VALUE CHAIN ANALYSIS

VALUE CHAIN ANALYSIS

TRANSNATIONAL STRATEGIC MANAGEMENT

Sub mit ted By

Meenaksh i Up adhayay Gaur

S tudent , M BA ( I B)

FMS BHU

Sub mit ted To

Dr . H . P . Mathur

Profes so r

FMS BHU

Proposed by M.E.Porter in 1980 the value chain analysis simply put is a series or chain of activities in an organization that creates & builds

value. It is, in other words a systematic approach to identify & promote the development of competitive advantage that adds to the total

customer value delivered by an organization.

According to this model, every firm is a synthesis of activities performed to design, produce, market, deliver & support its product. Michael

Porter suggests nine strategically relevant activities grouped under primary and support activities that create value and cost in a specific

business.

Primary Activities i.e. activities directly concerned with creating and delivering a product.

Support Activities i.e. activities indirectly involved in production, that results in increase of effectiveness or efficiency .

Secondary Activity Description

Procurement This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials

suppliers)

Human Resource

Management

Activities concerned with recruiting, developing, training, motivating and rewarding the organizations

workforce.

Technology Development Activities concerned with managing information processing and the development and protection of

"knowledge" in a business

Infrastructure Concerned with a wide range of support systems and functions such as finance, planning, quality control and

general senior management

Primary Activity Description

Inbound Logistics Activities Concerned With Receiving And Storing Externally Sourced Materials

Operations The Manufacture Or Assembly Of Products And Services ;Inputs i.e. Resource Conversion To Output i.e.

Products

Outbound Logistics Activities Associated With Getting Finished Goods And Services To Wholesalers, Retailers & Buyers

Marketing And Sales Informing Consumers About Products And Services Through Marketing Communications & Promotion Mix

Service Activities Associated With Providing Service Maintaining Product Performance

Zara is the flagship brand for Europe's fastest-growing apparel retailer Industria de Diseo Textil (commonly known as Inditex). Zara, the cheap-chic subsidiary of the Spanish fashion giant, runs about 1,520 stores, including some 230 Zara Kids shops, in more than 75 countries

worldwide. Zara has about 40 shops in the US and 60 in Mexico. The chain sells women's, men's, and children's apparel and also offers plus-

size and maternity lines to clothe its larger customers. Zara Home, which sells home fashions, has about 250 stores, in about 25 countries. Zara

is Inditex principal chain and accounts for about two-thirds of its parent company's sales.

INBOUND LOGIS TICS Zara manufacture approximately 50 percent of its products in its own network of 22 Spanish factories but use

subcontractors for all sewing operations. These factories generally work a single shift and are managed as independent profit centres. The

other half of its products are procured from 400 outside suppliers, 70 percent of which are in Europe and most of the rest in Asia. Many of the

European suppliers are based in Spain and Portugal, and Zara exploit this geographical proximity in order to ensure quick response to Zara

orders which is critical for fashion products. From Asia, Zara procure basic products and those for which the region has a clear cost or quality

advantage. With its relatively large and stable base of orders, Zara is a preferred customer for almost all its suppliers. 80% of Zaras apparel is

manufactured in Europe, mainly in Spain and Portugal.

For its in-house production, Zara obtain 40 percent of its fabric supply from another Inditex-owned subsidiary, Comditel (Zara account for

almost 90 percent of their total sales). Over half of these fabrics are purchased undyed to allow faster response to mid-season colour changes.

To facilitate quick changes in printing and dyeing, Zara also work closely with Fibracolor, a dyestuff producer part owned by Inditex. The rest

of the fabrics come from a range of 260 other suppliers, none account for more than 4 percent of Zaras total production in order to minimize

dependency on single suppliers and encourage maximum responsiveness form them.

The make or buy decisions are made by the procurement and production planners. The key criteria for making this decision are required levels

of speed and expertise, cost-effectiveness, and availability of sufficient capacity. If the buyers cannot obtain desired prices, delivery terms, and

quality from Zara factories, they are free to look outside.

OPER ATIONS Zara design the organization, operational procedures, performance measures and even office configurations to make

information and product transfer easy. The design and order administration at Zara is very effective and efficient. The company ensure

product quality by designing its own products. The strategy at Zara is that only those operations which enhance cost efficiency through

economies of scale are conducted in-house (such as dyeing, cutting, labelling and packaging). All other manufacturing activities, including the

labour intensive finishing stages, are completed by networks of more than 300 small subcontractors, each specializing in one particular part of

the production process or garment type. These subcontractors work exclusively for Zaras parent, Inditex. In return, they receive the necessary

technological, financial and logistical support required to achieve stringent time and quality targets. The system is flexible enough to cope

with sudden changes in demand. In other words capital-intensive steps are executed in factories owned by Zara, while labour intensive

operations are outsourced to small shops and manufacturers with whom Zara have collaborative partnerships that include providing them

with the necessary technology and logistics capabilities.

Zaras workforce includes designers, market specialists and buyers. Together they crank out an astonishing 30,000 items a year versus 2,000-

4,000 items offered up at big chains like H&M (the worlds third largest fashion retailer) and Gap. Unlike their industry peers, these teams work

both on next seasons designs and, simultaneously and continuously, also update the current seasons designs. Extensive feedback from the

store network also forms an integral part of the design process.

Based on information and inspirations gathered from different resources such as trade fairs, fashion shows, magazines and more importantly

customer feedbacks, the designers draw out design sketches by hand and then discuss them with colleagues including market specialists,

planning and procurement people. This process helps to retain an overall Zara Style. The sketches are redrawn using a CAD system where

further changes and adjustments, for better matching of weaves, textures, and colours are made. Before moving further through the process,

it is necessary to determine whether the design can be produced and sold at a profit. The next step is to make a sample, often completed

manually by skilled workers located in the small sample making shop in one corner located in the small sample making shop in one corner of

each hall. If there are any specific questions or problems, they can just walk over to the designers and discuss and resolve them on the spot.

The market specialist has responsibility for dealing with specific stores. They work in close contact with store managers, especially by phone,

discussing sales orders, new lines and other matters. Stores rely heavily on discussions with Market Specialists before finalizing orders. Finally

buyers take decisions concerning what products to make, when, and in what volumes are normally made collectively by the relevant groups of

designers, market specialists, and buyers and after the decision is taken, the buyers take charge of the total order fulfilment process. The

buyers are responsible in planning procurement and production requirements, monitoring warehouse inventories, allocating production to

various factories and third party suppliers and keeping track of shortages and oversupplies.

OU TBOUND LOGIS TICS Zara moves from design to in-store availability in a matter of two weeks to satisfy its young, hip, clientele with

fashion for the masses as a result of closely connected highly synchronized arrangements with out-sourced suppliers. It would plan a core

collection, composing nearly 50% of its forecast requirements. The rest 50% would be sourced opportunistically according to demand trends

during the season, and delivered right there.

All products pass through Zaras main distribution centre based near Arteixo in La Coruna in Spain from where merchandise is shipped to

stores several times a week. The 5-storey, 50,000 square meter distribution center employs some of the most sophisticated and up-to-date

automated systems. With a workforce of 1200, the distribution center normally operates four days per week with the precise number of shifts

depending on the volume of products that have to be distributed. Orders for each store are packed into separate boxes and racks (for

hanging items) and are typically ready for shipment 8 hours after they have been received.

Zara has achieved high levels of customer responsiveness by its flexible arrangements and wide supply chain base. Stores usually place their

orders and receive shipments twice per week. Orders have to be placed at pre-designated times. Store employees regularly tour urban hot

spots looking for new trends and reporting back to designers. Knowing whats in today may be out next month is the secret of the success of

the Spanish retailer as is the ability to apply operations strategy that puts new fashion concepts on the shelf twelve to fifteen days. Customers

seem to relish the results of this high velocity operation and are often seen queuing outside stores on designated delivery days a

phenomenon dubbed as Zaramania.

M AR KE TING & S ALE S Most companies exploit the advantages of advertising their products and services in various media and their

marketing strategy is linked with various advertising techniques. However, Zara deviates to this standard strategy.The company have

established a policy of zero advertising and they preferred to invest percentage revenues in opening new retail outlets worldwide. Also,

Because Zaras merchandise is produced in small quantities, provided on predictable schedules, and displayed in the stores for only a short

amount of time; customers visit Zara stores more frequently. This has an added advantage of helping Zara avoid the cost of advertising. In

terms of promotion too, Zara is caviar to the general. Comparing with other rivals, Zara only advertises twice a year and no advertising is when

they open new store. However, due to its clear-cut brand image and prominent location, Zara can always catch consumers eye. In terms of its

communication tools, Zara maintains an updated, innovative, and inclusive corporate website (www.zara.com), where essential facts about the

company, product catalogue, collection, store outlets, and other information are posted. This is considered as their major communication

tools provided that they take advantage of the benefits of electronic technologies in marketing their products. Zara has a strong IT System

that allows almost immediate communication of sales and inventory information across enterprise.

Zara produces clothes that resemble the latest couture creations, but they beat the designers to market. Because they use less expensive

fabrics, they can also provide the product at a lower price. To achieve this type of competitive advantage, Zara controls most of its supply

chain, by managing all design, warehousing, distribution, and logistics functions.

Zaras products including casual, occasional, lingerie, underwear and swimwear are not only fashionable but also affordable in the range of

mid-low price with mid-high quality. This is due to the vertical integration of the organization from fabric purchase to distribution. However,

as an international retailer, Zaras price is different in each country because of the differences in rates of exchange, tax and transport. Zaras

strategy of refund guarantee assures Customer of purchases refund in any store but within the same country, and credit will be given for

returned items according to the prices marked in the original tags, disregarding any later sales promotions.

Zaras stores are located in prominent city center sites. However it resists the business-wide trend of transferring production to low-cost

nations.

SER VICES The Companys instant fashion model, completely rotates its retail stock every two weeks. Shoppers addicted to the Zara brand

know exactly when the deliveries will be arriving at their local shop and some even turn up before opening time on delivery days to be the

first to pick up the latest lines, with delivery day becoming known as "Z-day" and Zaramania in some markets.

The knowledge that clothing items would not be available for very long i.e. released limitedly also encouraged shoppers to regularly visit the

store to see if a new stock has arrived and make their purchases more quickly , shortening the product life cycle and leading to greater

success in meeting consumer preferences. If a design doesn't sell well within a week, it is withdrawn from shops, further orders are cancelled

and a new design is pursued. No design stays on the shop floor for more than four weeks. Through this strategy, Zara reacts quickly to

changing fashion trends and customers' tastes, providing a "newness" to fashion followers.

The store is Zaras main image vehicle. The overall experience of the customer in the store in considered. Apart from the fashion supply, the

interior design of the store, coordination of collections, maximum care over window displays and customer care are some of the elements that

guar experience. Window display is changed per month and decoration is changed every two years. Clear lighting, white walls and ceiling, and

few photographs in every shop, are aimed at creating an elegant atmosphere while spotlighting the clothesThe stores where Zara

concentrates the majority of its investment are the essence of the groups chains, for which reason the location in the main commercial areas

of cities and care over interior design take on vital importance for the company.

Customer care is one of the most intangible value that Inditex takes most care of. Each store has different customers segments. These

segments have different values in terms of their product choice .Inditex establishments are thought out so that the encounter between the

customer and fashion can take place in a pleasant environment. Store personnel with supervisors as the main drivers of quality of service,

encourage freedom and comfort of the visitor by taking an active role in the shopping process exclusively when the customer requests and

receive training designed specifically to serve this purpose.

SE

CO

ND

AR

Y A

CT

IVIT

Y

Firm Infrastructure

Vertically Integrated

& Capital Intensive

In-House

Production :

50%; 85%

Production

Through Out

Season

5 Million Square

Foot Distribution

Center; Ceiling-

Mounted Racks

And Customized

Sorting Machines

Broad &

Undefined

Target Market

Fast Fashion System ;

Quick Response System

Human Resource

Management

Procurement And

Production Planners;

Buyers

Young & Fresh

Design Staff;

Team Rotation;

Autonomous &

Flexible Culture

Work Force Of

1200

Market

Specialists;

Dept. For

Acquiring Global

Prime Real Estate

Locations; Store

Refurbishing

Managers & Sales Associates

Transmit Sales Analysis; PLC

& Store Trends To Designers

Technology

Development

Technology

Orchestrated

Coordination Of

Suppliers

Strong It

System ; Cost

Efficient; Quick

Response

Communication

Centralized

Distribution

System ;

Minimized Lead

Time

Updated,

Innovative ,

Inclusive

Corporate

Website

Intelligent Feedback

Gathering Through Personal

Digital Assistants (Pda);

Instant Inputs From Point Of

Sale( Pos) System

Procurement

50% Production

From 400 Outside

Suppliers, 70 % In

Europe

Just-In Time;

Centrally

Managed

Inventory

System

Limited Runs;

50% Sourced

According To

Demand Trends

Advertising

Twice A Year For

New Stores ;

Zero Advertising

Exclusive & Updated Products

Every Two Weeks

Inbound Logistics Operations Outbound

Logistics

Marketing And

Sales Services

PRIMARY ACTIVITY

Pizza Hut, the unit of YUM! Brands operate the world's Number One pizza chain with more than 13,200 outlets in about 90 countries worldwide. The chain serves a variety of pizza styles, including its flagship Pan Pizza, as well as Thin n' Crispy, Stuffed Crust, Hand Tossed, and

Sicilian. Other menu items include pasta, salads, and sandwiches. Pizza Hut offers dine-in service at its characteristic red-roofed restaurants, as

well as carry-out and delivery service. About 15% of the restaurants are company-operated, while the rest are franchised. The world's largest

fast food company, YUM! Brands runs KFC and Taco Bell in addition to Pizza Hut.

INBOUND LOGIS TICS The local supply chain for Pizza Hut was developed by Yum! And currently 95 per cent of the ingredients they use are locally produced. Pizza Hut imports very few specialty items like pepperoni. It has reduced costs through indigenous sourcing of raw

material. It has tied up with a local company Dynamix Dairy Industries Ltd (DDIL) for sourcing mozzarella cheese. The landed cost of imported

mozzarella comes to US$ 3.3 - 3.5 per kilogram. The domestic price, however, works out to US$ 2.99 - 3.1 per kilogram. Pizza Hut is adding to

the bottom line by localising equipment as well as by paying attention to inventory replenishment, which has been reduced from 60 to 30

days.

OPER ATIONS Pizza Hut operations are based on what the company called CHAMPS which define the very core of customer expectations. Champ stands for Cleanliness, Hospitality, Accuracy, Maintenance, Product, and Speed. This system of measure has been the companys tool

to ensure consistency of service and product quality and is align with customer mania program.

Generally, Pizza Hut operates in different concepts. The first is the Full Service Restaurants Based Concept which offers dine-in, takeaway and

delivery services to customers and Home Service concept which offers home delivery and take-out. There are specific menu to these concept

and delivery if offered to customers living within the designated trade zones. The newest concept being developed by Pizza Hut is the Express:

Eat-in and Takeaway. The concept is to establish Pizza Hut within food halls and leisure parks across the UK offering informal, quick services

with a reduced menu .With these concepts, Pizza Hut basically operates in two units - dine and delivery. They cannot be categorized as fast

food because their service is not as speedy as McDonalds. It is more of a casual dining but not as classy as fine-dining restaurants, with a

better ambiance and atmosphere than fast-food restaurants.

Pizza Hut invests on skills, knowledge, training and development of employee for different positions. The company has program which

includes annual performance appraisals designed to let Team members know exactly what the expectations are and what opportunities exist

for improvement. Information and skills are well-communicated internally among employees; the company allows open communication all the

way to the top .At Pizza Hut, they treat each other as customers themselves so they exactly know what the customer wants and discuss them

in every internal meeting wherein every idea of employee counts. Pizza Hut management gives importance to the ideas and opinions of the

staff because they know that these staff are the frontliners of the company who have direct contact with the external customers. The company

also do not allow bureaucracy instead maintain its culture which is a recognition culture- motivating employees through recognition. Pizza

Hut also created a coaching management system that is managers become restaurant coaches, teaching employees and providing them

information rather than just giving commands to the staff thereby giving the staff chance for improvement. Internal competition is eliminated

to promote commitment and creativity.

OU TBOUND LOGIS TICS Pizza Hut offers its customers variety of choices on its menu as a strategy of targeting a wider market segment, establishing itself as a family restaurant. Pizza Hut categorizes its menu as Dine-in Restaurant menu and Delivery menu. It also has Kids Menu

which is menu for children with free toys at selected meal and Collection Menu which features selection of Pizza Huts brands of pizzas such as

the Big New Yorker, Stuffed Crust Pizza and The Italian.

Pizza Hut restaurants offer starters and side orders, pasta and salads, desserts, ice cream and pizza. It also serves drinks such as coffee, sodas,

juices, tea and alcoholic beverages. It came up with the concept of the ice cream factory wherein for one payment, one can take as much ice

cream as he wishes which appeals more to children. Some Pizza Hut in UK also features a salad bar and a buffet lunch that gives value to

customers money.

It also offers healthy choices with its salad and its menu indicates which items are suitable for vegetarians. Pizza Hut continuously reviews their

products so its menu change from time to time in an effort to meet evolving customers needs and taste preferences. International food chains

typically offer only a few localised products in other parts of the world. However, Pizza Huts local menu is as large as the international one.

According to Pizza Hut, the Indian food heritage is very rich, and hence Indians like local flavours. The Tandoori range of pizzas, which was

developed locally, has a menu mix of over 20 per cent.

M AR KE TING & S ALE S According to Pizza Hut, the role of its marketing is to ensure that the needs of the customers are met; it is what

makes the business makes money. The company invest resources for research on customers needs and analysing customers feedback about

what people think about pizzas; what do they like or dislike about pizzas; and what do they want from pizzas The feedbacks and research are

the basis of the company for innovation and development of new products.

Pizza Hut has gained its name through heavy media and TV promotions which inform the customers of what Pizza Hut can provide them.

Pizza hut makes sure that the customers are well-informed and aware on new products, offerings and services it provides.

Pizza Hut has increased its visibility by launching a well-received TV campaign aimed at the young crowd. It has formed partnerships with

recognised brands such as Nestle and Pepsi. It also holds regular promotional campaigns targeted at children and uses these alliances to offer

packages during these campaigns.

Most Pizza Hut restaurants are located in the metros and smaller metros. In taking long strides across the country, Pizza Hut is consolidating

its position by opening more restaurants in the metros where it already has a presence as well as opening outlets in new markets to increase

market penetration.

SER VICES The Company uses the term customer mania to describe the importance that customer satisfaction impacts on the success of the company. Customer Mania is basically a program which is based on three principles: operational excellence, great marketing and real sit

up and take notice standards of customer service. The program aims to instil the basics of customer service to every team member of Pizza

Hut emphasizing four critical steps. The first step is to set sight on the right target by taking care of customers and creating a motivating

environment for staff; the second is to treat customers the right way by determining the kind of experience Pizza Hut wants its customers to

have as they interact with every part of the company; the third is to treat employees the right way by using strategies ranging from smart

hiring, to training and development, to managing performance and creating a recognition culture; and the fourth is to build the right kind of

leadership by letting staff decides and think with the support of the manager. It include basics such as smiling and greeting the customer,

presentation, good service and dealing with service problems themselves without looking for a manager

All over the world, Pizza Hut holds a quarterly customer mania mindset session for its team members who include all the crews, managers

and Restaurant Support Centre Team to reiterate and motivate employees on the importance of providing consistent product quality, service,

ambiance and value for money to the customers. In this session, recognitions are given to employees who are outstanding in their service to

the customers.In 1995, Pizza Hut launched two customer satisfaction programs: the 1-800 Customer Satisfaction Hotline and the Customer

Call-Back Program, which takes the pulse of 50,000 customers per week. A mystery shopping program gathers information every month on

how each restaurant is performing against customer expectations. The results of this survey are fed back to the restaurant within five days of

the visit .

As part of its customer service, most Pizza Hut restaurants provide facilities for people with disabilities. On its website, Pizza Hut provides a

Disability Discrimination Act statement in compliance with the Disability Discrimination Act 1995. The statement stated that the company has

improved its physical environment with more easily accessible facilities and has trained its employees to better understand and meet the

needs of customers with disabilities.

The delivery guarantee concept is also classified as one of the strengths of the company with regards to customer service. The delivery

guarantee concept ensures the Pizza Hut delivers products on the time promised and if it fails to deliver on time the customer will get his next

pizza for free. Pizza Hut newest concept of Hot Dot ensures that the pizza is hot or else the order is treated as free.

In dealing with customers complaints, Pizza Hut provides telephone numbers customers can call to when they encountered problems

regarding the services the company provided them. Feedback forms are provided at each table of Pizza Hut restaurants. The website of Pizza

Hut also provides telephone numbers and address to be contacted with for customer complaints. As already mentioned, Pizza Huts Delivery

guarantee offers compensation for failure to deliver products on time. Once a customer complains about a product, the staff will try to rectify

the situation by replacing the product if the order is wrong or the quality of pizza or any product is not satisfactory. However, if the customer

is still unhappy, Pizza Hut will refund the customers money. The restaurant is also known for its innovation, differentiation and product

creativity with its highly successful Italian- a thin crust pizza and Stuffed Crust Pizza and Tandoori Pizza Range as an effort in providing

customers value to their money.

SE

CO

ND

AR

Y A

CT

IV I

TY

Firm

Infrastructure

C.H.A.M.P.S

Cleanliness,

Hospitality, Accuracy,

Maintenance, Product,

And Speed

Restaurant Based

Delivery: Dine In,

Take Away &

Delivery Services. ;

The Express: Eat In

& Take Away

Metros & Smaller

Metros Penetration

Innovation;

Compliance With

Disability

Discrimination Act

1995; All-Vegetarian

Restaurant For Jain

Community; Ice Cream

Factory

Human Resource

Management

Recognition Culture

Employee Ideas Counts

Customer Mania ;

Treat Each Others

As Customers

Coaching

Management

System- Manager

Become Coaches

Delivery Guarantee

Else Second Pizza Free;

Customer Mania

Program

Technology

Development

Integrated

Communication

System; Teradata

Warehouse Minerto

System to Maintain

Temperature of

Pizzas

Online Orders;

Customer Care

Hotline

Hot Dot

Procurement Indigenous

Sources;

Mozzarella

Cheese Sourced

From DDIL

95% Ingredients

Locally Produced;

Import Few Specialty

Items ;

Vegetarian & Non

Vegetarian; Crust

Variety ;Local &

International

Flavors; Healthy

Salads Choice

Aggressive

Marketing & Tie Ups

With Popular Brands

Like Pepsi; Targets:

Childrens & Young

Crowd

Italian Thin Crust

Pizza; Stuffed Crust

Pizza

Inbound

Logistics

Operations Outbound

Logistics

Marketing And

Sales

Services

PRIMARY ACTIVITY