Zara Supply Chain
Advanced concepts and Future trends of SCM 6 Linking theoretical concepts and real life SCM 9 EZRA gaining competitive advantage using SCM 10 Managing global supply chain 12 Bibliography / References 12 Introduction The alma of this case study Is to analyze how EZRA has achieved its success through various business strategies. In particular, we will focus on supply chain management the relation between suppliers and retailers which helped to Increase the efficiency of the company and also made customers satisfy.
In particular, we will analyze various analytical tools and techniques implemented by EZRA to achieve success. And also to evaluate the various key features which are identified in the case study. The linkage between planning and control and real life logistics operation involved with procurement, manufacturing support and customer accommodation.
How EZRA evolved a global supply chain using procurement and supplier development to improve business performance, drive growth and gain competitive advantage.
About EZRA Ezra Is a Spanish fashion retailer and Is the largest Indexed division- accounting for ore than 75% of Its sales. * In 1975, It opened Its first store In La Corona During sass’s, It opened It opened Its stores In all the major Spanish cycles. * In 1988, first overseas Ezra store opened in Portugal. In 1989, Ezra opened its first store in US.
By 2002, it only got 8 stores in US. * By April 2003, Ezra had 565 stores in 33 countries. A typical Ezra store has women’s, men’s and children’s sections, with 60% of women’s wear and rest equally divided between men’s and children’s.
Business Model: Ezra is a vertically integrated retailer in the apparel industry which has total control of all he business activities from designing, manufacturing, sourcing, distribution to retail stores. Hence, this strategy helps them to respond accordingly to the market demands which are always changing.
1) SCM Tools and techniques: Process design : All EZRA stores are mostly located in the up-markets, prestigious empty which gives a customer a pleasant environment to walk in. The layout of the stores has been designed at La Corona to maintain the worldwide uniformity.
Product design : As it is the fashion industry, EZRA has to follow the trends and be fashionable to attract the customers. It designs 40,000 products every year and 10,000 products are selected for production Job design : Ezra conducts an effective training sessions for the sales force and strongly emphasize on internal promotion. Store workers remuneration highly depends on the profits of the store which involves the workers and make sure that they contribute to company’s success.
Network design : Ezra has a central distribution center in Saratoga worth million Euros.
It also has three other small warehouses in Brazil, Argentina and Mexico to cope up with seasons in southern hemisphere and distance. Inventory management : Ezra uses a efficient Inventory management strategy which avoids running out of products for sale. As fashion is an industry where the trends keep on changing, So Ezra restricts itself to limited inventory. Due, to its low inventory policy, all Ezra stores will have latest trends but are very limited.
Capacity management : Ezra unlike the other fashion retailers concentrates on both the next season and also responses to the fluctuations in the current season.
Quality management : Ezra manages to provide the customers the best quality at low price when compared to its competitors. Ezra monitors and enhances quality service to it’s customers. Instead of focusing on the product advertisement or marketing Ezra focuses much on its product and quality. Lean: Ezra has implemented lean techniques and this is the primary reason for their success.
Some of the lean techniques implemented: Customer Focus : Sara’s primary and main goal was to satisfy the customer and making the right product for the customer at the right time. Cycle time reduction: It reduced the cycle time by eliminating the non-value added activities.
Employee’s empowerment: As in Ezra it takes the orders from its stores 2 times a eek. And, this helped the sales managers to interact with the workers every week and get to know which apparels are selling well and which are not. At the time of placing an order the manager will be having knowledge of what items should be ordered.
In this way the Ezra is able to customize its offers based on the different markets. Products to the customers at low price and in the quick time. Continual process refinement: By implementing lean techniques and methodologies it helped Ezra to continuously improve the processes in order to reduce the wastes which in turn helped Ezra to flourish till the current day.
MR. (Material Requirements Planning): In Ezra, the designing of the products is done in a separate hall where they have designers, market experts and buyers(experienced staff.
Designers designs the product and shows their design catalogue to the market experts and buyers. Once, the buyers are satisfied with the designs they start order fulfillment process which includes planning, procurement and production requirements monitor warehouse inventories and allocate production to various factories or third party suppliers depending on the availability. ERP(Enterprise resource management): It is the back bone of most firm’s logistical information systems. It also maintains database of current and historical data which also processes transactions of all business functions.
It includes: Order processing Tracking shipment Inventory assignment SIT: It quickly responds to the demands of the target customers by using SIT manufacturing technology in order to meet the fast changing fashion and trends. SIT is a pull strategy of production where we make products on the basis MOTTO(Make to Order) or TAT(Assemble to order). In Ezra, they purchase the fabrics UN-dyed in order to allow faster response for mid season color changes. Word of mouth(No advertisement strategy): Ezra doesn’t spend on the advertisement or marketing of the products rather it pays it attention towards product quality and customer focus.
According to its marketing manager, “Our stores and word of mouth will do the advertising for us”.
2) Advanced concepts and Future trends of SCM in the Fashion industry: As we all know that fashion industry have short product life cycles I. E. , the trend keeps on changing in order to respond to the rapid market changes the conventional forecast driven supply chain management is not adequate to meet the challenges in the assign industry. Nature of fashion markets: Short product life cycle: In this industry, the sales of the products depend on the seasons, months and occasions.
Once, the particular season is gone the demand for the product is low in the market. Hence, the product has short life cycles.
Volatile: Demand in the fashion industry is not stable or linear. It mostly depends on the films, celebrities, sports etc.. , For example, if you take FIFE world cup at that time the then there will be demand for cricket Jerseys. Low predictability: Due to its high volatile nature we can’t predict the fashion market.
High impulse purchasing: Buying decisions by consumers are made at the point of purchase.
Conventional way to cope up with the uncertainty situation is to improve the forecast. Due to the high volatile nature of fashion industry it is very difficult to develop forecast methods in such a way that can predict sales accurately. So, instead of developing forecast methods ways must be found to shorten the lead times. There are 3 critical lead times in fashion industry: Time to Market – Time taken for the product to come in to the market after recognizing the market trend or market opportunity.
Time to Serve – Time taken to get the order from the customer and serve it to the customer.
Time to React – Time taken to adjust the output of the business in response to volatile demand. Advanced supply chain: From early ass’s due to the heavy competition in the apparel world, this initiated horizontal alignment with leaner structure to address demand situation, and also the shift has taken place in the market place from mass products to customized products. Due to the changes in the global market and disadvantages of the push and pull strategy forced the retailers to look for a new supply chain strategy. Hence, this resulted for the push pull strategy.
Push-Pull strategy: It is an asynchronous supply chain where the initial stages are operated on push strategy and the later stages on pull strategy. Strategy of the push portion in push pull supply chain is on cost whereas strategy of pull portion is on service levels. Inventory is minimized using push pull supply chain as it eliminates the safety stock by make to order approach. Push is applied in the areas where long -term forecasts and have small uncertainty whereas pull is applied in the areas where short term forecasts and have high uncertainty.
The higher the uncertainty in customer demand, it is better to manage that part through pull strategy. Need for supply chain collaboration: Due to its globalize nature there is a pressure on the fashion retailers with regards to cost element.
As we know that this industry is extremely volatile, retailers are required to adapt to the market trends. Thus, supply chain collaboration is viewed as a strategy in order to ensure efficiency in the apparel industry. In order to respond quickly to the changes in the market and customer orders supply chain collaboration plays a major role.
Thus, there is a need for all the companies in the fashion industry to incorporate supply chain collaboration (Logistics alliance). There are two master collaborative disciplines to be followed- Collaborative planning forecasting and replenishment (CPRM) – alternative to traditional forecasting Collaborative product commerce (CAP) – It’s a management philosophy that leverages a company’s supply chain to design and produce products. AGILE supply chain In the context of supply chain management, the term agility refers to the responsiveness.
Due to the short life cycle in the fashion market, the companies have apply chain- * Forecast driven * Inventory based Agile supply chain- * Demand driven * Information based As the fashion industry is volatile and UN-predictable the need for agility originated. Characteristics of Agile supply chain – Market sensitive Virtual Network based Process aligned Lean supply chain in the Fashion industry: In lean supply chain, focus is on removing unnecessary activities which causes delay in the free flow of information and goods and services which in turn provides superior value to the end customers and earn profits for all supply chain partners.
Lean supply chain management : It uses latest information technology to effect real time synchronization of product and service transfer, demand priorities, collaborative and logistics delivering capabilities. It has its roots in the core principles of TIPS. Create value for the end user or customer Identifying wastes and eliminating them Continuous improvement in the process In order to compete in the fashion market the companies have to run a lean supply chain and apply lean manufacturing techniques as needed.
It also requires supply chain collaboration from order processing, product design, inventory control, distribution, shipping and life cycle management. ) Linking theoretical concepts and real life supply chain management: As we have discussed some of the key features of the fashion industry. Now , we are relating those theoretical concepts to the real time supply chain management. How EZRA implemented those features in the real life logistics operations? Market sensitive : Ezra has a team of fashion ‘SCOUTS’ who seek out the new ideas and running trends in the market.
As given in the case study, they also use their own sales people in order to identify or recognize customers likes and dislikes.
Once, a market specialist Isabella forges at their quarters sensed that khaki shirt is sold out at their La Corona store only after the hours they placed them on the shelves and store manager has told her that she could have sold even more. Then, they have sent 2800 pieces to the selected Sara’s worldwide network stores. As they use latest computerized technologies like CAD with the help of which these ideas can be quickly converted in to tangible products.
Short lead times (critical): Sara’s main objective is to take the shortest possible time to get the product in to the market. The minimum time taken by Ezra to get the product n to the market is 30 days which is far better than its competitors. So, then it helps Ezra to make maximum profit before its competitors gets the product in to the market.
Sara’s close relationship with the manufacturers, constant research of the market helped them to achieve short lead times. These short lead times in turn give enough time to Ezra to correct problems resulting from forecasting errors.
Network order to achieve quick response Ezra works close with its manufacturers. At the time of production all the cost efficiency operations are done internally with in Ezra. While all other operations like sewing etc.
. Are given to sub contractors. These sub contractors works exclusively for Inedited. Sara’s designed its network in such a way that they can cope up with any kind of changes in the market. Ezra also has many number of suppliers so that they are not dependent on a single supplier and none of the suppliers account for more than 4% of the Sara’s total production.
Push pull strategy: As we know that there are high uncertainties in the fashion industry. So, in order to cope up with the current trend in the fashion world Ezra went for the push- pull strategy. Postponement is the best example of the pull strategy which is implemented by Ezra. For its in house production it takes 40% of fabric from another inedited subsidiary. Over half of them are UN dyed to allow faster response to mid season changes. Ezra follows MOTTO(make to order) it uses the UN dyed fabric and based on the order it gets in touch with the Fabricator , a sub contractor in order to finish the making of the product soon.
Hence, In this way Ezra reduces the inventory level and eliminate non value added activities in the process. Lean supply chain in Ezra – According to the CNN reports “while its rivals typically start planning their lines nine months before they hit the shelves, Ezra has a reputation for instant reaction to fashion trends and rapid restocking of stores to meet demand on popular items. It’s also not afraid to cancel items that aren’t selling. Ezra can make new line- from the initial concept to when it arrives in the shops- in Just 3 weeks.
Ezra lines rarely stay on the shelves for more than a month, and new stock often sells out in days.
” According to the CEO, Ezra achieved all these by using the existing technology to take the control of design, production, inventory, distribution and shipping. Communication about customer demand – Ezra takes their orders twice a week. So, the store managers order those products which are highly sold. So, the product managers will be knowing the customers demand.
Short production runs – “the lot size of one” it takes out much of the risk in the industry, even if the product doesn’t get sold they can Just change their production as per the change.
Hence, they can prevent the financial loss. Collaboration – Design, product, sourcing, retailing all work together by sharing the same space. Time to market – Sara’s products reaches out to customers as early as possible because of it’s agile nature. Creates value for the end customer – Ezra tries to deliver the right product to the customer at the right time.
It creates a value product for the customer by eliminating the non-value added activities. 4) Ezra gaining competitive advantage using supply chain management: Supply chain management is a system of peoples, activities, organizations, services, resources, information and activities that are involved in moving a product from supplier to consumer.
In order to offer products at affordable prices Ezra implemented a strong supply chain mechanism. And, this helped Ezra to gain competitive advantage over its competitors. Design and order administration: Ezra designs all its products on its own.
It has a commercial team (market specialists, buyers, designers) of 300 in which they all are working together as a unit. Product which is designed by the designers will be examined by the market specialists and where it creates a sample of the design manually with the help of set of skilled workers. But, the decision is not dependent alone on the market specialists.
De-centralized decision approach – In Ezra, market specialists deals with the pacific stores and they constantly get in touch with the store managers in order to examine the sales, orders etc.. Final decisions on what products to make are mainly rely on these discussions. Hence, Ezra involves all its employees in decision making. Procurement: Procurement term refers to either buying or leasing something (raw materials, components, sub assemblies, spares, equipments, services). In fashion industry procurement plays a major role in supplier selection and product decision making.
In the given case study, Sara’s make or buy decisions clearly based upon the procurement and production planning. Procurement decisions are mainly based on supplier’s level of speed and expertise, cost effectiveness and capacity.
Procurement strategy affects the final product, if the company buys raw materials from the suppliers at low cost and good quality then it can sell at low price to the customers. As Procurement is a value adding process, it is important that manufacturing materials should be delivered on time with correct quality and at right total cost. It is all about selecting the efficient suppliers and making the right product for the customers. Hence, Ezra gained competitive advantage in the market by providing low cost products when compared to its competitors.
Supplier relationship: In the fashion industry in order to cope up with the high uncertainties and fast lead times the organizations must work closely with their business partners to design, produce, distribution, selling and service their products. In Sara’s supply chain it bought all its designers, buyers, experts at one place and the production close to them in order to reduce the lead time and also to increase the flexibility. As it is the fast fashion industry, there will be a lot of pressure on the suppliers from the companies due to the change in the market trend.
It is very important for the organizations to work closely with its suppliers. Sara’s supplier relationship plays a major role in order to gain the competitive advantage by bringing the right product in to the market at the right time.
Ezra works closely with its suppliers though it manufacturers 50% of its products in its own network and the rest of it is procured from 400 outside suppliers. According to agile supply chain, it is better to have a wide range of suppliers in order to meet the customer demand in the fashion industry and also it eliminates the dependency on the single supplier.
Fabric’s for Ezra comes from 260 other suppliers as given in the case study and none of them account for more than 4% of its total production so that it can minimize the dependency. Distribution and Retailing: As we know Ezra takes the order from its stores twice in a week. It is very important for it to have wide range of efficient network in order to place the product in the desired time.
Ezra announced a million logistics center in Saratoga besides three other small ware houses in Brazil, Mexico and Argentina. By taking the orders regularly from its stores it is minimizing the inventory and over production.
Sales manager’s of the particular store places the order depending upon the sales as it is driven by customer focus. In this way Ezra reacts for the fast market changes. Global economies- Most firms today are impacted by Global economies * Global sourcing of materials and products * Global customers willing to purchase * Increase revenue * Increase in production capacity * Cheap resource and labor Currently, Ezra has only limited its production to Europe. With the changing behaviors’ of the consumer due to globalization there is a huge opportunity for Ezra to enter in to the US markets.
It can set up its 2nd distribution center in US in order to deliver fast and also it can be the expansion to one of the warehouses which are located in Argentina, Mexico and Brazil. By maintaining a distribution center in US it will allow them to reduce the lead time and also analyze changing market trends in America. Hence, this will save the lot of money for the company and also increase the customer response. Even Ezra should enter in to the internet retailing business as we know that people in US likes to purchase the apparels sitting at the home. Even in
India, if Ezra wants to expand its market it has to invest in marketing and internet retailing.
Ezra also should change its designs based on the geographical location and local trends. By entering in to the internet business it can reach to the customer faster and easier. Because, if compared to its competitors outside Europe all the companies are reaching the customer faster and hence gaining the competitive advantage over Ezra. As Ezra opened its first store in 1989, but it still got only 8 stores by 2002 which shows that its slow growth in the US market.
By operating globally, Ezra faces lot of uncertainties due to long distances, long lead times and lack of market knowledge. So, Ezra has to make use of this opportunity for expansion in the retail industry In conclusion, Ezra is the 3rd in the world retailers ranking by implementing the agile supply chain in the fashion industry.
And because of its close relationship consumers and supplier it has been able to place a right product to the customer at the right time. Sara’s quick response strategy reduced excess inventory in the production and also forecasting risks.
Due to its agile nature it decreased verbal risks, increased market opportunity and reduced total costs.