Title: Critical Analysis of Various Strategies of supply chain management at H&M, Benetton

and Zara.

Author:

Submission Date:

1. Executive summary:

This assignment is a case study. The focus of this case study is the supply chain of three companies of

garments retailers. These fast fashion quicker picker upper class retailers of H&M, Benetton and Zara are

competitors in the market globally. Each of these brands in multi national. The case study is about the

supply chain strategies of these case studies. The structure of the case study has been divided into four

stages of designing, manufacturing, distributing and selling. Each of these companies individual

strategies of supply chain are being critically analyzed in question one of this assignment. And the

second question critically evaluates the most effective of these supply chain strategies followed.

The strategies of H&M are different from ZARA’s and Benetton supply chain strategies. The later two

companies have the automated systems of distribution that connected together the designing and

manufacturing plants spread all over the world. ZARA’s is following the most efficient supply chain

strategy because the designing is the most crucial phase of the whole manufacturing of garments

business. The designing is prototyped and confirmed for its acceptance in society by market specialists

before it is launched in the market. The manufacturing is specialised and performed by highly skilled

people.

Table of contents.

1. Executive summary:............................................................................................................................... 2

2. Introduction:.......................................................................................................................................... 4

1.1. Aims:............................................................................................................................................. 4

2. Question 1:............................................................................................................................................ 4

3. Question 2:............................................................................................................................................ 9

4. Conclusion:.......................................................................................................................................... 13

5. References:.......................................................................................................................................... 14

2. Introduction:

The case study of Supplying fast fashion is about the quicker picker upper class retailers of H&M,

Benetton and Zara. Each brand has its own business initiative fable but they have been successful in

retailer business and all are multi national. The structure of the case study has been divided into four

stages. These stages are designing, manufacturing, distributing and selling. Each of these companies

individual strategies of supply chain are being critically analyzed in question one of this assignment. The

second question gives the overall analysis of these three retailer companies of garments. The most

effective supply chain and operations management systems is determined in this question .

1.1. Aims:

The aims of this case study are:

To critically evaluate the case study containing cases for three fashion retailers.

To critical analyze the given supply chain strategies of each of H&M, Zara, and Benetton from

operations management viewpoint.

To figure out the best supply chain strategy followed from either of these brands.

These aims are the focus of entire case study. The following are answers to questions will be fulfilling

these aims effectively. These tasks are critically evaluated and balanced.

2. Question 1:

Critically evaluate from an Operations Management perspective, the different supply chain

strategies adopted by H&M, Benetton and Zara as described in the ‘Supplying Fast Fashion’

attached case.

Theoretical framework.

Answer: The operations of H&M, Benetton and Zara are different in terms of their supply chain. The

strategies of each of these fashion retailers vary from each others. The strategies for supply chain of

each are described below:

H&M:

The H&M started its business in 1947 from Sweden. The business has the cosmetics and clothing line.

There are over 1000 stores in more than 20 countries of the world. The supply chain starts from Sweden

Stockholm’s. The designing stage being the first takes many components under consideration before

manufacturing the products. The fashion, price and quality are the considered components for

designing. More than 100 designers design products by joint efforts of a team of 50 pattern designers.

The designer department create an optimum balance in buying volumes, extensive clothing, fashion

knowledge, costs of every component and designing processes.

H&M does not have its own manufacturing factories instead it deals with 750 suppliers. Half of

manufacturing burden is taken by the European factories and rest is taken by Asian factories. More than

21 manufacturing offices reside in the world the control the production and other supply chain. The

relationship between suppliers and production offices controls the main supply of garments around the

world as it determines the buying of clothes. The dying can be done as per specifications as a later stage

after the order has been placed. The supply lead time ranges from 3 weeks to 6 months. It all depends

on the nature of the good produced. Trendier garments take short lead times.

The distribution at H&M is much of manual done by the subcontractors. The stock management is done

internally. The H&M Transit Terminals in Hamburg supports the routing of stock to retail stores. There

are stock rooms that receive the inventory. These stores check the orders inspect and allocate the stores

centrally. There is a central stock room which is called Call Off Warehouse. This is the main store room

for final distribution to stores for selling.

The final supply chain stage is when the garments reach the retail stores. These stores are sole property

of H&M. the average size of the retail stores are 1,300 square meters. The air and atmosphere is created

to be comfortable and inspiring.

Zara:

Zara brand is a Spanish fashion retailer started in 1975. It is a part of Inditex group which is a global

specialty retailer. According to the survey of 2001 there are more than 1300 stores in over 39 countries

(Sanblue 2011).

The supply chain at ZARA follows the vertical integration. The supply chain of vertical integration means

that the distribution is controlled by only one entity to increase the company’s market share (Izi 2011).

The designing of ZARA clothing is done with the combines efforts of designers, market specialists and

buyers themselves. The designing of three types is done distinctively in three groups for men, women

and kids. There are design halls where the market specialist to design with buyers in the area. The

prototypes are created in a workshop. More than 300 designers are there doing the designing of

clothes.

Zara lead times are fastest in fashion garments industry. The rack time is almost 15 days for these

garments in racks. Almost half of the manufacturing is done in 20 Spanish factories. Just like Benetton,

the operations are more of capital intensive operations like dying and cutting, and the labour intensive

operations are done by subcontractors. The dying is done at dying assemblies. Most of ZARA factories

work in single shift systems to retain flexibility in system.

The 3rd is distribution stage of Benetton where it has been operating in automated warehouses. A large

investment has been done for the automation of warehouses. These warehouses reside closer to

manufacturing plants. The operations of storing, assembling and pack the items is performed in this

unit. The assembling is also done in these warehouses as per specifications. The automation called for

the heavy investment but the benefit to it goes all the way around. It makes the operations all online

and fully updates and completely synchronized all the time. The new project is under consideration of

making more automated warehouses.

The retailing and selling is the last stage of supply chain. The stores of ZARA are smaller as compared to

H&M stores. Each store has an average size of 800 square meter. The best thing about ZARA garments

is that the clothes are sold within the 15 days of arrival in stores. The reason being the designs are

always unique and robust. Due to this the customers are always looking for a new look for their clothes

(Ward 2010). The supply of small batches but with regular periods of time are shipped to these stores.

This avoids the delaying and purchasing from this store frequently.

Benetton:

Benetton started the retail business over fifty years back. It started with sweaters of casual type. By

2005 there was the presence of this group in over 120 countries. There are 5000 above stores world

wide of United Colors of Benetton (UCB).

The supply chain strategy of Benetton also starts with designing stage. The designing of clothing is done

by more than 300 designers. The ranges of these clothes are standardised globally. These ranges are

specified for country to country.

The manufacturing stage of supply chain was situated in Italy. The business expanded to other countries

to save the labour costs. The offshore manufacturing units are now in North Africa, Asia and Easters

Europe. The central manufacturing unit has the expensive technology facilities. This central unit

coordinates with other operations units in a network of small contractors. The main responsibilities are

assigned and controlled from the Italian central manufacturing unit like jackets are manufactured in

Eastern Europe and T-Shirts are manufactured in Spain. The dying of clothes are the last thing in supply

chain.

The stage three is of distribution which is much like that of ZARA’s. Benetton established the automated

warehouse and spend bulk of money in making the operations all automatic. These warehouses are

placed near manufacturing plants so as to store and pack the items. The assembling is also done in these

warehouses. These automated systems are the major investments because it makes the operations all

online and fully and completely synchronized. Also the RFID tags are attached to these garments for the

sake of tracking these garments.

The final stage of Benetton is retail as well. The retail operations have been reshaped in 2000. Once

upon a time the retail stores were small shops run by third parties. Now these shops have been the

Benetton owned mega stores of 1,500 to 3,000 square meters. These stores can reinforce shopping at

Benetton stores.

The supply chain of these three fashion garment sellers is competent with each other. The supply chain

strategies of Benetton and ZARA are very organized and automated where as the supply chain of H&M is

more concerned with the subcontractors and the suppliers within the supply chain. The automation in

warehouses makes the supply chain effective and reliable. The strategies of ZARA are most idealistic for

an unbroken network of retailing. The production of each product is specialised in each country and

manufacturing unit. This is how the designs are not repeated because of the highest level of

specialization. The automation is another big reason for success of the retailing. Finally the clothes that

arrive at ZARA stores have the rack life of only 15 days.

3. Question 2:

In the light of the above, recommend the operations strategy which you think is most

effective for a fashion retailer to adopt going forward and justify your position.

Answer:

Johnson, Scholes & Whittington (2008) define strategy as the direction and comprehensive long

term scope of an organization that helps achieving competitive advantage through its

operational configurations of resources within a highly challenging environment in order to

fulfil the needs of markets and expectations of stakeholders.

Operations strategy exhibits a distinct role with a differentiated strategy, it also serves as a

distinctive competence in implementing similar strategies better than competitors (Asllani

2006).

Corporate strategy is defined as goals and directions encapsulated in a scope of a corporate

operations done in a way to achieve particular goals (Grinblatt and Titman 2002). The strategic

cycle is essential for a fast operative business making an effective use of supply chain. There are

three aspect of a corporate strategy in general as show in the flow chart below:

Strategic Analysis

Strategy Implementation

Strategic Choice

After the strategic analysis the strategic choice is position and aligning operations capabilities

that cast a significant impact on competitive strength and thus business performance

(Anderson, Cleveland et al. 1989).

Supply Chain Operations Reference Model:

The model SCOR offers a unique framework that joins together links performance metrics, people and

their best practices into the framework structure. This frame work supports communication between

partners of supply chain and improves supply chain management, the technology in use and related

activities (Baker 2010).

(Concil 2011)

The operations strategies used by these three retail stores are quite close to each others supply

chain strategies. Each of these strategies has its own pros and cons. The most successful and

effective strategy out of H&M, ZARA and Benetton is that of ZARA. It shows in the form of the

success rate when the garments get sold within 14 days. The supply chain efficiency is seen in

the way the orders are taken and processed within two weeks. Even though ZARA did not start

as a new business meant for retailing but it was a part of Inditex group (Indetex 2011). The

number of stores of ZARA is also the maximum out of the other companies in this case study.

The use of vertical integration at ZARA for the supply chain in the designing stage keeps the

designing effective and the most crucial phase for ZARA’s (Idea 2009). The designs of the

garments of zara is so unique for each of men, women and kids wears containing diverse

designs that the customers do not wait for long for sales. The good prices and quality of

garments is on top of the robust designs. As soon as the designs come, the clothes are sold in

latest of fifteen days. The reason for this good sale rate is that the clothes are designed in

diverse designers (Kasra Ferdows 2005). The specialty units have been created. The customers

feedback and opinions play a good role in helping designers get to know their demands .

Besides this, the market specialists and customers feedback is created in prototype workshop.

Here the designs are experiments and tested by the focus groups for the approval for the new

arrivals at stores. Over 300 designers were doing designing. The number of designers is even

less than the other companies designers but still their success rate is better because of their

core competence of a good market research capability.

The supply chain is automated and networked through online sources that each piece of the

garment is manufactured and designed in one unit. With time, the specialization keeps

polishing and knowing customers’ responses shows how they want something to be in the

future. The business policy for growth and expansion makes abundant impact on these

strategies at corporate level (Ansoff 1965). Each of these processes is controlled through

vertical integration. The vertical integration of supply chain connects the specialised units each

specialized in designing and manufacturing one type of product. The manufacturing units of

each type of garment is located in a different geographical location. Each of the manufacturing

unit is capable of introducing variation and diversity in the clothing type, colours and designs.

The market specialists market at customers and keep gathering the fashion trends (ZARA 2011).

This is the reason the fashion expectations are always kept as per the demands of customers.

Zara’s operations are more capital intensive. This means that a large amount of investment has

been done to carry out the supply chain management (Irfanullah 2009). The capital

intensiveness is observed in the distribution chain of the supply chain process. The capital

intensiveness is observable at the dying and cutting department of ZARA’s/ the labour intensive

operations are performed by subcontractors in all (Carlton 2011). There are assembling units

that assemble the orders and clothes. The systems are single shift and flexible systems.

The distribution is done from warehouse. These are automated warehouses. The creation of each of

them is done through a large investment to network and establish coordination of each automated

warehouse. These warehouses are located near manufacturing plants. Storing, assembling and packing

of products and creating the orders is done at these assembling units. The operations of storing,

assembling and pack the items is performed in this unit within the warehouses (S.J 2011). The systems

of warehouses are completely structured where each department has its own specialised task of

performing it. Unlike H&M, the automated systems are always updated and contain the order

information without any human mistake. The systems of Benetton are very similar to ZARA’s

warehousing automation system. Zara differs in this other brand in that Benetton attaches the RFID tags

to track their garments all over the world.

An extortionate investment has been done on these assemblies at ZARA warehouses. The coordination

is the key to their success. The assemblies and manufacturing units are connected to each other through

this automated system and the whole supply chain is kept connected and updated. With the expansion,

the new investment is done in every warehouse.

The final stage of supply chain shows the success of the whole supply chain. The short timed or orders

with placed with short lead times. The main place where the customers interact with the products are

the stores. Just like the warehouses, ZARA brand has exquisite stores all around the world. These stores

is meant to be kept inspirational and the environment is thought provokingly comfortable. The

customers feel good and friend the sales representatives friendly with talking to them about the new

fashion demands of time (Waters 2011). The spacious stores are of 800 square meters. The orders are

sent regularly at the stores in short lead times. The stock comes every month. The efficiency of supply

chain is evident with the new arrival of clothes every fort night at these stores. Even the clothes get sold

within 15 days. There are no delays in supply chain.

The efficiency of these steps in ZARA are admirable for the rest of the companies dealing with clothes.

This is the reason, the success rate of this brand is sustained. The market share remains sustained. As

compared to Zara’s the supply chain of H&M is completely contract and subcontract based. All these

tasks are performed through physical networks of people. The retail stores of H&M were even not

company owned. It was later in time they started their own stores. The brand of ZARA’s always had the

most established goals and their fulfilling was monitored. The focus is all on customers and their

demands for ZARA this is the reason they spend a lot of time on designing of clothes and getting

opinions of their customers.

SWOT OF ZARA:

The strength of Zara’s is the focus and hard work on designing of clothes which is not there in

H&M and Benetton retailers. ZARA’s retailer’s supply chain strategies are closest to supply

chain operation references model. The weaknesses of ZARA is the short term order duration

which makes them have to work without delays. Opportunities for ZARA are in the vertical

integrated communication system of zara. The other retailers are not vertically integrated in

their communication. Threats for Zara are the adoption of all these successful strategies by

H&M and Benetton.

4. Conclusion:

The case study containing the supply chain management and operations management strategies are

critically analyzed in this assignment. The question one described the supply chain strategies of each of

these companies. The comparison analyzing of the supply chain strategies is performed by evaluating

each of the companies supply chain processes and strategies.

The supply chain strategies of each of H&M’s, Zara’s and Benetton’s has been divided into four stages of

designing, manufacturing, distribution and selling. Zara’s designing is done by designers, maket

manufacturers and customers in a workshop. These prototypes are critically analysed for their

acceptance in market. The manufacturing is specialised in each of the manufacturing unit geographically

distributed. The distribution is done through automated warehouses that network with each

department within warehouse of packing and assembling and the manufacturing units and even

retailers. The retailers have created an inspirational atmosphere for customers and the rack life of these

garments does not complete even 14 days.

The supply chains of Benetton is much Zara but the designing is done through many designers,

manufacturing is done at various manufacturing units that are coordinated and networked. The

distribution is also automated like Zara’s and the retail stores are big enough and specious. Where they

lack is the designing focus which zara’s is competing on.

H&M designers are geographically distributed, manufacturers manufacture at various locations. The

warehouses are manual and operated by the contractors and subcontractors. The retail stores are big

enough and attractive but most of them are not H&M owned.

The most effective supply chain strategies is of ZARA’s as they focus on each stage of their entire supply

chain. The designing is the lengthiest phase and spends the maximum time and investment on this

stage. This is the reason for their consistent sales and market share.

5. References:

References:

Anderson, J. C., G. Cleveland, et al. (1989). "Operations strategy: a literature review." Journal of Operations Management 8(2): 133-158.

Ansoff, H. I. (1965). Corporate strategy: An analytic approach to business policy for growth and expansion, McGraw-Hill New York.

Asllani, B., Ed. (2006). Operations Strategy. Operations strategy, John Wiley & sons.Inc.Baker, C. R. (2010). "Supply Chain Operations References Model." Journal Of Supply chain management

10(1): pp.1-24.Carlton (2011) "Capital Intensive." Business and Society 1, pp.1-3.Concil (2011). Supply chain operations reference model version 7. M. G. Hill, Brussels. 7: 12.Grinblatt, M. and S. Titman (2002). Financial markets and corporate strategy, McGraw-Hill/Irwin.Idea (2009). Vertical Integration. The Economist, http://www.economist.com/node/13396061. 1: pp.13-17.Indetex. (2011). "About Inditex Group." Retrieved 10 December 2011, 2011.Irfanullah (2009). "Capital Intensive." Investopedia 2(1): pp.1-4.

Izi (2011) "What is Vertical and Horizontal integration?" Biz Dharma 1, pp.1-10.Kasra Ferdows, M. A. L. (2005). "Zara's Secret for Fast Fashion." Journal of Working knowledge for

Business leaders 2(21): pp.1-7.S.J, D. (2011). "DISTRIBUTION & WAREHOUSING." Journal of Marketing Research 1.5(26): pp.1-26.Sanblue. (2011). "ZARA." Fashion Gear Retrieved December 5, 2011, 2011.Ward, B. (2010) "Creating Customer Loyalty: The Customer Loyalty Grid." Customer Service 9, pp.1-10.Waters, S. (2011) "What Size Building or Store I Need?" about.com 1, pp.1-6.ZARA (2011) "Fasion Business Structure." Fashion Auctions 2, pp.1-4.