Supply Chain Management in Fast Fashion Companies (Zara & H&M) - Literature review Example

?Literature Review The information included in this analysis is primarily based on studies and literature relating to fast fashion and supply chain management, as well as the theories and strategies involved in supply chain management. In particular, the theories being referred are traditional supply chain, quick response, and the agile supply chain -- theories that are considered relevant to the fashion industry. Barnes and Lea-Greenwood's (2006) article on fast fashion and supply chain management has revealed significant information in regard to the so called fast fashion phenomenon. Their research on fast fashion and its relation to supply chain management have even caught the attention of well known fashion companies, enthusiasts and the business press. Although the concept is new in the fashion industry, the authors were able to explore widely and expound briefly the strategy that led Zara and H&M to where they are now. The authors have defined fast fashion as a form of business strategy that targets to lessen the number of processes that are undergone in a buying cycle and lead times to deliver new fashion products in stores. When this happens, customer satisfaction is met, and this satisfaction is being driven by the speed in delivering fashion products that are in line with the current trends. Fast fashion is a concept that is considered a "mainstay in UK's fashion industry" (Barnes & Lea-Greenwood, 2006). To modern fashion retailers such as Zara and H&M, fast fashion is a key strategy that has helped them attain success. The two well known fashion companies have adopted this strategy and have continuously changed their clothing styles and product ranges to adapt to what is "in" at any moment. Rapid changes are made attracting more buyers of apparels under the brands Zara and H&M. Furthermore, Barnes and Lea-Greenwood (2006) have inferred that fast fashion is associated with supply chain management. For instance, it has been proposed, in reference to the said perspective, that the framework of a fast fashion business is dependent to vertical integration. Vertical integration, according to Welters and Lillethun (2011), centralizes the supply chain allowing buyers to obtain goods in a short span of time and at an affordable price. In a fashion business, there is pressure in defeating the previous years' performance and this cycle is a usual scenario. In the modern times, success in retailing is being attributed to supply chains instead of companies (Hines, 2004 cited in Barnes and & Lea-Greenwood, 2006). On the other hand, the authors (Barnes & Lea-Greenwood, 2006) have contended that, in spite of being connected to supply chain management, fast fashion is not totally affiliated with the strategy. Findings of the study conducted by Barnes and Lea-Greenwood (2006) have identified fast fashion as a consumer-driven process. Many things were taken into serious consideration prior to arriving at this judgment. First, they were able to observe that, at present, individuality has already become the trend for the buyer's fashion demands. Most consumers want to set a trend, and this behavior increases the demand for fast fashion. Many designers consider quick access to the media as a means for the young consumers to gain knowledge in regard to the new fashion trends. Respondents of the survey conducted by the two authors have also conceded to their judgment and have stated that progress in fast fashion is being driven by the changing consumer demand making it a crucial aspect of fashion and fashion retailing. Hence, fast fashion is the answer to the changing consumer demand of modern times. Furthermore, the supply chain has to adjust for it to respond to inconstant consumer demands. The fast fashion business paradigm relies on the capacity of an individual to acquire and react positively to changes in consumer tastes. Responses to these changes in the fast fashion business model are quick since connections to fashion markets, and fashion makers are in proximity (Doeringer & Crean, 2006 cited in Welters & Lillethun, 2011). Indeed, it is justifiable enough that increases in consumer choice, which are brought by constant merchandise replenishment and supply chain time reduction, are the essential factors that comprise fast fashion. Consumer demand and changes in consumer preference have intensified the already existing pressure in the supply chain of fashion retailers. Twenty-first century retailers such as Zara and H&M have already switched over from price to quick responses to unfixed fashion trends and consumer demand. For these companies, a competitive edge is gained whenever customer demands are met; customer demands are met when the products offered are in line with the current fashion trends (Christopher et al., 2004 cited in Barnes & Lea-Greenwood, 2006). Now, the challenge for the fashion companies like Zara and H&M is to compete using their ability to respond quickly to changes in consumer demands, preferences, and fashion trends. As what Frings (2002 cited in Barnes & Lea-Greenwood, 2006, p.260) has stressed out, the fashion industry "depends on the constant changing of product correlating with consumer change," a change that is driven by the need for a difference. Zara & H&M have already recognized their vulnerabilities. Therefore, both fashion retailers have found a way to resist delays and losses by switching to fast fashion. Meanwhile, Beamon's (1999) description of the traditional supply chain has referred to it as an integrated manufacturing process where raw materials are being used to make the final product which is then disseminated to the customers. The dissemination can be done through distributors, retailers or a combination of both. Jones and Towill (1999) have provided an example of the traditional supply chain management that usually happens in a typical clothing chain business. According to them, the store's top level could either be the retailer or the distributor, the second level is the apparel maker, the third level is the fabric maker, and the fourth level is the yarn maker. When the retailer receives orders from customers, like for instance a pair of blue jeans, the order is turned over to the blue jean maker, then to denim fabric maker who in turn places order to a yarn maker; and so the shipment of the orders made are done in a reverse order. It is a continuous step-by-step ordering process driven by forces such as market demand, varying inventory levels, and the rules that administer the production of each player in the course of running their business. It has been argued that short production lead time reduces the efficient creation of new fashion products since product designs are usually completed approaching the selling season. For traditional fashion retailers, design and production lead times span for about 6 to 12 months. If traditional firms like this boost their product design efforts even without lessening their production lead times, better products will be manufactured, but final decisions still have to made months prior to the selling season. Diversely, with fast fashion, there are minimal design-to-shelf lead times. In certain situations, trends are even replicated on a weekly basis. Hence, improved design effort leads to increase in consumer purchases at the same time allowing lead time reduction (Cachon & Swinney, 2011). Yim (1998) has given an idea of how things take place in a traditional supply chain make up. Yim (1998) has asserted that, with the traditional retail supply chain model, retailers were compelled to order products months before the selling season. This is done for the reason that manufacturers often offered discounts for large orders with long lead times. Retail buyers were given specific product line designations - e.g. men or children's pants - and made buying decisions depending on their preference (preferences can be based on the results of forecasting software, market research, personal outlook). The average shipment of an apparel manufacturer and a retail customer is of a large amount but is not done in a frequent manner (commonly once in every season). Once the products are delivered, the retailer will keep the products in a central distribution center or will store it as an inventory in store stockrooms. Products will then be retrieved from stockrooms and distribution centers when the time to sell arrives. Christopher, et al. (2004, p.5) have affirmed that in the setting of a traditional fashion business, orders from retailers "had to be placed on suppliers many months ahead of the season." As a matter of fact, nine months are not an uncommon lead time in the traditional supply chain. Apparently, in such instances, possibilities of obsolescence and stock-outs are high due mainly to the lengthy pipeline. Inventory carrying costs are also high since those are automatically incurred. The long period of shipment is only one of the several steps that have to be undertaken once the decision to place an order is made. Specifically with overseas transactions quota approvals, letters of credit, and some essential papers have to be complied before the goods get to be shipped. The time spent for manufacturing is prolonged because the traditional, batch-based production method is being followed. That is to say that the steps undertaken in the entire manufacturing process are being managed separately, and the goods or quantities that are being processed are determined through economic quantities. In addition, when manufacturing is done off-shore, more time is spent to prepare the essential documents, to consolidate containers with full loads, and to obtain in-bound customs clearance after undergoing a long surface transportation. The groundwork of this philosophy is being rooted from goal minimization cost. Basically, manufacturing costs are reduced and the shipping cost, as well. This approach to cost is too confined and conclusively self-defeating. In the end, the things that have to be taken into account are total supply chain cost, obsolescence, forced markdowns, and the inventory carrying costs (Christopher, et al., 2004). In the traditional supply chain approach, one clear complexity is demand variability. Changes in consumer preferences and lengthy lead time linked with manufacturing alter the ordering of goods into a risky practice. The growing number of SKU's (stock-keeping-unit) adds up to the worsening of this situation, raising the level of uncertainty in regard to the type of product that will or will not sell at any season. Basically, it means that the retailer who carries a wide variety of products will have to face the increase in costs both in the carrying of goods for inventory that does not sell (overstocks) and when goods run out and sell at an amount that is beyond expected (stock-outs) (Yim, 1998). Cachon and Swinney's (2011) interpretation of fast fashion has identified quick response and enhanced system designs as the two main elements of the fast fashion system. For that reason, a fashion business will become capable of increasing customer value while decreasing supply-demand mismatch. According to them, the systematized application of fast fashion takes into account a combination of production and design capabilities. Products that are considered hot are being designed to attract young consumers. Current fashion trends are being eyed as subjects for design and manufacturing, and offered at a price that is reasonable enough for the buyers. In general, there are two components in the application of a fast fashion system and those are quick response techniques and enhanced design techniques. In former times, organizations treated suppliers and distributors as cost-focused and at some point they even considered them as opponents. It has been argued that fast fashion constitutes 12 percent of UK's apparel market. The argument was based on a study conducted on the UK market; this market is being referred as a market that is keen to fashion details at a mass level. Nowadays, organizations have illustrated the effect of quick response in markets wherein consumers tend to recognize product value over time. Cachon and Swinney's (2011) illustration of quick response has given emphasis on the increasing or decreasing value of profit at different selling environments. They have contended that the existence of strategic consumers helps in augmenting the value of quick response aside from keeping the balance between supply and demand. One advantage that can be obtained in applying quick response is that it lessens the giving of deep discounts that influences strategic consumers to avail of the product at its selling regular price. The impact of quick response may either increase or decrease the firm's profit depending on the characteristic of the selling environment. Christopher, et al. (2004) also gave a definition of the term quick response. According to their definition, quick response is the outcome of evolution that has taken place to supply chain management to agile supply chains. Furthermore, quick response according to Barnes and Lea-Greenwood (2006) is a concept that is correspondent to the activities that are occurring in the textile and apparel supply chains. In the fashion industry, quick response places emphasis on the reduction of preseason ordering, by means of improving speed and flexibility. Orders are made frequently, just in time for the season and at small, manageable quantities (Christopher et al. cited in Barnes & Lea-Greenwood, 2006). Still, one must bear in mind that even if quick response intrinsically focuses on ending market demand by means of satisfying consumer wants, it is a business strategy that is influenced by supply and was formulated to respond to the complexities of the supply chain (Barnes & Lea-Greenwood, 2006). In line with that argument, Cachon and Swinney (2011) have contended that quick response improves strategic behavior through an effective mechanism and that is by equalizing the level of supply and demand. In addition to that statement, Gale and Kaur (2004, p.137) have inferred that quick response is a reflection of how the fashion and textile consumers have converted the framework of fashion and textile industry "from a push system to a pull system." Fashion has deviated from the supply side to the side of demand, making use of relevant data to satisfy consumer wants is already a top priority among fashion retailers. Technology has played a vital role in the gathering of information for quick response application. Hence, quick response processes were made operational through means of computer to computer transmissions of sales data (EDI or Electronic Data Interchangeable) (Gale & Kaur, 2004, p.138). Communication between groups was made easy by the availability of technology. Retailers, distributors and manufacturers were given up-to-date information of the selling situation. This transformation in the textile and fashion industry was able to make a remarkable impact on trade (Gale & Kaur, 2004), just as Zara obtained an edge against its competitors through its quick response to existing catwalk trends. The company's supply chain begins and ends only at one place, and that is in the retail outlets. The retail outlets of Zara are equipped with handheld devices programmed to perform the tracking of sales and inventory. Moreover, staffs are ordered to monitor precisely consumer behavior in order to identify current trends in color, style, and cut (Yim, 1998). It clearly shows how persistent the company is in the monitoring of the current trends in fashion. Despite of not having expensive advertisements, it has managed to remain on top of its game. On the other hand, H&M's (Hennes and Mauritz) quick response strategy is practically the same with Zara's. It also follows the three-step process which is design, production, and distribution. The targeted manufacturing and delivery time is within the span of 21 days. The design phase takes into account the consolidation of the planned activities in cooperation with buyers and the designers. H&M is able to present two major collections in a year which highlight its popular designs and upcoming trends. With its production, H&M functions with its supply chains located in Asia and Europe (Cheng & Tsan, 2010). Plenty studies have been conducted to explore the concept of the agile supply chain (Christopher, et al., 2004; Bruce, et al., 2004 cited in Barnes & Lea-Greenwood, 2006) which is comparable to the notion of quick response. Christopher (2000 cited in Christopher, et al., 2004) has affirmed that the design and application of agile supply chain strategies has already caught the interest of people and organizations engaged in the fashion business. Organizations in the fashion industry are acknowledging the fact that they have keep their business open to changes, since they are vulnerable to the impact of transformation of trends in society. Naturally, fashion markets are volatile and unpredictable. Thus, it is critical to maintain a stable level of comprehension and responsiveness in the fashion industry because the absence of such characteristic is equivalent to having resistance to positive changes. Diversely, the concept of agility in relation to supply chain management centers on responsiveness. Traditional supply chains normally have lengthy lead times and are forecast-driven. Agile supply chains are highly information-based. Harrison, Christopher, and Van Hoek (1999 cited in Christopher, et al., 2004) have argued that an agile supply chain possesses various characteristics that allow it to function well. According to them, the agile supply chain is market sensitive as it is nearly attached to end-user trends. It is virtual since it depends much on communicated information, which is being relayed across the supply chain partners. Next, it is network based because it develops flexibility through the skills and capabilities of its specialist players. Finally, it is process aligned since it involves extensive process connectivity among its network members. All in all, these characteristics make agile supply chains less vulnerable to possible complications since quick changes can be made prior to the probable occurrence of unpleasant circumstances. Furthermore, according to Christopher et al., (2004 cited in Barnes and Lea-Greenwood, 2006) in agile supply chains, the perceptibility of information enables these supply chains to become more conscious with the demand changes that are occurring in the market. For instance, with the traditional supply chain, the end-market is usually far from the manufacturers and production businesses in its supply chain, whereas with agile supply chain, there are up-to-date-point-of-sale (POS) data, which can be utilized across supply chains in case of immediate orders and replenishment decisions. The establishment of virtual environments for the communication of information does not only give manufacturers the opportunity to have market visibility and responsiveness. Other parts of the supply chain can benefit from this, like the designers who are able to make computer aided designs quickly with the help of such technology (Barnes & Lea-Greenwood, 2006). Jones and Towill (1999) have agreed to this assertion and have affirmed that agility makes use of market knowledge and virtual integration to acquire opportunities in the changing marketplace. It compels firms to shorten the lead time process across supply chains. Agile strategies have long been implemented by manufacturing firms, but in retailing, this strategy is yet to become widespread. Retail businesses, especially some well-known fashion retailers, are now applying this strategy (Bajgoric, 2010, p.183). In the past, fashion retailers opted to make manufacturers in Asia a part of their supply chain. However, today, top fashion retailers like Zara and H&M chooses to have their manufacturing near their customer base. Although it is a bit expensive, agile operations seem to keep them more aligned with their competitive strategy since the application of agile supply chains allows quick responses to changing consumer demand and preference (Scott, Lundgren, & Thompson, 2011, p.119). On the other hand, Bidgoli (2010) has contended that agile strategies do not mainly aim to satisfy individual demands; rather, it aims to establish an awareness and demand for small quantities of fashion apparel. For example, Zara creates small collections of fashion apparels more than ten times a year. This strategy attracts buyers who are lovers of fashion since it does satisfy their want to obtain fashionable products that are unique and trendy. Agile supply chains focus on "modularity and final customization"(Bidgoli, 2010, p.127). In particular, customization is being carried out based on a quick response system that gathers information from retailers and turns data into actual production orders (Christopher 2000 cited in Bidgoli, 2010). Supply chain agility is attained due to high amounts of in-house production and local specialists’ factories (Christopher et al., 2004 cited in Bidgoli, 2010). Zara, in the same manner with H&M, can coordinate quickly with the members of the supply chain for their quick production and designing. "The increasing volatility or rate of change in the business environment is creating the need for businesses to be highly agile" (Bryceson 2006, p.125). To become highly competitive, firms must respond quickly, or else chances of success will be turned-over to their competitors. Agility is crucial because supply and demand vacillates rapidly and vastly. Zara and H&M became Europe's leading apparel brands because both have built agility in each and every link of its supply chains. Agility became a more crucial part of business strategies due to the occurrence of shocking events like the terrorist attacks in New York, and the SARS epidemic in Asia, to name a few. The flow of supply chains was disrupted that has caused serious delays in production and distribution. While these events are indeed unpredictable, firms that use agile supply chains are likely to recover from such disruptions (Lee, 2004). The complex fashion industry of the modern times requires fashion retailers to adapt a strategy that will help them achieve their goals. Fashion retailers such as Zara & H&M have acknowledged that fact that customers nowadays, want their wants to be obtained at the quickest possible time and so they have chosen fast fashion, as a way to the ultimate customer satisfaction. References Bajgoric, N., 2010. Always-on enterprise information systems for business continuance: technologies for reliable and scalable operations. Hershey, PA: Business Science Reference. 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