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Flexibility in supply chains of clothing retailers

Project Report 2016 40 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of Contents

Chapter-1: Aims & Objectives
1.1. Background Context
1.2. Problem Statement
1.3. Aim & Objectives
1.4. Summary

Chapter-2: Literature Review
2.1. Concept of Flexibility
2.2. Linkage between Flexibility & Uncertainty
2.3. Linkage between Flexibility & Performance
2.4. Kraljic Matrix
2.5. Fast Fashion Industry
2.6. Summary

Chapter-3: Methodology

Chapter-4: Case Studies
4.1. Company Profiles of ICA AB (Aktiebolag/Ltd.) and ZARA
4.1.1. ICA AB (Aktiebolag/Ltd.)
4.1.2. ZARA
4.2. Comparative Analysis of ICA AB (Aktiebolag/Ltd.) and ZARA
4.2.1. Mutual Understanding
4.2.2. Environtmental Uncertainty
4.2.3. Technological Complexity
4.2.4. Interdependence
4.2.5. Supplier Dependence
4.3. Summary

Chapter-5: Analysis & Discussion
5.1. Analysis
5.2. Discussion
5.2.1. Moving Production/Supplier Base Close to the Market
5.2.2. Forecasts Sharing with Suppliers
5.2.3. Closer Cooperation within Departments
5.2.4. Delivery to Other Stores
5.3. Summary

Chapter-6: Conclusion & Recommendation
6.1. Conclusion
6.2. Recommendation

Chapter-7: References

Executive Summary

Main problem which is analysed in this dissertation is the methods that results in improving supply chain flexibility under certain constrains and situation that are enforced on the firms. In-depth analysis of flexibility was conducted for resolving the problem regarding to the supply chains’ flexibility from the perspective of supply chain. Analytical review of theoretical models on supply chain flexibility has been conducted. This was focusing mainly on the supply chain flexibility embedded in the fast fashion (textile) products. Certain recommendations on the enhancement of supply chain flexibility are provided on the basis of case studies of ICA AB (traditional clothing retailer and ZARA (successful fast fashion retailer). Significant part of this research product is based on the linkage between the supply chain characteristics and firm overall performance of both discussed companies. It has been understood from the case study section that both companies’ supply chains and business operations are particular different from each other.

It has been realised from the model of linkage between company’s supply chain characteristics and firm performance that one could analyse company’s performance from two prospects financial and non-financial. It has been found out that supply chain characteristics have lower or higher degree impact on both sort of performance measures. It has also been discovered that enhanced of supply chain characteristics would results in improving company’s overall performance. On the basis analysis four strategies are suggested to the clothing retailer so that they could able to enable their supply chain flexibility.

Firstly, Sourcing is determined as time consuming stage in the whole planning and delivery of products. Through its global sourcing offices, ICA AB has been sourcing 95% of products from China. Main reason behind sourcing products from the Chinese manufacturers is that the level of prices offered by them are relatively lower than other suppliers. From the perspective of quality and price of fast fashion, Chinese manufacturers are best option. But from the point of view of other demanding factors, this won’t seems to be a good option. It has been inclined that because of long transportation time, ICA AB could update its collections frequently and also could not decrease its lead times. At the moment, managers of ICA AB are looking to reduce its percentage of sourcing from China. So for this purpose, the company should have to locate its sourcing offices closer to the producers and partners locating in other countries.

Secondly, retailers and suppliers should have to corporate with each other so that they would able to aware about current information about stock and sales. Information sharing and sharing of forecasts would create benefit for both retailers and suppliers. Information about demand forecasts could play key role in supply chain coordination. Collaborative effort should focus on sharing point of sales data held by retailers with their suppliers. In this manner, retailers could obtain benefits in form of accurate shipments, making quick changes in accordance with the consumers’ demand and buying behavior. Certain advantages (increased sales, reduction of unnecessary stock, improved inventory control, bullwhip effect and increased planning time) could be enjoyed by fashion retailers with the information sharing throughout its demand chain partners.

Thirdly, it has been recommended that ICA AB should have broader internal integrated network so that company could include more departments during the planning phase. It would be good for the company if this process would begin from the information gather from the stores then this information should have to be mixed with the information acquired from other sources. Company’s designers in combination with its financial managers and purchases should have to initiate the production of products by taking account of company’s existing budget and resources. ICA AB has to state its business on many information sources so that its supply chain would become agile similar to ZARA.

Lastly, it has been seen that ZARA’s local store managers used to re-order most- selling products. Alternatively, company’s slow selling items are used to be sent back to the logistics centers and from there these items are forwards to the stores located in other areas. It has been believed that this method is useful for increasing the volume of best-selling products and also for reducing or avoiding the markdowns. From practical perspective, it is possible for ICA AB to acquire sales information from its installed database system. The company’s management should have to take initiative by removing slow moving products from its stores and then to re-distribute to stores located at other places. In this way, the company would able to get rid of increasing inventory problem. It has been ascertained that all above recommendations associated with the supply chain characteristics would have good impact on the supply chain flexibility of clothing retailers. This would then move underlying companies towards improved in firm performance from both perspectives (financial and non-financial).

Chapter-1: Aims & Objectives

1.1. Background Context

Generally, the concept of flexibility is inclined as an adaptive response with respect to the environmental uncertainty. It is also termed as a reflection of system’s ability to change or react with some penalty in performance, cost or time (Upton, 1994). In relation to highly volatile environment, flexibility is supply chain is increasingly becoming important. Supply chain flexibility is also ascertained as a source of competitive advantage for the companies. While, it has been found out that turbulent environment has been built because of various factors (increasing pace of technological changes, growing global competitions and constantly expanding expectations of customers). Flexibility is determined as a mechanism which allow firms in deal proactively with increasing uncertainty. It also help firms in easing a quick response which is strategically important from the perspective of an order winning criterion (Wang & Wei, 2007). Supply flexibility is also imperative for enhancing both kind of aspects: market responsiveness and meeting the customers’ demands (Calantone & Dröge, 1999).

1.2. Problem Statement

Fundamental issued which will be analysed in this research is the methods for improving the supply chain flexibility under certain constraints and circumstance that are enforced on the companies. For resolving given problem, one would need to have in-depth understanding about the concept of flexibility from a supply chain perspective. By going through existing literature, it has been discovered that researchers and practitioners are focused more about manufacturing flexibility while very of them are intended towards supply chain flexibility. Limited number of research studies were conducted on the supply chains of textile products. It has been contended by Bruce et al. (2004) that apparel industry is ignored in term of research studies conducted on supply chain management. From last few decades, significant changes (global outsourcing and price competition) have been taking place in the textile industry. It has been observed that fashion industry has prevalent characteristics (high demand uncertainty, short product lifecycles and high volatility of market) that are making this field very interesting to be analysed from the perspective of supply chain flexibility and also the ability to respond rapidly to the market.

1.3. Aim & Objectives

This dissertation will be based on the idea of analytically reviewing the supply chain flexibility concept and is based on the thorough understanding of given concept in the textile industry. In this research report, models of firm performance and supply chain traits will critically be analysed. As a result, this research provide will outline suggestions in regard to the enhancement of supply chain flexibility. This research project will be instrumental for giving recommendations to other tradition clothing retailers. In this manner, clothing retailers would able to improve their supply chain flexibility. There are certain objectives of this research project that are outlined below:

- To learn about the relationship between flexibility-firm performance and flexibility-uncertainty.
- To analyse the link between the supply chain characteristics and firm performance.
- To identify certain areas where potential improvement will be induced. This will be made sure through in-depth analysis of both companies’ (discuss in case study section) supply chain flexibility.

1.4. Summary

The concept of flexibility is inclined as an adaptive response with respect to the environmental uncertainty. It is also termed as a reflection of system’s ability to change or react with some penalty in performance, cost or time. In relation to highly volatile environment, flexibility is supply chain is increasingly becoming important. From last few decades, significant changes (global outsourcing and price competition) have been taking place in the textile industry. It has been observed that fashion industry has prevalent characteristics (high demand uncertainty, short product lifecycles and high volatility of market) that are making this field very interesting to be analysed from the perspective of supply chain flexibility and also the ability to respond rapidly to the market. This dissertation will be based on the idea of analytically reviewing the supply chain flexibility concept and is based on the thorough understanding of given concept in the textile industry.

Chapter-2: Literature Review

It has been found out global market is going to be more complex, turbulen, uncertain and volatile. This trend has created opportunities for the managers with respect to conducting organisational business processes ahead of organisational borders. In the present business era, main focus is intended on following aspects (customised products, highly demanding customers, short product life cycle and lead times). For responding effectively and efficiently in accordance with above mentioned features, companies are required to have flexible supply chains and their supply chains would need to be adaptie to a blend of uncertainties in a given (chllenging) business environment. So in this way, companies could increase their competitiveness. Flexibility is determined as a key factor in increasing companies’ competitiveness in a volatile market. Liao et al. (2010) contended that flexibility does not occur randomly, in actual it is a strategic outome of investments over time. Because of multidimensional characteristics and complex nature, defining the concept of flexibility in few sentences is inclined as a difficult task. Companies’ management would have to give preference to the factor of flexibility so that it could be implemented on successful basis.

2.1. Concept of Flexibility

The concept of flexibility was observed by Kumar et al. (2006) from supply chain perspective. He characterised entire supply chain process into five major perspectives (sourcing flexibility, product development flexibility, manufacturing flexibility, logistics flexibility and information systems flexibility). It is quite obvious that the concept of flexibility is complex, multidimensional and very important especially from the point of view of organisational success. Moreover, the generic principles of flexibility could be implemented in different kinds of supply chains:

- It has been believed that the concept of flexibility is multidimensional which reflects that it is not usual that two supply chains are appeared to be equally flexible in different context.
- Additionally, different elements (or components) of flexibility are more important in certain environments than in others.
- Flexibility is supply chain is basically a capability which won’t need to be demonstrated.

The concept of flexibility is classified breifly by Sanchez & Perez (2005) on the basis of different aspects (hierarchical aspects1, strategic aspects2, functional aspects3, time horizon aspects4, measurement aspects5 and object of change6 ). It was contended by Upton (1994) that the concept of flexibility is defined as ability of a firm to react or change with little penalty in time, cost, performance or effort. It has been demonstrated from this definition that company’s ability with respect to reacting to uncertainty in martketplace in rapid and effective manner without having to lose costs, time and efforts would direct given company’s towards improvements in performance in term of financial, organisational and operational aspects.

Five supply chain flexibilities were defined by Calantone & Dröge (1999). It had been suggested by Calantone & Dröge (1999) that flexibilities have positive influence on company’s customers. Five types of supply chain flexibilities are listed and explained below:

a) Product Flexibility: Ability for customising product for specific customer demand.
b) Volume Flexibility: Ability for adjusting capacity for meeting changes in term of customer quantities.
c) Distribution Flexibility: Ability for providing broad access to products.
d) New Product Flexibility: Ability for launching new or modified products.
e) Responsiveness Flexibility: Ability for responding in accordance with the needs of target customers.

Vast range of literature on manufacturing flexibility, supply chain flexibility and strategic flexibility analysed by Duclos, et al. (2003) and Coronado & Lyons (2007). Correspondingly, six components of supply chain flexibility were found out by authors:

- Market Flexibility: Tendency to mass customisation and establishing intimacy with customers through designing or modifying a product.
- Operations System Flexibility: Ability for configuring operations in order to respond to emerging customer trends.
- Supply Flexibility: Ability for adapting supply chain in accordance with the supply of underlying product against the customer demand.
- Logistics Flexibility: Ability with respect to deliver and receive products cost effectively.
- Information Systems Flexibility: Ability for building information system adequately so that it would respond proactively to changing customer trend.
- Organisational Flexibility: Ability for matching skills of employees (workforce) with the market requirements and customer needs.

By analysing the model components of supply chain flexibility, one could stress that operations and organisational flexibility in relation to information system flexibility is inclined as very significant component. This thing would tights up entire system and improves overall company’s performance.

2.2. Linkage between Flexibility & Uncertainty

Uncertainty is assumed as flexibility’s prerequisite. Different sort of uncertainty requires different type of flexibility. Linkage between flexibility & uncertainty has been analysed from manufacturing flexibility perspective as well as from supply chain perspective. It has been reflected from both perspectives that flexibility is meant to be responding to or coping with uncertainties (Chopra & Meindl, 2001). Interaction between the roles of flexibility & uncertainty are inclined as inevitable with respect to supply chain perspective. Stevenson & Spring (2009) contended that efforts in regard to finding and assessing means could supply chain uncertainty alongside implementing a flexibility strategy in supply chains. Several means were determined by Stevenson & Spring (2009), all of them are described below:

- Design of Supply Chains (dual sourcing)
- Collaborative linkages across the supply chain (soft factors like risk sharing, just in time deliveries and trust & commitment)
- Inter-organisational information sharing and information systems

Beach, et al. (2000) implied that unplanned alteration that originated either internally or externally are outlined as a stimuli (prerequisite cause for flexibility). Additionally, uncertainty is positively linked with the supply chain flexibility and could have direct impact on the flexibility level within a company’s current supply chain process (Beach, et al., 2000). Beach, et al. (2000) categorised the aspect of uncertainty into different influence levels (changing in market or demand, rules & regulations of international trade, progression of technology development, macroeconomic situation, political & economical instability and exchange rate fluctuations).

2.3. Linkage between Flexibility & Performance

In relation to supply chain performance, flexibility is determined as key dimension. Many practitioners and researchers had proved the existence of relationship between flexibility and performance by conducting theoretical and empirical research studies. According to Aissa Fantazy, et al. (2009), the dimension of flexibility is positively related with the organisational performance. This incorporates financial (revenue, profitability and growth) as well as non-financial measures (lead time and customer satisfaction). Calantone & Dröge (1999) had conducted a study for finding the connection between the different dimensions of supply chain flexibility and company’s overall performance. It was drawn from this study that supply chain flexibility is linked positively with all measures of company’s performance. Therefore, this factor is directly linked with the company’s financial measures (market share and sales growth). It was also concluded that each dimension of supply chain flexibility is interconnected with at least one measure of company’s overall performance.

A research study was undergone by Liao, et al. (2010) for finding a relationship between supply management and supply flexibility. The concept of supply flexibility was extended in term of supply flexibility and supply network flexibility. And their influence was analysed on the basis of supply chain performance measures. It was drawn from this research study supply network flexibility could plat significant role in improving supply chain performance. For this purpose, firms should have to take account of complexities embedded within their specified products/services so that they would able to improve supply chain performance. Correspondingly, companies’ management should have to design their supply network in accordance with their dynamic operations and market changes (Liao, et al., 2010).

Various models of supply chain flexibility were proposed by researchers for depicting its correlation with the firm’s performance. For the purpose of exemplification, one research model has been shown in the figure below:

illustration not visible in this excerpt

Figure 1: Relationship between Supply Chain Characteristics & Firm Performance, Obtained from Sánchez & Pérez (2005)

Linkage between supply chain flexibility and company’s performance is depicted from above figure. In this model, characteristics of supply chain was analysed from the point of view of supply chain flexibility’s dimensions. It has been shown that dimensions of supply chain flexibility has direct influence on firm’s performance (Aissa Fantazy, et al., 2009). Moreover, it has been inclined that supply chain characteristics are correlates with the aspect of supply chain flexibility in both ways (positive and negative). Supply chain flexibility is strongly linked with technological complexity, environmental uncertainty, supplier dependence and mutual understanding among supply chain partners. Only one supply chain characteristic known as interdependence is negatively linked with the supply chain flexibility. It has been seen that internal and external bonding are used to be established because of high level of inter-organisational relationship. This aspect also results in creating a sharing of certain capabilities. Because of this thing, firms are seemed to be limited in several manner in term of utilising alternative options. This also creates difficult for companies in implicating changes in a short span of time.

2.4. Kraljic Matrix

An approach was created by Peter Kraljic during 1980’s. This approach was focused primarily on managing purchasing activities. It has been examined that this model had great influence on the professional purchasing activities (Gelderman & Van Weele, 2005).

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1 Flexibility at company level, plant or shop.

2 Positioned on the basis of strategic relevance.

3 Flexibility in logistics, marketing and operations.

4 Short-term vs. Long-term flexibility.

5 Centered on context specific or global flexibility measures.

6 Flexibility of volume, product or mix.

Details

Pages
40
Year
2016
ISBN (eBook)
9783668323902
ISBN (Book)
9783668323919
File size
828 KB
Language
English
Catalog Number
v341800
Institution / College
University of Bedfordshire
Grade
B-
Tags
flexibility

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Title: Flexibility in supply chains of clothing retailers