What advantage does Zara gain against the competition by having a very responsive supply chain?

Q. What advantage does Zara gain against the competition by having a very responsive supply chain?

In an industry where the customer demand is unpredictable, Zara having a responsive supply chain has enabled it to enjoy greater customer turnover due to its 5 to 6 weeks cycle time leading to more profits as mostly the products are then sold at full price. Moreover being responsive has also enabled Zara to reduce its inventories and also the forecast error.

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

Why has Inditex maintained manufacturing capacity in Europe even though manufacturing in Asia is much cheaper? A. To be responsive in the rapid changing world, Inditex opted for both outsourced manufacturing, for the production of products with predictable demand, and in-house manufacturing, for the production of products with highly uncertain demand. Inditex has maintained large fraction of manufacturing capacity in Portugal and Spain (Europe) despite the higher cost there because this allows Zara to respond quickly to changing fashion trends in Europe.

Q. Why does Zara source products with uncertain demand from local manufacturers and products with predictable demand from Asian manufacturers? A. Zara’s main competitive advantage is responsiveness and to retain it Zara source products with uncertain demand from local manufacturers because local manufacturers offer fast and flexible sourcing and such products are to be delivered quick instead of at low-cost (with greater lead time as it is manufactured in Asia). Whereas products with predictable demand are sourced from Asian manufacturers because outsourcing is cheaper that is products are manufactured at a low-cost.

Q. Why is Zara building a new distribution centre as its sales grow? Is it better to have the new distribution centre near the existing one or at a completely different location? A. New distribution centre (DC) is being built by Zara in response to the increase in sales because the stock turnover is increasing and in order to cater the growth of sales and avoid any declination in it due to mismanagement of stock availability and customers’ demand.

Q. What advantage does Zara gain from replenishing its stores twice a week compared to a less frequent schedule?How does the frequency of replenishment affect the design of its distribution system? A. Frequent replenishment allows Zara to match supply and demand more effectively than the competitors. The frequency of replenishment affect the design of its distribution system in a way that the more frequent the replenishment will take place, the more responsive and up to date the distribution system will be while on the other hand delayed replenishment will also make the distribution system delayed and slow with respect to customer’s demand.

Q. What information infrastructure does Zara need in order to operate its production, distribution, and retail network effectively? A. In order to operate the production, distribution and retail network effectively, Zara should have an information infrastructure which is highly responsive and provides timely and accurate information that helps in better decision making as well as planning and forecasting.

TOYOTA: A GLOBAL AUTO MANUFACTURER

Q. Where should the plants be located and what degree of flexibility should be built into each?

What capacity should each plant have? A. The location of the plants should be such that it complements the assembly plants and maximum profitability of Toyota. Plants operating locally can be cost prohibitive, while plants that operate globally can only reduce the interest in local markets. Logically, Toyota should apply the “global complementation” strategy to turn plants, and locate plants in areas that minimize costs (currency exchange, transportation, inventory holding, etc).

This will allow them to achieve local/regional agility and remain flexible enough to supply non-local factories/assembly plants however necessary. The capacity of the plant should not exceed the projected demand for local / regional manufacturing sites / assembly plants that each plant will be part of supply. The ability to adequately supply factories is essential, and each plant must be designed with the ability to supply factories in the region.

Q. Should plants be able to produce for all markets or only specific contingency markets?

It depends upon the location and production capacity of each plant. Furthermore, since Toyota follows the strategy of global complementation, plants must be able to supply at least one more market/region than it’s normally responsible for supplying. Depending on the requirements of global parts, it may be appropriate for plants to be able to supply to all markets. But in the case that markets are so differentiated that the ability for a plant to provide global supply is cost prohibitive, then a specific contingency market should be designated for each regional plant.A plant in a certain region should only serve markets in that specific region; otherwise costs will inevitably go up.

Q. How should markets be allocated to plants and how frequently should this allocation be revised?

The allocation of markets to plants should be as efficient as possible. The standard allocation should be optimized during the planning phase. However, as markets mature, currency rates fluctuate, and demand changes, it is possible that an adjusted allocation will provide more efficiency and higher returns for Toyota.

For this reason allocation should be adjusted when necessary, reviewed either annually or bi-annually, and optimized to increase efficiency and take advantage of the part plants flexibility.

Q. What kind of flexibility should be built into the distribution system?

The distribution system should closely monitor the flexibility of the global complementation strategy. The regional distribution should be optimized between the factories and supply of parts. However, when adjustments are made to the allocation, it will be necessary for cost-effective distribution to occur between plants and factories to non-local markets.

Q. How should this flexible investment be valued?

The flexible investment should be highly valued as this will lead Toyota to capture the demand and the income of non-local markets where the local cost, demand, etc declines. The flexible production and distribution will prevent idle facilities and reduced profits during economic downturns. And moreover, through the integration of flexible production and distribution, supply chain of Toyota will have greater access to markets and has the potential to capture greater value.

Q. What actions may be taken during product design to facilitate this flexibility?

There should be uniformity between global products which will provide the most cost effective means to facilitate flexibility between local plants and factories. During the product design, engineers must prepare the elements that maximize both the uniformity and meet local needs. This flexibility will help the plants and factories looking for the pieces to produce for non local markets and reducing dependencies and vulnerabilities of operating in specific local markets.