appeals to customers individually and unites retail, wholesale, and manufacturing processes all within one system: SAP S/4HANA for Fashion and Vertical Business.

A brief look at McKinsey’s latest global study on the fashion industry sheds light on an industry-wide dilemma: More than two-thirds of participants surveyed for the Global Fashion Survey 2017 believe that the conditions for their business have worsened in the previous year. In 2010, the industry grew by 10%, and today the growth rate is a meager one percent. Increasingly more businesses are restructuring, closing branches, and laying off staff.

The volatility of an unstable market, the strong competition from online retailers, and the need for quicker responses to customer needs are some of the current challenges that fashion companies are facing. But one thing is clear: For many people, digitalization is not only a means to escape from the current crisis and instability, but also an opportunity for new perspectives and to anticipate the consumer’s every wish.

SAP S/4HANA for the Fashion Industry, SAP Cloud Platform and SAP Customer Activity Repository: Balancing Stability and Agility

To respond to these new requirements, software solutions must be tailored accordingly — appealing to the customer across all channels, while also keeping a constant eye on the international market, and as uniquely as possible. For Christoph Schröder, these requirements are virtually a matter of course, and were integrated in the SAP Fashion Management solution three years ago. Yet since that time, additional requirements have come into play.

“The speed with which consumers change their needs has increased,” explains Schröder, who heads up the global fashion industry software solutions at SAP. “We don’t know what tomorrow’s business will look like.”

With a highly-standardized core as a constant (SAP S/4HANA), and with the possibility to expand processes (SAP Cloud Platform) and anticipate the customer’s every wish at any time by referring to purchase and interaction histories (SAP Customer Activity Repository), Schröder has established a basis for businesses to give power to the customer without putting themselves at a disadvantage.

“Companies have been forced into a corner by monolithic ERP systems that have been heavily adapted over the years. In today’s world, companies that waste time twiddling around in the engine room before being able to make system adjustments can no longer keep pace,” says Schröder, who hopes that the SAP S/4HANA for Fashion and Vertical Business industry solution — launched in mid-September 2017 — will strike the necessary balance between stability and agility.

Vertical Integration: Departure from “Leading Systems”

In the past, it was characteristic within the fashion industry for classic retailers such as s.Oliver or Esprit to only sell their products in their own stores. In contrast, sporting goods manufacturers such as Adidas or Puma sold their products both retail and wholesale. If classic retailers wanted to offer their products in department stores or if sporting goods manufacturers wanted to sell their products in their own stores, they had to use two different systems. This was problematic, as there was only one “leading” system, “leaving others were left in the dark,” explains Schröder. This resulted in products being sold out in some warehouses, while others were overstocked.

SAP S/4HANA for Fashion and Vertical Business: Retail, Wholesale and Manufacturing Under one Roof

This will not be the case in the future. “Complete vertical integration” is the vision of SAP S/4HANA for Fashion and Vertical business. For companies like Armani, Luxottica, and Salvatore Ferragamo, which manufacture their own products and sell them both in their own stores and in department stores, running multiple processes through one system is a key objective, and a particularly interesting prospect.

Currently, retail and wholesale processes are combined within the new industry solution, enabling manufacturers to open their own branches in addition to selling wholesale. Schröder calls this “forward integration,” and for most fashion companies, this is sufficient.

The manufacturing processes — the final element — is planned to follow in fall 2018. The advantage is that those in immediate need of trousers, shirts, and coats will be able to react quicker than they had done in the past, which is a major plus point.

Another advantage, even without the integration of manufacturing processes? Many companies sell swimwear, scarves, business suits, or sneakers according to the season, and want to avoid having stock left over at the end of the season. From planning, procurement, sales, online and offline channels through to coordinated clearance sale campaigns, vertical integration will help ensure that of these processes will be fully harmonized in the future, whether the products are being sold in a department store or in a flagship store. “No one wants to lose out on unsold goods,” confirms Schröder.

 Need for More Efficient Supply Chains

When it came to the outlook for 2017 business developments, the McKinsey study recorded a discreet three percent margin between the 40% optimists and the 37% pessimists. This is based on the prerequisite that digitalization will continue to grow. Most decision-makers want to invest in an efficient supply chain above all, which doesn’t necessarily mean a step toward vertical integration.

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