Bamboo Rose Blog | Retail News

How American Eagle is Establishing Supply Chain Excellence as a Competitive Differentiator

In a recent Fireside Chat with Sourcing Journal, American Eagle Chief Supply Chain Officer Shekar Natarajan and Bamboo Rose President Chirag Patel discussed this fundamental transformation in supply chain strategy.

Major retailers have recently taken a hit to their bottom lines as a result of supply chain disruptions that have delayed product deliveries and kept inventory levels short of consumer demand.

Inefficient communication between suppliers and retail organizations, shipping delays, and the added financial burden of accelerated online buying can quickly drive up operating costs and lower margins.

Apparel retailer American Eagle, however, has successfully turned its supply chain into a competitive differentiator through strategic digital transformation, which was established as a priority for the company long before the start of the pandemic.

In a recent Fireside Chat with Sourcing Journal, American Eagle Chief Supply Chain Officer Shekar Natarajan and Bamboo Rose President Chirag Patel discussed how digital transformation can support supply chain agility, responsiveness, and omnichannel fulfillment to increase customer satisfaction, reduce costs, and boost resilience to disruption.

Natarajan and Patel told Edward Hertzman, Founder and President of Sourcing Journal, that investing in supply chain technology helped American Eagle weather the pandemic and meet the changing expectations of consumers as home delivery became more common and brick-and-mortar locations saw a reduction in foot traffic during mandatory lockdowns.

 

Adjusting to changing consumer behavior in a cost-efficient way

For American Eagle, digitizing the supply chain end-to-end was crucial to adjusting to the new normal of at-home delivery.

“We laid out a strategy to say, how do we get closer to the end consumer, but do it in a smart way?” Natarajan told Hertzman.

Reducing the costs associated with getting products into the hands of end consumers is a huge advantage for major retailers. For American Eagle, which sells 225 million units per year, each cent it shaves off of product delivery costs adds up in a big way.

“We had a strategy in place before the pandemic happened to regionalize our network to get closer to the end consumer, and we were able to meet the store demand and the consumer demand faster and cheaper,” he continued.
This strategy included building larger distribution centers and leveraging brick-and-mortar locations as mini-distribution centers. This required some “scientific thinking,” Natarajan explained.

Logically plotting which inventory should go to what location and how to deploy this inventory in a rapid fashion helped American Eagle create a network conducive to omnichannel fulfillment.

“Distribution became paramount,” he said. “Distribution capacity became paramount. And decentralizing distribution became very important.”

 

A holistic approach to last mile fulfillment

Digitizing the complete supply chain helped American Eagle take a more efficient approach to last mile fulfillment.

“People talk about the last mile, but in a very loose way,” said Natarajan. “Last mile for most retailers is the last 1,300 miles.”

Improving last mile fulfillment required American Eagle to view its supply chain holistically and efficiently scale its processes.

To achieve efficiencies at scale, the retailer created its Edge Network, which involved leveraging regional carriers rather than national carriers to deliver products to end consumers.

American Eagle purchased two logistics companies, Quiet Logistics and AirTerra, as part of its effort to create a network for businesses to share supply chain logistics, boost efficiencies, and achieve lower-cost, more sustainable shipping.

“Everyone who’s shipping about 225 million units in a disrupted world of logistics is not going to have the buying power to do it alone,” said Natarajan. “So, we see that as a business opportunity.”

“Through this network that we created, we are able to reduce the number of shipments for every order placed,” Natarajan continued.

The industry average for shipments per order placed is 1.4. The Edge Network has helped American Eagle achieve an average of 1.05.

This means consumers receive fewer packages sooner and at lower cost.
Since launching the Edge Network, American Eagle’s inventory productivity has shot up 1,700 basis points. Even more compelling: its margins are up from 37 percent to 44 percent.

 

Connecting the global supply chain to domestic delivery

Apart from optimizing logistics processes, taking a new approach to global sourcing also helps retailers get products to end consumers faster and at lower cost.
Patel believes retailers need to view their sourcing partners and buying decisions through the lens of the market product will be sold into to see significant gains in efficiency downstream.

“If your vendors have the right competencies, certifications, and regions, can this serve the right global markets that you want to eventually move inventory to?” Patel said. “Do they have the right capacities? Do they follow the right supply chain practices to be compliant to Environmental, Social and Governance (ESG) requirements?”

Establishing from the start of the supply chain that all partners align with the retailers’ market, business and revenue goals is key to achieving higher margins, improvements in sustainability, and shorter delivery times.

“This global supply chain needs to have the production agility and the distribution agility to align with that,” said Patel.

Historically, Patel noted, there’s been a tendency for retailers to draw a divide between the international supply chain and the domestic logistics network. Increasing efficiencies in the post-pandemic retail landscape requires that retailers connect all aspects of the value chain.

Ultimately, technology is the enabler of the kind of end-to-end connectivity, agility, and flexibility that serves as a key differentiator during times of ongoing supply chain disruption.

“Some of our customers have said that the pandemic has forced them to rethink all of their legacy processes,” said Patel. “We’ve got customers that reduce their cycle times as much as 50 percent, which is challenging the basics of the way they’ve always been doing things.”

Abandoning legacy systems in favor of a multi-enterprise platform (MEP) is the first step for retailers looking to evolve their supply chain processes to meet the demands of the modern retail ecosystem.

An MEP digitally connects retailers with their sourcing, manufacturing, and logistics partners to ensure strategic alignment, streamline communication, and digitize collaboration across the complete product lifecycle and supply chain.

Investing in a single, unified platform that connects global sourcing, supply chain management, and logistics processes is key to increasing margins and meeting fast-changing consumer expectations during times of disruption. Ready to turn your supply chain into a competitive differentiator? Try the Bamboo Rose platform today.