CPM takes off in Fashion
Corporate Performance Management is synonymous with measure, analysis, understanding and control. This refers to a set of management processes including Budgeting, Planning, Forecasting, Profitability Analysis, Consolidation and Reporting involving not only Finance & Control, but also the other functions, core and supporting ones.
In many other industries, the CPM is a standard practice in terms of both management approach and tools/solutions used by the people involved. Generally, in those industries we find that products have a high degree of standardization (both in development and production), a sufficiently long product life cycle as not to require continuous changes, a lesser complexity of the inventories in
rotations and a weak bond with seasonality.
Let us focus for a moment only on the Fashion industry. We could find very little of the elements of standardization and predictability above. Rather. The feeling is of dealing with variability and dynamism that make highly complex measurement and control. Besides, the main players in the sector still shows a lack of culture in this sense, then reflected in the scarce attitude of the organization to the performance management, although we consider the technology in use more than adequate today.
It might come to the hasty conclusion that in the Fashion industry CPM is not able to take off. Something is moving instead. Indeed more than anything.
The Fashion sector sees more and more the emergence of global companies that show high growth rates, increasing volumes, turnover and product range, while facing strong competition, always in the need to generate high levels of profitability on products to support the underlying operating and commercial structures. Therefore, this tangible phenomenon of increasing complexity has prompted some leading companies in the Fashion industry to rethink its approach to CPM.
Then, often driven from the Finance, measure, analysis, understanding and control topics have started to enter the front door (and even secondary ones) inside of the business units of Fashion companies. The relevant CPM processes involved are varied and some of the management areas of interest are as follows:
operating model and geography of the sales channels for a proper analysis of the performance and profitability
cost structure and level of detail for a true representation of the actual to be compared with the standard calculations
profitability Analysis articulated at the single product level, detailed per season
integrated global inventories, for managing the operational and financial phenomena such as logistics & distribution, accounting valuation, depreciation, …
plants and “ateliers” operations, for evaluating the overall efficiency also considering internal and external manufacturing capacity
Performance improvement isn’t anymore a forbidden word in the Fashion industry, which helps somehow CPM processes becoming much more structured and independent from the random commitment of a single owner. Moreover, the information systems are robust (much more than in the past ad especially when integrated), although they require more reliable and high quality information to effectively support the management in understanding the phenomena and taking decisions. In nearly real time. This is Fashion industry.
So? What’s new? Where is the innovation?
According to the experience from other industries, measure, analysis, understanding and control of the performances are well structured processes conducted though a meticulous approach and organization, even in case of low predictability of the demand.
However, Fashion is Fashion! It’s definitively newsworthy, positive, auspicious, perhaps unexpected, to see that CPM is taking off in this industry too. Here where too often the strength of the brands and the high contribution margins hide the:
scarce maturity of the management,
local culture that poorly adapts to global markets,
only partial understanding of business phenomena,
poorly structured approach to the development and engineering of products,
low reactivity, sometimes nonchalance, against fast moving trends and bullwhip behaviors of the customers
This last point is remarkable: measure, analysis, understanding and control are the more critical the higher the probability of the margin contraction. Today become a competitor with a potential successful brand is not just a matter of talent, but it also depends on the ability to exploit the opportunities, especially those offered by the new digital technologies. Competitors can come to life at anytime and anywhere in the world; they can become trend-setters driven by “click views” and “I like"; they can gain visibility and access virtually "unlimited number of customers", with a potential “zero” investment in the traditional channels.
This help explaining why CPM is taking off in Fashion, where it aims at becoming the compass to steer the helm, no matter how stable is the ship and how agitated are the “global” seas