Introduction
Fashion has become incredibly fast-paced. The ability to mass-produce numerous articles of clothing and make them available and affordable to the general populace has increased consumerist tendencies across the globe. Changing clothes every season has become the norm for upper and middle-class customers. As such, the most successful fashion retailers need to be capable of adjusting their selection of goods according to the ever-changing preferences of potential customers, as well as the newest developments in the industry. The ability to do so relies on the organization of their supply chain. The purpose of this paper is to analyze the Supply Chain Management (SCM) of three famous and successful fashion retail brands, H&M, Zara, and Benetton, identify the strengths and weaknesses of four distinct stages of their supply management, and determine which model is best suited for the industry overall.
Design Stage
The design stage of supply management involves determining which articles of clothing to produce and supply to retail stores. All three companies have several similarities and differences in their approach. Those involved in the process of design are market specialists, buyers, and the designers themselves. Market specialists make predictions about current and future trends, designers invent new clothes and apply new materials in the production process, and buyers help define the needs and requirements for specific brands by leaving feedback. However, the differences between the three companies lie in what the design stage is focused on.
For example, H&M tries to balance fashion, price, and quality (Slack, Brandon-Jones, Johnston, & Betts, 2015). Upon finding this point of balance, the company determines volumes and delivery dates. This means they adjust their stock based on estimated buyer interest and sales. Depending on the product, the volumes may be large or small.
Zara’s designs come not from individual branches of the company but through a combined effort. They have adopted a cyclical SCM strategy, where the design stage is the first and last part of the chain. Designers and market specialists work in the same workshops, enabling cooperation between branches, and the customers are offered the opportunity to take part in the process (Slack et al., 2015).
Benetton’s design process is aimed at standardization and grasping overall global trends. They pay less attention to region-specific needs and customs and focus on selling articles of clothes that are universal. Less catering to individual and region-specific preferences allows the company to reduce prices, standardize its shipments, and buy in large volumes (Slack et al., 2015).
Manufacturing Stage
The manufacturing stage is when the processes of creating articles of clothing to be later sold at the market occur. Each company has its own unique style of production, which ties in with its marketing philosophy and helps achieve its retailing goals. Benetton looks to benefit from cheap labor costs found in Africa, Asia, and Eastern Europe in order to produce cheaper clothes (Slack et al., 2015). As such, many of its manufacturing chains are located abroad, in countries such as China, India, Turkey, Romania, and Moldova. This style of manufacturing allows for greater and cheaper volumes of production but is more susceptible to the political and economic instability of those countries and potential accusations of unethical business practices.
H&M does not have any production plants of its own. Instead, it coordinates the efforts of over 750 suppliers globally (Slack et al., 2015). This system allows for greater flexibility when compared to establishing factories in a single location. In addition, the diversification of suppliers means that the production process would never totally cease because of any critical failures. However, this system relies heavily on efficient logistics and close relationships with individual manufacturers, which often causes delays in lead times and complications with determining the optimal time to make an order.
Zara’s manufacturing system is tailored to be able to quickly respond to the ever-changing demands of the customers and the shifts in the fashion industry. Its 22 factories, as well as the majority of its suppliers, are located in Spain (Slack et al., 2015), which helps create efficient and quick logistical and manufacturing processes. The system is geared towards producing a multitude of goods in small batches, in accordance with the company’s marketing strategy. However, this results in increased production costs as the company has no access to cheaper labor markets.
Distribution Stage
The distribution stage involves all the processes needed after the production of clothes to ensure products are delivered to the retail stores. The efficiency of distribution largely determines the time spent before the required clothes arrive from the warehouses and to the retail chains. Zara and Benetton implement similar strategies in that regard – each of their production facilities also has an automated distribution center, from which the products are shipped wherever they are needed (Slack et al., 2015). This system has certain advantages and disadvantages. While it helps supply the local markets quicker, it also increases the delivery time required for a specific article of clothing to be delivered to shops located far from the main production chain.
H&M, due to the nature of its production management, has a different approach to distribution. Instead of having numerous warehouses across the globe, it ships the products from large transportation hubs, where individual subcontractors deliver finished goods. Its call-off warehouse is located in Hamburg, where the company operates through a local terminal (Slack et al., 2015). This system relies on coordination and planning efficiency and is prone to accidents and order mix-ups.
Retail Strategy
All three companies use retail stores as their primary distribution sites. Their difference lies in ownership and restocking strategy. Zara and H&M take a relatively similar approach in that regard – they own the retail chain through which they distribute their goods. While H&M provides a relatively stable variety of goods at all times, in order to cater to the needs of different customers, Zara offers greater variety while keeping a smaller stock. Its collections change every two weeks (Slack et al., 2015), which not only attracts customers to visit the shops more often but also to buy the items quicker.
Benetton’s strategy is different due to the large volumes and standardization of their products. In order to achieve maximum exposure, the company works not only through their own retail chains but also with different third-party retailers. Its own shops are 2-3 times larger than those of Zara and H&M, in order to house greater volumes of products and display them to potential customers (Slack et al., 2015).
Trends Utilized in Supply Chain Management
As it is possible to see, each company implements a different SCM strategy in order to achieve its goals. Zara utilizes a combination of lean and agile supply chain strategies, which are aimed at reducing waste and non-value-adding activities, while at the same time quickly responding to the ever-changing customer and market demands (Christopher, 2016). This strategy is defined by the accuracy of orders and variety of articles, but at increased costs.
H&M uses a postponement SCM strategy, which focuses on delaying orders for as long as possible, in order to make more accurate estimations of how much is needed (Christopher, 2016). It is the reason why H&M managers stress the importance of making an order “at the right time.” This approach offers a balance between accuracy, quality, and price, but presents significant logistical challenges.
Benetton uses a speculation SCM model. Instead of trying to cater to specific fluctuations and trends in the fashion market, it aims for the common denominator, in order to save money and reduce costs by producing and buying in bulk (Christopher, 2016). While this strategy has the potential to attract a larger number of customers, it also willingly misses the more privileged customers, looking for more fashionable and unique clothes.
Which SCM Strategy is Best?
It is not valid to make a straight comparison between the strategies mentioned above. All three companies have different goals and different positions in the market. Zara offers variety and uniqueness, Benetton offers quality and affordability, and H&M seeks a balance between the two. For their intended means and purposes, the companies use optimal SCM strategies that are currently available. For Benetton, it would be pointless to utilize lean management, as it would only increase the number of logistical operations required to restock their mega-shops. For Zara, it would be illogical to produce in bulk because their collection changes every two weeks. For H&M, it would not be prudent to overly rely on either method, as some of their products are more sensitive to fluctuations in the market and fashion than others. Thus, all three strategies can be considered equally valid and optimal for their intended purpose.
References
Christopher, M. (2016). Logistics and supply chain management (5th ed.). New York, NY: FT Publishing.
Slack, N., Brandon-Jones, A., Johnston, R., & Betts, A. (2015). Operations and process management: Principles and practice for strategic impact (4th ed.). New York, NY: Pearson.