1) Explain how Zara uses e-Supply chain management to obtain a competitive advantage
Transcribed Image Text:Chapter 6 Supply chain and demand 249 Introduction Supply chain management is essentially the optimisation of material flows and associated information flows involved with an organisation's operations. To manage these flows, digital business applications are today essential. Supply chain management is presented as the premier application of digital business in Part 2 of this text, since it is a unifying concept that incorporates both e-procurement and sell-side e-commerce. By applying information systems, companies can enhance or radically improve many aspects of the supply chain. In the context of Figure 1.4, which was used to introduce the concept of digital business, supply chain management can be enhanced through buy-side e-commerce, internal communications, relationships with partners and sell-side e-commerce. Digital business technologies enable information flows to be redefined to facilitate the sharing of information between partners, often at lower costs than were previously possible. Supply chain management capabilities are best known for their importance in deliver- ing profitability. For example, AMR (2008) reported that Nike, a company best known for its marketing, used improvements to its supply chain to between 10 and 15% in each of the preceding four years. But for Nike and other companies that constantly innovate to renew products, selecting the right technology is important to "orchestrate the constant collaboration between supply, demand and product management groups that brings profitable new products to market'. Managing distribution and returns from e-commerce sites is a further challenge. Clear Returns estimated that returns cost UK retailers £60 billion a year, of which £20bn is generated by items bought over the Inter- net. A recent report in the Financial Times (Ram, 2016) said that a culture of returning is becoming 'more established' in the UK and Germany, and online fashion retailer ASOS has found that around 70% of items ordered in Germany are returned, compared with 25% in the UK for women's fashion. This is costly for retailers; according to lain Prince, supply chain director at KPMG, it can cost double the amount for a product to be returned into the supply chain as it does to deliver it. For example, if a customer purchases a coat online, to pick and deliver the order costs between £3 and £10 but it could cost double or treble that to be processed on the way back (Ram, 2016). The importance of supply chain management capabilities to customer satisfaction and therefore repeat business for a digital business is highlighted by Case study 6.1. ease operating margins of Case Study 6.1 Fast-fashion retailer Zara uses its supply chain to achieve competitive advantage Amancio Ortega founded Zara in Spain in 1975 and since usually relies on fabric sourcing, cutting and sewing then the fast-fashion chain has grown to 1,770 stores in facilities near to its design headquarters in Spain - i.e. 86 countries arcund the world. In 2012, Zara reported a in 'proximity markets' such as Spain, Portugal, Turkey sales income of $13.6 billion. It is widely reported that the and Morocco. Although the wage costs are higher than retailer's success is down to its supply chain. The company produces around 450 million items a turnaround time is much faster. year and regular, small-batch deliveries happen twice a week to all of its stores around the world. The company season's line six months in advance. It locks in 50-60% adapts couture designs, manufactures, distributes and of its line by the start of the season, which means that retails clothes within just two weeks of the original design up to 50% of its clothes are designed and manufactured First appearing on the catwalk. It owns its supply chain in the middle of the season. and competes on its speed to market. The company operates a 'just in time' production 'must-have', designers can produce new styles that are fast- process - it keeps a significant amount of its produc- tracked to stores while the trend is still going strong. Inter- Elon in-house and makes sure its own factories reserve nally, store managers provide customer feedback on what 35% of their capacity for in-season adjustments. Zara shoppers like, dislike and what they are looking for. ThisD using the facilities of developing world counterparts, the Interestingly, Zara only commits 15 to 25% of a Therefore, if a certain style or design becomes a new
Transcribed Image Text:Zara's headquarters in Spain Source: Xurxo Lobato/Getty Images Figure 6.1 information is then funnelled back to Zara's designers Like the Boots example (see Mini case study 6.1, p. 255), the centralisation of Zara's logistics helps create who instantly begin sketching. The company also has extra capacity to respond to demand; it typically operates 4.5 days a week at full coordinated manner. The retailer also sticks to a predict- capacity, leaving some flexibility for extra shifts and tem- porary labour when needed. This means that the company provides frequent ship- also pre-labelled and priced, based on their destination. ments and a higher number of customer sales, allowing the business to sell more items at full price. Zara sells around 85% of its clothes at full price, compared to the industry average of 60-70%. Unsold items account for less than 10% of its stock, when the industry average is 17-20%. When it comes to supply chain management, the company operates a very lean system; there is very little get a product out from concept to store in just 15 days - excess inventory/dead stock in Zara's warehouse. Inven- to put this in context, the industry standard is six months! tory optimisation models are used to determine how much should be delivered to every one of its retail stores twice a week. Rapid movement of new merchandise an environment whereby decisions are made in a very able and fast order-fulfilment rhythm - it sends out two orders a week on specific days and times. Clothes are This predictability also extends to Zara customers, who know when to visit stores for fresh new garments. Zara's strong distribution network means that the com- pany can deliver goods to its European stores within 24 hours and to American and Asian outlets in less than 40 hours. According to Professor Nelsen Fraiman, Zara can Questions 1 Explain how Zara uses supply chain management to gain competitive advantage. 2 Zara is obviously a large global business - what key success factors from its SCM approach can cross over to smaller operations? through the stores and knowledge that some of the items may not be replenished is another incentive for custom- ers to buy on the spot. This approach also ensures there is no build-up of unpopular stock. Zara's approach of quick in-season tunaround, from production facilities close to its distribution headquarters in Spain, means that if it chases the latest trend and it does not sell well, the company loses very little (i.e. it's a failed experiment and there have time to try a different style). This agile approach is very similar to the marketing concept of 'growth hacking' (which we cover in Chapter 10). Sources: www.tradegecko.com/blog/ zara-supply-chain-its-secret-to-retail-success www.telegraph.co.uk/finance/newsbysector/retailandcon- sumer/11172562/How-Inditex-became-the-worlds-biggest-fashion- retailer.html www.supplychain-forum.com/documents/articles/case%20 study%20zara1.pdf

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1) Explain how Zara uses e-Supply chain management to obtain a competitive advantage

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