How Does Shein Manage its Supply Chain?

SHEIN's brand mission is "Everyone enjoys the beauty of fashion". The reason why many young consumers have become loyal users of SHEIN is largely due to its "low prices", "ultra-fast trend following", and "rich styles". The core that supports this ultimate cost performance lies in its elaborately constructed flexible supply chain system. This is a comprehensive platform with full digitalization as the core competitiveness, integrating product design, warehousing and supply chain, Internet research and development, digital construction, and online operation.

(1) Product Design

SHEIN has no physical stores and relies entirely on e-commerce sales. This model enables it to be far more sensitive and efficient in using data than many fashion brands. It has a designer and buyer team of 300 - 400 people, whose main job is to conduct operation and data analysis. SHEIN's AIDC digital intelligence center undertakes the important responsibility of researching and developing personalized recommendation algorithms for operation. Based on a large user base in different countries, SHEIN can extensively collect a large number of data points on consumers' purchasing behaviors and items added to the shopping cart. Through in-depth analysis of these data, it empowers the design and production departments to conduct modular arrangement and combination designs. After producing ready-made clothes, it uses algorithms to deeply explore users' preferences, conduct a large number of personalized recommendations, and continuously adjust based on users' feedback, thereby improving the reach and drainage rate of recommendations. In order to better adapt to different cultural customs around the world, SHEIN's website and applications will automatically adjust the pop-up window content according to the user's login location and language, and even change the models in the photos to provide products that match the style for consumers in different regions.

(2) Production Link

The delivery period of traditional clothing manufacturers is usually 3 to 6 months, but SHEIN can significantly shorten the design and manufacturing cycle to only about 10 days. The turnover speed of SHEIN products is extremely fast. The platform introduces 6,000 "Stock Keeping Units" every day, and 70% of the products are on the shelves for less than three months. At the same time, SHEIN's "small order and quick return" model requires suppliers to produce new products in small batches and conduct consumer tests. If a new design is popular, the company will quickly place additional orders; otherwise, if it is not popular, no more orders will be placed. Due to the high cost of pattern making before a piece of clothing goes into production and the relatively high labor cost, "workshop-style" suppliers often hesitate when facing SHEIN's retail orders that are much smaller than those of traditional fast fashion brands. However, in pursuit of the ultimate cost performance, SHEIN established a pricing system at the design stage, which can reverse-calculate the cost, lock the pricing range of the product, and then ask suppliers to quote, and only purchase from those within the range. This leads to a relatively limited profit margin for suppliers. However, SHEIN also provides corresponding strong financial support. For example, for the expensive but necessary step of "pattern making" in the clothing production process, SHEIN will subsidize the factories, bear the pattern-making costs, and even provide loans to producers to purchase factory buildings. Wang Hao, the owner of one of the first factories to collaborate with SHEIN, said: "SHEIN makes payments once a month, or even once every two weeks or weekly. For ten years, SHEIN has maintained an excellent record of timely payment, which is extremely rare in the clothing industry."

(3) Supply Chain Management

SHEIN has over 300 core suppliers in Panyu, Guangzhou, and the total number of suppliers in the entire system exceeds 4,000. Since suppliers are required to be close to the procurement center, both parties can meet and negotiate even within a short period of time. In addition, all suppliers will install the intelligent collaborative management system (Manufacturing Execution System, MES) independently developed by SHEIN, achieving the exchange, sharing and utilization of all information flows from design, pattern making, production, etc. Information such as product lists, order status, and inventory balance can all be presented in real-time and visually. Due to the transparency of the production progress, SHEIN can accurately calculate the capacity utilization rate of all factories and achieve precise matching of the front and back ends, thereby establishing a highly adhesive and trusted cooperation platform with suppliers. While tracking production, it has also completed efficient management of suppliers. In order to ensure product quality, SHEIN has established strict and detailed evaluation standards for suppliers. The rating of suppliers not only affects their monthly new arrivals and bonuses but also adopts a last-place elimination mechanism to ensure that the quality of suppliers remains at a high level.

(4) Logistics and Distribution

In terms of distribution, SHEIN has digitalized its logistics system, significantly improving the efficiency of logistics and distribution. It can achieve global delivery within seven days, and the average daily global shipment of goods reaches 1.1 million pieces. In addition, SHEIN effectively guarantees the quality of distribution services by cooperating with local enterprises abroad. In 2015, SHEIN entered the Middle East market. The average order value in the Middle East is very high, with an average of about $150 per package, but the biggest problem in the local area is the insufficient supply of the "last mile" logistics and distribution system, and at the same time, consumers prefer cash on delivery. To expand the market, SHEIN cooperated with the Saudi state-owned enterprise NAQE - SHEIN is responsible for the initial logistics, and the local partner is responsible for the collection. This move by SHEIN successfully solved the local logistics problem, making users more willing to use SHEIN's services and make online payments, significantly reducing the proportion of cash on delivery to 30%.