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Student Number 1610035
Student Name Matteo Bracciotti
Course: M.Sc. Purchasing and Supply chain
Management
Module: BSM311 – Operations Management
Assignment: Coursework 1
Date: 8th May 2017
Co-ordinator: Carol Air
No. of Pages: 23
Word count (excluding covers, tables, 4335
executive summary and references)
Table of contents
I
Table of Figures
II
Executive summary
The proposed study aims to understand some operation concepts taught during the
semester through the support of in-depth evaluation and discussion made in class but
also with the support of individual research in order to appraise them.
This coursework was assigned with the scope to review, analyse and present solutions
to extended the case. In addition, it allows the researcher to develop its skills and
design and assess the understanding of operations management in order to apply the
range of concepts, theories and models examined.
However, this report was applied in accordance with Zara, which was designed as
“vehicle” of this study in achieving the final scopes. In fact, through this case example
it was possible to demonstrate how the analysis of operations management concepts,
models and theories such as ITO model, Four V’s model, process and layout type
contributed contribute in achieving competitive advantage in operational objectives.
Besides, it was classified and analysed through use of appropriate operations strategy
models the existing operational strategy of Zara, providing an evaluation of its role to
meet the Zara operational objectives.
The findings of this report were based in assessing the mentioned aims with the
support of knowledge and understanding of the researcher in order to demonstrate its
ability to apply a range of operation concepts.
In conclusion, the report recommended some operations improvement that might be
strategic to reduce the gaps in performance and suitable to set a better strategy in
achieving operational objectives.
III
Introduction
Operations management is a vital part of an organization to achieve success because
it includes that activity of managing the resources to produce and transfer products
and services (Slack, Chambers and Johnston 2010). Instead, operations function is
that part of the company responsible for the function of operation management. This
means that every company has an operations function because each of them produces
either product or service for the ultimate customer (Slack, Chambers and Johnston
2010).
Therefore, operation function is one of three main core activities of an organization,
while the other two activities are (Slack, Chambers and Johnston 2010):
• Marketing function, which is the main activity to communicate products or
services to the organization’s markets in order to create customer requests.
• Product/service development function, whose role it is to enhance customer
interests through new products or improvements of the existed products.
In addition to the core functions, Slack, Chambers and Johnston (2010) mention
support functions that ensure effective process of the core activity. These activities
are the accounting and finance functions, which share data to undertake convenient
economic decision and manage the financial resources of the company. The second
support function is the human resources, which is responsible for developing and
controls the organization’s members in order to enhance the organization’s welfare.
1
Part 1
2
Figure 1: The “Input-transformation-output” model. Source: Google.
3
1.1.2 Outputs
The outputs are in the form of products (clothes and accessories), which is divided in
three major lines: one for women’s line, one for men’s line and the last one for
children (Ferdows, Lewis and Machuca 2005). These products are identified as “pure”
products because are recognized as tangible items (Slack, Chambers and Johnston
2010).
4
Figure 2: The Four V’s model. Source: Slack, Chambers and Johnston, 2010.
1.2.1 Analysis
Volume (Low) – Zara introduces new designs every 2/3 weeks in small quantities,
which normally means high costs to sustain this strategy. Indeed, Zara is able to keep
low cost unit due to the shorter time frame necessary to replace the empty shelves
with new items, which lead to attract customers that increase the sales because they
always find new products. Moreover, through small volume production, Zara retailers
can replace the unsold products after few weeks due to the low impact on the
stockholding level (less than 10%) compared with the average (17-20 %) of the
competitors (Ferdows, Lewis and Machuda 2004).
Variety (High) – The volatility demand of clothing and the short life cycle due to the
seasonality changes imply to plan fewer assets in Zara organization and continuous
creation of new designs (Ferdows, Lewis and Machuda 2004). Zara replied to the
uncertainty of the product with high capital investment, which improves the flexibility,
focusing most of the production in-house (Ferdows, Lewis and Machuda 2004). In
fact, compared to H&M and Gap, Zara purchases all the inputs within Inditex firm
(located in Spain) instead of outsource in another continent such as Asia or Africa for
the low cost production. Ferdows, Lewis and Machuda (2004) explained that this
strategy would reserve more complex production planning due to the engagement of
5
several small factories with few joint ventures spread in other regions, but will bring
potential advantages to the operations process.
Visibility (High) – Customers usually have short waiting tolerance if they notice that
the retailer staffs operate inefficiently and dissatisfy them. However, Zara engages
staff members who have good communication skills and experience (ZARA 2017).
Through this policy and the rapid replenishment of new collections in the shops, the
customers are completely satisfied to ask for goods that in other stores would not be
sold (Ferdows, Lewis, Machuda 2004). However, high visibility requires high unit costs
that are mostly covered by Zara due to the competitive advantage of its efficient
supply chain (Caro and Gallien 2010).
6
1.3.1 ENVIRONMENTAL AND SOCIAL SUSTAINABILITY OBJECTIVES
According to Zara’s mission statement (ToughNickel 2014):
Based on the statement, Zara did not make direct reference to clothing, but it
highlights three important components: the business model, the environment
sustainability and a sustainable society. The latter two elements mentioned explain
the intention to cooperate for a sustainable operations design in terms of integration
and general welfare in a larger number of societies but that cannot ensure if Zara is
able to achieve this (ToughNickel 2014). Concerning environmental sustainability,
Zara website states that in Zara retailers have applied a reduction policy of electricity
consumption, recycling furniture and an organic manufacturing processes that leads
Zara to be an eco-friendly image for the environment (ToughNickel 2014).
1.3.2.1 Quality
This objective means that the company produces goods or services through a specific
approach that leads to both external customer satisfaction as well as efficient
organization of the internal operation process (Slack, Chambers and Johnston 2010).
Quality is the main visible object in the outbound products and also it allows the
company to reduce costs and mistakes if there is a quality coordination of the ITO
process. Zara has high quality performance between all the operations due to the
developed supply chain system applied in the recent years, which leads to satisfy the
final customer, with less unit cost (Lopez and Fan 2009).
7
1.3.2.2 Speed
Speed refers to the time frame between the customer order and the operations
execution (Slack, Chambers and Johnston 2010). This objective has large impact on
the operational process in terms of decision-making and movement of inputs
resources within ITO model, because it allows faster response to external customers
requirements (Slack, Chambers and Johnston 2010). Zara organisation is the most
competitive in the fashion industry regarding the internal process due to its capability
to coordinate all operations in short time frame (Caro and Gallien 2010).
1.3.2.3 Dependability
In operational concept, the term dependability means schedule the entire organisation
in order to deliver in time goods or services when the customers need (Slack,
Chambers and Johnston 2010). In this concept, the value of the cost and speed do
not impact the performance because the only scope is to satisfy the final customer.
The impact of dependability in operations can have important relevance for the
efficiency of the entire system and reliability of the company to the customer (Slack,
Chambers and Johnston 2010).
1.3.2.4 Flexibility
This objective explains the ability to change the operations in relation to the
customer’s needs (Slack, Chambers and Johnston 2010). Developing a flexible
operation within ITO model can bring advantages to the entire system in terms of
response, optimization of the time and high level of dependability (Slack, Chambers
and Johnston 2010). Zara has the capacity to set flexible operations due to the
competitive supply chain performance, which leads to establish competitive recycle of
new collections in the store, produce low volume per product at reasonable cost and
reduce lead time shipment to the stores due to the vertical integration of the supply
chain (ToughNickel 2014).
1.3.2.5 Cost
Cost objective is an important factor for those companies based on price competition
(Slack, Chambers and Johnston 2010). In fashion industry, the cost driver is a
potential tool to be competitive, because lower cost attracts more customers and
enhance the potential target to improve the organization structure. Zara sustains
8
reasonable costs within the operation process due to the in-house system, which
allowed achieving high quality of product but higher cost instead of costs that might
be lower with the outsourcing decisions by competitors to developing countries like
Asia or Africa (Ferdows, Lewis, Machuda 2004). However, Zara is able to set in the
market a reasonable price due to the competitive supply chain design, which allows
quick response to customer demands and gain high margin profit (Ferdows, Lewis,
Machuda 2004).
9
Figure 3: Characteristics of the process types for Manufacturing and Service process.
Source: Slack, Chambers and Johnston 2010.
Figure 4: Show the relationship between Process types and basic layout types.
Source: Slack, Brandon-Jones and Johnston 2016.
10
The different process type identified for Zara (Jobbing processes and service shop) will
imply different layout types for manufacturing and service processes. In fact, the first
process might focus on “Functional layout” due to the operational process design of
Zara, which based all the production in-house facilities due to the advantages in terms
of speed, flexibility, dependability and fast replacement (Ferdows, Lewis and Machuda
2004). While for service process, Zara is based on “Cell layout” type because the
stores are divided in three levels: women, man and children. Each of them is
structured in different departments such as accessories, shoes, and clothing, allowing
thus better service level for the customers (Ferdows, Lewis and Machuda 2004).
11
PART 2
Background
The operation strategy for a business refers to the decisions and actions planned in
addressing the entire operations to contribute and support the main objectives.
Moreover, it supports the organisation’s business strategy and it synchronises the
different operations function of the business to achieve success (Slack, Brandon-Jones
and Johnston 2016).
Figure 5: Comparison between the legacy and the new process. Source: Caro et al.
2010.
12
The difference of the process showed in figure 5 between the old process and the new
one focuses on the use in the new process of the shipment requests from store
managers and the previous data of the sales to forecast the demand. Subsequently,
these two inputs are implemented in the next phase through an optimization model
that use three important data: the forecasted data, the inventory per articles and the
amount of unsold product both from the warehouses and from each store, and the
assortment decisions (Caro et al. 2010). The objective of this new model is to
optimize the global sales through fast shipment approach.
The forecasting model also involves a qualitative method to create an approximation
of the upcoming orders for each size per each article in each Zara store that definitely
improved the standard methodology of analysis. The characteristic of this qualitative
method (figure 5), in accordance with Zara distribution manager, is based on a linear
combination of two relevant inputs that are converted in sales estimation through the
consideration of store inventory and the stock remaining in the warehouse: the
objective and centralized time series of the historical sales per articles, and the
subjective and decentralized delivery order by the stores manager (Caro et al. 2010).
This approach has been applied since 2006 as operational strategy and is giving back
large benefits and advantages in terms of profits and capability to achieve the current
operational performance objectives (Caro et al. 2010).
Thus, this new forecast model brought optimization and improvement for the
shipment requests to Zara stores due to the more efficient and credible measure data
approach (Caro et al. 2010).
13
and Johnston 2010). Overall, this improvement is likely to improve the performance of
the distribution network strategy applied by Zara.
14
process (Ferdows, Lewis and Machuca 2004). This model ensures relevant advantages
to the operational performance such as a unique distribution channel with vertical
integration sell points and stores, fast replenishment and assortment in stores and
quick response and order fulfilment (Martinez, Errasti and Rudberg 2015). Further, in
order to satisfy all the objectives and gain competitive advantages in this industry
sector, Zara manages an important human resources department, including a well-
designed job strategy (Bonache and Fernandez 2002). The human resource
department evaluates the conditions that allow Zara to achieve competitive advantage
in an international environment. Zara reached a large international expansion process
due to the developed skills to fulfil the stores with new designs every two weeks
through using experienced and knowledgeable people, who share their own
capabilities and collaborate to create good networking and communications in order to
accelerate all processes (Bonache and Fernandez 2002).
3 Conclusion
This coursework has been conducted to demonstrate the understanding of some
operational concepts used by Zara, which helped this study to make critical thinking
and evaluation of standard models in the first part such as the ITO model, the Four
V’s model, the process and layout type and so on. In the second part, it has been
analysed Zara operations strategy with the appraisal of models in order to state if the
strategy was suitable to meet the current operation objectives. In conclusion, this
study will recommend some improvements that might be useful to reduce the gap of
performance in Zara operation strategy.
3.1 Recommendation
3.1.1 Managing resource improvement
An important improvement in Zara to cover the unpredictable clothing demand and
control a large amounts of information created by the activities is the implementation
of the ‘Enterprise resource planning’ (ERP) system. Madapusi and D’Souza (2012)
stated that ERP might provide benefits to a company’s operational performance
because it leads to gather all information spread within the organization and as result
a better performance is achieved. In fact, the figure 6 shows five measures that
analyse the operational performance of ERP system.
15
Figure 6: Operational performance measures metrics. Source: Madapusi and D’Souza
(2012).
16
change occurs is what achieves best performance (Slack, Chambers and Johnston
2010). In addition, the improvement has to be based in accordance of PDCA cycle
model (figure 7) that demonstrates the plan of actions when an organization decides
to improve the operations performance (Slack, Chambers and Johnston 2010).
17
References
CARO F. et al., 2010. Zara uses operations research to reengineer its global
distribution process. Interfaces, Vol. 40 (1), pp. 71-84.
CARO F., and GALLIEN J., 2010. Inventory Management of a Fast-Fashion Retail
Network. Operations Research, Vol. 58 (2), pp. 257-273.
FERDOWS K., LEWIS M. A., and MACHUCA J. A., 2004. Rapid-fire fulfilment.
Harvard business review, 82 (11), pp. 104-117.
FERDOWS K., LEWIS A. M., and MACHUCA D. A., 2005. Zara’s Secret for Fast
Fashion. [online]. Havard business school: Business Research for Business Leaders.
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18
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