H&M And Zara-Global Sourcing

ABSTRACT

The purpose of this paper is to use supply management as a tool in analysing the global sourcing processes and activities within two successful leading textile companies: Zara and Hennes and Mauritz (H&M). To describe their logistics and supply chain processes in order to understand how these two companies can add a good value to its customers, to its stakeholders and to its suppliers.

Pressure for companies to create and deliver value to customers manifests itself in every stage of the business today. Therefore, we believe it is significant to compare and to contrast these two companies' activities and processes which lead them to success.

Ultimately, we intend to provide some suggestions for Portuguese and Turkish textile manufacturers in order to strengthen their competitive strategy as they are very successful to be supplier and preferred by these two leading companies, however not yet in the position to compete in the markets.

KEYWORDS:

Zara, H & M, Supply Chain Management, Global Sourcing, Logistics, Total Cost Analysis, 9 month industry, Just in Time (JIT), Forecasting, Demand, Information Systems, Information Technology (IT), Four D's, Supply planning.

INTRODUCTION

Today's competitive global markets require that companies add value to their customers. More and more companies become aware of the fact that this could be achieved through well-functioning logistics system/supply chain management and global sourcing which allow companies to reduce costs and increase quality. It is therefore in the global markets of today, logistics/supply chain management and global sourcing play a crucial role in the companies' long-term success.

Supply chain management includes all the activities and processes from the raw materials to selling goods to the end customer. Therefore, supply chain management can be described as the "network of organizations that are involved through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and service the hands of the ultimate consumer." Through exploring closely the supply chain, the organizations can create a competitive advantage among other companies. In addition to having a well-established supply chain management, more and more companies today are in search for, or prefer, global sourcing in order to increase their competitiveness and profitability. The reasons are evident: Cheaper cost of production and good quality. Two of the most successful companies in textile industry, Zara and Hennes and Mauritz (H&M), are good examples of successful supply chain management and global sourcing.

H&M is a world leading company when it comes to efficiency and low costs and it is also reputed for its shortest lead-time in textile industry. Started all its production in Sweden in 1947, today H&M has 21 worldwide production offices: 10 are located in Europe, 10 in the Far East and one in Africa. Another successful example is Zara. About 60 % of its production is made in the North Spain and Portugal, 30 % in Asia and 10 % in East Europe. The Company uses direct management stores (fully owned by Zara) and in some specific cases they can use franchising stores (very rarely) .

These highly successful models in the industry made other textile companies realize the significance of analysing the supply chain . It is therefore we intend to analyze these two companies' global sourcing activities and processes in their supply chain. By doing this, we would also like to draw some beneficial conclusions for supplier countries such as Portugal and Turkey.

METHODOLOGY

As described earlier, the goal of this paper is to use supply chain management as a tool in analysing the global sourcing processes and activities within two successful leading textile companies: Zara and Hennes and Maurits (H&M). Whilst analysing these two companies, we also intend to show similarities and differences in an attempt to understand why the reasons behind different means of sourcing despite existing similarities.

To begin with first, we are going to provide a brief history of the companies including their present activities which we believe is important in order to provide some background as we develop further. Secondly, we are going to introduce what has been said about this topic and finally we are going to draw some conclusions for Portuguese and Turkish suppliers.

The reason lies behind our choice on this topic is to analyze closely two similar yet different companies developed in different parts of Europe, North represented by H&M and South represented by Zara, and try to provide some suggestions for Portuguese and Turkish manufacturers to make a break through in the markets just as Zara and H&M.

The materials used for this paper include books on Logistics and Supply Chain Management, web sites (company web sites and general ones), published research papers and class notes.

LITERATURE REVIEW

A well-established supply chain management is crucial for a successful company. Mentzer defines supply chain management as "the systematic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses in the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole." Through establishing the supply chain successfully, the organizations can create a competitive advantage among other companies.

As Christopher emphasizes, the source of competitive advantage is found firstly in the ability of the organization to differentiate itself and secondly by operating at a lower cost and hence a greater profit . Today, as the markets are more and more competitive, in order to achieve these abovementioned goals, they go global sourcing. The reason for this is, as FranÐ"§ois Chesnais points out: "Global Sourcing promotes gains in competitiveness that come with reducing production costs due to the use of international suppliers that can offer products of higher quality and also allow the main company to be present in the supplier's home country."

And by doing so, they add a further meaning to logistics. As Pritchard describes, "logistics bridges can now be thousands of kilometres long, with Western manufacturing and retail companies sourcing ever more of their products from further afield, especially Eastern Europe, India and China."

As more and more companies