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c h a i n g e c a p i t a l
The Zara Gap:What is Different?
SOURCING JOURNAL SUMMITNEW YORK CITY10.15.15.
INCREMENTAL OR TRANSFORMATIONAL?
Clayton Christensen:“The theory of disruptive innovation describes a process by which a product or service transforms an existing market by introducing simplicity, convenience, accessibility, and affordability….thereby making them available to a much larger population.”
Gary Hamel: “If you want to see the future coming, 90 percent of what you need to learn, you’ll learn outside of your industry. There is nothing that you can learn from inside your industry that will help you get ready for the future. Literally nothing, because you already know it.”
OUTSIDE IN?
Superior profitability is based in supply flexibility
to reduce unwanted markdown, stock-out and
inventory costs.
Lead Time Optimization (LTO)™ links lead times,
earnings and market capitalization.
…We estimate thatpercentage increases in Market Cap due to adoption of Supply Flexibility solutions range from
30% to nearly 40%.
The most powerful lever is the management of
capacity and materials for speed and flexibility.
OUTSIDE IN?
The case study, “InnerMost: Strategies for Fast Fashion,” was written by Professor Warren H. Hausman and Professor Behnam Tabrizi, Department of Management Science & Engineering, Stanford University, and John S. Thorbeck of Chainge Capital LLC. All names and data are disguised.
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Zara vs. Channel Averages
Operating Income / Inventory
Mar
ket
Cap
/ Rev
enue
OPPORTUNITY GAP
Warren H. Hausman and John S. Thorbeck, “Fast Fashion: Quantifying the Benefits,” publication in Innovative Quick Response Programs in Logistics and Supply Chain Management, edited by Edwin Cheng and Jason Choi, Springer Publishing Company.
Retail’s Big Arbitrage
Operating Income / Inventory
Mar
ket
Cap
/ Rev
enue
H&M
E
D C
A B
Fast Retailing
HAS THE ZARA GAP PERSISTED?
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Warren H. Hausman and John S. Thorbeck, “Fast Fashion: Quantifying the Benefits,” publication in Innovative Quick Response Programs in Logistics and Supply Chain Management, edited by Edwin Cheng and Jason Choi, Springer Publishing Company.
CHGBDA
CHAINGE“CHANGE THE SUPPLY CHAIN”
Tightly link product speed and flexibility to
fresh and frequent fashion in stores.
BDA LONDON“BRAND STRATEGY”
The BDA process emphasizes lifestyle,
product and consumer behavior
SPEED STYLE
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BDA London (UK) is a fashion marketing and strategy firm, Dave Edgar, Managing Director.
MAPPING PROCESS INNOVATION – “AS IS”
120-150 DAYS Order to forecast (make to order) Order (sell what you make)
ContractManufacturing
Finished GoodsInventory
WH & Customer
“Staging” Point (push/pull boundary)
Order to forecast
Supply to forecast
Company Inventory
Work inProcess
& Fin Gds
Assemble to order
Make to sell
1. Platform
2. Stage
3. Hedge
4. Postpone
5.Optimize
“Staging” Point (push/pull boundary)
Customer
14-21 DAYS
LEAD TIME OPTIMIZATION (LTO)TM
Lead Time Optimization (LTO)™ is a proprietary solution and trademark of Chainge Capital LLC.
THE MODEL IS DIFFERENT!
• New financial and customer model: sales productivity (full price sales/less inventory), in season speed and flexibility, and significant cash flow.
• New metrics: forecast accuracy (improvement with time), negative working capital, Open-to-Buy % in season, and shared supplier & worker incentives
• New LTO platform: network and optimize total supply chain for product cost, speed and flexibility
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Shared Value**Social Impact***
Supply Flexibility*
3. Sales:Millennials identify
with high social purpose
2. Incentives:Shared value
benefits suppliers and communities
1. Productivity:Untapped economics
via Lead TimeOptimization
INNOVATION FOR VALUE & VALUES
Co
nsu
mers
Retail b
rands
*Warren H. Hausman, Stanford, 2010**Michael E.Porter, HBR, Dec 2010***JPMorgan and Rockefeller Foundation Report
Supplier Communities
MORE INNOVATION?
LOW COST
SPEED AND FLEXIBILITY
ELECTRONICS & SOCIAL IMPACTSources of disruption
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