Salman Hadi i

2016435
Supply Chain Management
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Assignment-I
26-02-2020

Outsourcing Strategies of Zara and H&M Retailors

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Contents
Business imodels iof iZara iand iH&M? i(Horizontally iintegrated ior ivertically iintegrated) iand ithe ipossible
ireasons ifor iselecting ispecific istructure: ................................................................................................... 3

Their irespective ikey isuccess ifactors iin ioutsourcing istrategies: ................................................................. 3

Shorter ilead itimes i(and imore ifashionable iclothes):.......................................................................... 3
Creating ian iOmni-channel ibusiness: ................................................................................................ 4
Integrating ibusiness iand ioperations istrategy: .................................................................................. 4
Innovating ifor irapid idevelopment: ................................................................................................... 4
H&M: .................................................................................................................................................. 5
Strong irelationships iwith isupplier .................................................................................................... 5
Manufacturing istrategies: ................................................................................................................ 5
Main idifferences ibetween itheir ioutsourcing istrategies............................................................................ 5
Key ireasons ibehind idifferent ioutsourcing istrategies iof iboth iorganizations .............................................. 6
Zara: .................................................................................................................................................... 6
Mission: ........................................................................................................................................... 6
Vision: ............................................................................................................................................. 6
Values:............................................................................................................................................. 6
H&M: .................................................................................................................................................. 6
Mission: ........................................................................................................................................... 6
Vision: ............................................................................................................................................. 6
Values:............................................................................................................................................. 6

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Business models of Zara and H&M? (Horizontally integrated or vertically integrated)
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and the possible reasons for selecting specific structure:

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Where iZara iis iknown ifor iproducing imany iof iits iproducts iinternally iusing itheir ivertically iintegrated isupply
ichain, iH&M ifollows ianother istrategy. iAccording ito ithe iAnnual ireport iof iH&M i(2013), iH&M idoes inot

iown iany iproduction ifacilities iand iis idepending ion i900 idifferent iindependent isuppliers ifor ithe

iproduction iof itheir iproducts. iThus, iH&M ihas ioutsourced iits ientire iproduction ito ithird iparties, iand

itherefore ioperates ia ifully ivertically idisintegrated isupply ichain i(Santos, i2009). iH&M iruns ilocal iproduction

ioffices ito icommunicate iwith itheir i900 idifferent isuppliers; ithe ilocal iproduction ioffices ihave ian

iintermediate ifunction ibetween iH&M’s iheadquarters iand ithe isuppliers iand iare iresponsible ifor iplacing

iorders iat ithe iright isuppliers, ifor ithe iright iprice iand icontrol ithe iquality iof ithe idelivered iclothing i(Annual

ireport iH&M, i2013). iJust ilike iZara, iH&M ihas iits iown iintegrated iteam iof idesigners, ipreparing ithe idesigns

ifor inew iclothing icollections. iWhen ithe idesigns iare ifinished, ithe ilocal iproduction ioffice iwill idivide ithe

iproduction iof ithe iright iproducts ito iright isuppliers iand icommunicate ithe iorders iwith ithe isuppliers

i(Annual ireport iH&M, i2013). iH&M iis ioutsourcing iits iproduction ito ireduce ithe iproduction icosts; ithis ican

ibe imanaged iby ichoosing isuppliers ithat iproduce ifor ia ilower iprice ithan iH&M icould iproduce iitself.

iHowever iby ioutsourcing iproduction ito iindependent isuppliers, idifferent icompanies iare iinvolved iin ithe

isupply ichain, iwith imore iinformation ithat ihas ito ibe iexchanged, iincreasing ithe ilead-time. iWhile ithe

iunique isupply ichain iallows iZARA ito icontrol ithe ientire iprocess iin ia imore itimely imanner, igreatly ireducing

ishipping itime iand ienabling iquick iresponse ito ifashion iand iweather ichanges. iHowever, iin iorder ito imake

iup ifor ithe itransportation icost, iZARA ihardly iadvertises, iwhich igreatly ireduced ithe imarketing iexpenses.

iZara iuses ian iadvanced iIT isystem ithat ienables ithe iexchange iof iinformation ifrom ithe ilevel iof idesign iand

iproduction iall ithe iway iop ito ithe iretail istores. iMoreover, iZara’s imain iproduction ifacility iis ilocated iin iits

iheadquarter iin iSpain, itogether iwith ithe iteams iof idesigners. iAccordingly, iseparate idesign, isales, iand

iprocurement iand iproduction-planning istaffs iare idedicated ito ieach iclothing iline. iSince ithe idesigners,

iproducers iand imarket ispecialists i(who iare iin icontact i with ithe ilocal istores) ifor iall ithree iclothing ilines iare

ilocated iin ithe isame ibuilding, iinformation iand ifeedback ican ibe iexchanged iwith icolleagues iwithout

ibarriers icreated iby ia ibureaucratic isystem. iThe iphysical iand iorganizational iproximity iof ithe ithree igroups

iincreases iboth ithe ispeed iand ithe iquality iof ithe idesign iprocess. iThus, ibecause idesigners, iproducers iand

imarket ispecialists ican icommunicate ifrequently, iwithout iexperiencing ibarriers ito icommunication.

Their respective key success factors in outsourcing strategies:

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Shorter ilead itimes i(and imore ifashionable iclothes): iShorter ilead itimes iallow iZara ito iensure ithat iits
istores istock iclothes ithat icustomers iwant iat ithat itime i(e.g. ispecific ispring/ isummer ior iautumn/ iwinter
icollections, irecent itrend ithat iis icatching iup, isudden ipopularity iof ian iitem iworn iby ia icelebrity/ isocialite/

iactor/ iactress, ilatest icollection iof ia itop idesigner ietc.). iWhile imany iretailers itry ito iforecast iwhat
icustomers imight ibuy imonths iin ithe ifuture, iZara imoves iin istep iwith iits icustomers iand ioffers ithem iwhat
ithey iwant ito ibuy iat ia igiven ipoint iin itime.

Creating ian iOmni-channel ibusiness: iOmni-channel ibusiness ifocuses ion iutilizing itheir isupply ichain ito
ideliver ia igreat icustomer iexperience. iThis istrategy iis icontrasted ito imulti-channel isupply ichains iwhere
ithe ifocus iis ion ithe iways iin iwhich ithe icustomer ican ipay ifor ithe iitems. iAt iits icore, iZara ivalues iits ispeed

iand iresponsiveness ito ithe ilatest ifashion itrends iso imuch ithat iit iholds ithese ielements iin ihigher iregard

ithan icost. iOmni-channel iis iall iabout iensuring iyour iproduct ior iservice iis iin ithe iright iplace, iat ithe iright

itime.

Zara iwas iable ito icreate isynergy ibetween itheir ibusiness iand ioperation istrategy iby ifocusing ion ithe
iimportance iof ithe isupply ichain iwhen idelivering ia igreat icustomer iexperience. iThey iare iable ito itake

idesigns ifrom ithe icatwalk, imanufacture iand idistribute ithem iwithin itwo iweeks iof ithe idesign ifirst

iappearing iin ithe ifashion iindustry.

Zara iwill ionly icommit i15-25% iof ia iseason’s iline isix imonths iin iadvance, imeaning ithat i50% iof itheir
iproducts iare idesigned iand imanufactured iwithin ithe iseason iitself. iThis iensures ithe iclothing iZara ihas ion

ioffer iis ion itrend iand iis iexactly iwhat ithe icustomer iwants iat ithat ipoint iin itime.

Depending ion ithe isize iand inature iof ibusinesses ithat iuse ian iOmni-channel isupply ichain, imany iretailers
irequire ithird iparty isuppliers ito idelivery ithe iseamless icustomer iexperience ias ipart iof ithis istrategy. iBut

ithis idoesn’t iapply ito iZara ibecause ithey iwere iable ito ivertically iintegrate itheir isupply ichain.

Integrating ibusiness iand ioperations istrategy: iZara iis iknown ifor iopening ilocations iin icentral ibusiness
idistricts iwith ias imany ilocations ias ipossible. iSo ithey ireally ineed ito iensure ithey idon't ihave iany iissues
idelivering itheir iclothing ilines ito istores. iZara imanufactures iand idistributes iproducts iin ismall ibatches. iThis

iallows ithem ito itake ifull icontrol iover ithe idesign, iwarehousing, idistribution iand ilogistics ifunctions irather

ithan irelying ion ioutside ipartners.

Innovating ifor irapid idevelopment: iThe iindustry iaverage ifor ideveloping ia inew iproduct iand igetting iit ito
istores iis isix-months. iZara ican iachieve ithis, ireportedly, iin ijust ione-week. iZara’s isuccesses idown ito iits
iability ito igenerate iquick iturnover iof imerchandise iby irapidly ishipping inew idesigns ito istores i(as idiscussed

iabove). iSustained iinnovative inew ilines iof iclothing iconstantly ireplace iold iones iin ithe iglobal iZara

inetwork. iUnsold iitems iaccount ifor iless ithan i10% iof istock, icompared ito ithe iindustry istandard iof i17-20%.

iThis iis iachieved ithrough itheir iunique ibusiness imodel iof icopying ihigh-fashion idesigns, iseeking iglobal

icustomer ifeedback, iand ithen iliterally isewing ithe ichanges iinto itheir istock. iRe-designing itheir istock iin ithis

imanner igives iconsumers ithe ifeeling ithat ithe iproducts iare inew iand icreates iurgency ion ian iotherwise

iunwanted iitem.
H&M:
Strong irelationships iwith isupplier: iIt’s iall iabout ithe irelationships iH&M imakes iwith itheir isuppliers
ithrough icollaboration iand ipartnership. iWith iover i30 iproduction ioversight ioffices iglobally, ithese ioffices
itake ion ia imediating ifunction iwith ilocal isuppliers iensuring iefficient icommunication. iFurther, ithese
ioffices iare ithe ichecks iand ibalances ifor imaintaining iquality, iprice iand icompliance iwith ithe icompany’s

icode iof iconduct. iH&M ialso ibuilds itheir irelationships iwith ivendors iby iputting ia istrong iemphasis ion iethics

iand icompliance. iThey istress ithe iimportance iof irunning ia ifactory ithat’s ienvironmentally isound, iquality-

conscious, iefficient, ifair ito iworkers, iand iprofitable.

Manufacturing istrategies: iAt ithe iend iof ithe iday, iH&M iis ibound ito iprice ieconomy. iThis iis iwhere
iinventory imanagement istrategy isteps iin. iThey iplace ibulk iadvance iorders ito imanufacture iwith iabout
i80% iof itheir iretail iinventory iand ithe ibalance i20% iare ispeed ito imarket iitems ito imeet imarket itrends.

iPlacing ithese ibulk iorders ialso ihelp iwith iscale iof ieconomy, iwhich ikeeps iproduction ilines ifull iand igives

icompetitive ipricing. iH&M ioffers ia ispring iand ifall icollection ieach iyear iwith ieach iseason ihaving isub-

collections ithat ikeep iinventory irefreshed. iThe imain ispring iand ifall icollections iare itraditional ilong-lead
iitems iwhereas ithe itrendier iitems ihave ia ishort ilead-time.

Additional, ithey ihave iadopted ian iIT iinfrastructure ithat ihas ibrought ithe iaverage ilead-time idown iby i15-
20%. iThe iIT isystem iconnects iall istores iwith icorporate ilogistics, iprocurement isystems iand ithe icentral
iH&M iwarehouse. iThe isystem iintegrates ithe idesign iand iproduct idevelopment iteams, ikeeping ia

itransparent iview iof ithe icommercialization iprocess.

The iclothing iindustry iis iextremely icompetitive iand iH&M’s ibusiness iand ioperating imodels ihelp ithem ibe ia
ileader iin ithe iindustry. iOutsourcing itheir ioperations ihas isituated ithem ito ifocus ion igetting iyou ithe

itrendiest idesigns iat igreat iprices; ithus ireducing itheir icosts iand ibecoming ias iresourceful ias ipossible.

Main differences between their outsourcing strategies

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Where iZara iis iknown ifor iproducing imany iof iits iproducts iinternally iusing itheir ivertically iintegrated isupply
ichain, iH&M ifollows ianother istrategy. iAccording ito ithe iAnnual ireport iof iH&M i(2013), iH&M idoes inot

iown iany iproduction ifacilities iand iis idepending ion i900 idifferent iindependent isuppliers ifor ithe

iproduction iof itheir iproducts. iThus, iH&M ihas ioutsourced iits ientire iproduction ito ithird iparties, iand

itherefore ioperates ia ifully ivertically idisintegrated isupply ichain i(Santos, i2009). iH&M iruns ilocal iproduction

ioffices ito icommunicate iwith itheir i900 idifferent isuppliers; ithe ilocal iproduction ioffices ihave ian

iintermediate ifunction ibetween iH&M’s iheadquarters iand ithe isuppliers iand iare iresponsible ifor iplacing

iorders iat ithe iright isuppliers, ifor ithe iright iprice iand icontrol ithe iquality iof ithe idelivered iclothing i(Annual

ireport iH&M, i2013). iJust ilike iZara, iH&M ihas iits iown iintegrated iteam iof idesigners, ipreparing ithe idesigns

ifor inew iclothing icollections. iWhen ithe idesigns iare ifinished, ithe ilocal iproduction ioffice iwill idivide ithe

iproduction iof ithe iright iproducts ito iright isuppliers iand icommunicate ithe iorders iwith ithe isuppliers

i(Annual ireport iH&M, i2013). iH&M iis ioutsourcing iits iproduction ito ireduce ithe iproduction icosts; ithis ican

ibe imanaged iby ichoosing isuppliers ithat iproduce ifor ia ilower iprice ithan iH&M icould iproduce iitself.

iHowever iby ioutsourcing iproduction ito iindependent isuppliers, idifferent icompanies iare iinvolved iin ithe

isupply ichain, iwith imore iinformation ithat ihas ito ibe iexchanged, iincreasing ithe ilead-time.
Key reasons behind different outsourcing strategies of both organizations
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Zara:

Mission: i

The imission iis ito iadapt ito iwhat ithe icustomers iwant ias iquickly ias ipossible, ioffering ithem isustainable
ifashion. i

Vision:
Zara’s ivision iis ito ioffer iproducts iof ithe ihighest iquality ito iall iits icustomers iat ithe isame itime ias istriving ito
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i develop ia ibusiness ithat iis isustainable.

i Values:
 iCommitment ito isustainable idevelopment i

 iProtection iof ithe ienvironment iand inatural iresources

i  iStriver ito iremain itransparent i

 iEthical iand iresponsible ioperations’ idevelopment

H&M: i

Mission:
The imission iof ithe icompany iis ito ideliver ifashion iand iquality iat ithe ibest iprice itoday,

tomorrow iand iin ithe ifuture iin ia isustainable iway.

Vision:
H&M ivision iis ithat iall ithe ioperations iare irun iin ia iway ithat iis ieconomically, isocially iand

environmentally isustainable. iWhich imeans ithe ibusiness iis ihelping ito imeet ithe ineeds iof

both ipresent iand ifuture igenerations.

Values:
 Teamwork, isimplicity, ientrepreneurial ispirit, icost iconsciousness,
 Straightforwardness iand iopenness
 striving ifor iconstant iimprovements