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A Week of Two High Profile Supply Chain Snafus- Commentary One

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This has been a week that business media has featured two high profiled supplier related snafu’s, or at least, that has been the business media slant  Each is yet another important reinforcement for a more constructive and collaborative relationship with key suppliers.

This is the first of two separate Supply Chain Matters commentaries related to these high profile snafus.

Perhaps the most visible and rather expensive snafu involves Canada based yoga apparel retailer Lululemon Athletica.  This retailer was forced on Monday to recall its most popular line of yoga pants after discovering that the “sheerness’ of the fabric allowed too much to be seen underneath.  The CEO had to publically apologize to Lululemon customers for the problem. The affected products account for nearly 17 percent of all women’s pants sold by the company. This glitch involved a proprietary signature fabric which is termed Luon which arrived in its stores earlier this month. While the composition of the fabric appears to be to specification, the sheerness factor came as a complete surprise. It was reported that this is the fourth quality-control issue that has occurred in the past year, which included bright colors that bled along with other transparency issues. Initial news reports had this retailer pointing the finger directly at a supplier for the cause of the glitch.

Company officials indicated that they sourced the same fabric supplier since 2004.  According to reporting from The Wall Street Journal, that supplier was identified as Taiwan based Eclat Textile Company. By Wednesday, the Taiwanese supplier went public and hit back, declaring that the clothing that it shipped was not “problematic””.  It issued a statement in part: “All shipments to Lululemon went through a certification process which Lululemon had approved.”  Obviously, it’s a difficult situation when you key supplier goes public and throw

The WSJ noted that in its recently published annual report, the company warned that it could be exposed to risks because of its heavy reliance on a limited number of suppliers. Its business practices have been described by the WSJ as intentionally keeping retail inventories low “in order to create scarcity and buzz” and insure that consumers pay full price.

Lululemon has been a high flyer as a well-respected yoga apparel supplier, with revenues of $1 billion and a market value of near $10 billion. Business media is today reporting that the retailer expects write-offs related to this latest product recall to reduce its revenue by an additional $45 to $50 million over the remainder of the year. That is in addition to a $12-$17 million write-up planned for the current quarter. Obviously these financial impacts are significant and painful lessons. The WSJ reports that the company is still testing the summer product but believes a full write-off is likely. Neither can this company now indicate when its product line-up would return to normal.

Today’s edition of The Financial Times reports “that the retailer has now acknowledged that it did not check how its products looked when wearers bent over before shipping millions of pairs that it has been forced to recall.” CEO Christine Day acknowledged that the product had passed initial testing but had not exercised extensive wear tests. She also ratcheted down the finger pointing indicating that many companies are involved in its supply chain.  CEO Day indicated that the company has added staff and is tightening controls to measure “subjective gaps” and prevent any recurrence. None the less, media reports indicate that equity analysts are now skewing this retailer about breakdowns in quality monitoring, visible supply chain weaknesses and difficulties in managing an international supply chain.

As the expression goes: the horse has left the barn, and it is not, at all, an attractive situation.

We often stress the critical importance of positive and constructive supplier relationships.  That tenet has even more meaning when a company has placed a strategic dependency on a supplier for innovation in products and consistency in execution. Constructive relationships allow candid give and take when early warning signs of process irregularities appear. The takeaway is obvious; do not publically throw each other under the bus, especially when crisis is at hand. These situations reflect on both parties and their collective management processes. Better to take the time to assess root cause and insure that corrective actions eliminate the problem.

Bob Ferrari

 

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