How Zara fashions its supply chain
Home is where the heart is
ouis Grestner Junior once said that everything starts with the customer; and while few would argue with the former IBM CEO, ensuring that the right products end up with the customer is arguably even more important. However, this will only occur if the supply chain is efﬁcient enough to make the journey from factory to shelf as smooth as possible.
You would be forgiven for assuming that such a task should pose few problems. However, customers are notoriously strange creatures and habits can be short lived. Throw in the fact that trends inevitably come and go – some much quicker than others – and it becomes obvious that the success of any organization will depend heavily on its ability to meet demands and respond quickly to ﬂuctuations and change.
Sainsbury’s and the bare necessities
Get it wrong and the consequences can be painful – as Sainsbury’s discovered to its considerable cost. Only a decade or so after being the UK’s leading supermarket, a lack of investment had already left the company trailing in the wake of rivals Tesco and Asda. It goes without saying that the last thing Sainsbury’s needed was for its new, automated supply chain to fail. However, empty shelves in its stores were testimony that it did. Any supermarket knows that poor stock availability is a cardinal sin and even the slickest marketing becomes impotent when the products involved are buried away in some depot instead of being at the end of the supply chain that matters. In this case, some Sainsbury outlets struggled to even provide an acceptable percentage of staple products. Dissatisﬁed customers understandably went elsewhere and, in late 2004, the company posted its ﬁrst ever loss. Rather ironic since many retailers believe that modifying the supply chain is one way of dramatically trimming expenses.
‘‘ Any supermarket knows that poor stock availability is a cardinal sin and even the slickest marketing becomes impotent when the products involved are buried away in some depot instead of being at the end of the supply chain that matters. ’’
VOL. 21 NO. 10 2005, pp. 28-31, Q Emerald Group Publishing Limited, ISSN 0258-0543
going for broke in one fell swoop will inevitably be fraught with danger when it essentially requires the fusing of various operations around products that have a limited shelf life. ’’
So where did Sainsbury’s go so badly wrong? Perhaps at least part of the answer lies in the old saying that ‘‘great haste makes great waste’’. Even more painful is the fact that much of the £3 billion invested in the automated system has had to be written off. However. is that the NDC was introduced to support rather than replace eight smaller depots. its dependence on just-in-time (JIT) replenishment was equally ﬂawed because the accuracy of such a predictive model is highly questionable. Highly impressive stuff but what happens when things go wrong? Prevention is invariably better than cure and it is no different here. This all adds weight to the belief that supermarkets and technology do not always mix.
Heinz: getting the best out of technology
However. It cannot. At peak times.
We all know that Rome was not built in a day and Sainsbury’s should have remembered this.6 million cases. the NDC depends heavily on automation to serve Heinz and its customers. technology can play an important role in supply chain management and Heinz’s 350. The sellout to technology saw Sainsbury’s reduce its number of distribution centers in favor of four giant warehouses. going for broke in one fell swoop will inevitably be fraught with danger when it essentially requires the fusing of various operations around products that have a limited shelf life. 21 NO. Sainsbury’s has been forced to eat a large slice of humble pie and go back to basics. The depot usually operates over six days each week to handle around 1.‘‘ Besides. It is understandable that Sainsbury’s would see reducing the amount of stock carried by its stores as a way to tackle shrinkage. What was the consequence of this? When the system could not satisfy demand. Haste was certainly the name of the game here because the company:
introduced technology more quickly than initially planned – cutting the timescale from seven years down to three. The company has reopened old distribution centers. Besides. 10 2005 STRATEGIC DIRECTION PAGE 29
. factor in variables like the weather into the equation. for example. the implications are all too apparent. two being fully automated. this ﬁgure can rise by an extra half million. The best model probably lies somewhere between the two. a plan B involving manual operations was conspicuous by its absence. For its sins. Designed and managed by leading third party storage provider Wincanton. while plans to close others have been shelved. Other retailers have pointed out the limitations of JIT software in respect of the grocery trade and prefer instead to stick to ordering based on actual rather than anticipated sales. The key objectives for Heinz’s operational team are:
VOL. And with the UK weather so notoriously unpredictable. too. The key difference.000 sq. however. and launched much of the automation simultaneously instead of going for a more measured approach favored by many others.ft automated UK National Distribution Center (NDC) is testimony to this.
The cost of this? Attractive salaries and contracts that allow drivers the ﬂexibility to meet both work and family commitments. This reduces the risk of loss through overproduction. That the organization retains its own drivers helps provide the icing on this particular cake. Heinz delivers full consignments and minimizes expenses even further by handling return loads. Wherever possible. Zara has ﬂourished on the principle of being responsible for its products all the way from initial conception to the customer. manual input is also vital and a rapid response team is on hand to intervene when issues such as badly loaded pallets may threaten to disrupt the computerized functions at the depot. The beneﬁt of bucking this trend? Having a multi-skilled workforce that can be redeployed where necessary and a pool of temporary staff ready and waiting for periods of seasonal or unforeseen demand. Provides the opportunity for more immediate comment and feedback. Technology often equals redundancy but Heinz sensibly opted to retrain its employees for other roles. 10 2005
. this involves defying many industry norms. Zara only outsources the production of clothing which is not subject to seasonal variation. Lessens the potential impact of changes in circumstances such as an amendment to retail orders. This also allows capacity to be increased with minimal impact on operations.B B
To plan meticulously so that the system runs smoothly and steadily. Swimming against the tide must be in the genes of Zara founder Amancio Ortega. For instance. Allows speedier decision making. they play second ﬁddle to the telephone when it comes to making contact with store managers. As a result. A proactive approach towards maintenance in order to nip any potential problems in the bud and lessen the chances of a mechanical breakdown throwing a proverbial spanner in the works. An ability to be ﬂexible is obvious crucial. This also provides the ideal opportunity to modify and improve the system. production and marketing all rub shoulders with each other. Zara carries out all operations under the same roof of its La Coruna headquarters. the Spanish organization can boast an unprecedented capacity for quick response within an industry that rarely stands still. whose 650 clothing stores serve around 50 different countries. Although PDAs are used to transmit information. why else should he choose to repeatedly defy sound business logic? Another indication of this aptitude is the existence of parallel facilities for men’s. women’s and children’s clothing at
‘‘ Informality rules the roost and functions such as design.
The relative absence of technology provides further evidence of the depth of control exercised at Zara. It thus:
B B B B B
Shortens delay. However.
Nine IT systems control the supply chain and ensure that functions run smoothly. Ironically. 21 NO. The high level of efﬁciency also extends to transportation. Minimizes bureaucracy. ’’
PAGE 30 STRATEGIC DIRECTION VOL. Informality rules the roost and functions such as design. And the payoffs? Increased loyalty and savings on agency expenses
Total control at Zara
Strict control of its supply chain plays an even greater role in the success of Zara. This set up essentially removes the need for information to travel through widely dispersed channels. If not. while rivals choose to minimize cost and risk by owning fewer assets. production and marketing all rub shoulders with each other.
This also forms part of the rationale for delivering in limited quantities.
The review is based on: ‘‘How Heinz keeps out of the soup’’ by Jeff Anderson. ‘‘Rapid-ﬁre fulﬁllment’’. As a result. Ortega points out that working to full capacity would strangle the system and leave little scope to react swiftly enough to changing demands. and enjoys higher net proﬁts than its rivals. J. 82 No. Zara almost transforms restricted availability into a virtue. 3. (2004). Michael A. 7 No. Zara’s ability to coordinate its activities enables it to cut drastically usual industry timescales for the design and introduction of new garments from months down to around two weeks. Vol. where up to 400 extra staff can be drafted in during busty periods. ‘‘How Heinz keeps out of the soup’’. 10 2005 STRATEGIC DIRECTION PAGE 31
. Ferdows et al. pp. the company ignores economies of scale to the extent that it manufactures at low capacity and leaves its elegant boutiques half starved of merchandise. Likewise. (2004). ‘‘Digital disaster’’. It also discusses ways in which the company is able to reduce its costs. (2005). 24. where small batches of stock regularly give way to newer lines.A. Lewis. Ferdows. Supply Management. K. It is the same with its sparsely replenished stores. As a result. The ﬁnal article details the experience of UK supermarket Sainsbury’s to illustrate the impact of supply chain problems.. 2 December. To this end. 23-6. the company:
B B B
sells its products more quickly and can thus operate with low working capital. D. L.A. November. Automation. 104-10. Its clothing is highly regarded. Another more than useful article that also provides invaluable lessons to all. Machucha. pp.
Spare manufacturing capacity is mirrored in the company’s storage function. as many of its implications can be readily adopted within a diverse range of ﬁelds. ’’
company headquarters. and Machucha. J. Vol. 22-5. April. 9 No. 11. It emphasizes the importance of control throughout the system and points out how the unconventional approach of the Spanish clothing company differs from industry norms. while delivery schedules are similarly regimented. pp. 21 NO. This is yet another beneﬁt of a system whose whole is clearly greater than the sum of its parts.
VOL. boasts a signiﬁcantly lower percentage of unsold items. O’Brien. so the customer has to move quickly or risk losing out. Logistics and Transport Focus. ISSN: 1466-836X. Zara also shares Heinz’s insistence on keeping everything running smoothly.
Keywords: Supply chain management. Harvard Business Review. Lewis and Jose A. This article provides a useful and interesting read to any practitioner. store managers have to comply with strict ordering deadlines. This more expensive way of working is justiﬁed by the fact that a delay in one facility does not hinder the others. and ‘‘Digital disaster’’ by Liam O’Brien. Customers also know when new stock is due and trafﬁc in stores is heavier at such times. Retailing. ‘‘Rapid-ﬁre fulﬁllment’’ by Kasra Ferdows.‘‘ Zara almost transforms restricted availability into a virtue. Supermarkets
Anderson. the company is able to cut back signiﬁcantly on its advertising. It describes the automated functions at the depot and how the workforce and technology combine to help the company meet changes in demand. While this would stretch most supply chains. This relatively short article provides a useful insight into the issues it covers. The author details the company attempt to automate its supply chain and why the move failed miserably. Not surprisingly. there is method in all this apparent madness. describe how effective supply chain management is crucial to the success of Zara. Vol. Anderson’s article examines Heinz’s National Distribution Center in the UK.D. M.