OPR 300 Operations Management Common Assessment

Supplying Fast Fashion - Case Study

Assignment Instructions:

Contrast the approaches taken by H&M, Benetton and Zara in managing their supply chains. Consider the following focus points:

1. How do they differ in terms of their approach to design stage of the supply chain? 

2. How do they differ in terms of the manufacturing stage of the supply chain? 

3. How do they differ in terms of the distribution stage of the supply chain? 

4. How do they differ in terms of the retail stage of the supply chain? 

5. For each brand, Identify and explain a SCM strategy or trend utilized in its supply chain. 

6. In your opinion, which of the three companies have the best SCM and why? 


Working individually, analyze the “supplying Fast Fashion” case study and present your analysis in a report. Your work will be assessed according
to the linked rubrics on blackboard. You are encouraged to use online sources to support your analysis/recommendation. Make sure to properly
reference those sources in your report. The report should address all the questions raised in the case study. Please use appropriate headings and
subheadings where necessary. The report should consist of the following sections:

Title page
Executive Summary
Introduction
Discussion
Recommendations
References (if any)

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Please conform to the following:
The report should be limited to 3-4 pages (700-1000 words) excluding title page and references
Use Times New Roman 12-pts font and 1.5-line spacing
Use the APA referencing style
Number each page consequently





Supplying Fast Fashion

Garment retailing has changed. No longer is there a standard look that all retailers adhere to for a whole season. Fashion is fast, complex and
furious. Different trends overlap and fashion ideas that are not even on a store’s radar screen can become “must haves” within six months. Many
retail businesses with their own brands, such as H&M and Zara, sell up-to-the-minute fashionability at low prices, in stores that are clearly focused
on one particular market. In the world of fast fashion, catwalk designs speed their way into high-street stores at prices anyone can afford. The
quality of the garment means that it may only last one season, but fast-fashion customers don’t want yesterday’s trends. As Newsweek puts it,
“being a quicker picker-upper” is what made fashion retailers H&M and Zara successful. They thrive by practicing the new science of “fast
fashion”, compressing product development cycles as much as six times. But the retail operations that customers see are only the end part of the
supply chains that feeds them. And these have also changed.

At its simplest level, the fast-fashion supply chain has four stages. First, the garments are designed, after which they are manufactured. They are
then distributed to the retail outlets, where they are displayed and sold in retail operations designed to reflect the businesses’ brand values. In this
short case we examine two fast-fashion operations, Hennes and Mauritz (known as H&M) and Zara, together with United Colors of Benetton
(UCB), a similar chain, but with a different market positioning.

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Benetton

Almost fifty years ago, Luciano Benetton took the world of fashion by storm by selling the bright, casual sweaters (designed by his sister) across
Europe (and later the rest of the world), promoted by controversial advertising. By 2005, the Benetton Group was present in 120 countries
throughout the world. Selling casual garments, mainly under its United Colors of Benetton (UCB) and its more fashion-orientated Sisley brands,
it produces 110 million garments a year, over 90 per cent of them in Europe. Its retail network of over 5,000 stores produces revenue of around $2
billion. Benetton products are seen as less “high fashion” but of a higher standard of quality and durability, with higher prices, than H&M and
Zara.

H&M

Established in Sweden in 1947, they now sell clothes and cosmetics in over 1000 stores in 20 countries around the world. The business concept is
“fashion and quality at the best price”. With more than 40,000 employees, and revenues of around SEK 60 billion, its biggest market is Germany,
followed by Sweden and the UK. H&M are seen by many as the originator of the fast- fashion concept. Certainly they have years of experience at
driving down the price of up-to-the- minute fashions. “We ensure the best price”, they say, “by having few middlemen, buying large volumes,
having extensive experience of the clothing industry, having a great knowledge of which goods should be bought from which markets, having
efficient distribution systems, and being cost-conscious at every stage.

Zara

The first store opened almost by accident in 1975 when Amancio Ortega Gaona, a women’s pyjama manufacturer, was left with a large cancelled
order. The shop he opened was intended only as an outlet for cancelled orders. Now, Inditex, the holding group that includes the Zara brand, has
over 1,300 stores in 39 countries with sales of over 3 billion. The Zara brand accounts for over 75 per cent of the group’s total retail sales, and is
still based in northwest Spain. By 2003 it had become the world’s fastest growing volume garment retailer. The Inditex group also has several

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other branded chains including Pull and Bear, and Massimo Dutti. In total it employs almost 40,000 people in a business that is known for a high
degree of vertical integration compared with most fast fashion companies. The company believes that it is their integration along the supply chain
that allows them to respond to customer demand quickly and flexibly while keeping stock to a minimum.

Design

All three businesses emphasize the importance of design in this market. Although not haute couture, capturing design trends is vital to success.
Even the boundary between high and fast fashion is starting to blur. In 2004, H&M recruited high fashion designer Karl Lagerfeld, previously
noted for his work with more exclusive brands. For H&M his designs were priced for value rather than exclusivity, “Why do I work for H&M?
Because I believe in inexpensive clothes, not “cheap” clothes,” said Lagerfeld. Yet most of H&M’s products come from over a hundred designers
in Stockholm who work with a team of 50 pattern designers, around 100 buyers and a number of budget controllers. The department’s task is to
find the optimum balance between the three components comprising H&M’s business concept - fashion, price and quality. Buying volumes and
delivery dates are then decided.

Zara’s design functions are organized in a different way to most similar companies. Conventionally, the design input comes from three separate
functions: the designers themselves, market specialists, and buyers who place orders on to suppliers. At Zara, the design stage is split into three
product areas: women’s, men’s and children’s garments. In each area, designers, market specialists and buyers are co-located in design halls that
also contain small workshops for trying out prototype designs. The market specialists in all three design halls are in regular contact with Zara retail
stores, discussing customer reaction to new designs. In this way, the retail stores are not the end of the whole supply chain but the beginning of
the design stage of the chain. Zara’s approximately 300 designers, whose average age is 26, produce approximately 40,000 items per year, of
which about 10,000 go into production.

Benetton also has around 300 designers, who not only design for all their brands, but who are also engaged in researching new materials and
clothing concepts. Since 2000, the company has moved to standardize their range globally. At one time, more than 20 per cent of its ranges were

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customized to the specific needs of each country. Now only 5-10 per cent of garments are customized. This reduced the number of individual
designs offered globally by over 30 per cent, strengthening the global brand image and reducing production costs.

Both H&M and Zara have moved away from the traditional industry practice of offering two ‘collections” a year, for spring/summer and
autumn/winter. Their “seasonless cycle” involves the continual introduction of new products on a rolling basis throughout the year. This allows
designers to learn from customers’ reactions to their new products and incorporate them quickly into more new products. The most extreme version
of this idea is practiced by Zara. A garment will be designed; a batch manufactured and ‘pulsed’ through the supply chain. Often the design is
never repeated; it may be modified and another batch produced, but there are no ‘continuing’ designs as such. Even Benetton have increased the
proportion of what they call ‘flash’ collections: small collections that are put into its stores during the season.

Manufacturing

At one time Benetton focused its production on its Italian plants. Then it significantly increased its production outside Italy to take advantage of
lower labor costs. Non-Italian operations include factories in North Africa, Eastern Europe and Asia. Yet each location operates in a very similar
manner. A central, Benetton-owned operation performs some manufacturing operations (especially those requiring expensive technology) and
coordinates the more labor- intensive production activities that are performed by a network of smaller contractors (often owned and managed by
ex-Benetton employees). These contractors may in turn sub-contract some of their activities. The company’s central facility in Italy allocates
production to each of the non-Italian networks, deciding what and how much each is to produce. There is some specialization - for example, jackets
are made in Eastern Europe while T- shirts are made in Spain. Benetton also has a controlling share in its main supplier of raw materials, to ensure
fast supply to its factories. Benetton is also known for the practice of dying garments after assembly rather than using dyed thread or fabric. This
postpones decisions about colors until late in the supply process so that there is a greater chance of producing what is needed by the market.

H&M does not have any factories of its own, but instead works with around 750 suppliers. Around half of production takes place in Europe and
the rest mainly in Asia. It has 21 production offices around the world that between them are responsible for coordinating the suppliers who produce

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over half a billion items a year for H&M. The relationship between production offices and suppliers is vital, because it allows fabrics to be bought
early. The actual dyeing and cutting of the garments can then be decided at a later stage in the production. The later an order can be placed on
suppliers, the lower the risk is of buying the wrong thing. Average supply lead times vary from three weeks up to six months, depending on the
nature of the goods. However, “The most important thing,” they say, “is to find the optimal time to order each item. Short lead times are not always
best. Some high-volume fashion basics, it is to our advantage to place orders far in advance. Trendier garments require considerably shorter lead
times.” Zara’s lead times are said to be the fastest in the industry, with a ‘catwalk to rack’ time as little as 15 days. According to one analyst, this
is because they “owned most of the manufacturing capability used to make their products, which they use as a means of exciting and stimulating
customer demand.” About half of Zara’s products are produced in its network of 20 Spanish factories, which, like at Benetton, tend to concentrate
on the more capital-intensive operations such as cutting and dyeing. Sub-contractors are used for most labor-intensive operations like sewing. Zara
buys around 40 per cent of its fabric from its own wholly-owned subsidiary, most of which is in undyed form for dyeing after assembly. Most Zara
factories and sub-contractors work on a single-shift system to retain some volume flexibility.

Distribution

Both Benetton and Zara have invested in highly automated warehouses, close to their main production centers, that store, pack and assemble
individual orders for their retail networks. These automated warehouses represent a major investment for both companies. In 2001, Zara caused
some press comment by announcing that it would open a second automated warehouse even though, by its own calculations, it was only using
about half its existing warehouse capacity. More recently, Benetton caused some controversy by announcing that it was exploring the use of RFID
tags to track its garments.

At H&M, while the stock management is primarily handled internally, physical distribution is subcontracted. A large part of the flow of goods is
routed from production site to the retail country via H&M’s transit terminal in Hamburg. Upon arrival, the goods are inspected and allocated to
the stores or to the centralized store stock room. The centralized store stock room, referred to within H&M as "Call-Off warehouse", replenishes
stores on item level according to what is selling.

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Retail

All H&M stores (which have an average size of 1,300 square meters) are owned and solely run by H&M. The aim is to “create a comfortable and
inspiring atmosphere in the store that makes it simple for customers to find what they want and to feel at home”. This is similar to Zara stores,
although they tend to be smaller (average size 800 square meters).

Perhaps the most remarkable characteristic of Zara stores is that garments rarely stay in the store for longer than 2 weeks. Because product designs
are often not repeated and are produced in relatively small batches, the range of garments displayed in the store can change radically every two or
three weeks. This encourages customers both to avoid delaying a purchase and to revisit the store frequently.

Since 2000, Benetton has been reshaping its retail operations. At one time the vast majority of Benetton retail outlets were small shops run by third
parties. Now these small stores have been joined by several Benetton-owned and operated larger stores (1,500 to 3,000 square meters). These
megastores can display the whole range of Benetton products and reinforce the Benetton shopping experience.

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