Problem: C&F Apparel, Inc.

Bill Smith, director of business planning for C&F Apparel, chewed on a pencil as he looked out the window of his fourth-story office. These bad forecasts are killing us, he thought. Forecast errors for the Fall season's sales had ranged from 50 to 200 percent of demand. As a consequence, C&F had discounted their apparel heavily, with average markdowns of 30 percent. In addition, they had written off some 15 percent of inventory as obsolete. C&F Apparel was a medium-sized designer and producer of sports apparel and active wear, including pants, shirts, sweaters, and some accessories. Though it did not own any retail stores, it sold through most of the larger retail outlets throughout North America. The clothes sold by C&F were considered by most consumers to be durable and reasonably priced. While its fashions were not cutting edge, C&F managed to keep up with trends and changing designs from season to season. Each selling season lasted about 15 weeks. Developing good forecasts and maintaining product availability were constant challenges for C&F. To keep costs low, the company sourced most of its products from material and assembly plants located in the Pacific rim countries including China, Vietnam, and Thailand. The lead time to have new designs made and shipped from these countries was typically two to three months, so it was important for initial sales estimates to be as accurate as possible. Bill Smith and his marketing team took it upon themselves to develop forecasts each season.

They used sales from the previous year's season, along with their judgments regarding upcoming changes in economic conditions and consumer tastes. While the aggregate sales forecasts developed by Bill and his team were sometimes fairly accurate, forecasts for specific items were all over the map. Bill knew that their forecasting process was not as totally consistent from season to season as it could be, but he felt that flexibility was needed to cope with changing conditions. Bill had recently heard about "fast fashion" apparel makers like Zara, a Spanish company that designs, produces, and sells expensive, top-of-the-line apparel. An article describing Zara's forecasting and fulfillment policies intrigued him. Zara had price markdowns that were much lower than industry averages, and their sales per square foot were 20-30 percent higher. The article attributed better performance to several factors. First, Zara was known for developing long-term purchase contracts, mostly with domestic suppliers. Their supply lead times were typically two to three weeks. Second, Zara used store manager inputs and sales information from its own retail stores to rapidly update its sales forecasts throughout each sales season. The company was known to invite store managers to corporate headquarters at the beginning of each season so that they could evaluate the new product lines. Finally, Zara had focused product teams responsible for developing the forecasting process for each product category. Bill wondered if these approaches might work at C&F.

Questions

1. What are the advantages and disadvantages of Zara's methods?

2. Would these methods work at a company like C&F?

3. What advice would you give to Bill Smith?