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Here’s an interesting supply chain problem for you: What do you do when Mother Nature jeopardizes your usual production process?

That may sound a little melodramatic, but it is a relevant question for makers of high-end fashion jeans (Why the California Drought Matters to the Fashion Industry, Wall Street Journal, Apr 10).

The four-year drought in California is hurting more than just farmers. It is also having a significant impact on the fashion industry and spurring changes in how jeans are made and how they should be laundered.

Southern California is estimated to be the world’s largest supplier of so-called premium denim, the $100 to $200-plus-a-pair jeans such as VF Corp.’s 7 for All Mankind, Fast Retailing’s J. Brand and private-equity owned True Religion. Water is a key component in the various steps of the processing and repeated washing with stones, or bleaching and dyeing that create that “distressed” vintage look.

“(The) water issue in fashion in Los Angeles is a big deal,” said John Blank, economic adviser to the California Fashion Association, a trade group. Premium denim “requires water. It is all about that processing. It is the repeated washing to get the premium look. This is what people pay for.”

Southern California produces 75% of the high-end denim in the U.S. that is sold world-wide, Mr. Blank said.

This data from Levi’s highlights the water usage in question.

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Unsurprisingly, actually growing cotton and consumers washing their clothes accounts for most of the water usage but steps the jeans maker control (e.g., cut, sew and finish) still uses a large amount of water.

So what can a fashion label do?

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Over the years, we have had a lot of posts on call centers. In some ways, call centers are a marvel of modern operations. They allow firms to serve a large volume of customers efficiently. But what’s it like to work in call center? As 20/20 reports, it not necessarily a walk in the park (Why Customer Service Representatives Might Be Deliberately Making Your Experience Worse, Mar 26).

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Tight supplies occur in lots of supply chains. Pick any industry with rapidly rising demand and you are likely to see at least the occasional glitch in the supply of a key component or input. Still, the setting described in a recent Wall Street Journal article is fairly unique (Hunger for Organic Foods Stretches Supply Chain, Apr 3).

Nature’s Path is among a number of organic-food purveyors taking steps to tackle supply constraints that are hampering the growth of one of the hottest categories of the U.S. food industry. Companies including soup maker Pacific Foods of Oregon Inc. and publicly traded burrito chain Chipotle Mexican Grill Inc.are digging deeper into the supply chain with such moves as financing farmers, offering technical training and hiring full-time headhunters to recruit organic growers.

The efforts are aimed at ramping up organic-food output that has failed to keep pace with surging consumer demand, due in part to the significant costs and risks that U.S. farmers face in converting from conventional to organic farming. Longer-term, the steps could help bring down organic-food prices that have been bolstered by tight supplies, companies say.

According to the article, retail sales of organic food have tripled in the last ten years and that has put a lot of pressure to increase the output of organic products.

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About a year ago, we had a post on Zulily and how they managed their order fulfillment. It featured a nifty graphic from the Wall Street Journal showing just how much longer their delivery times were relative to other interet retailers. Now, the Journal has another story — with a spiffy updated graphic — discussing how their delivery times have gotten even worse (Zulily Nips Business Model in the Bud, Mar 23).

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The dollar has been on a tear over the past year. Check out how much it has appreciated against the euro over the past year or so (A Shakeup in Currencies, Wall Street Journal, Mar 19).

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There are some obvious implications from this chart. For example, if you spent spring break in Europe, you have an impeccable sense of timing. Also, if you are US-based manufacturer counting on exporting to Europe, you are going to be swimming upstream (see, for example, Strong Dollar Stands in Manufacturing Sector’s Way, WSJ, Mar 15).

But if a strong dollar hurts US firms, it’s gotta be a godsend for European businesses, right? Well,maybe not. How a weak euro impacts European firms is going to depend on the structure of their supply chains. Check out this eye candy from today’s Wall Street Journal (Europe’s Fashion Retailers Under Pressure From Strengthening Dollar, Mar 24).

BT-AA741_RETAIL_16U_20150324180606

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My colleagues (and co-bloggers) Jan Van Mieghem and Gad Allon are offering a Massive Open Online Course. Here’s the official description:

Scaling operations: Linking strategy and execution
Over the past several decades, operations strategy has played an increasingly important role in business’ success. In this course, we will equip you with concepts and tools to build operations in a way that not only supports your competitive strategy, but also allows you to create new opportunities in the market place.

Linking strategy and execution is a five-week course dedicated to making strategic decisions that are grounded in operational reality. Together, we will study how to build and evaluate the “operating system” of the firm to maximize value. This involves tailoring the firm’s operational competencies, assets, and processes to a specific business strategy.

Each week, we’ll explore case studies, engage in discussions and examine realistic data. Thanks to our data-driven approach, you’ll be able to implement your learning directly into practice. At the end of this course, you’ll be ready to build an effective, actionable plan to scale your department or organization.

The course runs March 30th to May 3rd.

Click here for more information.

Wal-Mart made waves last month when it announced that it would increase the starting wages of its workers so that all of its associates would make at least $9.00 per hour. That’s not exactly the kind of pay that makes you rich, but it is 24% higher than the federal minimum wage of $7.25 per hour. TJX followed Wal-Mart’s lead and announced a similar wage policy.

But why should these large firms be upping their pay? That is the question examined in a recent Bloomberg article (Why Retailers Are Suddenly Desperate to Keep Their Least-Valuable Workers, Mar 6). As the article notes, it is not clear that firms need to be paying more. Yes, labor markets have been firming up, but the unemployment rate went up last month because a number of workers returned to the labor force. So there are still a good number of workers available. Why then make a move that’s going to increase costs by a billion dollars per year?

The article’s answer to that question? Turnover!

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Turnover in the retail sector has been steadily rising and now stands 5 percent a month. At that rate, if Walmart’s workforce were to hold to the national average, over a full year it would be losing 60 percent of its sales staff. Employee churn at fast-food chains is even worse: Almost 6 percent of all fast-food workers left or were laid off in December, according to federal data. An individual worker won’t ever command anything like the salary-bargaining powers of a baseball player, of course, but service economy employers tend to notice a rising tide of worker defections. Plugging all those gaps in the workforce is hugely expensive. Here’s how the math breaks down:

  • The average retail sales employee in the U.S. earns an annual income of about $21,140, or $10.16 an hour, according to the Bureau of Labor Statistics.
  • The cost of replacing an employee earning less than $30,000 per year is about 16 percent of that person’s annual wage, according to the Center for American Progress, a left-leaning think tank.
  • A retail employer would therefore need to spend almost $3,400 every time a worker defects.

That adds up quickly. Walmart has about 500,000 low-wage employees. The cost of replacing each one, using the rough estimate from above, comes to roughly $1 billion—the cost of the just-announced wage increase to $9 per hour.

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