Class 03 and 04 - Zara and Supply Chain

Chapter 3 Zara: Fast Fashion from Savvy Systems: 

Chapter 3 Zara: Fast Fashion from Savvy Systems Introduction to IT Management Gray & Patton

The fashion director for luxury goods maker LVMH calls Zara, “the most innovative and devastating retailer in the world.”: 

The fashion director for luxury goods maker LVMH calls Zara, “the most innovative and devastating retailer in the world.” Why?

Zara Versus Gap: Key Measures: 

Zara Versus Gap: Key Measures Gap Zara Revenue $14.5 billion $14.7 billion Net Income $967 million $1.68 billion Number of Stores 3,149 4,359 Number of Countries 6 73 Biggest Brand Gap Zara Number of Other Brands 4 7 Based in San Francisco, USA Arteixo (near La Coruña), Spain First Store Opened 1969 1975 Rohwedder, Zara Grows as Retail Rivals Struggle, WSJ, 3/26/09

What does this mean?: 

What does this mean? Inventory = Death How does Zara manage inventory differently than GAP?

Compare the Shopping Experiences: 

Compare the Shopping Experiences Zara Changes inventory constantly Creates “fashion of the moment” Store employees ask shoppers for their opinions Buy it or it’s gone Gap Stable inventory Designs created for each season Fashion driven by high profile in-house designers If they’re out of stock, just come back next week

What Is Information?: 

What Is Information? Knowledge derived from data Data presented in meaningful context Data processed by summing, ordering, averaging, grouping, comparing, or other similar operations A difference that makes a difference

Zara Wins with Information: 

Zara Wins with Information Profound vertical integration Technology-orchestrated supplier coordination Just-in-time manufacturing Finely tuned logistics RESULT$ 10x unique products 12x turnaround speed

IT = Strategic Business Value : 

IT = Strategic Business Value It’s not ONLY about the technology – the technology delivers the INFORMATION Information impacts every business area IT adds efficiency & competitive advantage – life blood of success

5 IS Component Framework: 

5 IS Component Framework Computer Side Human Side Automation moves work from the human side to the computer side The more difficult the decision, the more human processing is needed Automation speeds up processes UNLESS a complex decision is needed; then human participation is essential for moving the process forward RETHINK processes before automating them – WHY? Automating stupid processes makes you do stupid things faster!

Data-Driven Decision Making: 

Data-Driven Decision Making Point-of-sale system and store manager data collected Data from all stores reported to “The Cube” Trends analyzed and production decisions/ alterations are made Production decisions communicated to manufacturing Product shipped to the right stores Information collected at the cash register each day matters! Picture source: http://bethlawton.com/Final/images/cashier.jpg

What is Zara’s Essential Advantage?: 

What is Zara’s Essential Advantage? Information systems allow Zara to design, produce, and distribute products to stores within weeks, not months. Stay at the leading edge of fashion trends Low inventory costs and reduced risk of producing products that people don’t want Alters production to meet consumer needs

Madonna Outfit Knockoffs: 

Madonna Outfit Knockoffs From concert to ZARA before the tour left Spain

Information Systems and Manufacturing: 

Information Systems and Manufacturing Zara In-house designers create knock-offs of latest designs Company controlled factories can change design, color quickly Distribution systems are tightly controlled GAP NY designers create seasonal collections Manufacturing is outsourced to produce large quantities at low prices Unsold products placed on seasonal clearance Information systems allow Zara to manufacture differently

Technology Doesn’t Work Alone: 

Technology Doesn’t Work Alone Technology must work along with a company’s people and processes All technology must support the company’s business strategy

Classic Definition Supply Chain Management: 

Classic Definition Supply Chain Management Supply chain – network of organizations and facilities that transforms raw materials into products delivered to customers Customers order from retailers, who order from distributors, who order from manufacturers, who order from suppliers

McCombs SCM Program Definition: 

McCombs SCM Program Definition Supply chain management (SCM) is the structuring and coordination of relationships and activities across firms to deliver value in an information- and technology-intensive global environment.

A supply chain is a network: 

A supply chain is a network Raw materials Finished goods (products) disintermediation

Supply Chain Management (cont): 

Supply Chain Management (cont) Because of disintermediation , not every supply chain has all these organizations Dell, for example, sells directly to customers Both distributor and retailer organizations omitted from Dell’s supply chain In other supply chains, manufacturers sell directly to retailers and omit distribution level

Dell Supply Chain: 

Dell Supply Chain Involves suppliers from around the globe. Push suppliers for just-in-time delivery Low inventory = low costs Practices demand shaping to manage inventory What is Dell trying to manage now?

Supply Chain Profitability vs. Organizational Profitability: 

Supply Chain Profitability vs. Organizational Profitability Supply chain profitability – difference between sum of revenue and sum of costs in supply chain (P=R-C) Maximum profit to supply chain will not usually occur if each organization maximizes profits in isolation Profitability of supply chain increases if one or more organizations operates at less than maximum profitability

Supply Chain Example: 

Supply Chain Example

Bullwhip Effect: 

Bullwhip Effect Bullwhip effect – variability in order size and order timing increase at each stage up the supply chain natural dynamic occurs due to multistage nature of supply chain not related to erratic consumer demand reduces overall profitability of supply chain

The Bullwhip Effect: 

The Bullwhip Effect

Stop the Bullwhip Effect: 

Stop the Bullwhip Effect To eliminate the bullwhip effect, let all participants have access to consumer-demand information Interorganizational information systems are essential to sharing this data between firms

IS Affect Supply Chain Performance: 

IS Affect Supply Chain Performance Positive impact on supply chain performance Reduces cost of buying and selling Sourcing, buying, settling faster, easier, more effective Reduces bullwhip effect Expands supply chain speed Dollar value of goods exchanged in given time period Enables suppliers and customers to reduce inventory size and costs Improves delivery scheduling Enables just-in-time inventory

How Does Zara Save Time?: 

How Does Zara Save Time? They manage their supply chain with attention to the entire value chain

Distribution: 

Distribution Technology-enabled distribution systems allows products to be shipped to the right stores on a daily basis Identify and meet store-level needs Reduce inventory costs

How does Zara Manage Supply Chain Conflict? : 

How does Zara Manage Supply Chain Conflict? Organizations can focus on their core competencies Can outsource most activities Avoid time and expense of building infrastructure Reduces capital requirement Cuts payroll and associated costs Shortens time to market

Organizing Armageddon: 

Organizing Armageddon http://link.brightcove.com/services/player/bcpid3698508001?bctid=82286993001

Haiti and Supply Chain: 

Haiti and Supply Chain How is the Haiti earthquake a supply chain problem? What do information systems have to do with these problems? What key learnings can we take a way from recent disaster relief challenges? Why are we talking about this in MIS 301?

Key Terms: 

Key Terms Industry Information ▲ IS logistics PDA Point-of-sale system (POS) Operations Industry Bull Whip Effect Return on investment (ROI) Supply chain vertical integration Inventory = Death