SUPPLYING FAST FASHION

Here is a comparison of the approaches taken by H&M, Zara and Benetton to managing their supply chains* divided inthe following strategic areas :

Design:

• H&M: The three main components are: fashion, Price and quality. 50 pattern designers, 100 buyers, Budget controllers.
• Zara: Market specialists, 3 different product areas: women’s, men’s and children’s garments. Has around 300 designers producing 40,000 items per year of which about 10,000 go into production.
• Benetton: About 300 designers researching new materials and clothing concepts.

Supplies:

• H&M: Buyers and budget controllers have to find the optimum balance between the three main components (fashion, Price and quality), and then volumes and delivery dates are decided.
• Zara: Market specialists and buyers are in regular contact with Zara retail stores, discussing customer reaction to new designs.
• Benetton: Between 5 and 10 per cent of garments are customized,

Manufacturing:

• H&M: Does not own any factories, and works with around 750 suppliers, half of its production takes place in Europe, and the rest mainly in Asia.
• Zara: They own most of the manufacturing capability used to make their products. About half of its products are produced in its 20 network factories in Spain.
• Benetton: Italian plants, and come factories in North Africa, Eastern Europe and Asia. Most of customized production is made in Eastern Europe, and the company’s central facility at Italy decides which product is going to be produce and where.

Distribution:

• H&M: The stock management is handled internally and physical distribution is subcontracted, most of the product arrives to H&M’s transit terminal at Hamburg, where merchandise is inspected and allocated to the stores.
• Zara: Automated warehouses close to main production centres, Zara is planning to open a second automated warehouse.
• Benetton: Automated warehouses close to main production centres, Benetton is planning to use Radio Frequency Identification tags to track its garments.

Retail:

• H&M: Stores average size are 1,300 square meters and are owned and run by H&M.
• Zara: Stores average size are 800 square meters, garments rarely stay in store for more than 2 weeks.
• Benetton: At one time the majority of its retail outlets were small shops run by third parties, now they have been joined by Benetton-owned and –operated larger stores.

Suppliers:

	Design	Supplies	Manufactures	Distribuition	Retail
Benetton	XXX		X	X	X
H&M	XX			X	XXX
Zara	XXX	XX	X	XX	XXX

Full Ownership	No Ownership
XXX

Oscar M. Zúrrica Braunstein.

Student ID:1427532 
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EDIT BY: B. Zhelev

To sum it all up, we could say that the structure of the supply chains the three companies have chosen, represents and reflects their main strategies and how they position themselves on the market. 

Although these brands operate in the same industry, they are targeted towards different types of clients and markets, thus they need to adjust their supply chains to the different uncertainty of demand. As it can be seen from the comparison made, Zara and H&M are relying on much more responsive supply chain models, due to the fact that it is hard to predict the trends  and fashions early on, while on the other hand Benetton have developed a more universal design of their clothes, which has far more predictable demand, and as a result are mostly focused on the efficiency of their supply chain, rather than it's responsiveness. 

Figure 1. - Strategic fit of the Supply chains.

Having all that said, it can be concluded that the high-responsiveness approach that ZARA has developed and H&M has embraced, are a direct example of a strategic fit with the companies' strategy to offer trendy and up-to-date fashion and the highly efficient system BENETTON use gives them an edge in the market for simply styled quality apparel. 

B.Z.Z.
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Push and Pull system within the supply chain

Push and Pull system within the supply chain

A supply chain strategy determines when a product should be:

-      

•       produced;
•       delivered to the distribution centers;
•        available in the retail channel and followed by providing them to the end customers.
  

Actual customer demand drives the process when the supply chain is designed as a pull supply chain, the company prefer to know how is the customer demand and based on it the products will be produced while push strategies are driven by long-term projections of customer demand which is more anticipated. Push system makes the companies do focuse more on the long-term KPI’s of the last period of time and based on that they will produce a number of products a weekly, monthly production which is depending on the production stratey of the company. They will push it then into the market after the prooduction.

A simple explanation of a pull systeem could be describe as:

Pull: 

“The company must almost be  sure about the customer demand orders before they take any action of production.”

Companies that operate a pull system they will begin with a customer’s order. They only make enough products which is needed and they will be quit sure about the customer’s orders before the production. An advantage of this system is reducing of cost of carrying and storing goods.

However, a disadvantage of this system is to run into ordering dilemmas; for example if the suppliers can not deliver on time that finally is followed to the customer dissatisfaction. Japanese model of JIT delivery is an good example of pull inventory control system. By using JIT system the inventory levels will be kept to a minimum by only having enough inventory, not more or even less, to meet customer demand.

Push:

“The company does focus more on the key performance indicators of the past based on the hystorical information. They will produce a certain numbers of products and bring it to the market.”

The push system of inventory control involves forecasting inventory needs to meet customer demand. The company must know which products in which quantity are needed to be purchased.

Disadvantages of the push inventory control system are that forecasts are often inaccurate as sales can be unpredictable and vary from one year to the next. Another problem would be when there are products left at the inventory because of the wrong forecasting which increase the company costs for storing those goods.

A Materials Requirements Planning (MRP) does make an important sense for a push system organized company. MRP combines the claculations for financial, operations and logistics planning. It is a computer-based information system which controls scheduling and ordering. The purpose is to make sure raw goods and materials needed for production are available when they are needed. The more accurate of working with MRP , the less risks of wrong forecasting and making costs.

Lean inventory straty:

A combination of PULL and PUSH system which is also called the push-pull inventory control system is a design of strategy that some companies have been came up with.This system will demands a more accurate forecast of sales and adjusts inventory levels based upon actual sales.

These kind of companies would like to keep any customers for themself as much as possible. By performing the lean inventory control system. They try to stablisate their supply chain and the reduction of product shortages which can cause customers to go elsewhere to make their purchases. The planners would be aware of short – and long-term productiion needs very well to make this true.

Which system might be the right system?

Its hard for the inventory managers to know what quantity of products to order and when. It will depend in large part on what type of product is being produced. It is impossible for an automobiles factory to produce with the JIT system or pull inventory control method. A large range of different items make it too complex to only produce in an amount which is needed to fulfill some specific customer orders. They need to use a PUSH system.

However a company like Dell, are integrated the push-pull system. The raw materials are already pre-ordered and stored. They will assembled the ordered computer for the certain customers when they make an order.

Zara: Apparel Manufacturing and Retail

Zara is a chain of fashion stores owned by Inditex, Spain’s largest apparel manufacturer and retailer. In 2009, Inditex reported sales of 11 billion euros from more than 4,700 retail outlets in about 76 countries. In an industry in which customer demand is fickle, Zara has grown rapidly with a strategy to be highly responsive to changing trends with affordable prices. Whereas design-to-sales cycle times in the apparel industry have traditionally averaged more than six months, Zara has achieved cycle times of five to six weeks. This speed allows Zara to introduce new designs every week and to change 75 percent of its merchandise display every three to four weeks. Thus, Zara’s products on display match customer preferences much more closely than the competition. The result is that Zara sells most of its products at full price and has about half the markdowns in its stores compared to the competition.

Zara manufactures its apparel using a combination of flexible and quick sources in Europe (mostly Portugal and Spain) and low-cost sources in Asia. This contrasts with most apparel manufactures, who have moved most of their manufacturing to Asia. About 40 percent of the manufacturing capacity is owned by Inditex, with the rest outsourced. Products with highly uncertain demand are sourced out of Europe, whereas products that are more predicable are sourced from its Asian locations. More than 40 percent of its finished-goods purchases 

and most of its in-house production occur after the sales season starts. This compares with less than 20 percent production after the start of a sales season for a typical retailer. This responsiveness and the postponement of decisions until after trends are known allow Zara 

to reduce inventories and forecast error. Zara has also invested heavily in information technology to ensure that the latest sales data are available to drive replenishment and production decisions.

Until 2002, Zara centralized all its European distribution and some of its global distribution through a single distribution canter (DC) in Spain. It also had some smaller satellite DCs in Latin American countries. Shipments from the DCs to stores were made twice a week. As Zara has grown, it has built another DC in Spain. In 2009, Inditex distributed to stores all over the world from eight DCs located in Spain. The group claimed an average delivery of 24 hours for European stores and up to a maximum of 48 hours for stores in America or Asia from the time the order was received in the DC to the time it was delivered to the stores. Shipments from the DCs to stores were made several times a week. This allowed store inventory to closely match customer demand. 

Questions

What advantage does zara gain against its competitors by having a responsive supply chain?

It allows zara to match demand for fickle trends more accurately. This in turn means that they can sell products at full price and thus secure their margins and make a profit.

It also increases customer loyalty to the brand as zara builds a reputation for being up to date on trends which increases demand products.

It also allows zara to reduce inventories and forecast error.

Why has Inditex chosen to have both in-house and outsourced manufacturing?

In-house manufacturing is used as part of a responsive pull supply chain strategy and also as the final leg of its manufacturing process. After the sales season has started Inditex begins to use in-house manufacturing as a way of quickly responding to trends. It either makes new products or turns incomplete products made from its outsourced manufacturers and turns them into specific finished-goods in response to market demands. Outsourced manufacturing is used to create non-specialised products that can be produced in bulk.

Why does zara source products within uncertain demand from local manufacturers and products with predictable demand from Asian manufacturers?

Products with uncertain demand will most likely be produced at a lower volume to products with a certain demand and therefore sourcing from local manufacturers provides zara the speed it needs to test and deliver these products before they become obsolete and have to be sold at a discount. It is part of a responsive pull strategy.

Predictable demand products are made in Asia due to low labour costs and high volume of products needed. It is more cost effective to manufacture in bulk due to the fact that predictable demand products have a larger window with which to deliver products without becoming obsolete. It also means that they can be made before the season starts as part of a push strategy

What advantage does Zara gain from replenishing its stores multiple times a week compared to a less frequent schedule?

This makes sure that store inventory is always up to date and that new designs can be introduced often to meet trends. It also means that products can be replenished if demand is high and can be taken away if demand is low. Furthermore, it is responsive to the fickle nature of the fashion market if a new trend comes into fashion zara need to be able to adapt their quickly and change their in store merchandise to meet customer demand.

How does the frequency of replenishment affect the design of Zaras distribution system?

The frequency of replenishment has made zara increase the size and also centralise its distribution design by handling its global operations through 8 Distribution canters based in Spain. This centralised structure means that products can be distributed rapidly from in house manufacturing in order to meet worldwide demands in as little time as possible.

Do you think Zara’s responsive replenishment infrastructure is better suited for online sales or retail sales?

Whilst its quick distribution system allows zara to respond to trends very quickly its lack of decentralised distribution means that it is better suited to retail as online sales tend to have more a diverse product demand and customers expect quicker delivery times. Companies such as amaazon are able to respond quicker to online sales due to the fact that they have distribution centres all around the world and can offer same day delivery. Zaras 24 hour delivery times from Spain to outlets all around the world may not be as efficient with online sales as it is with retail sales.

What information infrastructure does Zara need in order to operate?

Zara needs a constant flow of information in the form of sales data to accurately forecast demand and respond quickly. They need a centralised information infrastructure in order to coordinate distribution and obtain information close to real time. 

Gbade Adewole

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