Many business, retail, and indeed supply chain management focused media and blogs have provided highlights of the termed supply chain disruption surrounding Rent the Runway, a very hip and innovate online provider whose business model is equated to be the “Netflix of Clothing.” This Editor will take a different, perhaps broader Supply Chain Matters perspective related to recent developments, again with our usual perspective of what our supply chain management community can learn.  Information Technology

 

Unique Business Model

New York based Rent the Runway (RTW) is a relatively young company, created to be a disruptor in woman’s fashion and clothing needs. The company was founded in 2009 by Harvard Business School grads Jennifer Hyman, now CEO and Jennifer Fleiss.

Hyman often describes the enormous amount of wasted clothing stored in closets, often utilized on only a few occasions. The notions of creating a mainstream clothing rental service where customers can wear the latest in fashion, including upscale labels, and return after use, has broad appeal as well as market opportunity.

RTW not only innovated around its business model, but also in leveraging advanced technology, leveraging the tagline of: “Putting the Closet in the Cloud.” Similarly, in its recruiting and benefit programs for employees, the descriptor is one of a “transformative life and career experience.” The company’s career site indicates a need for:  people who dream big, think and act like founders, have relentless curiosity, passion, work ethic and scrappiness.

The other phrase we especially noted: ‘Risk and failure are encouraged.’

The company has widened its service offering in the notions of creating an everyday clothing service where woman rent clothing not only for special occasions, but for every-day business and professional needs. That caused this start-up’s market value to grow to $1 billion earlier this year, but growth came with its own scalability challenges.

The online provider has amassed a large subscriber customer base, reported to be  upwards of 9 million customers. Some of whom can pay upwards of $159 per month for rental of both everyday as well as special occasion clothing, up to four items at a time.

The notions of the business model are obviously time-sensitive, and that includes providing added back-up clothing with every shipment. Because customer satisfaction is predicated on distinct events and repeatable experiences, less than satisfactory execution has a pronounced ripple effect.

 

The Crisis

According to reports, the crisis began this July just when the main New Jersey customer fulfillment center encountered operational disruption because of technology hiccups. When such a disruption occurs, warehouse workers became idle. RTW was also opening its second specialized customer fulfillment center in Arlington Texas to improve service to the Western United States.

Existing customer service staff became overwhelmed by calls complaining of late delivery. Multitudes of customers took to social media echoing cancelled deliveries, poor communication and customer service wait times. According to a published Recode report, many of the social media complaints came from women utilizing the original special event rental services, resulting in unfortunate ruined weddings or scrambles to local retail stores to acquire a substitute outfit.

All of that  prompted a customer wide email apologizing for the systems outage, and later, an offer for monetary compensation.

By late September, the company was compelled to place a freeze on accepting new subscribers as well as suspend specialized clothing rentals to be delivered before October 15. The company was then compelled to make $200 payments to subscribers who had not received clothing on-time.

 

Logistics and Customer Fulfillment Technology

Needless to state, supporting RTW’s customer fulfillment process needs are highly specialized and not the purview of today’s off-the-shelf Cloud based WMS systems. In reality, RTW’s systems strategy focuses much broader than WMS and logistics and more toward the broadest integration of technology across multiple business processes.

From the systems development side, a scan of CTO Josh Builder’s prior industry media interviews indicates the core substance of systems development:

Everything was built from scratch and always has been, from algorithms, to the systems that power our warehouse, to all of the customer-facing applications, everything has been built in-house since the beginning.”

The process tenets include the need for sophisticated reservation and allocation of clothing, along with specialized logistics synchronization related to both shipment of orders to accounting for clothing returns, accuracy and storage of available inventory. Each customer further receives the same garment in two different sizes, to insure proper fit which in-turn requires customer knowledge.

The notions of optimizing item, color and size inventory needs have long provided significant challenges for supply chain planning applications, with but a few that can optimize such needs consistently and at scale.

It is to state the least, a highly sophisticated reverse logistics order flow, which includes what executives state as the largest dry and steam cleaning operation in the United States, and perhaps North America. Garments further require necessary mending or stain removal.

Probably the most important of key success factors is providing the most up-to-date fashion and seamless overall efficiency and synchronization of multiple cross-functional processes.

A further requirement of the RTW business model requires deep customer insights. That includes intelligence related to customer fashion and style choices, performance along with important special events equated to expected peak demand periods. Customer preferences and rental history are another important consideration as to predicting future needs.

From a procurement and supply management perspective, intelligence on specific labeled clothing and fabrics. determines expected service of rented garments as well as what teams should prioritize for overall procurement cycles.

 

Supply Chain, Systems or Business Growth Fueled Disruption

The headlines that have surrounded RTW these past weeks stem from any of the three mentioned attributed causes. Not having the ability to secure on the ground observation, Supply Chain Matters will instead focus on supposition and some logic. As with many of such developments, disruptions are fueled by a series of cascading events.

In 2018, there was an apparent realization that reliance on an internally developed data warehouse along with the company’s then reliance on in-house hosting and managing of IT infrastructure was having difficulty in scaling, causing the need for added IT hardware investments. Like many firms experiencing rapid growth, a determination was made to invest in a Cloud based information warehouse running on a Cloud based infrastructure platform. Our gut feeling points to some mismatch among internal applications and external Cloud infrastructure scalability, or the interactions of both. When proprietary internal meets generic external, time allotted for scalability testing becomes ever so crucial. This an area where virtual, on-demand compute scaling is a benefit.

The Cloud infrastructure outsourcing decision was apparently followed with the need to expand customer distribution capability beyond the highly specialized existing New Jersey center.

A further thread in business media reporting reflects on external investor pressures for the company to generate higher profit margins. In a July report published by The Wall Street Journal, a cited source had indicated that when customer service issues came to a head, executives held back added hiring.

As noted, customer service disruption became far more visible reportedly after back-end technology systems crashed. CEO Jennifer Hyman told Recode at the time that an upgrade to the tech system supporting warehouses caused some orders to be delayed. She further noted that the new system would dramatically improve inventory availability and warehouse efficiency- hence short-term pain for a long-term better experience for customers.

Whether that disruption was caused by software, Cloud database or infrastructure is always the question. Suffice to note, the disruption likely resulted from the interaction of all three series of events.

The latest news from Business Network CNBC, other publications and an internal RTW blog indicates the company has now completed systems upgrades ahead of the October 15 schedule and is ‘back to business as usual.’

An industry publication reported in September that the head of supply chain was stepping down.  Whether that was a casualty or consequence is subject to opinion.

A company spokesperson told Reuters that the technical issue had minimal impact on its long-term business and the company could absorb the temporary revenue hit related to the snag. RTW is now welcoming new orders and subscribers.

 

Added Reader Takeaways

Some of traditional and social media based supply chain publications have highlighted the RTW disruption incident as an example of high visibility warehouse or supply chain failure and its consequent impact on the business.

We take a far broader perspective; in that it may well be a combination of interrelated factors including and not limited to either. That is why we have pointed to the obvious innovation and uniqueness of the business model.

Our observation reflects on this company’s inherent DNA fabric and stated principles such as: risk and failure are encouraged or the far more important notion of fail fast and learn faster.   

In the internal blog posting CEO Hyman states: “We are breaking new ground together — thanks for being on the journey with us.” Perhaps that statement could have added that the organization has learned a lot from these cascading incidents.

The reader takeaway is that the journey is not limited to a one-time visible event, but to how a fast flying business prioritizes resources and decisions that balances both customer, business and shareholder needs. Too often, they become misaligned, and that remains the substance of today’s business case study learning. Rent the Runway is pioneering a completely different online business model that leverages all facets of advanced technology, reverse logistics and customer intelligence.  That journey continues and breaking glass comes as a consequence.

We submit that the summary takeaway is that all decisions have consequences, and the challenge comes from assessing, quantifying and smartly balancing the risks for either customers and shareholders.

 

Bob Ferrari

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