Note: This report is Truworths specific as Office is dealt with in the Office Operational Report. All references in this report are therefore to ‘Truworths' rather than to ‘the Group'.
The merchandise team is constantly seeking ways to optimise efficiencies across the supply chain by shortening lead times and improving speed to market of merchandise, balancing local and offshore supply, and increasing productivity in inventory management.
Truworths achieved year-on-year supply chain efficiency improvements of 4% during the period, following a 5% gain in the previous year.
Expanding distribution capacity
The capacity of Truworths' three main distribution centres in Cape Town was significantly expanded during the period to manage the organic growth in the business and to integrate the recent acquisitions of Naartjie and Earthchild. The project included the installation of additional semi-automated materials handling equipment and major changes to the product flow through the facilities.
A new warehouse management system was implemented at the end of the reporting period to improve stock management and measurement in the distribution centres, and to enable new distribution methods. Notwithstanding initial challenges resulting in merchandise allocation delays, the benefits of this system will be realised from the new reporting period onwards.
In response to the need to expand warehousing and distribution capacity, construction of a third owned distribution centre will commence in the 2017 reporting period at a total projected cost of between R400 million and R450 million. The commencement date has been deferred to enable the project team to optimise the design of the centre which is to be constructed across two adjoining sites currently separated by a public walkway, subject to local authority approval.
Located adjacent to the largest distribution centre, the new facility will cater for the organic growth needs for several years and will also allow Truworths to implement more innovative methods of distribution and merchandise allocation. The distribution centre is currently scheduled for completion in the 2020 reporting period.
Benefits of local supply
Local supply allows for faster speed to market which is critical for a high fashion retailer.
Domestically manufactured product offers shorter lead times as local suppliers can respond quickly to replenishing popular selling styles during a season. Quick response and fast fashion models developed with key suppliers continue to enable Truworths to improve speed to market and to react more rapidly to customer buying patterns. Buyers can also make late styling changes as close as possible to the time of delivery to ensure that the ranges reflect the latest trends.
The majority of the quick response suppliers is based in South Africa or in neighbouring Southern African Development Community (SADC) countries, resulting in shorter lead times owing to the proximity of these countries.
Truworths Manufacturing, the in-house manufacturing division which outsources production mainly to local cut-make-trim (CMT) suppliers, has shown good growth over the past year and is now one of the larger suppliers to Truworths. This division focuses mainly on menswear and kidswear, with the Naartjie Manufacturing division being successfully integrated into Truworths Manufacturing during the period.
Rationale for importing product
Foreign manufacture offers a wider variety of merchandise and greater technical detail in clothing at more reasonable prices than local supply. However, imported merchandise can take up to six weeks to be shipped from the East and hence has a disadvantage in terms of a slower speed to market.
Products are generally imported in merchandise categories where Truworths is unable to source local products that meet the required quality standards at competitive prices. Shoes, fashion accessories, lingerie, knitwear and denim generally have a higher proportion of imports. Despite the weakening Rand during the reporting period resulting in a higher cost of foreign made goods, Truworths has not been able to revert to local manufacturing as the technical ability to produce similar products in South Africa at affordable prices is still not being achieved.
Management has continued to focus on improving procurement from the Far East. More frequent travel to the East to improve working relationships and communication, and to give suppliers a better understanding of Truworths' processes, has resulted in improved lead times from this region.
The Truworths internal sourcing function is now a highly successful division within the Truworths supply chain, playing a strategic part in procuring a broad range of merchandise for the chain. It has become one of the largest suppliers to the business, sourcing product from manufacturers in Mauritius, Madagascar and the East.
Strengthening supplier relationships
The merchandise team actively engages with local and offshore manufacturers to strengthen relationships and create alliances.
Risk in the supply chain is mitigated by monitoring the volume of merchandise being supplied by each manufacturer. Truworths has a diversified supplier base which limits over-exposure to individual suppliers.
An enhanced supplier scorecard has been developed to better measure key supplier performance. This will assist Truworths in growing volumes with better-performing manufacturers and will identify weaknesses in certain suppliers that can be addressed through a collaborative process.
A web-based portal provides access to suppliers, to enhance communication between Truworths and its suppliers, and to create further efficiencies in the supply chain.
A Truworths code of conduct is incorporated in all supplier agreements and this binds manufacturers to comply with ethical business standards, labour legislation, international health and safety standards, environmental legislation and treaties to which South Africa is a signatory.