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August 1, 2009 [SUPPLY CHAIN PLAN: ZARA VIETNAM]

RMIT International University Vietnam

BP181 Bachelor of Commerce Program

ASSIGNMENT COVER PAGE

Your submission will not be accepted unless all fields below are completed

Course Code: OMGT2085

Course Name: Introduction to Logistics and Supply Chain

Management

Location where you study: Hanoi Campus

Title of Assignment: Individual case study

File(s) submitted

Student name: Nguyen Thanh Binh

Student e-mail address: [email protected]

Learning Facilitator in charge: Dr. Barry Ramsay

Assignment due date: 2 August 2009

Date of submission: 2 August 2009

Number of pages including this one:

Word Count: 2330 words

(not include table content, reference)

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Course Code: OMGT2085 Course name: Introduction to Logistics and

Supply Chain Management

Assignment Title:

Individual assignment

Assignment No.: 1 Date Due: 2 August

2009

Academic’s Name: Dr. Barry Ramsay

Student:

Last name First name Student Number

Nguyen Binh s3221732

Declaration and Statement of Authorship:

1. I hold a photocopy of this assignment which can be produced if theoriginal is lost or damaged.

2. This assignment is my original work and no part of it has been copiedfrom any other student’s work or from any other source except where dueacknowledgement is made.

3. No part of this assignment has been written for me by any other personexcept where such collaboration has been authorised by the academic orteacher concerned and as detailed in the assignment.

4. I have not previously submitted this work for any other course.5. I give permission for my assignment to be scanned for electronic checking

of plagiarism.6. I give permission for a copy of my marked work to be retained by theDepartment for review by external examiners.

I understand that

Plagiarism is the presentation of the work, idea or creation of another person as

though it is one’s own. It is a form of cheating and is a very serious academic

offence which may lead to expulsion from the University. Plagiarised material

can be drawn from, and presented in, written, graphic and visual form, including

electronic data, and oral presentations. Plagiarism occurs when the origin of thematerial used is not appropriately cited.

Enabling Plagiarism is the act of assisting or allowing another person to

plagiarise or to copy one’s work; this is not acceptable and is also subject to

penalty.

Student Signature

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Nguyen Thanh Binh

1. Executive Summary

The following document presents a Supply Chain Plan for Zara to execute a successful logistics

penetration into the foreign market of Vietnam from Quarter 4 of 2009. This plan will provide anoverview of the current situation, identify five most concerning issues, and introduce threefeasible SC strategies for consideration.

The concept

Zara is an international clothing chain store with a distinguished expertise in fast fashionretailing. Coming to Vietnam, Zara will focus on the “young men and women apparel” sector for medium to high-end consumers in Hanoi and Ho chi Minh (HCM) City, while still receiving asmall number of special orders from foreign retail stores in Asia.

Situation overviewThere are several drawbacks to the current industry environment in Vietnam, most notably highinflation rate and poor traffic infrastructure. However, government efforts to assist companies indealing with the economic recession, including tax reduction and plan to improve road and bridge system, are expected to open more opportunities for Zara to operate its new business inthis country.

Issues

The fast fashion industry is faced with many issues; the five logistics issues that need mostattention are: Data entry errors, Forecast errors, Outdated downstream communications, Long

delivery cycle time, and long order cycle time. All of these are caused by outdated technologyand lack of collaboration.

Applicable strategies

In response to the above issues, three strategies will be put forward for consideration in this plan.

E-retailing

Collaborative Planning, Forecasting, and Replenishment (CPFR)

Radio-Frequency Identification (RFID)

A multi-criteria decision matrix, accompanied with detailed rationale, will be provided toevaluate each of the above strategies. In the end, CPFR and RFID are chosen, as these will bestoptimize the flow of data through the SC channel, foster partner relationship and eliminatesecurity concerns, thus outweighing the high cost of implementation. In the final part of the plan,the writer will prepare an operational plan to put the two selected strategies into practice.

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Contents1.Executive Summary ............. .............. .............. ............... .............. .............. .............. .............. .............. ......... ..... ..... ....3

The concept ............. .............. .............. .............. .............. ............... .............. .............. .............. .............. ......... ...... ......3

Situation overview ............. .............. .............. .............. .............. ............... .............. .............. .............. ...... ..... ..... ...... ..3

Issues ............. .............. .............. .............. .............. ............... .............. .............. .............. .............. .............. ......... ..... ...3

Applicable strategies ............. .............. .............. .............. ............... .............. .............. .............. .............. ......... ...... ......3

Contents ............ ............... .............. .............. .............. .............. ............... .............. .............. .............. ........ ..... ..... ...... ......4

2.Research and Analysis .............. .............. ............... .............. .............. .............. .............. .............. ............. ..... ...... ...... ..5

2.1Channel map ............. .............. .............. ............... .............. .............. .............. .............. .............. ....... ..... ..... ..... ......5

2.1.1Industry channel map (simple map) .............. .............. .............. ............... .............. .............. .............. ........ .....5

2.1.2Zara Map (detailed map) .............. ............... .............. .............. .............. .............. ............... .............. ......... ..... .62.1.3 Explanation of Zara channel map .............. ............... .............. .............. .............. .............. ......... ...... ...... ...... ..6

2.1.3Roles of players and 3PLs ............. ............... .............. .............. .............. .............. .............. ............... .......... ...7

2.2Current situation ............. .............. .............. .............. .............. ............... .............. .............. .............. .............. ........ .8

2.2.1 PEST analysis ............ ............... .............. .............. .............. .............. ............... .............. ......... ..... ...... ...... ......8

SWOT analysis ............ ............... .............. .............. .............. .............. .............. ............... .............. ...... ..... ..... ..... ....9

2.2Issues ............ ............... .............. .............. .............. .............. ............... .............. .............. .............. ............. ..... ..... .10

3Strategies ............. ............... .............. .............. .............. .............. ............... .............. .............. .............. ............. ..... ..... .11

3.1 Three feasible strategies .............. ............... .............. .............. .............. .............. .............. ............... ............ ...... ..11

3.2 Advantages and disadvantages ............. .............. .............. .............. ............... .............. .............. .............. ........... .12

3.4 Multi-criteria decision matrix ............. .............. ............... .............. .............. .............. .............. ........ ..... ..... ...... ...13

3.5 Analysis of decision matrix ............. .............. .............. ............... .............. .............. .............. .............. .............. ...14

4. Implementation ............. .............. .............. .............. ............... .............. .............. .............. .............. ........ ..... ..... ...... ...15

4.1 Operational plan ............. ............... .............. .............. .............. .............. .............. ............... .............. .......... ..... ....15

4.2 Key Performance Indicators (KPIs) .............. .............. .............. ............... .............. .............. .............. ......... ..... ...19

Inventory control target: ............. .............. .............. ............... .............. .............. .............. .............. .............. ......... .19

Order processing targets: .............. .............. .............. .............. ............... .............. .............. ........... ..... ...... ...... ...... .19

4.3 Cost vs. Benefit ............ ............... .............. .............. .............. .............. ............... .............. .............. ......... ..... ...... .195. References .............. .............. ............... .............. .............. .............. .............. .............. ............... .............. .......... ..... ....19

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Foreign market

California (USA)

Garment Manufacturer Garment Manufacturer

End-user

Exporters

Material/ Product

Information

Finance

Importer Foreign Raw

Material

suppliers

Wholesaler Reseller Distributor

Supermarket

/Superstore

Department

store

Specialty

store

Local material

suppliers

California (USA)


2. Research and Analysis

2.1Channel map

2.1.1 Industry channel map (simple map)

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Asian retail outlets

California (USA)

Regional Warehouse(near Hanoi)

Zara Manufacturing plant (BinhDuong Province)

Zara Manufacturing plant (BinhDuong Province)

End-user

Exporters

HCM city

outletsRetailer 3

Retailer

4Retailer 5

Material/ Product

Information

Finance

Importer

Hanoi

outlets

Retailer

1Retailer 2

Local Raw Material

suppliers

Yar

n

Fabr

ic

Foreign Raw Material

suppliers

Cottonsupplier

(Pakiston)

3 Sewing

workshops

(outsource)

Texti

le

suppl

ier

Butt

on

Canva

s

Taffe

ta

velour


2.1.2 Zara Map (detailed map)

2.1.3 Explanation of Zara channel map

This is a multi-echelon logistics channel , according to Coyle et al (2008). There are supply chain

for both exporting and importing activities (responding to orders form foreign Zara stores and

importing raw materials such as cotton). Manufacturing of garment is completed with the

assistance of contracted sewing workshops.

Unlike the common industry practice (illustrated by industry channel map), Zara’s supply chain

will involve no retailer’s distribution network (wholesaler, distributor or the like). The reason for

this removal of distributor network is Zara’s ownership of retail stores, which will sell Zara

products exclusively. Zara will not send products to stores where they are sold along with other

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brand items. Hence, Zara needs not work in partnership with wholesaler or any distribution

centres.

The five retail outlets (two in Hanoi and three in HCM city) will be located in the central areas of

the city to increase exposure of Zara products to consumers. As the manufacturing plant islocated in the South (Binh Duong province), near HCM city but very far from Hanoi, it is

recommended that Zara acquire service from a warehouse near Hanoi, to store its products. As

Bloomberg, Lemay and Hanna (2002) put it, warehousing provides several benefits, such as

saving transportation cost by moving higher volumes or storing high level of inventory in

preparation for high demand periods. Since retail outlets are located within cities of high

population density, space is limited and it is not practical to use retail stores for the purpose of

storing high volume of clothes. The need for regional warehouse near Hanoi is therefore

justified.

Regarding HCM city outlets, Zara should take advantage of the short distance from Binh Duong

to HCM city and not add a warehouse to the chain this area, in order to reduce cost. Instead, Zara

can organize space at the manufacturing plant to store finished goods, and move these straight to

HCM city outlets when there is demand. Bypassing a warehouse in between, when it is not

strictly required, will save both time and cost.

2.1.3 Roles of players and 3PLs

•Manufacturer/Brand owner: Việt Thy, PT 2000, May 10, Nino Maxx, Nem, Việt Tiến, Phương

Đông (Vietnamese) Gucci, Furla, Giornado, etc (foreign)

•Wholesaler: Metro, Saigon Trading Group, etc.

• Retailer Supermarket/Superstore: BigC, Unimart, Fivimart, Intimex, Citimax, etc.

•3PLs Transportation: VINAFCO LOGISTICS, Vietnam Railways, DHL, etc

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2.2Current situation

Due to the growing young population, the fashion industry in Vietnam, especially the "Mens and

Womens Apparel Sector", is a promising industry with many favourable prospects for Zara to

enter. While there are already many competitors, both Vietnamese and foreign manufacturers,

the foreign fashion brands have yet to secure a high market share, while many Vietnemase

manufacturers to tend to focus more on contracts for exporting, thus neglecting the potential

domestic market. (Vietnam branding, 25 November 2008)

There is no threat of a dominant competitor, since even Viet Tien - the manufacturer with highest

domestic sales, only maintain a 25% market share. (Vietnam branding, 25 November 2008)

2.2.1 PEST analysis

Political

• On 28 April 2009, the government reducedtax on yarn, fabric by half (50%) to helpfirms in the apparel industry cope with theongoing economic recession. (FinanceMinistry report, 11 May 2009)

• In response to traffic jam and goodsstandstill situation at the port in HCM city,Office People's Council outlined several

solutions to ease the movement of trucksaround the city, so companies can shortendelivery cycle time. (Lao Dong, 19 July2008)

• The event of Vietnam joining WTO in2007 marked a change toward lower andmore flexible tariff and customsregulations. Hence, companies in fashionindustry that request foreign raw materialssupply enjoy lower logistics cost and cycletime.

Economic

• Vietnam has high inflation rate: staying atnearly 25% in 2008; this figure, however, is predicted to lower to only single digits in2009. (CIA World Factbook)

• GDP growth of Vietnam fell from 8.5 % in2007 to 6.23 % in 2008. (VietnamEconomic News, 6 March 2009) Real GDPin 2009 is expected to lie within the range

from 4% to 5%. (CIA World Factbook)

Socio-cultural

• Fashion changes fast and demand is veryunpredictable, especially in a new market,Zara has to forecast carefully and planahead to guard against

Technological

• Internet-based communication system has been developed in recent years, whichfacilitate flow information for transaction process and decision-making.

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overstocking/understocking of inventories.

• Growing standard of living in the cities =>demand for opening of retail stores withhigh-end products increases.

• Changes in lifestyle, the need to showdifference, and faster pace of living incities put pressure in fashion SC to deliver refreshing clothing items regularly.

• Unregistered/illegal software is a acontinual issue in Vietnam => need to becareful when buying computer/software toupdate their system, or risk violating thelaw and lowering technological systemquality.

SWOT analysis

Strength

Zara has well-known expertise inmanaging “fast fashion” retailingchannel.

Zara owns its retailer stores, whichstrengthens control over the logisticschannel and benefits communication between the retailers and themanufacturer (closer relationship andmore willingness to share information)

center. Due to ownership of retail stores, Zara

can bypass a retailer’s distributionnetwork, which reduces both cost andtime.

Weakness

Zara lacks specific knowledge of logistics in Vietnam, a new foreignmarket to Zara. (For example,transportation, tax, freight paymentrules vary from country to country)

Heavy extra burden is placed onlogistics channel since Zara is known torun little or no marketing activities. Notwithstanding a particularly effective

and efficient logistics system that canincrease exposure of Zara products tocustomers, Zara’s practice cannot befeasible in Vietnam.

Opportunity

Existing international reputation of Zara can help the company gain trust of

suppliers or other supply chain partners=> increase supply chain collaborationand widen the available choices of partners.

Vietnam’s participation in WTO meansZara can freely increase both importing

Threat

Economic recession affect all firms

High inflation rate will lead variouscost of the logistics channel to climb

Many foreign apparel firms haveentered Vietnam before Zara andalready familiarized themselves withthe supply chain channel. (Giordano ,

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and exporting activities (e.g importingcotton from Pakistan or exportingclothing items to serve special orders of other stores in Asia)

E-retailing. The increasing popularityinternet in households as well ascomputer literacy of Vietnamese peoplelead to chances of selling productsdirect to customers online

Gucci, etc.) Competitive activities canoccur in the selection of raw materialsuppliers or 3PLs.

Low-quality infrastructure and frequent

traffic standstill remain as challenges=> risk of late shipment, long deliverytime causing customer frustration.

The use of Internet must be careful.Vietnamese government have rigidrestrictions about the use of Internet.Vietnam is listed among “15 Internetenemies for censorship rules.(Reporters sans frontières, 12 March

2009)

2.2 Issues

Outdated equipment and repeated manual work increase data entry errors

Lack of co-ordination between supply chain members when forecasting leads to forecast

errors

Poor technology slows down the downstream communications between manufacturer and

customers

Poor technology and lack of collaboration lead to long delivery cycle time

Poor technology and lack of collaboration lead to long order cycle time

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3 Strategies

3.1 Three feasible strategies

• E-retailing:

Zara can practice selling clothes online, shortening order cycle time and reducing order

inaccuracy since it is the consumer who enters the order into the system him/herself. In order

to maintain a simple logistics channel, Zara is advised to adopt the Store Fulfilment

approach (a model of Direct-to-Customer (DTC) Fulfilment ) which allows orders placed on

the internet to be shipped to a retail store for customers to pick up. (Coyle et al 2008) That

way, Zara will not have to form a separate distribution channel for sending products directly

to consumers’ homes.

• CPFR

Collaborative Planning, Forecasting, and Replenishment (CPFR), which is recommended by

Coyle et al (2008) as an internationally recognized breakthrough logistics model, will also be

a worthwhile strategy. CPFR works on the principle that all channel members are committed

to sharing information by applying two methods: Electronic Data Exchange (EDI) or the

Internet. (Bowersox, Closs & Cooper 2007) Forecast calculation is expected to be more

accurate with the input of all channel members. EDI or Internet-based technology willstimulate instantaneous exchange of information and feedback save money used on paper.

(Bloomberg, LeMay & Hanna 2002; Coyle et al 2008) Another advantage regarding effort of

EDI is that it requires data to be “entered into the system only once,” after which, there

remains only work for computers to interact with each other” (Bloomberg, LeMay & Hanna

2002, p. 182)

• RFID

Applying RFID will raise customer experience at Zara retail stores to a new level in several

ways. According to Moon and Ngai (2008), sales transactions can run in an instant with the

help of an RFID reader at the cashier’s counter, so long lines of payment queue will become

an old story. Error rate will be lowered as data is automatically translated by machine without

manual human involvement. Further, RFID system can immediately recognize movement or

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removal of products from shelves or storage places - a step towards increasing security.

(Jones et al, cited in Moon & Ngai 2008) When active electronic chip is attached to a

product, RFID also assists in locating that product, either in retail store or warehouse, which

ensures product visibility at any time. (Bowersox, Closs & Cooper 2007)

3.2 Advantages and disadvantages

Strategies Advantages Disadvantages

E-retailing - Reduce order cycle time

- Reduce entry errors (customers

make and send the orders online

themselves)

- Facilitate downstream

communications as information

from the manufacturer is provided

instantly online

- Increase customer satisfaction

due to three reasons: orders can

be made at home, lead time is

shortened, and clothes can be

tried on at retail stores, whereorder alterations, if necessary, can

be made)

- Cannot improve any aspects

of inbound logistics

- Costly and maybe ineffective

since E-retailing will be a new

and unfamiliar practice for

Zara (lack of expertise).

CPFR - Produce more accurate forecast

(forecast agreed on by all channel

members)

- Save time in both inbound and

outbound logistics and in turn

raise customer service level

- Be more prepared for sudden

demand changes (fashion trends)

since all channel members have

the commitment to adapt flexibly

- Cannot reduce data entry

errors

- Need expensive renovation of

technology (internet-based

communication system, EDI)

- Very costly in terms of

training staff tog et used to the

system

- Experience difficulties as

channel members are hesitant

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within the chain to give out their confidential

informationRFID - Reduce theft

- Increase inventory visibility

(either for in-transit good in

goods stored in

warehouses/stores)

- Save time and eliminate data

entry errors when reducing

needless manual work

- Raise patron privacy issues

- Costly in terms of buying tags,

RFID readers and installing

program to translate data

generated by RFID readers

3.4 Multi-criteria decision matrix

Issues

Strategies

Data

entry

errors

(a)

Forecast

errors

(b)

Outdated

downstream

communications

(c)

Long

delivery

cycle time

(d)

Long order

cycle time

(e)

Total

15% 15% 30% 20% 20% 100%E-retailing 2 3 4 2 2 2.75

CPFR 0 5 5 3 3 3.45

RFID 5 0 3 4 4 3.25

0 5

Solve nothing Solve well

Note: In fast fashion industry, exchange of up-to-date information on fresh fashionable trends,

design models or relevant demand (between manufacturer and retailer) is of utmost importance.

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fashion industry can co-operate with manufacturer to “develop a range renewal service that is not

associated with the traditional advanced seasonal plans.” With CPFR, such co-ordinating

activities will be possible.

4. Implementation

4.1 Operational plan

(please see the next page)

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4.2 Key Performance Indicators (KPIs)

Inventory control target:

• Forecast error level: no more than 5% of actual demand

Order processing targets:

• Orders billed and billed accurately: 95% of total orders/bills

• Orders received on time: 90% of total orders

4.3 Cost vs. Benefit

Cost Benefit

- Large expenditure on purchasing andmaintaining an updated technologicalsystem (EDI, RFID)

- Large expenditure on training staff andhiring IT specialist to monitor thesystem

- Computerization of all processes riskscomplete activity halt in case of systemfailure

- Remove barriers and enhance closerelationship between channel members

- Logistics channel runs faster and incursfewer mistakes

- Improve tacking and tracingcapabilities: can readily locate productsat any point in time

- Guard against unlawful behaviour:

counterfeiting, theft, black marketselling.

- Overall improve customer satisfaction.

5. References

Barnes, L & Lea-Greenwood, G 2006, “Fast fashioning the supply chain: shaping the research

agenda”, Journal of Fashion Marketing and Management, vol. 10, no. 3, p. 259 - 271

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Bloomberg, DJ, LeMay, S & Hanna, JB 2002, Logistics: International edition, Prentice-Hall,

Inc., New Jersey, USA

Bowersox, DJ, Closs, DJ & Cooper, MB 2007, Supply Chain Logistics Management:

International edition, 2nd edn, McGraw-Hill, New York, USA

Coyle, JJ, Langley, CJ Jr., Gibson, BJ, Novack, RA, & Bardi, EJ, Supply chain management: A

logistics perspective, South Western Cengage Learning, Ohio, USA

Creating brand in the fashion industry, Vietnam Branding, 25 November 2008, viewed 2 August

2009, http://vietnambranding.com/thong-tin/phong-su-thuong-hieu/5788/Nganh-det-may-Som-

thoi-trang-hoa-de-tao-thuong-hieu--

Guide to the implementation of Decision No. 58/2009/QD-TTg dated 16/4/2009 by the Prime

Minister , Ministry of Finance, 11 May 2009, viewed 2 August 2009,http://www.dncustoms.gov.vn/Data/CV_BTC/85_2009_TT_BTC_28_04_2009.htm

Moon, KL & Ngai, EWT 2008, ‘The adoption of RFID in fashion retailing: a business value-

added framework’, Industrial Management & Data Systems, vol. 108, no. 5, p. 596 – 612

Solve the standstill of good at city ports, 19 July 2008, Lao Dong, viewed 2 August 2009,

http://www.laodong.com.vn/Home/Giai-bai-toan-un-tac-giao-thong-cho-cac-cang/20087/98229.laodong

Vietnam, Reporters sans frontières, 12 March 2009, viewed 2 august 2009,

http://www.rsf.org/Vietnam,26095.html?Valider=OK

World Factbook: Vietnam, CIA World Factbook, viewed 2 August 2009,https://www.cia.gov/library/publications/the-world-factbook/geos/vm.

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