1OperationManagementofZaraBenettonandHM.docx
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1OperationManagementofZaraBenettonandHM.docx
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1OperationManagementofZaraBenettonandHM
Q1Whichoperationsmanagementconceptsintroducedinthismodulewillhelpyoucompareandcontrastthedifferentsupplychainstrategiesfromacriticalperspective?
SupplyChainManagement
Figure1.1ExampleofSupplyChain
Adaptedfrom:
Palladino,2010
AccordingtoSlack(2007),supplychainisseriesofoperationsbetweenoriginsofproductsorservicesandendcustomers,whichtransform(assembly,merging,etc.)aninput(usuallyrawmaterial)intoanoutput(finalproducts);supplychainmanagement(SCM)aimedtosatisfyendcustomersneedsatcompetitivecostthroughmanagingtheseoperationstoachieveimprovementin5operationsobjectives(speed,quality,cost,dependabilityandflexibility),makesureeachoperationscansatisfyitsowncustomersandalsoend-customersregardlessoftheirpositioninthesupplychain.Companiesincreasinglycompetingasasupplychainratherthanindependentlyinordertosecuretheirunderpinnedcompetitiveadvantageintheindustry(Hoppe,2001;Hill,2005).
SCMinvolvesdecisionslikewhatcapabilities/operationsshouldbeoutsourceordevelopinternally,thelocationoffirms'operationsandthemanagementofoveralllong-termcapacity(Ghezzi,2006;Hill,2005;Slacketal.,2007).
FastVs.ConventionalFashionIndustry
Figure1.1ComparisonofConventionalandFastFashionindustryleadtime
AdaptedFrom:
Palladino,2010
Inconventionalfashionindustry,eachsupplychainmembersrelationshipisloose,theyusedtoruntheirbusinessseparatelywithoutinformationsharingandscheduleproductionbasedontheirownforecast(LeeandKincade,2003);lackofinformationsharingonactualdemandandoperationaldifferencescausedlongleadtime(6months)and"bullwhip"effect,restrainedthelaunchingofnewitemstotwiceayears(spring/summerandautumn/winter)andcausinghighlevelofinventory,andtheriskofeachchainmembers'inventory-on-handbecomeobsolescenceishigh.Asaresult,conventional-fashionplayerusedtopracticeapush-strategy(duetolongerleadtimeneededtointroduceanewdesign)(Palladino,2010;LeeandKincade,2003;Slack,etal.,2007).
Whilefastfashionindustrypracticeatotallydifferentapproachinmanagingitssupplychain,therelationshipbetweeneachchainisclose(BarnesandGreenwood,2006),manyplayerslikeZaraoftenactasasupplychainleadertocoordinateeachchain,thecloserelationshipamongsupplychainmembersnotonlyenhancethedependabilityandflexibilityofsupplychain,italsoallowconceptslikeQR(QuickResponse)andJIT(JustInTime)tobepracticethroughoutthewholesupplychain,andthiseffectivelyshortentheleadtimefromanormal6monthsto3-6weeks(Palladino,2010).
Fast-fashionplayercanintroducenewdesignwithinshortperiodoftime(InZaracase,15days)andthe"bullwhip"effectisminimized,consequently,inventorylevelislow,soastheobsolescencerisk.Shortleadtimeallowpracticeofpull-strategy(asshortertimeisneededtointroduceanewdesign),whichallowbetterrespondtocustomers'demand(Palladino,2010;GhemawatandNueno,2006;Slack,etal.,2007).Themake-or-buydecision,locationdecisionandsupplychaintimecompressionconceptcanbeusedtofurtherunderstandsthedifferencesandsimilaritiesbetweenthistwoindustry.
TheMakeorBuyDecision
InSCM,themake-or-buydecisionisusedbyfirmtoachievedesiredsupplychainperformanceobjective,forexample,outsourceproductiontoreducecostorretainproductionin-housetomaintainhighquality(Slack,etal.,2007;Hill,2005).Inreality,companydon'tusuallyproduceeveryserviceandproductsinsupplychainthatitneededtosatisfyitsend-customers,asSlacketal.(2007)explained,firmscanchoosetobuyproducts/servicesdirectlythroughoutsourcingorproducetheproducts/servicesbyitselfthroughverticalintegrationalongsupplychain,firmusuallychoosetooutsourceactivitieswhichithadnocompetitiveadvantageinandretainactivitieswhichitbelievearecriticaltofirms'successbaseontheorderwinnerandqualifierofcompetingmarket.
Inthemake-or-buydecision,conventional-fashionindustryplayerpreferoutsourcingtoleveragethecheaplabour&materialcostindevelopingcountrytokeeptheircostlow(LeeandKincade,2003),however,outsourcing(especiallytolongdistancecountries)significantlyincreaseleadtime,longerleadtimemeansthatretailermustforecasttheactualdemandfewmonthsinadvancetoplaceorderearliersothateachcollectioncanbeplaceinstoreontime.
Whilefast-fashionindustryplayerlikeZarahadturnthefocusfromcosttoleadtimethroughverticalintegration,shortleadtimeallowretailertoforecastdemandclosertothetimeitactuallyoccurs(GhemawatandNueno,2006),consequently,theforecastismoreaccuratecomparewithconventional-fashionindustry,thereforetheinventorylevelissignificantlylowerthanconventional-fashionplayer,theneedstomarkdownorwrite-offitemisminimized,conventional-fashionindustryplayeraveragelyhadtomarkdown40%toreduceobsolescencestock(Neuno,2009;Gallaugher,2008).
TheLocationDecision
ThelocationofoperationsisanotherelementsneedtobeconsideredinSCM,accordingtoSlacketal.(2007),locationsdecisionswillaffectsupplychainperformanceobjective,particularlytheoperations'effectiveness,operationscostsandabilitytofulfillcustomers'demand,factorsthatwillaffectthelocationdecisioncanbecategorizedintosupply-sideanddemand-sideinfluencesasshownbelow:
Supply-sidefactors
Demand-sidefactors
LabourCosts
LandCosts
EnergyCosts
TransportationCosts
CommunityFactors
LabourSkills
SuitabilityofSite
Image
ConvenienceforCustomers
Figure1.2:
Supply-sideanddemand-sidefactorsinlocationdecisions
Adaptedfrom:
Slacketal.,2007
Inconventional-fashionindustry,thelocationdecisionismuchaffectedbythesupply-sideinfluences,primarilycosts,conventional-fashionplayersseektoexploitthebenefitoflowlabour,landandmaterialcoststhroughsettinguptheiroperationsindevelopingcountries(BarnesandGreenwood,2006;BonacichandAppelbaum,2000),forinstance,FrenchConnection(FCUK)hadsetuptheirmanufacturingplantinTurkey,thisoperationslocationhadhelpFrenchConnectionachieveditsobjectiveoncost(Carrolletal.,2004).
Whileinfast-fashionindustry,theoperationslocationswereinfluencedmorebydemand-sidefactors,particularlytheconvenienceforcustomers,theiroperationslocationwassetupclosetothecentreofdemand,forexample,ZaraoperationslocationinSpainisclosetoitsmajormarketEurope(about70%ofretailstoreisinEurope),sothatleadtimecanbeshortenthroughshorterdistancebetweenmanufacturingandretailers,andhenceachievesupply-chainobjectiveinspeedandflexibility(Zara,2010;GhemawatandNueno,2006;Craig,2004).
SupplyChainTimeCompression
Besidethemake-or-buyandlocationdecision,operationalefficiencyisalsoanimportantelementsinSCM,in-termsofimprovingsupply-chainperformance,asTowill(1996)suggest,operationsefficiencycanbeachievedthroughtime-compression,whichisspeedinguptheflowofmaterialsandinformationwithinthesupplychain,time-compressionwouldnotonlyimprovesupply-chainperformanceobjective(cost,speed,quality,dependabilityandflexibility),italsohadpositiveimpacttowardsfirms'profitability(Slacketal.,2007;Towill,1996;Beesley,1996).
Thefashionmarketischaracterizedbyitsshortproductlifecycle,highvolatilityandlowpredictability(Christopheretal.,2004).Conventional-fashionindustryplayerdesigntheirsupply-chaintofocusonlowmaterialandproductioncostinordertoimproveprofitability,butatthecostoflongleadtime;whilefast-fashionplayerfocusisonshortleadtime,usingtimecompressionstrategytoimprovetheirprofitability(Slacketal.,2007;Gallaugher,2008;Towill,1996).
Loweringmaterialandproductioncostregardlessofincreasingleadtimegreatlyreduceconventional-fashionplayerprofitability,thereductioninprofitevenoffsetthecost-savinginproductionandmaterialcost(Gallaugher,2008);asshownbyTowill(1996)infigure2.1,shortleadtimecaneventuallyincreasefirms'profitability,that'sthereasonwhyfast-fashionindustrygenerallycanhaveahigherprofitmargincomparewithconventional-fashionindustry(fast-fashionindustryplayersell85%oftheirgoodsinfullprice,comparewithconventional-fashionindustry65%)(IIBD,2010).
Figure2.1InfluenceDiagramshowingthemechanismsbywhichleadtimecompressioninfluencesprofitability
Basedon:
Towill,1996,Slacketal.,2007
Considerthecharacteristicoffashionmarket,longleadtimereducefirms'speedtomarketnewproductsandmakeforecastingbecomemoredifficult,consequently,salesislowastheycannotfulfilcustomersdemandonfastandfashionableproducts,themismatchbetweenforecastandactualdemandcausehighlevelofobsolescenceinventory,therefore,theyhadtodiscounttheirproductstosellobsolescencestock,greatlyreducetheirprofitability(Towill,1996;Christopheretal.,2004;Gallaugher,2008).
Q2Whatarethedistinctfeaturesofthesupplychainstrategiesemployedbyeachofthethreecompanies?
Figure2.1PositioningofZara,BenettonandH&M
Adaptedfrom:
Palladino,2010
Zara,BenettonandH&Misthreeofthemostrepresentativeplayerinfast-fashionindustry,however,asshowninfigure2.1,theypositionthemselvesdifferently,Zarapositionitselftobemostfashionable(2weekleadtimetomarketnewproducts)andlowprice,H&Mpositionitselftobefashionable(3weeksleadtimetomarketnewproducts)atl
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