Wednesday, April 4, 2012

ZARA's Supply Chain Performance

Zara is a fashion forward company based off a business strategy that is very unique within the industry.  Fashion lines and trends are created similarly with other companies about six months away from being in store.  However, it’s the process and strategic plan that separates Zara from the rest.  The company’s innovative idea to keep up to 40% of manufacturing operations in-house allowed for in-season manufacturing, which creates a flexible inventory system.  For example, if an item is selling well executives make a decision to stop manufacturing the product to create an unsatisfied demand on purpose.  This creates a culture that the customer better get it today because they might not find it tomorrow.  The company’s ability to respond to in-season demand is what gives Zara a different fashion risk profile from other apparel retailers.  By having such a flexible inventory system and responsive manufacturing capability, Zara is able to operate with a very high close-to-sale-time manufacturing system.  This system creates short lead times that are incomparable when considering other apparel providers.  The innovative idea to create a product line based on its manufacturability has created the ability to provide the customers with trending items that are more in demand than any other product offered by competitors. 
The European textile industry is one of the first victims of globalization and discrimination based on price.  The most important textile markets are located in Europe, the United States, China and Japan.  In this extensively competitive environment, brands like Zara saw the need to undertake major changes in order to survive in this global competitive market. Fashion companies share some characteristics; however, Zara is unique because it distributes fashion and luxury products to a wide audience.
Companies in the textile industry, therefore evolve in a chaotic environment.  Fashion is, by nature, in constant motion: it embodies the tastes of the moment.  In addition to the uncertainty of time, there are many other variables to consider when Zara was developing its business strategy.  To attract a large number of customers in a very competitive industry Zara needed to be creative and unique in its business modeling, business management, design of collections, and marketing and communications strategies.  Zara chose a strategy that contrasts with that of its main competitors.  They chose the vertical integration to implement their different strategies.  The vertical strategy is achieved through a thorough organization and logistics.  It allows Zara to implement its management of scarcity as mentioned in the previous answer.
The vertical integration also allows Zara to cut cost and time by choosing not to outsource any of its channels.  The company is therefore faster in production, more effective and more efficient.  Vertical integration also prevents conflicts that can potentially arise from having different channels.  As mentioned, Zara manufactures and distributes its collections in small batches, which makes it more efficient to manage the design, logistics, and distribution of its products in house instead of outsourcing.  It gives Zara more flexibility in following the market trends and customers tastes and adjusting to them in a short period of time.  Zara’s vertical integration is one of the main sources of success and competitiveness in the market of textile and fashion because it allows the company to not only be efficient and cut cost and time, but to develop a competitive merchandising strategy, hence the establishment of the environment of scarcity, opportunity and fast-fashion model.
            Supply chain performance can be determined by many financial metrics such as Return on Asset (ROA), SG&A / Sales, Days of Total Inventory, Working Capital/Sales, and Days of Account Payable.  As in earlier discussion, inventory incurs total supply chain cost and also increase total asset in the company’s Balance Sheet.  Thus, top supply chain management (SCM) companies such as Zara, which better utilize their inventory to generate net income, will have the higher ROA than their competitors.  Second, Sales, General and Administration (SG&A) expense also incurs cost.  Top SCM companies with better integration with upstream and downstream partners will incur less of this transaction cost and result in lower expense than other companies providing the same level of sales.  Third, Days of Total Inventory fortop SCM companies is expected to be low.  Since companies may each have same level of sitting inventory, but if one can sell it all faster than the other, it will handle less demand uncertainty as well as face smaller loss of price marking down at the end of seasons.  Forth, working capital/ sales fortop SCM companies is expected to be low as well.  Since top SCM companies better manage their working capital, the companies will have the capability to use less working capital to provide the same level of sales as competitors or use the same level of working capital but provide more sales volume than their competitors.  Lastly, Days of Account Payable for top SCM companies is oftenlow.  Unlike traditional firms, purchasing managers in top SCM companies are making a trade-off by giving favorable payment terms to their suppliers in return for excellent performance and closer relationships.  Considering market capitalization, the research shows that top SCM companies higher attract investors since the companies provide both higher and less variable returns on share (ROS) by generating significantly higher average monthly stock returns when compared with rival options.
Given the expansion plans and the strategies pursue by Zara in its supply chain processes, several positive aspects can be marked as effective models for different firms in the operations level.  Zara choose markets that are not only can expand in it but also that are compatible with its strategic plans; for example Inditex excluded the United States markets despite the fact it is active market, which is achieve its plans by entering new markets even if it is limited but still give the minimum margins financially on one hand and a shape the structure of the production on the other hand.  In this context, Zara launches limited amount of products into the market to spread a unique culture among its customers to buy at the beginning of the seasons and to pursue a precautions policy to keep inventory relatively little to reduce the holding costs, however; there is a distinctive ability to meet the demands in a maximum period of a week.  Another method to reduce the holding costs is to move the items that have not been sold in certain store to other stores or locations to be sold and to avoid the markdown policy.  In this context, Zara uses a pricing strategy that is compatible with different target markets or countries Finally, the most prominent strategies in Zara is its ability to create a competitive advantage in the in house-production versus outsourcing whether for one stage or for the all stages in production besides shifting some of the productive sector to other countries in order to take advantage of skilled labor and low wages such as China and the Asian countries in general. 

Authors: Sara Amiri, Matthew Radke, Dalia Alsaleem, and NuntidaWatcharanurak

IPO Process: Benefits and Techniques

An INITIAL PUBLIC OFFERING (IPO) allows companies to diversify their assets with funds raised from the public and to facilitate the trading of securities that shareholders decided to retain. In the case when the government or governmental institutions are selling securities in the stock market, it is mainly to restore public finances and facilitate more effective management practices within the organization.
For a firm, the IPO process can help raise more funds and capital, promote acquisitions or expansions in operations and to increase its visibility to the public. It usually sends good signals to the consumers about the company and encourages people to think that the company is in a strong position. Furthermore, the IPO process helps companies sell securities to many different investors such as: institutions, individuals, employees.

            Looking at the technical process of IPOs
, the introduction to the stock market may include a primary market (which is the sale of shares newly issued by the company), and / or secondary market (which the sale of existing shares). Placement techniques depend on whether the securities are placed with institutional investors, individuals or employees. The global placement (or guaranteed investment) is the technique most commonly used to distribute securities to institutional investors.

            One or more banks organize the marketing, promotion, and sale of securities to investors using a technique called the book building,
and banks not wanting to take this opportunity of substantial commissions. Following this procedure, the offer price is set to open simultaneously at the same open-price offer (OPO) which can benefit individuals. The global placement offers banks that are loaded by companies IPOs discretionary allocation of shares and fixing the IPO price (based on analysis of financial information relating to the undertaking concerned). Placement to individuals (or made available to the market) meet the regulatory requirement to invest at least 10% of the shares to individuals. Receipt of orders are then centralized by the Exchange (Euronext France), and not by a bank.

           The techniques available to the market are numerous and include: direct quotations which are usually for a transfer to another stock exchange or on the SME market Alternext of Euronext, minimum price offer (OPM, used very little ), price offer (OPF), Open-Price Offer (OPO, the most frequently used). In fact, direct quotation is identical to a normal trading and the first course is set up so as to enable the exchange of the greatest possible number of shares (minimum sale price fixed, non-centralized purchase orders by the company scholarship).  Furthermore, the minimum price offer (OPM) is a sort of auction process.
Buyers interested in the shares of the company listed soon denominate their trading orders, valid only on the day of introduction, "at any price" or a limit price or minimum price 10% above. And finally, the price offer (OPF) and Open Price Offer (OPO, which implies a price range) sets the issue price of the securities, which is announced in advance. 

Women's rights: International Voices

When I was in high school, my French literature professor brought up a discussion about women’s rights in Morocco for which I had a pretty indifferent opinion until she made us watch a video trying to convince us that feminism was a great cause and women in Morocco should fight for their rights. It had left a negative effect on me; it was the exact opposite feeling of what my professor was hoping for us to have after watching the video. I had to disagree with the theory she presented!
The documentary video showed Moroccan women living in smaller cities and villages being oppressed by their husbands, each woman shared her story. In the documentary, a women’s rights association interfered in the lives on these women, who were mostly illiterate and unaware. Association activists saw divorce as the solution for these women’s issues and helped most of the interviewed women divorce by paying for the lawyer’s expenses as a humanitarian act, they were thinking. It is contradictory with our society’s family values. I do agree that women should not be oppressed in any way and that they have the right for education and for professional advancement. However, suggesting divorce as the solution was not appropriate. While many of those women suffered from oppression and violence, they were not ready to divorce and live independently from their husbands, which were in their case, the main providers; not only for them but for their children as well.
A year ago, I started a discussion with several friends coming from different countries and studying in the United States. I was curious to hear their perspective and opinion on women’s rights and family values. I could clearly see that students coming from western countries and student coming from eastern countries had opposite point of views.  It was interesting, but not surprising to see that!

The question I asked was very simple: 
“What do you think about the role of women in the society and of feminism as a theory?”*

Ivo from Macedonia:  I don’t think anything :) 

Alberto from Peru:  They are out of control, they want to pretend they can do everything, and be comparable to men, but in reality they don’t want to do it, they just want to say they can do it. They want to give the idea that they are independent. I think the whole women’s rights and feminist movement has put American women in lower scale than women elsewhere in the world. I don’t think it is right. It is the society that makes women like that. Americans take pride on the fact that they are free, but they don’t understand that there are other countries where people can do what they want. America is not the only country with democracy. Obama is always saying America is the land of freedom. Because they think like that, the society pushes women to believe in that. It is just the wrong the path for women. Like my friend Mohammed once said. You have to lower your emotions when you talk to American girl.  Women want to be equal, but in reality everyone look bad at men who stay home while women is working... it is controversial!

Abdullah from Saudi Arabia: I think women are being insulted with the rights talk, because they think these are the rights they deserve but they are not. There is not as much respect for women as back home. They think they are respected but actually they are not. Saudi Arabian women are different because we follow Islamic law and we have to respect women, because they are our mothers, sisters, daughter, cousins, teachers…etc. But I do see women’s right to drive as a good right.  The first look to American girls by American guys is purely sexual, there is nothing wrong with that but it is too much. There is no respect for their girls. There is something missing, they don’t think about the girl emotionally, their soul is not working a 100%. If you treat American girl like a foreign girl you will look idiot. You have to pretend you don’t have that emotional side or at least lower it. The image of women is being used to make money: their body as image to make money. Women are already strong but it is different power to be exercised!

Karam from Iran: I think that some women are so feminist that they focus solely on that rather than on seeing the good things that are going on around them, they just complain and ask for more rights, they want to be able to do everything. I see that particular thing as a bad thing. They should focus on family and women should solely focus on stabilizing the family because men can’t! That’s one of the things women can do and man can’t. Women have patience and love for the family. Who cares if the man is doing a little more work than women? It is expected. I think we will progress more if they just stop trying to push for more rights and enjoy their talents of caring, loving and raising future generations. Women need to be educated though.

Amanda from USA: I think that everything should be equal, it shouldn’t be a man’s job or women’s job, a husband should be able to be a housewife and a woman should be able to be money collector.

Takumi from Japan: Women rights in the USA are very similar to Japan. Women do the same job as men, and they are becoming even stronger and more present in the workforce than men in Japan. A long time ago, women had to stay at home to take care of the family like cleaning the house, preparing food…etc and now it completed changed! In rich countries, they are having trouble with the old population; there is more old people than ever before and no new born babies. I think it is because of women’s rights and the feminist movements. But, I agree with feminists, because I want to get a job in the future and women should have the right to take control and the world should have equal opportunities for everybody in everything. Guys cannot be stronger than girls. Women have the right to be strong and powerful However, I would not be ok with men staying home and women working. I am totally not OK with that.

Wendy from USA: My boyfriend will be the housewife and I will go to work and he takes care of kids. My relationship with my boyfriend is so untraditional. In fact, my mom brings in more money than my dad.

Alexander from Russia: I think they have a lot of rights and it is not necessarily good because on my perspective women should be concerned more about family and stability then their career or financial independence. Giving women more (made-up) rights and letting them rebel against the old culture, ruins the true definition of family. It is sad that nowadays taking care of the house is counted as housekeeping! Cooking for your family and keeping the house in a good condition is not necessarily slave work. Female by nature are most of the time led by their emotions and that would make wrong decisions, because emotions will lead to ineffective decisions. I don’t look at it from the wrong side and say that they have shouldn’t have rights, but I can see where that inequality is coming from, as in their behavior, their reactions to stressful situations. Men when they are in stressful situation, they can control their emotions.

Brian from USA: I see no problem with men and women having equal rights.  Who is best for the job? That's what I care about.I see no problem with men and women having equal rights. Who is best for the job? That's what I care about.I see no problem with men and women having equal rights. Who is best for the job? That's what I care about.I see no problem with men and women having equal rights. Who is best for the job? That's what I care about.I see no problem with men and women having equal rights. Who is best for the job? That's what I care about.  I see no problem with men and women having equal rights. Who is best for the job? That's what I care about.  I see no problem with men and women having equal rights. Who is best for the job? That's what I care about.  I see no problem with men and women having equal rights. Who is best for the job? That's what I care about.I see no problem with men and women having equal rights. Who is best for the job? That's what I care about.

What do you think?

*Names changed for privacy

I see no problem with men and women having equal rights. Who is best for the job? That's what I care about.