Q1 Which operations management concepts introduced in this module will help you compare and contrast the different supply chain strategies from a critical perspective?

Supply Chain Management

Figure 1.1 Example of Supply ChainAdapted from: Palladino, 2010

According to Slack (2007), supply chain is series of operations between origins of

products or services and end customers, which transform (assembly, merging, etc.) an

input (usually raw material) into an output (final products); supply chain management

(SCM) aimed to satisfy end customers needs at competitive cost through managing

these operations to achieve improvement in 5 operations objectives (speed, quality,

cost, dependability and flexibility), make sure each operations can satisfy its own

customers and also end-customers regardless of their position in the supply chain.

Companies increasingly competing as a supply chain rather than independently in

order to secure their underpinned competitive advantage in the industry(Hoppe, 2001;

Hill, 2005).

SCM involves decisions like what capabilities/operations should be outsource or

develop internally, the location of firms' operations and the management of overall

long-term capacity (Ghezzi, 2006; Hill, 2005; Slack et al., 2007).

Fast Vs. Conventional Fashion Industry

Figure 1.1 Comparison of Conventional and Fast Fashion industry lead timeAdapted From: Palladino, 2010

In conventional fashion industry, each supply chain members relationship is loose,

they used to run their business separately without information sharing and schedule

production based on their own forecast (Lee and Kincade, 2003); lack of information

sharing on actual demand and operational differences caused long lead time (6

months) and "bullwhip" effect , restrained the launching of new items to twice a years

(spring/summer and autumn/winter) and causing high level of inventory, and the risk

of each chain members' inventory-on-hand become obsolescence is high. As a result,

conventional-fashion player used to practice a push-strategy (due to longer lead time

needed to introduce a new design) (Palladino, 2010; Lee and Kincade, 2003; Slack, et

al., 2007).

While fast fashion industry practice a totally different approach in managing its

supply chain, the relationship between each chain is close (Barnes and Greenwood,

2006), many players like Zara often act as a supply chain leader to coordinate each

chain, the close relationship among supply chain members not only enhance the

dependability and flexibility of supply chain, it also allow concepts like QR (Quick

Response) and JIT (Just In Time) to be practice throughout the whole supply chain,

and this effectively shorten the lead time from a normal 6 months to 3-6 weeks

(Palladino, 2010).

Fast-fashion player can introduce new design within short period of time (In Zara

case, 15 days) and the "bullwhip" effect is minimized, consequently, inventory level is

low, so as the obsolescence risk. Short lead time allow practice of pull-strategy (as

shorter time is needed to introduce a new design), which allow better respond to

customers' demand (Palladino, 2010; Ghemawat and Nueno, 2006; Slack, et al.,

2007). The make-or-buy decision, location decision and supply chain time

compression concept can be used to further understands the differences and

similarities between this two industry.

The Make or Buy Decision

In SCM, the make-or-buy decision is used by firm to achieve desired supply chain

performance objective, for example, outsource production to reduce cost or retain

production in-house to maintain high quality (Slack, et al., 2007; Hill, 2005). In

reality, company don't usually produce every service and products in supply chain that

it needed to satisfy its end-customers, as Slack et al. (2007) explained, firms can

choose to buy products/services directly through outsourcing or produce the

products/services by itself through vertical integration along supply chain, firm

usually choose to outsource activities which it had no competitive advantage in and

retain activities which it believe are critical to firms' success base on the order winner

and qualifier of competing market.

In the make-or-buy decision, conventional-fashion industry player prefer outsourcing

to leverage the cheap labour & material cost in developing country to keep their cost

low (Lee and Kincade, 2003), however, outsourcing (especially to long distance

countries) significantly increase lead time, longer lead time means that retailer must

forecast the actual demand few months in advance to place order earlier so that each

collection can be place in store on time.

While fast-fashion industry player like Zara had turn the focus from cost to lead time

through vertical integration, short lead time allow retailer to forecast demand closer to

the time it actually occurs (Ghemawat and Nueno, 2006), consequently, the forecast is

more accurate compare with conventional-fashion industry, therefore the inventory

level is significantly lower than conventional-fashion player, the needs to markdown

or write-off item is minimized, conventional-fashion industry player averagely had to

mark down 40% to reduce obsolescence stock (Neuno, 2009; Gallaugher, 2008) .

The Location Decision

The location of operations is another elements need to be considered in SCM,

according to Slack et al. (2007), locations decisions will affect supply chain

performance objective, particularly the operations' effectiveness, operations costs and

ability to fulfill customers' demand, factors that will affect the location decision can

be categorized into supply-side and demand-side influences as shown below:

Supply-side factors Demand-side factorsLabour CostsLand Costs

Labour SkillsSuitability of Site

Energy CostsTransportation CostsCommunity Factors

ImageConvenience for Customers

Figure 1.2: Supply-side and demand-side factors in location decisionsAdapted from: Slack et al., 2007

In conventional-fashion industry, the location decision is much affected by the

supply-side influences, primarily costs, conventional-fashion players seek to exploit

the benefit of low labour, land and material costs through setting up their operations in

developing countries (Barnes and Greenwood, 2006; Bonacich and Appelbaum,

2000), for instance, French Connection (FCUK) had setup their manufacturing plant

in Turkey, this operations location had help French Connection achieved its objective

on cost (Carroll et al., 2004).

While in fast-fashion industry, the operations locations were influenced more by

demand-side factors, particularly the convenience for customers, their operations

location was setup close to the centre of demand, for example, Zara operations

location in Spain is close to its major market Europe (about 70% of retail store is in

Europe), so that lead time can be shorten through shorter distance between

manufacturing and retailers, and hence achieve supply-chain objective in speed and

flexibility (Zara, 2010; Ghemawat and Nueno, 2006; Craig, 2004).

Supply Chain Time Compression

Beside the make-or-buy and location decision, operational efficiency is also an

important elements in SCM, in-terms of improving supply-chain performance, as

Towill (1996) suggest, operations efficiency can be achieved through time-

compression, which is speeding up the flow of materials and information within the

supply chain, time-compression would not only improve supply-chain performance

objective (cost, speed, quality, dependability and flexibility), it also had positive

impact towards firms' profitability (Slack et al., 2007; Towill, 1996; Beesley, 1996).

The fashion market is characterized by its short product life cycle, high volatility and

low predictability (Christopher et al., 2004). Conventional-fashion industry player

design their supply-chain to focus on low material and production cost in order to

improve profitability, but at the cost of long lead time; while fast-fashion player focus

is on short lead time, using time compression strategy to improve their profitability

(Slack et al., 2007; Gallaugher, 2008; Towill, 1996).

Lowering material and production cost regardless of increasing lead time greatly

reduce conventional-fashion player profitability, the reduction in profit even offset the

cost-saving in production and material cost (Gallaugher, 2008); as shown by Towill

(1996) in figure 2.1, short lead time can eventually increase firms' profitability, that's

the reason why fast-fashion industry generally can have a higher profit margin

compare with conventional-fashion industry (fast-fashion industry player sell 85% of

their goods in full price, compare with conventional-fashion industry 65%) (IIBD,

2010).

Figure 2.1 Influence Diagram showing the mechanisms by which lead time compression influences profitabilityBased on: Towill, 1996, Slack et al., 2007

Consider the characteristic of fashion market, long lead time reduce firms' speed to

market new products and make forecasting become more difficult, consequently, sales

is low as they cannot fulfil customers demand on fast and fashionable products, the

mismatch between forecast and actual demand cause high level of obsolescence

inventory, therefore, they had to discount their products to sell obsolescence stock,

greatly reduce their profitability (Towill, 1996; Christopher et al., 2004; Gallaugher,

2008).

Q2 What are the distinct features of the supply chain strategies employed

by each of the three companies?

Figure 2.1 Positioning of Zara, Benetton and H&MAdapted from: Palladino, 2010

Zara, Benetton and H&M is three of the most representative player in fast-fashion

industry, however, as shown in figure 2.1, they position themselves differently, Zara

position itself to be most fashionable (2 week lead time to market new products) and

low price, H&M position itself to be fashionable (3weeks lead time to market new

products) at lowest price and Benetton position itself to be less fashionable(6 weeks

lead time) but high price (high quality). In the second part of this assignment, the

focus will on how Zara, Benetton and H&M apply the concepts mentioned in previous

part of this assignment to enhance their desired position.

The Make or buy decision

According to Ghezzi (2009), Benetton pursue strong upstream vertical integration to

manufacturing and design, Benetton had 32 production centres and 300 in-house

designers all over the world. In manufacturing, Benetton only retained core-activities

like dyeing in-house to ensure products' quality, others labour intensive activities were

outsourced to contractors nearby its own production plant to exploit benefit of

specialization and low-cost. However, Benetton's usage of contractors in non-core

activities increased the operating cycle (works to contractor and works from

contractors had long operating cycles, refer to appendix I for more details) (Ghezzi,

2009);

Benetton also acquiring or founding its first tier suppliers, like "Olimpias" (Supplier

in yarns), United Web (E-commerce company) and "Fabrica", (a communication

workshop) to ensure its materials' quality, so materials can be sent directly to

contractors without extra quality control process, hence reduce lead time and

transportation cost, also, secure Benetton from price pressures. Benetton also operates

its own distribution centre like what Zara did to reduce lead time (Slack et al., 2007).

However, compare with Zara, Benetton's extent of vertical integration is narrow,

Benetton outsource downstream activities like retailing using franchising (93% of

sales come from franchise operations) (Andreaiadis et al., 2004). This lack of focus on

downstream activities like retailing, make Benetton difficult to obtain valuable

information flow fast and directly from its customers and communicating a consistent

image (Andraeiadis et al., 2004), the creation of wholly-owned mega-stores was

somehow trying to address such problems (Slack et al., 2007).

In contrast to Benetton and Zara, H&M outsource all productions activities to 750

suppliers all over the world to exploit the low-cost benefit (suppliers in low-cost

countries) and flexibility, as capital is not tied up in machinery and equipment

(EMCC, 2004); however, outsourcing all production activities make it difficult to

control products quality and dependability of supply, unlike Benetton which had its

own dependable material source, H&M needs extra inspection to check quality of

final products, resulting in an increased lead time (Ghemawat and Nueno, 2006);

H&M also used 21 production offices to ensure orders are correctly placed with

correct supplier at the right price and quality, this extra tier in supply-chain also

increase its lead time (Databank Consulting, 2004). Design is the only upstream-

activities remained in-house, so that H&M focus on speed, quality and cost can be

controlled well (Ghemawat and Nueno, 2006; Li and Frydychowska, 2008).

H&M then pursue downstream vertical integration; like Zara, all retail stores are

owned and operated by H&M, this allowed H&M to stay closer and had direct control

over its market and customers; directly collect and exploit both customers and sales

information helped in understanding market demand fast and accurately (Databank

Consulting, 2004), also, due to its low price position, using own retail channel ensure

that profit margin can be fully retained (Slack, et al., 2007); however, high initial and

operating cost is incurred. H&M also had its own distribution centre in Germany

primarily to exploit the economies-of-scale in transportation (Li and Frydychowska,

2008).

Unlike H&M and Benetton, Zara had widest vertical integration span; in terms of

upstream activities, Zara had 20 fully owned factories, over 300 in-house designers

and fully-owned fabric supplier-Comditel, however, Zara also outsourced some

labour-intensive activities (40% of total production) and materials like what Benetton

did. For downstream activities, Zara operates its own distribution centre in Arteixo

and 1,608 retail stores over the world (Ghemawat and Nueno, 2006; Fraiman and

Singh, 2004).

Compare with H&M and Benetton, Zara control over its supply chain is direct and

powerful, Zara used this strong and wide span of vertical integration to reduce its lead

time to the best in industry; wide-span integration promote accurate and up-to-date

information flow from its retail channel back to its production and design section,

shorter lead times mean better agility in responding to market changes, as a result,

Zara is able to allow its retail store to adjust 40-50% of their orders after season

started, compare with industry average 20% (Palladino, 2010; Ghemawat and Nueno,

2006).

However, a significant drawback of wide span vertical integration is the high cost

associate with it, as Palladino (2010) explained, high capital investment is needed to

maintain the supply network, besides that, new design often means a changeover of

production techniques, together with the cost to retrain not only a single segment but

whole supply chain's employees, Zara incurred higher operating cost compare with

H&M and Benetton which had outsourced part of their supply chain.

The Location Decision

Zara was headquartered in Spain, most of its upstream assets were located here

(Ghezzi, 2009), according to Palladino (2010), Zara manufacturing (time-sensitive

products), distribution and design function were highly centralized in Spain, so that

lead time and transportation cost can be shorten through shorter distance between sub-

contractor (primarily located in Spain and Portugal), productions plant and

headquarter, also stay closer to Zara main market, Europe (Craig, 2004). However,

remain production in Spain was 15-20% more expensive compare with Asia, therefore

Zara outsourced price-sensitive items to Far East countries like China to lower cost

(Ghemawat and Nueno, 2006).

While for retail location, Zara retail store is primarily located in highly visible

locations, often premier shopping street (like Regent Street in London and Fifth

Avenue in New York) to ensure there is enough customers demand for fashion item,

so inventory can be sold faster ,further enhance Zara aims on speed (Yim, 2003;

Ghemawat and Nueno, 2006).

As Databank Consulting (2004) shown, H&M central functions like design were

based in headquarter Sweden, productions function is decentralize to 750 suppliers

worldwide primarily due to the intention to exploit the regions' lower labour cost;

however, among them, 40% is in Northern Europe, the rest is in Asia; production in

Asia is mainly responsible for less fashion sensitive item as the labour cost is low,

while Northern Europe production is responsible for fashion sensitive products,

although labour cost is higher than Asia, but shorter distance between production

facilities allow fashion sensitive item to be market faster.

Distribution function were decentralized to every countries it operates, due to the

demand-side influence, convenience for customers, as stock can be replenish faster so

customers won't have to wait too long for product replenishment (EMCC, 2004).

H&M retailer were mostly found in main shopping areas of major cities and towns,

where customers are more sensitive towards price (Li and Frydychowska, 2008).

Although decentralized to developing countries help reduce cost, longer distance

between supplier and transit terminal in Germany increase the lead time needed for

H&M to deliver its products, causing H&M had longer lead time compare to Zara

(Slack et al., 2007).

Benetton remain design function in Italy to helps create a high fashion image

(Palladino, 2010). Research done by Ghezzi (2009) shown that, unlike what Zara and

H&M did, for manufacturing, Benetton did not choose between centralized or

decentralized, instead it use a combination, Benetton centralize upstream activities

through creating a big production pole in Castrette, consist of its core activities like

CAD design, cut and dyeing, surrounded by its sub-contractors which provide

materials and labour-intensive activities like sewing; Benetton then decentralized to

other low labour cost countries like India through replicated this "production pole"

model away from its headquarter (refer to appendix II for more details). Similar to

Zara and H&M, fashion-sensitive items were produced in production pole closer to

Italy like Hungary, price-sensitive item were produced in farer countries like China

(Slack, et al., 2007; Palladino, 2010).

"You definitely have benefits in terms of lower costs and being closer to markets, but by the same token you are buying higher risk — country risk and currency risk."

(Emilio Foà, CFO of Benetton cited in Kersnar, 2008)

Benetton locate its production poles at low cost countries to exploit the benefit of

lower cost through outsourcing to and sourcing from local sub-contractors (Ghezzi,

2009), centralize production poles also reduce lead time and allow better

responsiveness due to shorter distance between suppliers, productions facilities and

market. However, such move increase both country risk and currency risk of

operations (Foà cited in Kersnar, 2008).

Benetton distribution centre is located in Italy, in order to remain closer to its main

Europe market (Andraeiadis et al., 2004). Benetton retail network is mainly

compromise by its franchisees (78% of total apparel sales), over 6,300 stores is

located in prestigious locations and commercial centres worldwide to make sure a

high exposure rate and availability, also, compare with Zara 1,608 stores and H&M

2,200 stores, widespread presence in domestic market is another distinct features of

Benetton (Palladino, 2010).

Supply Chain Time Compression

Benetton used 300 in-house designers to make sure new design can come out within

short period of time (Palladino, 2010). While in manufacturing, Benetton adopted

"leagile" approach through its revolutionized dyeing postponement process to

compress its time; it moves dyeing to end of manufacturing cycle, products was

completed without colour and dyed it when customer preferences is updated from

retailers (Slack et al., 2007), by this, Benetton is able to starts productions before

colour decision is made, JIT approach was used in producing greyed clothes, so that

wastage and manufacturing cost can be lower; while agile approach was used in dying

process, dying can start once specific colours decision is made, so that popular colours

can be made available as soon as possible (Christopher and Towill, 2000; Saini,

2007). Benetton is able to shorten normal industry 6 months lead time to 6 weeks

(Sandler, 2007). Due to this advanced dyeing process, Benetton use colours as

strategy to differentiate products instead of model (Palladino, 2010).

Benetton also make large investment in its state-of-the-art distribution centre in Italy,

which had the capability to handle 120,000 incoming/outgoing boxes daily, this

tremendous speed further reduce the lead time (Benetton, 2010). As Stalk and Hout

(1990) explained, reduction in lead time have positive relationship with forecast

accuracy (reducing the lead time by 50 per cent will reduce the forecast error by 50

per cent); accurate forecast reduce need for safety stock and hence reduce

stockholding cost and leads Benetton to higher profitability. (Slack et al., 2007;

Towill, 1996).

However, Benetton time compression strategy improve only material flow, therefore

its competitiveness in terms of lead time is weak (6 weeks), competitors like Zara had

duplicate such strategy to improve their material flow (Gallaugher, 2008) and with

downstream integration, improve their own information flow, as a result, performance

is better than Benetton (Zara shortest lead time is 15days; H&M is 3 weeks) (Slack et

al., 2007).

Similarly, H&M also used in-house designers, designers are required to follow

general trends and come up with new concept when necessary in timely fashion to

respond to quick-changing market demand (EMCC, 2004). In terms of manufacturing,

un-dyed fabrics will be first manufacture by supplier long in distance but low in cost

in large quantity to reduce cost, like China; later the dyeing process will be done by

supplier close to its warehouse in Hamburg once after an actual demand information

is received, as a result, lead time is shorten and cost is lower (Slack, et al., 2007;

Saini, 2007).

In retail sector, H&M implement same ICT system in both production office and retail

store, it successfully shorten lead time by 15-20% as production office can place order

to supplier instantly when retail store run out of stock, so information flow can be

faster (Li and Frydychowska, 2008). For distribution, H&M operates independent

"call-off warehouse" in each countries to reduce the lead time needed to replenish

stock (EMCC, 2004).

A short lead time is not necessarily best, since the right lead time is always a matter of getting the right balance between price, time and quality.

(H&M, 2010)

However, production office which used to coordinate outside supplier and internal

compartment create an extra tier in supply chain, causing a longer lead time, H&M

lead time is 3 weeks, the information flow is faster than Benetton and comparable

with Zara, but material flow is slower, but through this, H&M achieve significant

cost-savings (30-50% lower compared with Zara) (Li and Frydychowska, 2008).

Compare with H&M and Benetton, Zara time compression can said to be extreme,

this is achieve through the implementation of QR (Quick Response) system

throughout the supply chain (Cachon and Swinney, 2010; Ghemawat and Nueno,

2006).

Zara QR system starts from its retail store, unlike its competitors, retailer is the

starting point of its supply chain instead of ending point, Zara stores manager are

required to submit sales report (sales analysis, products life cycle and store trends)

frequently back to in-house apparel designers in Spain through a specially designed

software to ensure fastest respond to market demand changes (Yim, 2003; Craig ,

2004), also, slow selling item will be weeded out and send back to distribution centre,

so that latest design can be brought to customers at shortest time (Ghemawat and

Nueno, 2006). In designing, Zara employed young and fashion conscious designer

(average 26 years old), send them to fashion show, exhibition, disco and universities

campus to detect current trends, Zara trained and encouraged its designers to make

quick decisions so that information flow from retail store can be respond faster, bad

decision are not severely punished in Zara (Slack, et al., 2007; Saini, 2007).

After designer complete a design, most fashionable item will be produce in small

batches, so that production can be done faster by suppliers nearby and in-house

factories using JIT system cooperate with Toyota, capital-intensive part (pattern

design, cutting, final finishing and inspection) is carried out in-house, labour/scale-

intensive part will be outsourced to suppliers nearby to ensure shortest lead time in

manufacturing; while price-sensitive item will be outsource to Asia for lower cost

(Ghemawat and Nueno, 2006).

Finished products is then delivered to a highly-automated distribution centre nearby

and shipped to destination in 24-48 hours according to different time-zone to reduce

time-wastage to minimum (packed and shipped orders to Americas, Middle East and

Asia while European store is doing stocktaking; then focus on European stores in the

afternoon) (Ghemawat and Nueno, 2006; Hodge, 2002).

Zara time compression effort is throughout the whole supply-chain, both information

and material flow are compress to be the fastest; as a result, Zara only need 14 days to

put a design into stores, known to be fastest in the industry (Palladino, 2010; Craig,

2004).

Although short lead time will lead to higher profitability (Towill, 1996), shortest lead

time doesn't mean highest profit as in Zara and H&M case, although Zara lead time is

shorter than H&M, but H&M extra attention to cost make it have a higher profit than

Zara. (€1822m compare with Zara €1322m) (Zara, 2010; H&M, 2010).

Q3. In view of global expansion, which of the three supply chain

strategies is the most competitive and why?

In the last part of this assignment, the focus will on how Zara, Benetton and H&M

supply chain strategies affect their competitive priorities as suggested by Reid and

Sandra (2005) when they expand globally, as Reid and Sandra (2005) explained, firms

can become more competitive through achieving 5 competitive priorities shown

below.

Speed

In terms of speed, Zara is the fastest among three of them, however, in terms of global

expansion, Zara centralized operations location in Spain tends to reduce its speed

advantage due to longer distance between its operation locations and market in Asia

and Americas (Businessweek, 2006); while H&M is able to expand globally using its

current model without much obstacles, its highly internationalized suppliers give

H&M more alternatives, for example, when enough demand occur in Asia, H&M

used its production offices in Asia (10 in Asia, 10 in Europe, 1 in Africa) to

coordinate suppliers in Asia to produce and sent directly to Asia market, thus

maintaining high speed regardless of market location, which is vital in global

expansion (Tungate, 2005; EMCC, 2004; Li and Frydychowska, 2008). Benetton

replicate its production pole in Italy to other countries like India and Tunisia,

however, all products will had to send back to distribution centre to Italy to packed

and delivered to retail stores (Palladino, 2010), this is similar to Zara, speed is further

reduced when the extend of global expansion grow larger .

Cost

Both H&M cost and product price is lower than H&M and Benetton, particularly due

to the benefit of outsourcing to low-cost countries and less focus on quality (Tokatli,

2007), when expand globally, the impact on cost for H&M is minimal as its suppliers

were already highly internationalized (EMCC, 2004), as expansion goes on, H&M

only need to open more production office and distribution centre, which is less costly

compare with Benetton, which open new production plant to expand, this move not

only incurred high initial cost, but also higher risk of failure (Kersnar, 2008). For

Zara, centralized production and distribution plant in Spain increase cost as expansion

goes further away from Spain, climbing transportation cost and the policy to replenish

store twice a week is expensive and create revenue pressure (revenue growth in same-

store had reduce from 9% in 2004 to 5% in 2008), as a result, Zara had to increase its

products' price in market farther from Spain (Zara's price in U.S. are 65% higher than

in Spain), but this approach somehow reduce its competitiveness(Business Week,

2006; Ghemawat and Nueno, 2006) .

Quality

Among three of them, Benetton products had highest quality, through upstream

integration to its material supplier and manufacturing plant, quality is assured even in

fast expansion situation (Palladino, 2010); while H&M is able to maintain its

products' quality in rapid expansion, using its production office to control and select

its suppliers, for instance, 2,717 inspections on suppliers were made by 40 auditors in

H&M production offices in 2004, 16 factories were barred from supplier list after

inspection to maintain its quality (Li and Frydychowska, 2008). Similar to Benetton,

Zara also owned its fabric supplier - Camditel and manufacturing plant, which helps it

to had higher control over product quality, Zara also had purchasing office in Hong

Kong and Barcelona to helps ensure the quality of fabric and other inputs from

external suppliers, as part of Zara global expansion strategy (Palladino, 2010;

Ghemawat and Nueno, 2006).

Flexibility

Flexibility in global expansion is critical to fast-fashion industry players, flexibility is

the ability of one operations to change what it does, how it does and when it does

(Slack, et al., 2007). When expand globally, the fluctuation of demand in different

market is high (Andreiadis, et al., 2004), as highlighted earlier, Zara speed advantage

tends to reduce when its market grow farther from Spain, this increased in lead time

would greatly reduce its flexibility; besides this, Benetton and Zara central

distribution centre were less effective to handle the surge in demand when expand

globally, their flexibility were reduced when expand globally (Ghemawat and Nueno,

2006).

In contrast to Zara and Benetton, H&M operates distribution centre in each markets it

operates, this approach give H&M more flexibility as products not necessarily had to

go through single distribution centre, also, as H&M don't own any production plant,

capital is not tied up in plant and machinery, further enhance its flexibility (EMCC,

2004), but in terms of manufacturing, H&M is less flexible than Zara and Benetton

which had own manufacturing plant, however, H&M used to be a loyal customers to

its approved suppliers, existence of a very long-term relationship with supplier made

suppliers willing to adapt with H&M fast-changing demand, provides H&M with high

flexibility (EMCC, 2004; Stevenson and Spring, 2009).

Dependability

Zara wide span of vertical integration gives it unmatched dependability in supply

chain, when expand globally, high dependability ensure that customers demand can be

fulfil at the right time and right place (Ghemawat and Nueno, 2006); for Benetton,

dependability is reduce due to the usage of franchise in retail channel, Benetton use

agent to contact with its franchisee and had low control over its franchisee' behaviour

(no formal agreement between Benetton and its franchisees), the problem may

become more serious when expanding to countries with huge cultural or language

differences, delay in this tier of supply chain greatly reduce Benetton's' supply chain

dependability (Palladino, 2010; Ghezzi, 2009). The problem is reversed in H&M,

however, with the help of its 21 production offices, careful selection of suppliers and

close relationship with them is able to reduce the uncertainty and improve its supply

chain dependability (EMCC, 2004; Li and Frydychowska, 2008).

Conclusion

As mentioned earlier, Benetton performance in terms of lead time and cost is less

competitive, as speed and cost remain the order winner in fast-fashion industry

(Ekwall, et al., 2004), this make Zara and H&M a more competitive players, Zara 14

days lead time is fastest, while H&M lead time is slightly slower (20 days) but price is

significantly lower (30-50% lower), as a result, Zara and H&M competes fiercely in

fast-fashion industry.

However, in terms of global expansion, Zara competitive advantage in terms of short

lead time, quick inventory turnover may be obsolete when it expand globally, while

H&M supply-chain strategies allows it to maintain its competitive advantage in cost,

quality and speed when expand globally, this make H&M a more competitive players

in the view of global expansion and achieve higher sales, revenue and profit margin

than Zara and Benetton (Business weeks, 2010); also, in terms of proportion, H&M

international sales contribute 91% of its total sales, while Zara only 69% (Lopez and

Fan, 2009).

References

Andreiadis, E., Baciu, I., Iancu, A., Pilsu, M. (2004) United Colors of Benetton. [online] Available from: < andreiadis.net/files/Marketing_UCB.pdf> [Accessed on: 8 December 2010]

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Appendix

Appendix I: Benetton's operating cycle Source: Rovizzi and Thompson, 1992 cited in Ghezzi, 2009

Appendix II: Benetton's operation pole outside ItalySource: Palladino, 2010