{"id":24428,"date":"2017-11-15T17:31:38","date_gmt":"2017-11-15T22:31:38","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/black-fridays-and-red-pls-how-macys-plans-to-boost-sales-by-digitizing-its-supply-chain\/"},"modified":"2017-11-15T22:23:15","modified_gmt":"2017-11-16T03:23:15","slug":"black-friday-or-red-friday-how-macys-plans-to-improve-its-bottom-line-via-digitalization","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/black-friday-or-red-friday-how-macys-plans-to-improve-its-bottom-line-via-digitalization\/","title":{"rendered":"Black Friday or Red Friday?: How Macy\u2019s Plans to Improve its Bottom Line via Digitalization"},"content":{"rendered":"

The Challenge<\/strong><\/p>\n

Macy\u2019s, the largest U.S department store company by retail sales, boasts an impressive 159-year history as one of the country\u2019s oldest iconic brands1<\/sup>. But the rise of fast fashion, eCommerce, and supply chain digitalization have challenged Macy\u2019s standard approach to doing business. Perhaps the most salient signal that Macy\u2019s requires an operational step change is evidenced by their financial performance. Since 2015 Macy\u2019s has reported net loses year-over-year as in-store sales decline and competition rises from fast-fashion competitors like Zara and off-price retailers such as TJ Maxx2<\/sup>. This has pushed the retail giant to close more stores but also to consider ways to digitalize its supply chain as they face working capital challenges in an industry experiencing rapid disruption. As Macy\u2019s prepares to adopt more high-tech logistics systems to increase visibility within its supply chain, it ultimately poses two questions: can the retailer keep up with it\u2019s tech-savvy competition and will this be enough to raise and sustain profit margins moving forward?<\/p>\n

Short-term strategy<\/strong><\/p>\n

Earlier this year Macy\u2019s announced that 100 percent of its inventory will be tagged using radio frequency identification technology (RFID) by the end of 2018. In a nutshell, RFID automates the tracking of inventory throughout the retail supply chain \u2014 from the warehouse to the store floor \u2014 replacing the process of employees scanning products manually3<\/sup>. Macy\u2019s aims to leverage RFID in order to improve inventory accuracy, reduce out of stock incidents and, ultimately, increase sales4<\/sup>. Bill Connell, senior vice president of transportation, store operations and process improvement at Macy\u2019s, adds, \u201cWith an increase in the inventory accuracy, out-of-stocks are significantly reduced. And by cutting the out-of-stocks, item availability is increased, which can lead to substantial and measurable sales increases5<\/sup>.\u201d Given Macy\u2019s net loses the past two years, these working capital improvements are very important to Macy\u2019s bottom line and one reason why the company is investing so much in the technology. Moreover, the company plans to leverage the new tracking technology to aid its distribution center (dc) bypass strategy. DC bypass allows retailers to circumvent traditional distribution centers but requires synchronization of various information technology systems at the manufacturer and retailer level6<\/sup>. By incorporating RFID tracking, Macy\u2019s hopes to further reduce transportation, inventory-carrying, and material handling costs via its dc bypass strategy and ultimately reduce throughput time in its supply chain as it speeds fulfillment requests.<\/p>\n

Future Goals<\/strong><\/p>\n

In addition to Macy\u2019s short-term strategy to digitize its supply chain management process, the company also plans to transition slowly from a push model of supply chain management to a pull model in the coming years. According to John S. Thorbeck, Chairman of Chainge Capital LLC and an expert on the application of Fast Fashion business principles at retailers and brands, pull models of supply chain management are characterized by:<\/p>\n

“Procurement, production and distribution that is demand-driven rather than by a forecast. This approach follows the \u201csupermarket model\u201d where limited inventory is kept on hand and is requested as it is consumed. Another attribute of Pull\u00a0is a supply chain where a customer purchase initiates real-time information flows through the supply chain that consequently causes movement of product through the network7<\/sup>.”<\/p>\n

Given Macy\u2019s investment in RFID technology, this shift in supply chain management is a natural progression for the business as it aims to compete in the fast fashion retail space and adopt an integrated, demand-driven planning and execution platform8<\/sup>.<\/p>\n

\"\"<\/a>
Figure 1: Integrated planning and execution platform9<\/sup><\/figcaption><\/figure>\n

Alternative Solutions<\/strong><\/p>\n

As Macy\u2019s plans to implements it short and medium-term strategies in the coming years, the company should also consider investing more in information technology (IT) infrastructure and consistent software updates in the short term as it relies more on IT to meet consumer demand. In addition, the retailer should consider opportunities to integrate vertically in the medium term to further optimize its supply chain strategy and increase margins on private label products.<\/p>\n

Questions Ahead<\/strong><\/p>\n

Despite the changes in supply chain management that Macy\u2019s aims to make over the next few years, tons of questions remain unanswered. In a world increasingly becoming more crowded with fast fashion rivals such as Zara, Uniqulo, and H&M, can Macy\u2019s regain market share given its slow move into supply chain digitalization? Furthermore, will Macy\u2019s move to adopt more high-tech logistics systems to increase visibility within its supply chain be enough to grow and sustain profit margins moving forward? Lastly, how does Macys plan to keep costs low for customers while also implementing expensive technological enhancements?<\/p>\n

Word count: 764<\/p>\n

 <\/p>\n

Works Cited<\/p>\n

 <\/p>\n

    \n
  1. National Retail Federation, \u201cTop 100 Retailers 2016\u201d, https:\/\/nrf.com\/resources\/annual-retailer-lists\/top-100-retailers\/stores-top-retailers-2016<\/a>. Accessed November 10, 2017<\/li>\n
  2. The Wall Street Journal<\/em>, Dow Jones & Company, quotes.wsj.com\/M\/finacncials\/annual\/income-statement<\/li>\n
  3. Thau, Barbara. \u201cIs The \u2018RFID Retail Revolution\u2019 Finally Here? A Macy\u2019s Case Study.\u201d Forbes<\/em>, Forbes Magazine, 15 May 2017, https:\/\/www.forbes.com\/sites\/barbarathau\/2017\/05\/15\/is-the-rfid-retail-revolution-finally-here-a-macys-case-study\/#28bd69d43294<\/a><\/li>\n
  4. McKevitt, Jennifer. \u201cMacy\u2019s Inventory will be 100% RFID-Tagged by 2017.\u201d Supply Chain Dive, 25 Oct. 2016, https:\/\/www.supplychaindive.com\/news\/Macys-RFID-inventory-tracking\/428937\/<\/a>. Accessed November 10, 2017<\/li>\n
  5. ibid<\/li>\n
  6. ARC Advisory Group. \u201cBypassing the Distribution Center\u201d (PDF file), downloaded from Descartes website, [https:\/\/www.descartes.com\/content\/documents\/bypassing_the_distribution_center.pdf<\/a>], accessed November 10, 2017<\/li>\n
  7. Lopez, Edwin. \u201cRetailers are reducing on-hand Inventory for the holidays.\u201d Supply Chain Dive<\/em>, November 10, 2017, https:\/\/www.supplychaindive.com\/news\/retail-supply-chain-shift-turn-times-holidays\/510607\/<\/a>. Accessed November 10, 2017<\/li>\n
  8. \u201cDigital-Transformtion-Review-5\u201d. EBooks \u2013 Capgemini Consulting, http:\/\/ebooks.capgemini-consulting.com\/Digital-Transformation-Review-5\/#\/52\/<\/a>. Accessed November 10, 2017.<\/li>\n
  9. Schrauf, S. and P. Berttram, Industry 4.0: How Digitization Makes the Supply Chain More Efficient, Agile, and Customer Focused, PWC Strategy& (2016)<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

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