As economic trends move towards ever-increasing prosperity and consumer demand diversifies, luggage markets are moving from utilitarian offerings towards more fashionable products and designs. This change requires more product variety, generating demand uncertainty that is closely related to the fashionability and seasonality of the soft luggage product. Uncertain demand leads to many managerial problems for a companyóproduction planning, forecasting, inventory management, production and timely distribution. To reduce the risk level generated by demand uncertainty, the supply chain in the Indian soft luggage industryó from raw materials to final customersóshould undergo the innovative and revolutionary changes that have successfully occurred in other industries.

Inventory Issues
In the traditional supply chain approach, luggage companies at each node in the supply chain build inventories of raw materials, work-in-process (WIP) and finished goods. However, in the case of soft luggage, companies are nowadays more inclined to source finished goods from China. This is a result of many factors. One is the low procurement cost. However, with a low procurement cost comes the disadvantage of high lead times. Luggage manufacturers react very slowly to new demand trends because they build similar levels of inventory for moving and non-moving items and the supply system cannot keep pace with the movement of the fastest-selling items.

Supply chain management (SCM) aims to maximise concurrent information flow throughout the chain and facilitate collaboration between partners through integration. With SCM, inventories can be reduced and responsiveness to the market increased, while reducing operational cost, improving asset productivity and compressing order cycle time for the whole supply chain.

To be more responsive to market demand trends,retailers need to place frequent small quantity orders for products which are in fashion. Demand for these items is volatile and hard to forecast. The recent emphasis on SCM and retailersí demands for improved inventory flow can be a burden for luggage manufacturers. The majority of luggage manufacturers are small companies which are unable to invest much capital in the systems technology that major retailers require. For manufacturers to satisfy their customers while using current facilities and capabilities, they will need to continue with the high level of inventory in some form.

However, manufacturers strategies to build high levels of inventory reduce the efficiency of SCM throughout the pipeline. For example, customers (retailers) face high costs tied to the inventory (storage, depreciation, material handling), which eventually results in end user (consumers) having to buy products at a higher price than necessary. Deep markdowns and clearance sales on overrun inventories indicate inefficiency in inventory management of the luggage industry, which results from the inflated regular prices of luggage products imposed on retailers. When manufacturers do not produce based on the actual demand and do not respond to retailersí demand in a flexible and agile manner, misalignment between luggage retailersí demand and manufacturersí capability to supply will be unavoidable. This misalignment can also be described as an unbalanced level of SCM initiatives between chain participants.



Managing Inventory Through Better SCM
Efficient inventory management is a result of successful SCM. Inventory can be defined as the stock of any item or resource used in an organisation, and it can be raw materials, work-in-process (WIP) and finished goods. For most companies, inventory investment makes up over 20 per cent of assets.

A set of policies and controls that monitors and determines the level of inventory, replenishment time and reorder decisions is required for inventory management. Mathematical models for inventory control have been developed to obtain operating rules, which use a cost minimisation approach. The outputs of these models are reorder quantity and reorder time. Most models used in other manufacturing industries have not been appropriately used in the luggage industry because the inherent assumptions for the models do not adequately reflect the volatile and uncertain world of fashion products. Available research on the luggage industryís inventory management is limited. Whether the luggage industry can benefit from inventory theories from other industries is questionable, because demand forecasting tends to be dependent on the expertsí intuition or personal experience.

There is an uncertainty in demand in the luggage industry. It is often observed that demand from distributors shoots up unpredictably which could cripple the supply chain. Any one factor could be responsible for thisóthe customer, the distribution network or the manufacturing unit (which is unable to forecast the demand properly). Thus, a study has to be conducted to analyse the root cause leading to this uncertainty in the luggage industry. The important variables are flexibility, delivery reliability, delivery time and lead time and inventory level.

Managing demand is complex and daunting. Consumer spending is influenced by seasonal fluctuations, new trends, assortment changes, promotions, and new releases. The impact of any one factor can be difficult to predict; the combined impact of everything occurring at once is impossible to predict. While merchandiser skills and experience remain important, the luggage business is becoming increasingly complex.

Retailers must forecast demand for products with different lifecycles, slow movers and fast movers, seasonal and flow items, promotions, and events like the holiday season. They must also tailor their demand plans to different store formatsósuperstores and convenience stores. In this context, ad-hoc spreadsheets are simply incapable of generating accurate statistical forecasts. The resulting inaccuracies can lead to unnecessarily large stocks and excessive markdowns or stock-outs and loss of profits.

The two major cost-cutting measures that can be taken to improve inventory management are:
􀂔 Deciding on economic order quantity
􀂔 Deciding on optimal order quantity.

Problems in luggage industry supply chain
There are several supply chain issues that plague the luggage industry today. Some of these problems are:

􀂔 Slow responsiveness to changes in demand: Retailers can counter unpredictability with more accurate demand planning, quicker detection of actual changes, and greater flexibility to alter purchasing plans mid-season.

􀂔 Longer lead times: While most companies now source soft luggage from overseas, longer lead times and more complex distribution networks have dissipated the advantage of lower production costs. Retailers can regain some advantage with improved visibility into inventory, quicker corrective actions and rapid information flows to keep lead times as lean as possible.

􀂔 High markdown stocks: The luggage industry has to carefully balance the introduction of new fashions with the phasing out of the previous seasonís products. Markdown optimisation tools can help retailers discount more strategically to maximise margins, while improving demand planning reduces clearance stock.

􀂔 Different sales experiences in different stores: Not all stores will have same sales successes. The luggage industry needs to be able to manage assortments by store, location, and demographics. With better forecasting and modelling tools, retailers can plan style, size, and colour more accurately and then buy and distribute the best case packs that match supply to actual and anticipated demand.

􀂔 Risky financial commitments: The luggage industry finds itself committing investment and inventory ahead of the sales curve. The industry can minimise commitment to new introductions through better estimating, tailored replenishment and tighter control of production. The industry must carefully manage open-to-buy contracts to ensure that products ordered reflect actual and anticipated demand.

􀂔 Huge product variety: With multiple seasons, each often just eight weeks in length, the luggage industry constantly has a huge variety of goods at various stages of the supply chains. Managers need greater visibility into the supply chain, allowing them to monitor hot sellers and slow movers more closely and adjust purchase plans to limit exposure to risk.



Lot sizing for inventory management
Given the demand for an item for each time period over a finite discrete horizon, the lot-sizing problem is to determine the order and inventory quantity in each time period so that the sum of order and inventory holding costs is minimised. For many practical applications, the amount of inventory that is carried from one period to the next is bounded due to either physical constraints such as warehouse capacity or managerial policies. Another aspect of the problem, which has not received much attention, is the inventory fixed costs. Inventory fixed costs and capacities play a significant role in situations where warehousing is outsourced. The lease cost of storage space in an offsite warehouse is a fixed charge that cannot be treated as part of the standard variable holding cost, which is commonly taken as the cost of capital investment in inventory. Inventory fixed costs and capacities also arise in situations where manufacturers rent shelf space at the retailers. These fixed rental costs and limited storage capacities are considerations that cannot be overlooked.

In case of luggage industry, it can be done if the product categories, such as suitcases, strolleys and totes, are thought of as a single product category and their lot sizing is done separately. The lot sizing decision takes care of the holding cost, ordering cost, etc. If the management feels that this cost is a deterrent to profit, then lot sizing can be undertaken to minimise ordering and holding cost. But for the time being, adopting the ënewsvendor modelí will give the luggage industry the added boost in terms of customer satisfaction and profit. However, that might increase the inventory cost and further study needs to be done to minimise cost while maintaining customer satisfaction and achieving higher profits.

The author works with Pernod Ricard India in their Supply Chain Function.