Chapter 9 HW Discussion Questions

1. Answer the following questions about the case at the beginning of this chapter:
a. Describe Zara's current sourcing strategy. How competitive is it for the firm?
Zara has an integrated production system undertakes most of the production through outsourcing, while
most are done near its base in Spain. This strategy enables Zara to exercise intensive control over the
production processes and effectively respond to fashion volatility. The decisive competitive advantage of
this strategy is the excellent possibility of designing, producing, and circulating new and trendy
production items very quickly, allowing Zara to maintain its stocks stylishly and match customers’
preferences.
Key Points:
 In-House Production: About half of Zara’s clothing production is done in-house, enabling the
company to update the production regularly and ensure quality.
 Proximity Sourcing: A good percentage of products originate from neighboring countries such as
Portugal and other EU countries, which have shorter lead times.
 Rapid Turnaround: Zara can take a new design from the drawing board to store shelves in 10
days, while traditional fashion merchandisers take weeks.
b. What specific challenges result from Zara's rapid inventory turnover? What
portions of Zara's replenishment strategy make it easier to manage?
Challenges of Rapid Inventory Turnover:
 Logistical Complexity: The fact is that managing frequent shipments and guaranteeing delivery to
stores can turn into a problem.
 Inventory Management: High turnover necessitates proper stock control, and at least one ends up
with either no stock or excess stock.
 Supply Chain Coordination: In cases where one company must coordinate several suppliers and
manufacturing facilities, time constraints are always a challenge.
Replenishment Strategy:
 Flexible Production: On average, Zara can commit only 50 to 60 percent of its overall production
a priori to reduce overproduction risks.
 In-Season Adjustments: It also allows for the flexibility of moving production up or down
depending on demand and helps with stock control.
 Decentralized Decision-Making: The store managers can order specific products to meet
consumers’ demands.
c. Will Zara's current sourcing strategy continue to be useful as it expands? How
should this strategy change? What are the risks associated with this new strategy?
Continuation and Adaptation:
 Zara's current sourcing framework may need to be revised when the company seeks to venture
into other international markets, especially in regions far from Europe.
 The firm’s lead times, and new regional markets may require Zara to adapt by creating regional
production nodes.
Potential Changes:
 Regional Production Centers: One could consider setting up production offices in strategic
locations such as Asia or the Americas to ensure a quick turnaround.
 Increased Automation: The company could realign itself by investing in production technology
and cutting labor-intensive production methods.
Risks of New Strategy:
 Increased Costs: The creation of new production units and the use of technologies may result in
higher incremental costs.
 Quality Control: When Zara opts to relocate to other areas of production, it might face some
difficulties in offering quality clothing as it used to do.
 Supply Chain Complexity: This would mean that managing a more dispersed supply chain could
pose even higher levels of risk and greater complexity of disintegration.
4. Consider a consumer product manufacturer such as Procter & Gamble.
 Chapter 9 HW Discussion Questions
a. Analyze whether the company should outsource the production of products such as
shampoo.
Outsourcing of production can bring numerous benefits, including efficiency and effectiveness, as
well as cost aspects. Outsourcing would allow P & G to tap cheap supply in other parts of the world while
focusing its capital outlay on what it does best: marketing, brand control, and innovation. Also,
outsourcing may be advantageous to the firm by bringing an adjustable enhancement in the pace of
production relative to the variation in demand; this is primarily seen in products such as shampoo, etc.
However, outsourcing also has disadvantages. All the risks of outsourcing are listed below. P&G
is a brand that relates to quality equally in terms of product quality, and the consistency that outsourcing
could bring forth would be a concern for P&G. The downside of outsourcing manufacturers to the three
companies is that if they do not adhere to P&G’s high demands, then this would harm the company brand
image. In addition, outsourcing decentralizes the control of the supply chain and poses risks of ethical
scandals such as sourcing ethical material/ labor or a breakdown of the supply chain.
Therefore, the decision to outsource the production of consumer products such as shampoo is
dependent on the company’s goals. If P&G is more obsessed with cost cutting, then outsourcing could
perhaps prove beneficial. On the other hand, if the business wants to be very selective about product
quality and innovation, then it may wish to retain the production process internally.
b. Is your recommendation consistent with P&G's strategy?
P&G has tended to retain direct control of their production of most of their strategic merchandise,
such as shampoos. This strategy is also in concert with its critical areas of operation, which includes
quality assurance, product differentiation, and brand management. P&G usually spends a lot of money on
technology to incur product differentiation policy in its division, and in-house manufacturing gives it a
closer look at its creation.
My recommendation is to evaluate at least outsourcing the production of shampoos in contrary to
most of P&G's activities. Although outsourcing can provide a quick and splendid cost advantage, P&G's
strategic cardiovascular system is vertical integration, which safeguards the quality and innovation of its
products.
c. If not, explain the reason for the difference between your strategy and what is done by P&G.
The shift between my recommendation and P&G’s action plan is cost containment over value
instead of product quality and creativity. The rationale for outsourcing is possible cost-cutting, which may
enhance an organization’s profitability, mainly in sensitive markets. So, by allocating non-strategic
activities such as production outsourcing, P&G could invest more resources in functional activities,
including advertising and innovation.
P&G, however, pays more attention and exercises control and close supervision of its supply
chain to achieve its favorable aims of product quality and innovation. P&G has invested heavily in
manufacturing techniques and exclusive technologies to create better products than rivals. For the same
reason, it opts for vertical integration, ensuring the corresponding stages of the product creation
correspond to the company’s quality standards. In this case, outsourcing could weaken some of these
factors under P&G’s direct operation, and that could explain why the company may be less disposed to
the idea of outsourcing.
 Chapter 9 HW Discussion Questions
7. Provide examples of three items identified in the Kraljic matrix model: leverage, bottleneck, and
noncritical.
This is a procurement tool in which items are categorized depending on the supply risk and profit
consequence. Here are examples of the three types of items:
 Potential Items (High Gross Margin, Low Availability Vulnerability) Leverage items can be
purchased from many suppliers. This means low supply risk, making it easier for the buyer to
pressure the suppliers by negotiating. While they may not cause much of an issue for consumers,
they severely affect profitability for companies.
o Example: Containers (e.g., plastic bottles used to carry shampoo). Again, as important as
these may be to P&G’s products, there are many suppliers around, meaning that P&G has
the bargaining power to bargain down the cost without compromising supply.
 Bottleneck items are products with a low-profit impact on their selling price, and high supply risk
means that maintaining an adequate stock is a big challenge for the company. While they may not
necessarily be strategically valuable to the profit margin, they should be closely guarded due to
their supply vulnerability resulting from few suppliers and unique features.
o Example: Some shampoos contain chemical ingredients that are specific in their
functions. These may be sourced from a few vendors and could be sensitive to
geopolitical or supply chain risks, making them challenging to source despite their low-
profit contribution.
 Slow-moving or low-value-added products have a low impact on profit margins and low supply
risk. Noncritical parts are general merchandise; they do not cause a high-profit effect and are not
sensitive to supply constraints. They are usually relatively accessible, and their acquisition does
not appreciably impact the firm’s monetary performance.
o Example: Items such as memo paper, printer paper, and pen and pencils can be easily
sourced from many suppliers and do not necessarily form part of P&G’s competitive
strategy of pen and pencils. These items are easily sourced from many suppliers and do
not necessarily form part of the competitive strategy for P&G.
The above categories ensure that firms such as P&G design procurement approaches that can reduce risks
and enhance the overall profitability of products in their portfolio.
 Chapter 9 HW Discussion Questions
1. How can smaller companies develop dynamic capabilities to adapt their supply chains during global
disruptions like pandemics?

Small businesses should try to have a sound local supply chain relationship, as this makes the supply
chain stronger and less vulnerable. This also minimizes reliance on foreign SCMs, enhancing the ability
to respond to disturbances faster. Regular spending on technology and training also results in more
organizational flexibility and adaptability in operational processes. Finally, by shuttling between local and
international sources of supply, a firm can ensure the best of both worlds: resilience in case of an
outbreak.

2. Do you think centralizing supply chains will become the norm, or will industries continue to depend on
global suppliers despite the risks? Why?

While applying centralized supply chains may become a little widespread in the future, more industries
exposed to the impacts of the pandemic can opt for this strategy as it makes them less susceptible to the
negative effects of centralizing logistics costs. But certain industries will still source directly from global
suppliers for cheaper prices and unique assets. The method in which centralization combines with global
sourcing may become the most prominent strategy in a post-COVID-19 world while providing enough
room for both the goals of creating an unyielding structure and obtaining higher levels of efficiency.