There are a number of factors that determine if a firm will achieve success. The supply chain techniques that a firm employs are among these factors. These techniques are especially important for firms in the retail industry. This industry is characterized by rapid changes. To stay ahead of the competition, companies need to develop supply chain tools that allow them to ensure that products reach the market in good time (Autry, Goldsby & Bell, 2012). Any delays in product delivery could be catastrophically costly. Zara, a company in the retail industry with operations in at least countries, has developed an ingenious solution to the supply problems that many companies in this industry grapple with (“Case 2”, 2006). Limited Brands has also created a sophisticated system to handle is supply needs. In this paper, the methods adopted by the two companies are explored. The paper also discusses the important role that supply chain management plays in the retail industry and some of the problems that Limited Brands faced. Recommendations for the improvements that can be made to the supply chain system at Zara are also offered.
Main features of the cases
Zara
As already noted above, Zara is a player in the retail industry. The company has managed to open and operate thousands of retail outlets in 31 different markets (“Case 2”, 2006). One of the factors that are responsible for this feat is the elaborate supply chain system that the company has put in place. The key feature of this system is the quick delivery of products and limited production. The company is able to develop a product and avail it in stores in two weeks! (“Case 2”, 2006). This is indeed incredible since it usually takes longer for firms in the retail industry to design, manufacture and ship their products. The company has a team of designers that are constantly exploring market trends to ensure that they deliver products that are in line with prevailing trends in the market (“Case 2”, 2006). Additionally, the SCM system that Zara has developed integrates technology. The company’s employees obtain feedback from users and enter this into handheld computers. The designers are then able to base their designs on consumer feedback. Thanks to the SCM system, Zara is able to deliver new products every week. This keeps consumers coming back for more (“Case 2”, 2006). Zara’s SCM system is also characterized by prudent inventory management. The company has standardized the information about its products and this has enabled the company to expedite the production process.
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Limited Brands
Limited Brands is another key player in the fashion industry. It manages such brands as Victoria’s Secret and White Barn Candle, among others (“Case 2”, 2006). The SCM system that this company has adopted was in response to numerous challenges that it faced. The company had acquired very many brands which it was unable to manage effectively since each brand operated its own system. Some of these systems were redundant and it was difficult to manage the brands in a unified and standard fashion (“Case 2”, 2006). In response to these challenges, the company contracted Limited Logistics Services (LLS). LLS proposed that the company integrates the supply chain operations of the different brands. While this proposal was met with some initial opposition, it was later adopted after it was realized that it significantly reduced product delivery times (“Case 2”, 2006) . The company also adopted modern technology for the management of the supply chain operations of the different brands.
Role of SCM in the retail industry
Supply chain management plays a very important role for firms in the retail industry. One of the functions that SCM serves in this industry is allowing firms to enjoy cost savings (Coyle et al. 2012). By designing efficient SCM systems, firms are able to avoid the huge costs that they would otherwise incur through long product delivery processes. The other role is that thanks to SCM, companies in the retail industry are able to ensure customer satisfaction (Coyle et al., 2012). Many customers dislike having to wait too long for their products. By developing SCM systems that ensure quick product deliveries, companies in the retail industry are able to keep their clients happy and satisfied.
In addition to the roles mentioned above, SCM systems in the retail industry also serve the important function of enabling firms to avoid wastage. The case of Zara should serve as an illustration for this point. Thanks to its elaborate SCM system, Zara is able to avoid having to offer huge discounts on its products (“Case 2”, 2006). As opposed to other firms in the industry which have to clear inventory by offering huge discounts, Zara only has to offer modest discounts since it can easily deliver new designs. It can be said that Zara is able to stay clear of the wastage that results when firms offer big discounts. Additionally, thanks to SCM, companies in the retail industry are able to tackle the cut-throat competition that defines this industry (Autry, Goldsby & Bell, 2012). Overall, SCM management plays a crucial role in driving the performance of companies in the retail industry.
Zara’s competitive and supply chain strategies
An examination of Zara’s case reveals that the company’s competitive strategy is indeed aligned with its strategy for supply chain management. The SCM strategy essentially complements the competitive strategies that the company has developed. Zara faces intense competition from other players in the industry. To tackle this competition, the company has created a SCM system that enables it to deliver new products within very short times and ensure that its products are consistent with prevailing trends (“Case 2”, 2006). Additionally, while competitors are forced to offer huge discounts, Zara only offers discounts on about 18% of its products. It is true that these discounts eat into Zara’s revenues. However, it has to be remembered that to survive in the fashion industry, Zara has to wow its customers with new products. The discounts allow the company to clear its shelves of old stock that it replaces with fresh supplies (“Case 2”, 2006). Zara understands that it can only defeat the competition by integrating communication technologies into its SCM system. As mentioned earlier, the company’s designers rely on the feedback collected at its outlets. Using this information, the designers are able to deliver timely and trendy products, thus enabling the firm to remain at the top of the fashion industry (“Case 2”, 2006). Given the role that the SCM strategy plays in offering Zara a competitive edge, it can indeed be argued that the SCM strategy is aligned with the competitive strategy.
Role of Zara’s SCM system and recommendations
From the discussion so far, it should be clear that Zara’s success hinges almost entirely on its SCM system. This system has fuelled the performance of this company, allowing it to eclipse the competition. Short lead time is one of the benefits that the company enjoys as a result of its SCM system (“Case 2”, 2006). The company’s clients do not have to wait too long for new designs. In only two weeks, the company is able to design and ship new products to its stores across the globe. The other role that the SCM system plays is that it facilitates product diversity. As already mentioned, the company routinely collects information from its customers in an effort to assess prevailing sentiment and trends. The company then integrates the customer feedback in its designs. Essentially, the SCM system allows Zara to be insightful and informed in its product designs.
Apart from the roles discussed above, Zara’s SCM system serves as a tool for shielding the company against the volatilities in the fashion industry. Products in this industry are highly perishable and unless they are sold in good time, a company will face huge losses as it is forced to offer the products on discounts. Zara is spared the need to offer big discounts. The company produces designs in rather small quantities (“Case 2”, 2006). This way, even when the designs are not well received by consumers, the company can simply move to another design. Another benefit that the SCM system presents Zara is that it is able to deliver products from its manufacturing bases to its outlets in a very short time. The company has developed an intricate delivery process that is composed of underground tracks through which it is able to deliver products in large volumes and in record time.
The SCM system that Zara has developed has presented it with many benefits. This is not to say that the system is without flaws. In fact, there are some weaknesses in the system which hamper the delivery process. One of the weaknesses regards the location of the company’s manufacturing plants. Most of these plants are situated in European markets. These markets are characterized by high labor costs (“Case 2”, 2006). The company incurs huge costs and this lowers its profit margins. This weakness can be addressed if the company moves its manufacturing products to other regions where labor costs are lower. For example, Asian countries are preferred by Western companies owing to the low labor costs. It is true that by moving its manufacturing operations to such markets as Asia, the company may need more time to ship products. This will indeed present a new challenge. However, the company can invest in faster means of delivery such as air transport. While air transport could be costly, the gains that the company makes through the lower labor costs should be sufficient to offset the high freight charges.
For every style that it develops, Zara makes between $200,000 and $300,000 (“Case 2”, 2006). These figures are significantly lower than the revenues that other firms in the industry generate from their products. It can be argued that the low revenue is the necessary price that Zara must pay for the short product refresh cycles that Zara enjoys. However, the company should reject this argument as it can indeed generate higher revenues without compromising its refresh cycle. The company will need to produce more of its styles. The limited product supply should carry the blame for the low revenues. Through mass production, the company could enjoy the economies of scale. Higher profit margins are among the benefits of large scale production (Carbaugh, 2008). It is possible that the company’s products will stay in shelves longer if it produces the styles in greater quantities. This is a risk that the company should be willing to face if it truly wishes to extend its profit margins.
SCM problems faced by Limited
There are a number of SCM problems that Limited faces. One, the company manages many brands, each of which operates its own SCM system (“Case 2”, 2006). It is difficult for the company to develop standard procedures that apply to all the brands. While the integrated system that the firm created addresses this problem, the problem still persists since there is a backlog. Two, while it is not necessarily a SCM problem, competition is another challenge that Limited faces is intense competition that is posed by retail companies (“Case 2”, 2006). This competition has forced Limited to alter its SCM operations is it focuses its efforts on the high-end market.
Integrated brand delivery at Limited
Integrating brand delivery is indeed the correct strategy for Limited. This strategy solves most of the problems that the company faced. For instance, thanks to the new strategy, the company is able to standardize its SCM processes. It has developed a strong IT team which is adequately funded and charged with the mandate of overseeing the SCM operations of all the brands under Limited (“Case 2”, 2006). Limited has also managed to bring its agents on board thanks to the integrated SCM system. The company hopes to integrate as many as 45 agents into its OSCAR system. This system enhances accountability and reporting. It can therefore be argued that through the integrated brand delivery, Limited will be able to address redundancies and wastage.
In conclusion, no firm can achieve success without adopting sound SCM practices. Zara and Limited serve as evidence of the effectiveness of SCM. Thanks to SCM, Zara has managed to stay at the top of the fashion industry. This company can design and deliver styles in just two weeks thereby offering its clients new and fresh designs. On the other hand, Limited has managed to solve problems presented by the fact that it has acquired many companies which have different SCM operations. The success that these two companies have achieved should offer motivation to other firms which also wish to embrace SCM.
References
Autry, C. W., Goldsby, T. J., & Bell, J. E. (2012). Global Macrotrends and their Impact on
Supply Chain Management: Strategies for Gaining Competitive Advantage.
FT Press.
Case 2. Real World Cases. Zara and the Limited Brands. (2006).
Carbaugh, R. (2008). International Economics. Boston: Cengage Learning.
Coyle, J. J., Langley, C. J., Novack, R. A., & Gibson, B. (2012). Supply Chain Management:
A Logistics Perspective. Boston: Cengage Learning.
