CASE STUDY: BLUE NILE AND DIAMOND RETAILING

Although there are many phases in supply chain and it can be designed in various ways, in the end, the main focus should be satisfying the customer needs. Therefore, any retailing, including diamond retailing all the entities should be evaluated by the customer’s perspective and should be configured according to the company’s strategy. In overall the strategies should be complied with firms competitive strategy and each unit of supply chain.

There are several factors influencing diamond retailers, Blue Nile, Zales and Tiffany in terms of cost and services  such as inventory, information, response time, product variety, availability, order visibility and return ability.

1)Blue Nile, the largest retailer online, their competitive strategy is selling high end products with outstanding prices.  From the customer perspective, it should be noted that they offer a large variety and availability of products. In 2008 Blue Nile offered more than 75000 diamonds on its site. Blue Nile also let their customers to build their own products. It means they have flexibility and let their manufacturers to postpone customization for their supply chain.  Moreover it shows that Blue Nile serves a great information flow between manufacturer and customers.  

In terms of response time, customers are much more tolerated to wait for their orders. Therefore, they do not need to hold inventories but their suppliers provide them very quickly and it just took only three days until it transported to the buyer. This ability comes from good suppliers relationship, strong information flow and also flexibility. Therefore, customer experience is great in Blue Nile. Although, return ability is hard to provide for online retailers, they even offer a 30-day money back guarantee on some items.

Zales, unlike Blue Nile, they could not able to combine their competitive strategy with supply chain strategy. Although they started as affordable and modest quality diamond retailer, they had to change their strategy because of declining market shares. Their new strategy was to sell more from fashion and upscale items. It is certain that if there is inconsistency between the competitive strategy and the supply chain, it should be redesigned or the core strategy should be revised. However, Zales could not adapt their strategy and control their inventories. In order to diminish costs, they have tried to exploit inventory from upscale strategy but the result was huge loss. In the coming years they tried to control inventories by closing some stores and decreasing staff however, even it could not be prevent them to lose $200 million in 2008. It is apparent the problem of decision making about their supply chain strategies and inconsistency of positioning reflected customer experience and made them unsatisfied. In addition to this, they could not able to manage their inventories, in addition to a high number of stores and labor cost caused them to suffer a lot. They never serve product variety and availability, customer experience; return ability options that Blue Nile served successfully.

Tiffany has always become customer-oriented   retailer and determined their strategies by focusing their needs. They both offer high end products and also non-gemstone sterling silver jewelry variety is great in their portfolio.  Not only product variety, they also serve availability in their stores, which may be more expensive compared to Blue Nile. Tiffany gained these abilities through vertical integration. Unlike the other retailers, Tiffany has manufacturing facilities, a retail service center that supplies stores, and diamond processing centers in seven countries that led them to have more control and power. Although for Blue Nile customers have to wait for their orders, response time immediate pick up possible in their stores. For return ability, it is much more easier rather than online retailing. Besides, information flow and customer experience is direct with customers, which can be used to receive feedback from customers and designing the products and strategies based on their requirements. Within these abilities they experienced high margins more than any other retailer.

SUPPLY CHAIN DRIVERS AND METRICS: WALMART vs AMAZON

The case study is a comparison of the financial metrics used in performance management between Walmart and Amazon. Both companies are well-renowned retail companies, though their presence is within different areas. Walmart, unlike Amazon, is a brick-and-mortar company based in the US with over 2 million employees and the largest company when referred to in revenues. Below is a snippet of their performance from their recent financials, showing their ROI and ROA:

On the other hand, Amazon is an online retailer that offers programs to sellers to sell their products on their branded online websites, and allows the world to have a global online store. Although not having the same size and capacity as Walmart, Amazon can be classed as a close competitor in some aspects of the business. Below is a snippet of their financials, management metrics for their ROI and ROA:

In Question 1, we are asked to calculate some metrics, and some results are as follows:

In Question 2, we notice that Amazon performs better in the following metrics:

·         Return on Equity – indicates that Amamzon is is generating a considerable and positive amount of profits from its shareholder capital.

·         Return on Finacial Leverage – due to its acquisitions it has an increased/high leverage as compared to Wlamart.

·         Profit Margins – high margins show a positive in the profits exceeding the costs of the business, allowing us to assume Amazon is able to break-even.

Walmart performs better in the following, compared to Amazon:

·         Return on Equity

·         Return on Finacial Leverage

·         Acounts Payable turnover

·         Return on Assets

The supply chain drivers which may aid in explaining the diffrences in performance would be:

 

By: Tinotenda Gova

Case study on Supply chain strategy: Supplying Fast Fashion

The following case study concentrates on the changing garment retailing. With the fashion becoming faster and more complex, retail businesses need to adopt their supply chains accordingly. By comparing the brands H&M, Zara and Benetton, we can see the different (or maybe not so different?) approaches to meet the market requirements.

The analysis stresses on the following categories: Design, Suppliers, Manufacturing, Distribution and Retail.

  

All three businesses emphasize the importance of design in this market; therefore they highly focus on a high number of designers and market specialists. As it can be seen in the graphic above, all three businesses invested in almost full ownership. This further underlines how important this first step of the supply chain is to the companies and that it needs to be kept in-house to guaranty a certain success.

Manufacturing on the other hand is done quite differently. Although you can detect a strong preference of keeping the production in and around Europe, the question of ownership differs, especially between Benetton and H&M in comparison to Zara. Latter one owns most of its production, which is mostly based in Spain. The state that because of this production network and own operations they are able to shorten the lead time even further, even though they have to cope with the labor-intensive operations themselves.

This strategy of full, respectively part ownership by Zara is furthermore followed in their distribution. They invested in fully automated warehouses to support their retail network and guarantee their short lead times. Also Benetton is running this strategy and invested in part ownership in form of own warehouses as well. H&M nevertheless still focusses on a subcontracted distribution, but with its own centralized stock room.

In the area of the actual retail, all businesses concentrate on ownership. While Zara and H&M only sell via their own stores, Benetton is currently changing their strategy towards Benetton-owned stores. Especially Zara focusses on the store environment and the shopping experience to further develop their brand image with their stores. Similar to that H&M aims to create a comfortable and inspiring atmosphere for their customers.

In general you can see that, while having a look at the overall strategies of these three businesses, some important differences and focusses can be detected. Having a look at Zara for example the analysis supports their business strategy and confirms a vertical integration. Due to the high percentage of ownership throughout the supply chain it is possible to control and direct their business in the aimed direction.

Do you think H&M could adapt the strategy of Zara to shorten their lead times? Would that be of advantage?

How could Benetton improve their image and be seen as fashionable as Zara or H&M?

Do you think Zara can keep up this vertical integration in the long run, without having to cut the cost?

A Study in Apparel Manufacturing & Retail

ZARA is a Spanish clothing and accessories retailer and the flagship chain store of the Inditex group, the world's largest apparel retailer. It is headquartered in Arteixo, Galicia, an autonomous community in northwestern Spain. ZARA is known for developing new products and getting them on store shelves within 4-5 weeks, where the industry average stands at 24. 

ZARA first opened in 1975 in downtown La Coruña, Galicia and featured low-cost lookalikes of popular, higher-end clothing fashions. When the store proved to be a success, Amancio Ortega began opening more stores throughout Spain and began thinking about how he could get his products to store shelves quicker. He needed to reduce lead times (the time that elapses between placing an order and shipping it to a desired location) by improving his design, manufacturing and distribution processes. In the 80s, to that effect, he began revamping his supply chain to respond to new trends and fashions more quickly. The cornerstone of their improvements was the use of information technologies and the use of groups of designers instead of individuals.

ZARA began its international expansion in 1980 through Porto in Portugal. The chain expanded further in the 90s when it entered Mexico, Greece, Belgium and Sweden. Today, it has a presence in 88 countries.

Coming back to manufacturing and distribution, ZARA is a vertically integrated retailer, i.e. it controls most of the aspects of its supply chain including designing, manufacturing and distribution. ZARA set up its first factory in La Coruña in 1980, and by 1990, started employing JIT (just-in-time), a system that originated in Japan and was pioneered by Toyota. This allowed them to reduce their in-process inventory and improve their return on investment. It enabled self-containment throughout the different stages of the supply chain including materials, manufacture, product completion and distribution to stores around the world in just a few days.

1. ZARA can respond to changing trends faster than its competitors because of its robust cycle times while keep in-store inventory to a minimum. On an average, it produces 11000 distinct items annually compared to 2000-4000 items for its competitors. This encourages impulse buys from customers who may not find the same item in the store the next time they go there.
2. ZARA manufactures half of the products it sells, in Spain and about a quarter each in the rest of Europe, and Asian and African countries and the rest of the world. It makes its most fashionable items, those with uncertain demand, in about a dozen company owned factories in Galicia and northern Portugal where labour is somewhat cheaper than in most of Western Europe. For basic products that have relatively stable demand, like t-shirts, it outsources manufacturing to low-cost suppliers in Asia and Turkey. This is probably because they have identified regional trends and want to save time supplying the Asian markets so that they can keep their factories free in Europe and Africa to cater to fluctuating demand in those regions.
3. ZARA sources products with predictable demand from Asian suppliers most likely because they can produce simpler designs that will stay longer on store shelves but are incapable of changing their manufacturing mix on-the-fly. Executives at ZARA have reportedly invested in high-tech equipment and extra capacity in their European factories so that they can change product mixes faster and cater to stochastic demand better.
4. ZARA is estimated to change 75% of its in-store merchandise every 3-4 weeks. Such robust replenishment cycles allow ZARA to more closely match consumer needs and encourage repeat visits from them.
5. Since ZARA needs to shift a lot of products to thousands of stores around world regularly, it needs an efficient distribution system. The key to this lies in centralisation. All items that manufactured around the globe for ZARA, be it in Portugal, Morocco, China or Bangladesh, first go to one of 8 distribution centres (DCs) in Spain before being shipped to a store.
6. ZARA's responsive replenishment infrastructure is better suited for online sales and they have started expanding in that direction to supplement sales from retail. Net sales in 2013 had increased by 5% and net income by 1% YoY, following the introduction of their online shop. They now cater to 27 markets online.
7. Amancio Ortega still keeps a desk at the front of his main room in his office to interface with designers, buyers, marketers and planners. Store managers from around the world provide information of what is selling and what is not. Depending on the kind of information coming in, designers might decide to make quick changes to garments, buyers might decide to order more (but just enough so that it remains exclusive), and planners may decide to cull an item from a store that hasn't sold enough in a week. ZARA employs a lot of information technology in their business that allows them to be on top of their immediate competitors (like H&M) at all times.