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The concept of Floor Ready Merchandise (FRM) was introduced in the early 1990s in the US as an effort to lower the overall cost of getting a product to the consumer. Initially it was a simple equation: affix hangers and apply price tickets at the supplier for 15 cents per unit or continue to do it in the retailer’s Distribution Centre (DC) for 35 cents or more. Today, the concept means more than just that; it touches a whole raft of other factors within the distribution and logistics area of the supply chain – from order management to carton labelling. FRM has been adopted as a standard business practice by most of the major fashion/apparel players within the US retail sector, including Federated Department Stores and Target Stores, along with suppliers Liz Claiborne, Haggar Apparel and Levi Strauss & Co, with the initiative overseen by Voluntary Inter-Industry Commerce Standards committee (VICS).

Serious consideration
In Europe, FRM is being seriously considered by leading branded clothing suppliers and their retail customers. As suppliers are selling on a pan- European basis they have realised how difficult, and costly, it is meeting the individual delivery and presentation requirements of their retail customers. As a result this is adding considerable time, and cost, to the supply chain. As a result, the customer is being disadvantaged; sales are being lost which is having a detrimental effect on both the retailers’ and manufacturers’ profitability.

One way for this to be overcome is for universal standards to be adopted across Europe. To do this will be a major step because at the heart of providing FRM is a need for all organisations to think and act beyond their own boundaries and to consider the supply chain in a new way.

Research by consultants, Kurt Salmon Associates (KSA), has revealed that vertical companies, those that sell own brand merchandise, such as Zara or H&M Hennes and Mauritz, financially outperform, those operating within a more traditional supply chain. One reason is that they have control over their (integrated) supply chains. So, those retailers, the store groups and chains, operating within the more traditional supply chain structure, need to collaborate and work together to create their own ‘virtually vertical’ supply chains.

The focus, therefore, needs to be shifted from thinking about being a winning company to participating in a winning ‘collaborative’ supply chain. In this new paradigm, improving margin or market share at the expense of the consumer, regardless of the shortterm benefit for any individual organisation, will no longer be a sustainable business strategy. In this model, the new hierarchy is consumer, supply chain and then individual company.

Great expectations
With the adoption of QR and ECR principles companies have made some moves in the right direction for creating a Virtually Vertical company. The adoption of FRM will bring it closer to reality. However, while earlier initiatives have generally met expectations they have fallen considerably short of their potential. This is because the changes have typically reengineered individual pieces of the total supply chain; still missing is the holistic view that brings all these pieces together. And this is one of the greatest challenges which European companies have to face.

The Virtually Vertical company is not unlike a vertical company in that it has the advantage of vertical efficiency – minimised overhead associated with inter company operations. While disparity exists for all product categories within retail and consumer products, it is pronounced in soft goods. Clothing retailing is an SKU intensive, quick-cycle business that is highly complex and wrought with many processes and relationships. Emotional aspects that drive creativity and newness also drive complexity. These unique characteristics create a need for effective communication and collaboration. Therefore, the greater the complexity of the business, the more important the need for collaborative practices. However, within clothing it is even more important to be able to move stock quickly as much money is made on replenishments (and lost to markdowns if product is not delivered on time).

The way forward, therefore, is for all parties to agree a set of standards about a product as it flows through the supply chain. Like QR, an integral goal of FRM is to speed up delivery to the selling floor, reducing lead times, helping product flow through retail DCs and reducing buffer stock. It also means increasing the control over cycle times and allowing shop staff to devote their time to dealing with consumers, rather than losing time and space in store for preparation. Ironically, even today there are still many retail companies whose store-staff perform tasks such as ticketing and attaching security tags, which is extremely costly, both from a time and labour cost point of view.

The premise that the further upstream a task is carried out the cheaper it becomes still holds true. And, while moving the task upstream may mean extra cost for the supplier – or a third party logistics provider – there is an overall saving in the supply chain. Bearing in mind the need to work holistically or collaboratively, we believe that the most important aspect of the drive for FRM is in agreeing the principle and only then discussing the allocation of resulting costs and benefits among individual companies. In the earlier example where US manufacturers assumed an additional 15 cents and retailers saved 35 cents, agreement was reached upon adjusted wholesale prices with the 20 cent saving divided between the partners – and the consumer.

To move FRM forward at European level, retailers and suppliers will need to agree many of the standards and guidelines the US has adopted. These will need to cover, three key aspects of the business: Physical product – such as, price tickets and EAN bar codes; logistics – carton sizes and carton labels; and electronic communications – advance ship notices (ASNs) and product catalogues/item information.

That’s the ticket
One of the greatest benefits will be achieved by agreeing a standard ticket, not necessarily with a price, but on the design, information content and method of attaching.

Secondly, the communication of information needs to be improved. Companies need to shift from the horrendous amounts of manually collated, errorprone, paper-based procedures to electronic communication. This will remove the opportunities for errors in re-keying and duplication. The use of ASNs will also help speed up product flow as it will enable product to be fluidly received into the retailer’s logistics network.

On the packaging front, huge difference will be made if there is agreement on carton size, on labelling, and the use of standard barcodes and carton labels to tie together the physical shipment with the ASN.

How about RFID?
When it comes to security tagging, there are multiple, technologically incompatible options to choose from. For this reason, most security tagging is still performed at store or retail DC level. Here there is a big opportunity to consider using RFID. With the power of group buying power, it might be extremely economical to move to this method of protecting product, and for the supplier to undertake incorporating the tag in the product, thereby moving a major retail task back upstream to a lower cost base.

By adopting standards for the above, replenishment product could be turned round in days rather than four weeks, which has the sizeable knock on effect of reducing inventory and buffer stock.

FRM is not an effortless initiative. It took substantial negotiation to finally adopt the practice in the US. And, the standards are still undergoing continuous refinement.

There are hard economic reasons for adopting FRM in Europe. It is not going to happen overnight but there is willingness among the major players to put the customer first and to do so, they have to work more harmoniously together. Among the first European suppliers to publicly support FRM is Polo Ralph Lauren. The company is consolidating its European logistics operation with a main DC and a couple of supporting centres. The new facility has been built in conjunction with a third party supplier and its new Warehouse Management System incorporates the essential ingredients to provide FRM both to their own stores and to retail customers.

The new system supports future supply chain developments such as ASNs for customers and the ability to scan cartons. One of the key benefits is a dramatic reduction in pick to despatch turnaround and moving goods out of the DC.

As part of its aim to improve service standards, Polo Ralph Lauren has also agreed a set of contractual key performance indicators (KPIs), among which is to achieve an accuracy level of 99.5 per cent for all deliveries.

While the company is shooting high, it is achievable given the processes that will be in place.n Dave Rush, is a principal with consultants Kurt Salmon Associates (KSA)

 

What are the benefits for the retrailer?

  • Product delivered in single SKU or single style cartons if so desired
  • Automated packing lists by carton which is 99.95 per cent accurate, which will avoid spending time on shortages and overs
  • Consolidated delivery packing lists
  • Deliveries by brand on brand specific pallets or cartons
  • Choice of whether goods are shipped when ready or full range deliveries; control is in retailers’ hands
  • EAN-13 labelled merchandise for all SKUs The next stage of benefits to support future developments will see:
  • Standard 128 carton barcodes to support cross docking and which can be scanned at store (or retail DC) level
  • Retailer to DC re-order mechanism via EDI
  • Web-based online availability interrogation, so everyone can see what’s available
  • Themed deliveries
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