An Understanding of Managment Tools The WritePass Journal

An Understanding of Managment Tools An Understanding of Managment Tools IntroductionReferencesRelated Introduction With some 740 stores in 54 countries, the Spanish clothing retailer Zara has hit on a formula for supply chain management that works by challenging conventional wisdom. This excerpt from a recent Harvard Business Review profile on how Zara’s supply chain communicates, allowing it to design, produce, and deliver a garment in fifteen days. Zara’s history began in 1963 when Amancio Ortega Gaona opened Confecciones GOA in La Coruà ±a, to manufacture women’s pyjamas and lingerie products for garment wholesalers. In 1975, after a German customer cancelled a sizable order, the firm opened its first Zara retail shop in La Coruà ±a. The original intention was simply to have an outlet for cancelled orders. However, the experience taught the firm the importance of a ‘marriage’ between manufacturing and retailing a lesson that has guided the evolution of the company ever since. From a starting point of six stores in 1979, the company established retail operations in all the major Spanish cities during the 1980’s. In 1985, Confecciones GOA created Inditex as the head of the corporate group. In 1988, the first Zara store outside Spain opened in Porto, Portugal, followed shortly by a store in New York City in 1989 and Paris in 1990. However, the real ‘step-up’ in foreign expansion took place during the 1990s when Inditex entered 29 countries in Europe, the Americas and Asia. In parallel with its overseas expansion, Inditex diversified its retail offering by another adjacency expansion with new brands like Pull and Bear, Massimo Dutti, Bershka and Stradivarius to meet new customer segments. However, Zara still count for eighty per cent of Inditex’s revenue. Each of Inditex’s brands operates independently, but shares the commitment to supply fashion at affordable prices and all employ similar management models for the control of the total supply chain to maximize speed to market. Fig 1 illustrates Inditex’s expansion. The figure imitates the stem of a tree, which gain a new circle for every year that goes by. The circles indicate the different expansion Inditex has accomplished, moving from being a fabric to opening its first store and to opening other clothing chains. These types of expansions justify as adjacency expansion. Adjacency expansion draws the skills in the core business to build a competitive advantage in a new adjacent competitive arena in order to target different customer segments. This adjacency expansion has lead to the need of changing Inditex’s core business. Inditex has shifted from being a fabric working towards several retailers, to becoming a big concern covering most parts of the production as well as the final sale. To grow into a new adjacency around a once-successful core business is the critical factor in 75 per cent of today’s total business disasters. The American grocery chains Wal-Mart and Kmart illustrate an example on difficulties in adjacency expansion. They both open their first grocery store in 1962. Wal-Mart successfully moved into adjacency such as Sam’s Club, electronics and Mexico, one by one. Kmart however, struggled more with the expansion. They moved from books to sporting goods and even to a chain of department stores in Czechoslovakia. This drifted Kmart into bankruptcy. Showing that even though they started out equally, the different choose of steps in adjacency expansion lead one to be a big failure and the other to be one of USA most respected companies. Another example is Nike versus Reebok, which in 1990 had almost equal revenue. While Nike had a clear strategy, consisting of a repeatable process it had developed and refined over a decade, to attack one sport after another with the help of different famous athletes, Reebok’s path was a mystery to those covering the company. They expanded in different directions and as their core shoe business was doing badly, they kept on expanding into new unconnected arias. In addition, Nike’s strong adjacencies expansion made it even harder for Reebok to increase the total sale and ended up decreasing its revenue. It is not easy to know which expansion that is the right expansion. However, after studying adjacencies expansion in over 100 companies, Chris Zook presents primary six ways to expand the boundaries of business .Fig 2 illustrates these expansions. This is trough new businesses, forward integration, new geographies, new channels, new customer segments or new products. In parallel to Inditex’s, Zara has accomplished several adjacencies expansions during its history. One of two main expansions is by moving from selling women’s underwear and pyjamas to regular clothes, shoes, handbags and even make-up. This signifies product adjacencies by marketing a new product or service to core customers. This is one of the most commonly pursued and highest potential adjacencies. The other main growth is by expanding into selling men’s wear and children’s wear. These customer adjacencies modifying a proven product or technology to enter a very new market segment and are a major adjacency move for most companies. In addition, Zara continuously expand their business by successfully opening new stores around the world and at the same time enlarge their local industry by expanding the focused production in Spain. Geographic adjacencies move into new geographic areas, is a type of adjacency expansion that companies consistently underestimate in complexity. Zara has also achieved new business adjacencies by opening Zara Home, a store that sell accessories to the home like kitchen wear and bedclothes. With this, it builds a new business around a strong capability and essentially repositioning it. This is the rarest form of adjacency move, and the most difficult to achieve success with. In addition, Zara has also expanded with channel adjacencies by offering a small proportion of its collection on Internet sale. Although this is more for promotion, it is still a channel adjacency expansion. All of Zara’s different expansion fits into the primary six ways to expire the boundaries of business. Fig. 3 illustrated that Zara has expanded in every direction. Finding a repeatable method of moving into new adjacencies, one after the other has a clear benefit in the learning curve. This contributes to competitive advantage making the adjacencies better and faster each time. Zara’s supply chain In an interview with CNN, Jose Maria Castellano, chief executive at Inditex, talked about Zara’s supply chain and indicated its unusual structure by saying: Investment banks used to say that this model did not work, but we have shown that it gives us more flexibility in production, sales and stock management, At a Zara store, customers can several times a week find new products. The whole collection is in limited supply and they achieve a tempting exclusivity by only displaying a few items, even though the stores are spacious. It makes the customer think, This green shirt fits me, and there is only one on the rack. If I dont buy it now, Ill lose my chance. Zara has built a concept around ‘fast fashion’. Moving away from the traditionally one collection per session, Zara continually design, produce and deliver new styles. They base their business on demand instead of forecasting. Picking up what people wear on the street, at the university or at a nightclub, Zara’s designer’s catches ideas for new styles and can present them in a Zara store only two weeks later, while most of the competitors has a lead-time over three months. This makes Zara always able to offer the latest fashion in it store, leading to more sale and fewer discounts. Such a retail concept depends on the regular creation and rapid replacement of small batches of new goods. Zara’s designers create approximately 40,000 new designs annually and select 10,000 of them for production. Some of them resemble the latest fashion design creations. Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, to much lower prices. This fast fashion system depends on a constant exchange of information throughout every part of Zara’s supply chain. From customers to store managers, store managers to market specialists and designers, designers to production staff, buyers to subcontractors, warehouse managers to distributors, and so on. Most companies insert layers of bureaucracy that can bog down communication between departments. Zaras organization, operational procedures, performance measures, and even its office layouts, all are designed to make information transfer easy. Zaras single, centralized design and production centre is in Inditex headquarters in La Coruà ±a. It consists of three spacious halls, one for each of the three clothing lines, women, men and children. Unlike most companies, which try to remove unnecessary labour to cut costs, Zara makes a point of running three parallel, but operationally distinct, product families. Though it is more expensive to operate three channels, the information flow for each channel is fast, direct, and unencumbered by problems in other channels, making the overall supply chain more responsive. Each clothing line has separate design, sales, and procurement and production-planning staffs. A store may receive three different calls from La Coruà ±a in one week from a market specialist in each channel; a factory making shirts may deal simultaneously with two Zara managers, one for mens shirts and another for childrens shirts. In each hall, floor to ceiling windows overlooking the Spanish countryside reinforce a sense of cheery informality and openness. Unlike companies that sequester their design staffs, Zaras cadre of 200 designers sits right in the centre of the production process. The designers are usually in their twenties and got the job because of their enthusiasm and talent, no prima donnas allowed. Split among the three lines, they work next to the market specialists and procurement and production planners. Large circular tables play host to spontaneous meetings. Racks of the latest fashion magazines and catalogues fill the walls. A small prototype shop has been set up in the corner of each hall, which encourages everyone to comment on new garments as they evolve. The physical and organizational proximity of the three groups increases both the speed and the quality of the design process. Designers can fast and easy check initial sketches with colleagues. Market specialists, who are in constant touch with store managers and many of whom have been store managers themselves, provide quick feedback about the look of the new designs (style, colour, fabric, and so on) and suggest possible market price points. Procurement and production planners make preliminary, but crucial, estimates of manufacturing costs and available capacity. The cross-functional teams can examine prototypes in the hall, choose a design, and commit resources for its production and introduction in a few hours, if necessary. Once the team selects a prototype for production, the designers refine colours and textures on a computer-aided design system. If the item is to be made in one of Zara’s factories, they transmit the specs directly to the relevant cutting machines and other systems in that factory. Bar codes track the cut pieces as they converts into garments through the various steps involved in production, including sewing operations, distribution, and delivery to the stores, where the communication cycle began. Zara manufacture approximately fifty per cent of its products in its own network of 22 Spanish factories, 18 of which are located in and around the La Coruà ±a complex, and use around 500 subcontractors located close to the head office for all sewing operations. Zara closely monitor these sewing operations to ensure quality, compliance with labour laws, and adherence to the production schedule. The subcontractors are responsible for picking up and deliver the production items to the factory. Here each piece is inspected during ironing, placed in plastic bags and sent to the distribution centre. The other half of its products are procured from 400 outside suppliers, seventy per cent of which are in Europe, and most of the rest in Asia. Many of the European suppliers are located in Spain and Portugal, close to the headquarters. Zara exploits this geographical proximity in order to ensure quick response to Zara’s orders. From Asia, Zara procures basic products and those for which the region has a clear cost or quality advantage. Having the factories in and near Spain gives Zara a tremendous amount of control and flexibility. The location of the production can be seen as a cost trade-off with the cost saved on transportation. Although the increased cost in production will not be offset by the cost reduction in transportation concerning the labour cost is on average 17-20 times the cost in Asia. For its in-house production, Zara obtain forty per cent of its fabric supply from another Inditex-owned subsidiary. The rest of the fabrics come from a range of 260 other suppliers, none account for more than four per cent of Zara’s total production in order to minimize any dependency on single suppliers and encourage maximum responsiveness from them. Most of the fabrics are ordered un-dyed and dyed in one of Inditex manufacturing facilities. By having its own dying facility Zara can quicker respond to demands and it gain less inventory by not storing every fabric in a range of colours. Moreover, if one fabric is not used it can easily be used next season independent of the colures of the next trend. All products pass through Zara’s major distribution centre in La Coruà ±a. In addition, it also has a smaller distribution centre in Zaragoza. The trucks, which run on a bus schedule, deliver to the stores twice a week, using a maximum of 24 hours to stores inside Europe and 48 hours in America. All in all this supply chain, as illustrated in Fig 4, is giving a lead-time on two to four weeks, with a price thirty per cent higher than its competitors and a need to discount only 18 percent of its production. Outsource Zara is careful about the way it deploys the latest information technology tools to facilitate these informal exchanges. Customized handheld computers support the connection between the retail stores and La Coruà ±a. These PDA’s supplement regular, often weekly, phone conversations between the store managers and the market specialists assigned to them. Through the PDA’s and telephone conversations, stores transmit all kinds of information to La Coruà ±a, such hard data as orders and sales trends and such soft data as customer reactions and the buzz around a new style. While any company can use PDA’s to communicate, Zara’s flat organization ensures that important conversations do not fall through the bureaucratic cracks. The constant flow of updated data eases the bullwhip effect, the tendency of supply chains and all open-loop information systems to amplify small disturbances. A small change in retail orders, for example, can result in wide fluctuations in factory orders after transmitting through wholesalers and distributors. In an industry that traditionally allows retailers to change a maximum of twenty per cent of their orders once the season has started, Zara lets them adjust forty to fifty percent. In this way, Zara avoids costly overproduction and the subsequent sales and discounting prevalent in the industry. The insistent introduction of new products in small quantities, ironically, reduces the usual costs associated with running out of any particular item. Indeed, Zara makes a virtue of stock-outs. Empty racks do not drive customers to other stores because the shoppers can always choose form new things. Being out of stock in one item helps sell another, since people are often happy to snatch what they can. In fact, Zara has an informal policy of moving unsold items after two or three weeks. This can be an expensive practice for a typical store, but since Zara stores receive small shipments and carry little inventory, the risks are small, unsold items account for less than ten per cent of stock, compared with the industry average of 17 to twenty per cent. Furthermore, new merchandise displayed in limited quantities and the short window of opportunity for purchasing items motivate people to visit Zara’s shops more frequently than they visit other stores. Consumers in central London , for example, visit the average store four times annually, but Zaras customers visit its shops an average of 17 times a year. The high traffic in the stores circumvents the need for advertising: Zara devotes just 0.3 per cent of its sales on ads, while its rivals spend three to four per cent. References ZARA Outsourcing = http://industrialeducation.blogspot.com/2009/08/study-of-supply-chain-zara-fast-fashion.html (31/03/11)

Oil and Gas Prices

Oil and Gas Prices Introduction In the recent past, there has always been news or reports on the rising gas and oil prices. In the recent past, prices have risen from a little over a dollar per gallon to at least $3.47 per gallon. This is according to Forbes (2008), a congressman of the Virginia fourth congressional district.Advertising We will write a custom essay sample on Oil and Gas Prices specifically for you for only $16.05 $11/page Learn More There have been reports that this trend would continue for some time even to a price of 30 more cents per gallon. These increases in prices have been an issue since they have been straining most of the families’ budgets. Forbes says that he has been receiving emails and letters from his constituents regarding the issue seeking to know why the prices are rising at that rate. If this situation continues for a while, it could have much effect on the world’s economy as it would impact strongly on the families and business es as well. The following paper seeks to find out the effects of these fluctuating prices on the environment and the economy and the effects of going green with/without the oil and gas. According to Forbes (2008), the rising gas prices in the past couple of years could have been caused by several factors that have had individual pressure on the energy system. They either influence the price of crude oil or production and marketing of gasoline and the interaction of these in a single market affect the overall gas prices. Some of them include; crude oil prices – their prices are determined by the demand and supply in the world. The OPEC countries are the determining factors since they decide on what to produce and export. This means that the more they produce, the less the prices will be. However, due to the fact that oil is traded in the world market, whatever happens on the ground in these countries could greatly have an effect on the amount of oil produced at a particular ti me of the year. Some example of such events that have affected oil prices in the past include; the OPEC cartel decided to raise production quotas despite the fact that they had previously reduce them in the year 2002. The increasing population in china, India and developing worlds has seen most of the people in these countries have access to automobiles hence increasing the demand for gas and oil in these countries.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More There have been disruptions in countries that produce a lot of oil like Nigeria and Venezuela. Another reason for the increased oil/gas prices is the refinery imbalances – the rising economic growth in the US has created some imbalances in the refining industries since the demand for gasoline is increasing daily and with the declining refining capacity, a lot of constraint has been put on the available oil forcing them to increase prices. Seasonal changes are another factor that has caused the fluctuating gasoline prices. This relates to the time of the year and in this case, gas prices are higher during summer and holiday seasons as many people in America are traveling and hence the demand is high. Forbes (2008) explains that not only crude oil production that impacts on the fluctuating prices rather there are factors such as environmental programs, competition in the local market and proximity of supply. In this case, people living in areas far from the Gulf Coast which is the area where gasoline is produced are likely to pay higher prices since the total price will cover the transportation expenses. Prices also vary according to the competition in a particular area. For instance, the rural areas might experience higher prices since there are not many stations offering such services and on the other hand, those areas with several stations will have fairer prices due to competition. Accordin g to Forbes (2008), the increasing prices have had impact in various sectors in the US. In farming, farmers use energy in processes like fertilization, and due to the increased prices in energy, they have been forced to cut down the amount of produce in a year. This in turn has increased the prices in the amount of food stuff and burden is left on the consumers. Reports by US department of Agriculture said that between 2000 and 2005, the fuel cost on farming rose by 10%. In manufacturing, manufacturers are also not left out as the increased cost on energy used to produce goods forces them to increase the prices of the goods produced and at times they are forced to lower their workers’ salaries. This in turn puts pressure on consumers and workers and strains the economy. The tourism department has also been affected since airlines and bus lines need fuel for them to be fully operational. Some families have been forced to cut short or reduce their travel due to the increased oi l prices and due to this, cities that highly depend on tourism have had heir economy affected. Other than the overall economic effect, individuals have also felt a pinch as they are forced to readjust their budgets to pay for the high prices (Forbes, 2008).Advertising We will write a custom essay sample on Oil and Gas Prices specifically for you for only $16.05 $11/page Learn More There are many man-made machines that rely on oil and gas such as air crafts, motor vehicles and many other industrial machines for them to function. Much as they are useful, they also have some consequences that are experienced by both human beings and the environment at large. For instance, coal and oil have molecules that have byproducts of carbon, nitrogen and sulfur when they are burnt. Apart from this, they also produce some form of particles that do not burn and hence released to the environment and cause pollution (NaruralGas.org, 2004). The environmental issue that has be en on discussion currently, the green house effect, is due to the high levels of gases that are being emitted by these green houses. Naturally, there are gases in the environment that regulate the amount of heat that is emitted on the atmosphere. Researches show that increased emission of green house gases could lead to high temperatures on the earth surface and eventually have disastrous effects on the environment. Motor vehicle and aircraft emissions, paints and emissions from industries contribute to smog which is a product of carbon monoxide, nitrogen oxides and heat from the sun. When these products combine, they form a smoggy layer on the environment and can also cause respiratory problems such as lung damages if inhaled by both human beings and animals. Chemicals such as sulfur and nitrogen dioxides react with water vapor to form acid rain which also pollutes the environment, damages crops and causes respiratory illnesses in human beings (NaruralGas.org, 2004). Apart from bei ng environmental pollutants, gas/oils have several benefits. For instance, natural gas is the cleanest fuel since its combustion process produces little byproducts that may pollute the environment. It does not leave any soot or odors and if inhaled in small amounts, it does not affect human beings. Natural gas is also economical since it is piped directly to the consumer and the system is not easily affected by weather changes hence enhancing safety. When using gas and oil, they are easy to transport hence quite efficient. Oil extraction, refining and selling has also created jobs for many people in the producing countries and also improved the economy of the country though exports. Going green is a term that has been in use currently referring to the methods in our daily lives that can be used to help save the environment. According to Save the World (2009), green living entails reduction in the use of oil based energy and using only organic and chemical free products.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More One can also decide to go green at home by applying healthy farming practices through the use of organic and chemical free farm products. It also means people trying to save water by always turning off taps after use and switching off lights when they are not needed. Some people are also trying to save the world by deciding to use bicycle or walk on foot for the short distances instead of using vehicles that use a lot of gas and oils while emitting harmful gases on the environment (Save the World, 2009). All these practices are aimed at saving the environment and creating a healthier earth and in turn reduce diseases and provide healthy individuals who will be involved in developing the world. However, this move does not come without its negative effects as well. McRae (n.d) argues that as much as we are trying to save the world by using organic products, it is quite clear that such products are quite expensive than traditional ones. This also applies to the hybrid vehicles and use of solar panels which seem to be quite expensive. In this world where all are not equal, not every one is in a position to purchases such products and this means that if they can’t afford the big changes; they may not be part of the change at all. Use of fluorescent bulbs is said to save energy as they last longer and use less energy. However, there is evidence that they contain mercury and if no properly disposed, they could contaminate soil or water. Therefore, they must be recycled and this means that one has to store the used bulbs until they are collected by people concerned (McRae, n.d). In conclusion the fluctuating oil and gas prices have had an impact on the economy ranging from tourism, manufacturing and farming. At the same time, use of these products in our daily live helps us a great deal as they speed up our operations in various operations. However, they also have negative impacts as they pollute the environment through emission of gases and particles and thus causing disease. This leads to use of a lot of money for treatment purpose and as such it means that unless we try to devise ways of reducing these effects, the little we get from our businesses will always be used to offset hospital bills. Going green is a strategy being adopted by many in the world to help save the planet by reducing the use of oil based energy and organic products. Much as it is a good way of conserving our environment, it has its own disadvantages which must be looked into such as the expenses which of course are not affordable to all. Reference List McRae, S. (n.d). Negative Effects of Going Green. Web. Save The World. (2009). Going Green: What Does Going Green Mean? Web. Forbes, R. J. (2008). FAQs: Gas Prices. Web. NaturalGas.org. (2004). Natural Gas and the Environment. Web.