Dealing with variety in supply chain

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Henry Ford once remarked: “You can have any colour of car, as long as it is black”. The quote highlighted what Ford had to offer, as a choice set, to its customers in the early 20th century. Model T was produced in black colour only.

Today no marketer can dare make a statement like Henry Ford. They know that the customers of 21st century are already spoilt for choice. As more and more categories and products are moving away from being just a utility item to a differentiated, preferred brand, the marketers of competing brands are trying to beat each other, while trying to overwhelm the customer with choice.

Our work with fashion companies showed us that even the color black is not one shade! There are at least 10 different types of black shades. On the face of it, it looks crazy but once you place all the shades (of a product category like fabric) in front of customer, who prefers a black color; he will understand the nuances and select the one he likes and at same time will also be able to identify the shades, which are not his preference. This means that if he had not seen the 10 different shades of black, he would not have known his own preferences. Similarly there will be other customers preferring black color, who will zero down on a different version of black. This means that exposure to variety creates new niche need based segments in the market. But at the same time the demand for black, which would have aggregated under one shade, now gets dis-aggregated across 10 different shades. The explosion of variety is causing what can be seen as “Disaggregation of demand”. Such demand dis-aggregation is seen in almost every product category, bitten by the variety bug. With competition reacting with more variety, the consumers are now seeing an explosion variety in many product categories like garments, shoes, furniture, consumer durables, automobile, electronics, books, music, and even some industrial products.

Demand disaggregation is leading to formation of what Chris Anderson calls the “Long Tail” of demand. Chris Anderson, in his best seller, The Long Tail, identified the problem across product categories. It is no longer the rule of Pareto where 20% of SKUs are supposed to cover 80% of sales. Now 20% of SKUs cover just about 30%-40% sales and rest 60% of sales comes from addition of small volume of sale, each from many SKUs, thus creating the long tail of demand.

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