INTERNATIONAL OPERATIONS IKEA VS.ZARA
...in the chain work together to shorten the cycle time and cut out logistical costs so that products reach the customer at the lowest possible price. All that progression explained is gradual and reached by agreement with suppliers, a supplier benefit we should add to many others, like for example: - Contractual trust. He knows that he will always be paid within 30 days. He knows that in all probability Ikea will stick with him and that, if for any reason the relationship or a product is discontinued, he will not be disadvantaged and any stock in the pipeline will be bought from him. - Product life cycles. Ikea tries to keep product life cycles as long as possible. Typically they range from 3 years out to 20 years. This helps manufacturers to plan for the long term. - Investment. If he has an opportunity to generate extra capacity that will allow him to manufacture products more cheaply for Ikea, they may assist with credits to allow him to pay for the plant now and pay Ikea back with his goods later. If he goes to a bank may help him to gain a loan by guaranteeing a certain level of future business. - Focus on profit rather than volumes or margins. In his sales negotiations with the Ikea purchasers he will be dealing with people who understand his businesses, particularly the cost drivers. Whilst this could be viewed as a disadvantage when it comes to price negotiations, it means that the Ikea traders will work with him lower his costs so that they can buy at an acceptable price and he can sell at an acceptable profit. This contrasts with “take it or leave it” approach that characterize many such negotiations in the industry. Ultimately Ikea want to keep the same suppliers for a long time so that they can develop them and to avoid the expense of starting new relationships with suppliers. - And we could add a few more like: Technical advice ( Ikea staff are on hand to give advice on a number of aspects of the business), IT ( the supplier will be linked to Ikea’s own system, this will allow him to have total transparency of the supply chain), Logistics ( Ikea has a strong logistics competence that it spreads to its suppliers). The degree of support is impressive!! The manufacturer acknowledges that the margins he earns from the products he sells to Ikea are far lower than from other customers but the support he receives and the nature of the relationship he has with Ikea far outweigh this disadvantage. In addition to working with around 1.800 different suppliers across the world, Ikea produces many of its own products through sawmills and factories in the Ikea industrial group. In terms of Purchasing, Ikea has 42 trading service offices in 33 countries. Proximity to their suppliers is the key to rational long term cooperation as I’ve said before. About Distribution, the route from the supplier to customer must be as direct, cost-effective and environmentally friendly as possible. Flat packs are an important aspect of this work: eliminating wasted space means we can transport a store goods more efficiently. Since efficient distribution plays a key role in the work of creating the low price, goods routing and logistics are a focus of constant development. Now 25 regional distribution centres in 14 countries are responsible for supplying goods to Ikea stores. The last aspect I’d like to remark is the incorporation of the values in the entire supply chain to be a long process of learning in order to create a strategic and systematic approach to responsible supply chain management having procedures further developed and incorporated to ensure that all their suppliers, as Ikea itself, produce in accordance with internationally recognised conventions and standards within environment, forestry, social and working conditions. ZARA Is a company that belongs to the successful Inditex group, settled in La Coruña, where its founder and current president, Amancio Ortega began to built his empire. What can be considered revolutionary, if we compare Zara with its competitors is how different its Supply chain is to them Zara uses sales data to introduce new products all the time, about 12.000 each year. Its Supply Chain is so flexible that the lead time from designing a new piece of clothing to selling it in the shops is only two or three weeks. What I’m talking about is the famed delivery-cycle of 15-30 days that can be achieved because of: - Zara’s trend-spotting capability ( if we add that some pieces of clothing are only available for a few days and the production per model is low, that makes the costumer feeling what is buying is quite unic ) - The commitment to vertical control of the fabrics as well as in-house production capacity. - Quick decision making mechanism. Another issue to be remarked is that Zara runs its own manufacturing facilities, which gives it more control over its Supply Chain (almost half of its production is in house). The company focuses capital on building extra capacity, and Zara manufacturers and distributors work in small batches Zara manages all design, warehousing, distribution and logistics functions itself, instead of outsourcing or outside partners. The result is a superesponsive supply chain, exquisitely tailored to Zara’s business model. Zara can design, produce and deliver a new garment to its 600 plus stores world wide ( scattered in 50 different countries, mainly in Europe and U.S. ) in mere fifteen days as I said before. If we had ...