Supply Chain or Lean Production Analysis - Research Paper Example

Essay on supply chain or lean production Executive Summary To effectively compete in the current competitive business environment retail organizations are required to embrace an effective supply chain strategy that would contribute in both understanding and transmitting information related to the changes in market demand and also such that would contribute in generating needed collaboration between the different entities within a business organization to help generate needed productivity and profitability in the long run. The paper reflects on the case of Zara, a Spanish retail brand relating to the Inditex Group that essentially uses the agile supply chain strategy. The manner of use of the agile supply chain strategy is evaluated relating to Zara such that the effective integration of technological tools like use of Point-of-Sales scanners, personal computers and also the need for interchanging and exchanging data are utilised to help generate needed information about the target market which would be useful for the retail organization in gaining due competitive advantage in the long run. Table of Contents Table of Contents 3 Introduction 4 Argument 5 Evidence 14 About Zara 14 Supply Chain in Zara 15 Impact of the Agile Supply Chain on Operations of Zara 18 Conclusion 20 Reference List 22 Bibliography 25 Introduction The concept of Supply Chain is observed to gain historical significance from the period of emergence of trading and commercial activities carried out both in inter and intra regional manner. The aspect of supply chain is observed to gain further significance related to the advent and growth of concepts pertaining to socialism and capitalism. With the advent of industrialisation the issue of division of labour gained further significance such that a section was dedicated to help in the aligning of raw materials or resources required for production and to despatch the same to the manufacturing centres. Similarly, another body of labour was employed to focus on the designing of the logistics needed for reaching the produced commodities to the end consumers. Over the years with the growing complexity of international trading and business operations, the aspect of supply chain has also become further more significant owing to its integration with social, economic and political factors concerning different regions. The intriguing and complex nature of supply chain in the modern world is thus observed to require the development of the growth of supply chain management as an effective stream of study (Wang et al., 2007). The concept of supply chain gains effective significance to the operations carried out in a retail organization such that existence of a potential supply chain system contributes in the generation of needed competitive advantage. Supply chain activities of retail organizations need to be carried out in a customer responsive fashion such that it helps in generating needed flexibility in the retail operations to make them largely adaptable to changing consumer and industry needs. Making supply chain activities customer responsive in nature contributes in both driving profitability and customer satisfaction in one hand and on the other hand helps in reducing the inventory holding cost and wastage of merchandises (Lambert, 2008). Sourcing activities in the above accord would contribute in the procurement of needed merchandises that reflect potential demand at the cost of other merchandises that do not reflect such seasonal demand. Thus use of supply chain activities related to retail operations reflect distinct advantages pertaining to reduction of inventory cost while generating greater customer satisfaction. Similarly the incorporation of effective supply chain in the retail activities is taken to contribute in the potential availability of the right quality and assortment of merchandises to generate needed customer satisfaction. Effective communication carried out between the retailers and the supply chain teams through the incorporation of potential information technology systems contributes in generating enhanced collaboration and thereby in reducing the lead times required for movement of merchandises from distribution centres to the retail outlets (Plazibat and Brajevic, 2009). The paper would essentially reflect potential arguments relating to the need for developing and incorporating supply chain activities related to retail industry. It would tend to reflect on a case study of the Spanish Fashion Retailer, Zara of the Inditex Group that would help in generating potential evidence relating to the practice of supply chain in retail indicating on the different benefits and competitive advantage gained. Argument Supply chain activities has obtained needed significance relating to the operations of the companies engaged in the retail sector such that it contributes in the development of sustainable practices aiming at reducing the risks relating to the market and also in generating potential in entering new markets. Sustainable supply chain practices also contribute in enhancing the brand image of the company in the larger market and in augmenting the level of customer satisfaction. The sustainable practices relating to the supply chain activities are carried out by retail companies in terms of effectively collaborating with the supplier groups. Collaboration activities relate to the development of training activities of the personnel pertaining to the supply chain groups to help in generating effective clarity relating to the business and customer satisfaction objectives of the company. Further effective collaboration with the supplier groups also contributes in enhancing the level of trust thereby making the activity of the suppliers more accountable in meeting of business objectives. Similarly effective communication developed with the suppliers contributes in rightly training the personnel relating to changes in the demands of the customers. The same is taken to enhance the level of flexibility of the suppliers in meeting the changing needs of the customers (Tillon et al., n.d. ). The retail organizations are faced with potential challenges relating to the continual fluctuations in the demands of the customers which in turn require the retail organizations to design its supply chain arms such that the same contributes in generating customer satisfaction in a responsible fashion. Customer responsive supply chain strategies can be effectively developed through integrating the retail outlets, distribution centres and supply chain arms based on the use of an EDI (Electronic Data Interchange) interface. Moreover use of RFID (Radio Frequency Identification) tags over the merchandises is also observed to be a customary practice such that the same can be effectively scanned based on the use of Point-of-Sales (POS) scanners. Scanning the RFID Bar Codes embossed on the different merchandises would enable the retail company to keep a track of the movement of the merchandises from the retail stores and distribution centres (Gattorna, 2012). Information obtained regarding the movement of the merchandises is transmitted to the potential stakeholder groups like suppliers through the use of the EDI interface. The above activity helps in generating needed agility in the existing supply chain activities making it responsive to changes in customer demands. Effective integration developed between the retail companies with the supplier groups contribute in exchange potential information relating to the demand of the customers based on specific product categories. The same would contribute in sourcing the right category of merchandises to help in meeting of customer demands in an effective fashion within the specific period. Reduction of lead times thereby helps in generating greater customer satisfaction (Godsell et al., 2006). Development of responsible supply chain practices is carried out through the flow of information from the market to the suppliers such that the same contributes in countering the uncertainties relating to the demand pattern of the customers. The customer responsive nature of the supply chain can be effectively analysed based on the use of the System Dynamics Model illustrated as follows. Figure 1 (Minnich and Maier, 2006) The above model reflects the integration of different stakeholders in the supply chain process like suppliers, manufacturers or producers, retail outlets and finally the customers for which the merchandises are generated to help in meeting the demands. The System Dynamics Model of enhancing the customer responsiveness relating to supply chain, however, is observed to counter an effective constraint such that each of the different stakeholders requires the gaining of orders which in turn increase the time taken for the merchandises to effectively flow to the customers. Performance evaluation of the above model is based on the degree of customer satisfaction generated owing to the synchronization of different factors like the reduction of cost of inventory and the distribution and also in helping the customers avail the right quality and quantity of products at the right time (Minnich & Maier, 2006). Supply chain activities can be made customer responsive in nature through the use of the following model. Figure 2 (Perry et al., 2002) The Quick Response model depicted above is observed to act based on three main drivers like the sharing of potential information between the different stakeholders, like the supplier groups, manufacturers or producers, retail stores and also between the packaging and the logistics units. Sharing of effective information related to the market contributes in the development of effective strategic plans to help in generating the products to the customers. Enhancing the availability of the products to the customers in an effective fashion contributes in generating of needed customer satisfaction. Similarly sharing of potential information among the stakeholders also contributes in enhancing the level of competitive advantage of the retail company over its competitors. Best practices related to supply chain would constitute in understanding and evaluating the needs of the customers based on the information gained based on the EDI interface to help in prioritizing on the merchandise needs such that needed logistics support would be gained to help in despatching the goods to the ultimate consumers. Working based on the above process tends to generate a pool of distinct advantages and benefits that can be outlined as follows. Figure 3 (Perry et al., 2002) The retail organization operating based on the use of a customer responsive supply chain reflects the generation of potential advantages like increase in the amount of sales revenues, and also reflecting a corresponding reduction in the amount of retail inventories. Similarly acting based on the customer responsive supply chain is also taken to contribute in the development of effective relationship with the other stakeholders to the business. It also helps the company to generate lesser amount of discounts to generate considerable appeal for the products produced and distributed for the customers (Perry et al., 2002). Designing a customer responsive supply chain requires the incorporation of needed agility in the existing supply chain activities that help in reducing the lead times required for the merchandises to reach to the retail stores from the manufacturing and distribution centres. Reduction of lead times thus rightly contributes in helping the retail company to rightly address the demands of the customers within a specified period thereby generating competitive advantage. Development of an agile supply chain management is observed to be an effective breakthrough over the lean supply chain practices such that it helps in countering the volatility of the demand and also where there is also demand for a large number of varieties of merchandises. On the other hand, lean supply chain activities gain significance for marketing environments reflecting lower fluctuations or volatility in demand and also such where the customers reflect lower demand for product varieties. The same is indicated in the following model. Figure 4 (Christopher, 2000) Thus, development of an agile supply chain reflects the growth of potential of the retail company to help in meeting the demands of the consumers both in terms of needed volumes and varieties as demanded by the customers. The retail organization can focus on generating an agile supply chain strategy based on the integration of four different parameters that is reflected in the following model. Figure 5 (Christopher, 2000) The first premise of an effective agile supply chain retail strategy requires the supply chain activities to be formulated in a customer responsive fashion. Through the incorporation of ECR (Efficient Customer Response) software the retail organizations tend to understand the change in demand pattern of the consumers such that data is retrieved from the Point-of-Sales systems for effective supply chain planning to meet the needed demands. Similarly the need for working based on the use of Electronic Data Interchange (EDI) application enables the supply chain to gain the support of a virtual medium. The existence of a virtual medium helps the retail organization to gain and analyse real time marketing data which in turn would help in the formulation of supply chain activities. The premise of Process Integration relates to the need for collaboration among the different stakeholders to the business corporation. Working in a collaborative or team environment contributes in helping the retail organization gain potential competitive advantage, so that an element of trust and commitment is developed to help in meeting the business objectives. Finally an agile supply chain strategy is observed to gain needed impetus though the development of an effective network with other companies such that the same contributes in enhancing the level of competitive advantage of the firm. The role of decoupling points in the development of an effective agile supply chain strategy needs also be reflected such that the same relates to the trade-offs gained by the retail company in formulating supply chain activities driven by the market demand. Here decoupling point relates to the point where the real or the market demand for goods and services tends to intersect the upstream activities in the supply chain framework. The same is reflected in the following diagram. Figure 6 (Christopher, 2000) The above diagram reflects that in the topmost section the decoupling point is gained near about to the plants and distribution centres such that it creates an opportunity for the company to help modify the product or service portfolio to be generated to the customers. On the other hand the existence of decoupling merchandises at the extreme end in the supply chain matrix such that it requires in the generation of assembled products only to be made ready at depending the needs and wants of the different consume groups. Finally the use of the agile supply chain strategy gains significance of the generation of product design and attributes that are demanded by regional or specific consumers. This fact, thus, is observed to generate needed value in the supply chain paradigm such that the same helps in meeting the variegated needs of the international consumers. Similarly the mode of effective collaboration and teamwork enabled in the agile supply chain framework is observed to enhance the productivity and tasking ability of the retail staffs in generating effective customer services. Evidence About Zara The evidence relating to the use of agile supply chain and the benefits gained from the same is generated based on the case study of Zara, a Spanish fashion retail organization pertaining to the Inditex Group. Zara started its retail operations during the 1975 period through the opening of its first store in the Northwest region of Spain. Presently the company operates through a network of 2000 stores spread along 88 nations. The products of Zara are well known for the use of exquisite designs such that the designing team operates in a customer responsive fashion through rendering designs based on the needs of the customers. Creating designs based on customer feedbacks contributes in generating needed customer satisfaction. Zara works on the understanding of the changes in the tastes, ideas and buying trends of the customers which in turn creates a competitive advantage in meeting the changing needs of the customers in an enhanced fashion (Inditex , n.d. ). The above discussion reflects agility or customer responsiveness is deeply rooted in the organizational culture of Zara. Supply Chain in Zara The supply chain activities in Zara is carried out with the focus on reducing the lead time required for the merchandise to reach the outlets from the distribution centres and manufacturing units. The company operates based on the quick response strategy such that the total time taken for the merchandises to be conceptualised and designed to be sold through its different retail outlets taken a matter of only two to three weeks time. Zara in addition to reducing the product life cycle also focuses on the use of optical reading devices that contributes in ease of sorting of merchandises to be made ready for distribution. Agility is conferred to its supply chain mechanism by effectively linking the same to the change in the demands of the customers. The company management focuses on gaining information from the different sales outlets such that the information contributes in helping the company in designing merchandises, development of new product lines and also in fixing the prices of retail merchandises to help in satisfying the needs of the customers. Similarly other aspects of information technology used by the Zara relates to the storing of adequate information pertaining to the product designs and the buying styles of the consumers. Storing of such information serves as a reference point in helping Zara produce the right quality and quantity of merchandise meeting the needs of the customers in an enhanced fashion. The quick response supply chain mechanism used by the company also contributes in reducing the excess cost of procuring and storing of inventory (Ray, 2010). The agility in the supply chain strategy of Zara is generated through the process in which information about consumer purchases is gained from the different stores in terms of using the POS Scanners for scanning the RFID Bar Codes and thereby in using an integrated software like the EDI system for transmission of the information to the warehouses and the supply chain teams. This strategy contributes in generating needed flexibility to the supply chain practices of the company thereby helping the same in meeting the demands of the customers in an enhanced fashion. Thus the supply chain strategy of Zara focuses on evaluating the real-time demand of the customers related to the different merchandises so as to make the right product decisions (Bidgoli, 2010). The use of agile supply chain strategy by Zara is observed to potentially contribute in the generation of fast fashion which in turn generates considerable flexibility to the company to produce merchandises that vary from season to season. Continual changes in the style and category of the fashion garments and merchandises contributes in creating an impulse pertaining to the buying behaviour of the consumers. Fast fashion as a retail strategy is generated such that Zara operates based on the exchange and flow of information among the different stakeholder groups like customers, the store or retail managers, production or designing teams, purchase groups and contractors and similarly along other interested parties. The exchange of information amongst the different interested parties of stakeholders is carried out through the use of personal computers at an individual level such that existence of a flat organizational structure contributes in the easy movement of information among the different levels contributing in decision making. Percolation of the above information among the production and designing teams contribute in the designing of effective merchandises that tend to rightly match the requirements of the consumers relating to design, style, quality, colour and price parameters (Ferdows et al., 2004). Agility in the supply chain mechanism of Zara is effectively represented in the following diagram. Figure 7 (Dutta, 2002) To understand the changes in the demands and perceptions of the consumers close monitoring is made relating through the conducting of potential surveys of people visiting different areas like discos, university campuses and other related areas. Similarly information related to the customers is also gained by the management of the company through collaborating with the store managers of the different retail outlets such that the same helps in formulating effective decisions pertaining to product designs and price parameters. Collection of information relating to product designs and pricing issues contributes in helping the management of Zara in generating effective product designing and pricing decisions through the rightful integration of the commercial and designing team of the company. The above process contributes in generating an effective breakthrough in the generation of new products in fast frequencies to help in attracting the consumer mindset. The last two parameters like controlling of inventory and managing of distribution is also generated through the use and processing of the needed information gained from the market. Information gained from the customers about the categories and price point of merchandises helps the company in quantifying the amount of inventory required to meet the production operations. This contributes in reducing the cost of inventory management thereby reducing merchandise costs (Dutta, 2002). Zara reflects to be a potential example relating to the use of agile supply chain strategy such that it works on the integration of different cross-functional departments like design and fashion experts, the commercial departments and also the personnel involved in the different stores to contribute in availing the rightly quality and quantity of merchandise as demanded by the customers from time to time. Functioning of the above departments earns success such that the decision making activities are carried out based on the information generated by the different data gathered in scanning the RFID Bar Codes through the use of the Electronic Point of Sale (EPOS) systems based along the different company outlets. The above discussion also reflects that relating to the concept of decoupling point the supply chain activities of Zara is potentially demand based in nature. Thus the activities of the production, distribution and warehousing units and also pertaining to the different stores and depots are effectively guided by the information relating to the demands of the customers. This point in turn makes the supply chain activities potentially responsive in meeting the changing demands and expectations of the consumers (Christopher, 2000). Impact of the Agile Supply Chain on Operations of Zara Operating based on the agile supply chain strategy is observed to generate needed momentum relating to its sales revenues such that the same is observed to rise up by 32 pc as reflected in recent reports pertaining to June 2014 (Financial Review , 2014). Contribution made by Zara owing to the use of a customer responsive supply chain strategy is observed to gain an increase over the profit margins over a period of nine months relating to the 2013 period. The increase in the level of profits along the stated period owes to the practice of responsive supply chain contributing in meeting the objectives of fast fashion. In addition to the growth in sales revenue the contribution by Zara is also observed to contribute in the growth of market shares and also the share price of the company. Share price of Inditex is observed to gain a growth by 1 percent during that period thereby amounting to value around 115.30 Euros. The Gross Margin relating to sales revenue is observed to rise to around 10 basis points reflecting around 62.2 percent (Johnson, 2011). Other estimates relating to the 2012 period reflect that the sales of Inditex Group has gained due acceleration following the month of July based on the parameters of international expansion and also the use of Agile Supply Chain strategies. Sales recorded along a period of six months from July reflected a growth of around 32 percent to a value of around 944 million Euros. Stocks of the company also reflect a rise by around 2.1 percent to a value of 93.84 Euros during 2012 while the shares of Inditex recorded a huge hike of around 48 percent during the stated period thereby recording a value of around 58.4 billion Euros. The company reflects a continual rise in earnings during 2012 along the different regions where it has set up its branches with Zara being the highest contributor to the growth wagon. Inditex Group based on the overwhelming response gained from the different markets is observed to gain the potential and confidence of not only focusing on international expansion but also in focusing on the development of online sales for Zara relating to the markets like United States and China (Baigorri, 2012). The growth in the revenue for Inditex along November 2012 to September 2013 is reflected in the following graph. Figure 8 (Baigorri, 2012) Conclusion The paper reflects on a supply chain practice that can be essentially incorporated by companies like those involved in retail to gain needed competitive advantage. Agile supply chain strategy is considered to be potentially significant such that it contributes in enhancing the dimension of customer responsiveness for the retail company. The rendering of needed agility in the supply chain system is made possible through the integration of needed technology like the use of Point-of-Sales (POS) terminals and also used of RFID Bar Codes on the merchandises. Scanning the above bar codes provides essential information relating to movement of inventories from the stores and different warehouse outlets. Information gained through the use of the above process is further transmitted to potential stakeholders like the supply chain, designing, manufacturing or production and the marketing units to help in the formation of collective decisions. Similarly information and feedback gained relating to the customers contributes in the generation of needed modification in the existing production and distribution process which being implemented would contribute in the meeting of customer satisfaction and thereby in generating enhanced customer loyalty. The paper elucidates the above discussion based on the situation of the distribution and retail outlets such that the same contributes in despatching the right quality and quantity of merchandises to help in meeting the needs of the target customer force. An essential example of Zara is undertaken in the paper such that the supply chain practices of the company reflect needed agility in meeting the demands of the customers and thereby helping in generation of customer loyalty and practices. The paper also reflects on manner in which Zara tends to generate needed agility in the existing supply such that the same would contribute in the generation of holistic creativity. The paper also reflects on the concept of fast fashion as entailed relating to the development of customer responsive supply chain such that it revolves more on protecting both old and technology such that the integration of scanning the merchandises based on the use of Electronic POS systems with EDI interface to help in transmitting the customer related data from the stores to the warehouses, distribution centres, designer and manufacturing units and also to the decision making bodies. The above function is thus taken to generate effective collaboration between the different units of trade such that it contributes in the generation of a collective decision making approach. Working based on such integrated information is taken to help the company in designing effective products in required styles and price ranges that would help in meeting the needs of its customers. It is also observed that the use of the agile supply chain strategy also contributes in enhancing the sales revenues and stock and share position for Zara which in turn also contributes in enhancing the brand position of the company compared to its other competitors in the Inditex Group. Market expansion and also the growth of online sales activities is also taken to be pursued by Inditex Group based on the potential of the agile supply chain strategy in use. Reference List Baigorri, M., 2012. Inditex Profit Beats Estimates as Revenue Growth Accelerates. [Online] Available at: [Accessed 9 September 2014]. Bidgoli, H., 2010. The Handbook of Technology Management: Supply Chain Management, Marketing and Advertising, and Global Management. United Kingdom : John Wiley and Sons. Christopher, M., 2000. The Agile Supply Chain: Competing in Volatile Markets. Industrial Marketing Management, 29, pp.37-44. Dutta, D., 2002. retail @ the speed of fashion. 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