Primark Global Supply Chain: A Synthesis of Cost-Cutting, Efficiency and Reptuational Matters - Assignment Example

Your Full & of of Paper: Primark Global Supply Chain – A Synthesis of Cost-Cutting, Efficiency and Reptuational Matters Statement of Issue: How Primarks Gain its Competitive Advantage through its Complex Global Supply Chain Management System Statement of Position: Primark Gains and Retains its Competitive Advantage by manufacturing in low-cost developing countries and selling at high prices in developed countries through Global Supply Chain Management Systems. This is complemented by ethics and strong supervision mechanisms to ensure consistency. Abstract This study examines the concept of global supply chain management by evaluating the case of Primark a global clothing manufacturer. Primark achieves its competitive strength by instituting and maintaining a strong global supply chain management system. This is kept going by strong ICT systems and processes that provides real-time information that links all stakeholders. The company’s international freight partners – DHL provide worldwide reach and specialized support. Also, Primark has made reasonable moves to limit reputational and ethical risks that come with operation in foreign markets around the world. This is done through strong monitoring mechanisms and corporate social responsibility. Contents Abstract 2 Introduction 4 Literature Review 4 Global Supply Chain Strategy and Primark 5 Information Technology and GSCM in Primark 6 International Transport and Logistics in Primark 7 Reputational Risks in GSCM of Primark 8 Position on Global Supply Chain Management 9 Works Cited 11 Introduction Primark is a UK-based clothing manufacturing and retail entity that originally founded in Dublin Ireland in 1968 (Primark Website). Today, Primark has over 200 outlets in Europe and North America. The company’s fundamental corporate strategy is based on an integrated global supply chain system through which the company designs its product in the UK and USA, sends the outlines to factories in developing countries like Bangladesh, Turkey and India where they are sewn and export it to the UK for onward distribution to Primark outlets around the developed world. This paper posits that Primark’s Global Supply Chain Management system is the firm’s primary cause of competitive advantage. In order to achieve this end, the paper will draw on evidential sources to show that the company saves a lot of cost by locating its manufacturing units in the developing world and sells them to consumers at high prices in the developed world. The integration of ethics and reputation is the main means through which the company retains its continuous cost leadership system through the Global Supply Chain Management (GSCM) process. Literature Review The global textile industry has gone through a major reformation after the Cold War ended (Kunz and Garna 3). This is due to the apparent trend towards the elimination of barriers towards international trade and the major disparities that exists in different parts of the world due to the differences in costs and values. The rational producer will seek to minimize costs and maximize sales revenue. Hence, firms including the global textile industry are moving towards a trend whereby they source for products and services from places where they can get it for extremely cheap and sell to consumers who are willing to pay the highest sums of moneys for the same product or service. “Global sourcing comprises world-wide systematic marketing as well as strategic orientation of supply management regarding the use of world-wide resources” (Schneid 3). Another position taken by Lockstrom asserts that global sourcing is a process through which interconnected decisions towards the final production is integrated within a global context and this enables the firm to acquire different components from different parts of the world (Lockstrom 20). Therefore, a firm blends its purchasing, logistics and operations within a framework of global and international systems and separates them in order to achieve a given goal or end. Global supply chain management can be formulated in order to achieve specific ends like location advantage, expert power, cost-leadership amongst other things. Global sourcing is carried out within a number of constraints in international law and this includes various measures and processes like World Trade Organization rules amongst others that guide the conduct of firms across boundaries (Wisner and Tan 64). However, there is a growing trend towards the formulation of international ethics that guide the conduct of firms that seek to achieve benefits in different parts of the world (Kunz and Garna 133). Typical examples include the area of ethical sourcing, use of internationally recognized standards to avoid the abuse of the dominant position of a multinational firm and many other elements that promotes the judicious and fair conduct of powerful international organizations in the international supply chain system. Global Supply Chain Strategy and Primark Primark’s core ability includes the strong brand reputation in the UK, Europe and North America (ABF Annual Financial Statement). Primark is known for a strong global supply chain management system that focuses on cutting down costs on the production by situating plants in markets like Bangladesh, Turkey and India where the cost of labor is as low as $1 per day of active work by employees (Irish Times). A similar service can be rendered in the UK or the United States for as much as $100 (Irish Times). On the front-office, Primark is focused on expanding and growing into foreign markets at an alarming pace. Primark had only 100 branches, mainly in the UK and Europe in 2001 (ABF Annual Financial Statement). However, this grew at an extremely fast rate to 200 branches in the year 2009, barely 8 years later (ABF Annual Financial Statement). Most of these shops were in Europe and North America and this provided the impetus for selling these cheaply manufactured products at extremely high costs to consumers from richer countries. Primark leverages its costs by seeking economies of scale in these poorer developing countries. This is because the more factories it controls, it is able to employ more people at the local going rate and pay extremely little. This keeps costs low and extremely below the standard and the average of the industry. With the sales outlets in richer developed countries like the United States and United Kingdom, they are able to charge high revenues for the products that they create. This creates huge profit margins that allow the company to expand significantly and grow at a fast rate. This discussion gives room to three main pointers that ought to be discussed further in this paper. They include: 1. Information Technology to complement the Global Supply Chain Management System; 2. Transportation and Logistical Systems; 3. Reputational Risks and its Handling Information Technology and GSCM in Primark Primark is reputed to be a global leader in the design of trendy and modern clothes around the world (McCarthy and Jayarathne 2). This has made it a company that is cited for “fast fashion”. This is because Primark develops its products and garments quickly and based on the requirements, materials are sourced from cheap markets around the world. Information technology is used to quickly present Primark’s designs to the factories and to the fabric suppliers. This gives them important information quickly. Thus, they are able to use Just-in-Time mechanisms to present materials to factories that are cited close to the suppliers and get the materials produced quickly. Local representatives of Primark ensure that the clothes produced are of the standard required by the prototyped presented by the UK branch in the emerging markets where production takes place. Information sharing between units is also important to ensure that there is proper coordination and good interactions between the different units to achieve timely completion of production (McCarthy and Jayarathne 20). The Global Supply Chain Management process is coordinated and conducted through live feed of information within the Primark Network and this allows the stakeholders to communicate and achieve important goals within a respectable timeframe. International Transport and Logistics in Primark Primark works with the international logistic company, DHL which is known as a global leader in freight services and processes (DHL). DHL’s headquarters is in Germany and they provide a hub through which the company’s movement of clothing and raw materials are conducted around the world with ease. DHL has a worldwide presence and they are able to get all kinds of materials and processes through to the most remote parts of countries like Bangladesh and India where labor is at its cheapest. Hence, the company is able to conduct affairs in a continuous and unbroken supply chain system that leads to significant benefits to all stakeholders and all major players. Another element of DHL’s dominance is the fact that Primark is able to get a lot of economies of scale because they use DHL alone for most of their operations. Hence, they are able to cut down on cost. As a major partner to DHL, Primark is able to make demands and ask for cuts as the company builds and enhances its relationship with DHL. DHL also builds competencies and they continue to find better approaches and methods of conducting their affairs in the clothing industry with Primark (DHL). This creates a symbiotic relationship that allows both Primark and DHL to create a win-win environment as they conduct their affairs. Reputational Risks in GSCM of Primark Obviously, the approach chosen by DHL, it is often cited as exploiting its prospective workers in places like India and Bangladesh. This is because Primark is cutting down by over 10 times the costs it will incur in its traditional markets. This can only suggest exploitation of some nature. And many human rights groups have spoken up against this approach and this method. In a popular report, investigators are quoted as saying “workers in Bangladesh claim to be paid as little as £19.42 a month – half a "living wage" of £39.74.” (Hickman). This shows that people who work in these Primark factories are paid half what workers in the UK get in a day each month. This shows a disparity of 60 times less than what the average UK worker gets. These matters came to the fore and gave Primark a very negative reputation and there were major forms of activism meant to prevent Primark from continuing to benefit from its cheap labor sourced from the developing world. Primark’s counter-argument was that the workers in these poor developing countries were privileged to work for such low monies. And in their view, they provided a livelihood for the extremely poor workers in the factories of the poor countries and this prevented most from starving. They showed evidence of how people rush to seek these jobs and hence, there was an excessive demand for the jobs that caused their middlemen and factory-hands to hire for extremely low prices. However, the most extreme reputational blow to the global supply chain system of Primark when 1,140 workers died in a factory collapse in Bangladesh in 2013. These were workers who were working under harsh conditions and the issues that had preceded the company were all brought to the fore when this sad event occurred. Primark moved to conduct various high-level and strategic activities to enhance its image. It paid out major benefits to people who suffered from the company’s harsh working conditions (Lister). The next action of Primark was to ensure that there was supervision and control of factories that were outsourced with the duty of hiring workers in the developing countries like Bangladesh (Elgot). This was to create an atmosphere of trust and assure members of the public that Primark was willing and able to protect the best interest of its workers. Primark has also moved to carry out various levels of corporate social responsibility to give it a positive image in India and Bangladesh. This ethical move has consolidated the firm’s reputation as a positive investor that thinks of the local population. This makes it appropriate and propitious to grow within the context of the poorer countries. Position on Global Supply Chain Management From the facts deduced from the Primark case analysis and literature, it can be concluded that global supply chain management is based on a desire of firms to act within the context of economic rationality. That is to minimize costs and maximize revenue. This core motivation of using global supply chain management techniques allows the profit margins of a firm to be enlarged and this allows the firm to make enough money and profits for growth. GSCM is based on the sharing of timely information through consistent and reliable mechanisms and processes. These ICT systems allow for connectivity to be carried out and in the clothing industry, it involves sharing information about the clothes to both suppliers and manufacturers in a timely manner. In order to succeed in Global Supply Chain Management, a firm needs to have an appropriate transportation and logistical partner that is of a sufficiently broad reach. This will allow the firm to achieve reach and spread throughout its countries of coverage. Finally, reputational risks ought to be managed within the context of an ethical system and strong monitoring cycles and processes. This will ensure that the firm maintains a high standard of accountability and responsibility in the home and host countries within which the international supply chain is linked. Works Cited ABF Annual Financial Statement. 2014 Annual Financial Statements. 31 March 2014. . DHL. Press Release. 11 July 2012. Web. 20 May 2015. . Elgot, J. Bangladesh Factory Collapse: Should You Boycott Primark Over Workers Rights? 6 May 2013. . Hickman, Martin. Primark faces new claims that it uses sweatshop labour. 4 December 2009. Web. 20 May 2015. . Irish Times. Penneys: The Force Behind Success. 2013. . Kunz, Grace and Myrna Garna. Going Global: The Textile and Apparel Industry. New York: Fairchild Press, 2011. Print. Lister, Paul. Rana Plaza collapse: Primark extends payments to victims. 24 October 2013. Web. 20 May 2015. . Lockstrom, Martin. Low-Cost Country Sourcing: Trends and Implications. London: Springer, 20112. Print. McCarthy, Bart and Peter Jayarathne. Fast Fashion: Achieving Global Quick Response (GQR In INternationally Dispersed Clothing Industry. Nottinham: Nottinham University Business School, 2009. Print. Primark Website. Primark - About Us. 23 June 2014. Web. 20 May 2015. . Schneid, Wolfgang. Global Sourcing - The Strategic Reorientation of Purchasing. Berlin: GRIN Verlag, 2013. Print. Wisner, Joel and Keah-Choon Tan. Principles of Supply Chain Management: A Balanced Approach. Mason, OH: Cengage, 2010. Print. Read More