1. EXECUTIVE SUMMARY

In this report, we will analyze from a supply chain perspective for the reasons of Gap’s failure and Zara’s success. We will start by analyzing both Gap and Zara’s decisions in 3 phases of supply chains, which are strategy and design, planning, and operational phases. Next, how their processes seen from supply chain push/pull point of view. After that, their position on implied demand uncertainty spectrum and strategic fit zone, their supply chain capabilities, and their ability to expand its scope of strategic fit. Lastly, their performance are measured using supply chain drivers, such as facilities, inventory transportation, information, sourcing and pricing, whether they achieve its supply chain goals of efficiency and responsiveness. Table of Contents 1. EXECUTIVE SUMMARY 113...... 1 2. LIST OF FIGURES...... 3 3. LIST OF TABLES...... 3 4. SUMMARY OF THE CASES 49...... 3 4.1 Gap 46...... 3 4.2 Zara 50...... 3 5. CRITICAL FAILURE/SUCCESS FACTORS IDENTIFIED 114...... 4 6. ANALYSIS FROM A SCM PERSPECTIVE...... 5 6.1 ANALYSIS OF THE THREE SUPPLY CHAIN DECISION PHASES...... 5 6.1.1 SUPPLY CHAIN STRATEGY AND DESIGN 209...... 5 6.1.2 SUPPLY CHAIN PLANNING 199...... 5 6.1.3 SUPPLY CHAIN OPERATION 172...... 6 6.2 ANALYSIS OF SUPPLY CHAIN PROCESS SEEN FROM PUSH/PULL POINT OF VIEW 95...... 7 6.3 ANALYSIS OF MANAGING STRATEGIC FIT...... 8 6.3.1 DEMAND UNCERTAINTY 62...... 8 6.3.2 SUPPLY CHAIN CAPABILITIES 210...... 8 6.3.3 ACHIEVING STRATEGIC FIT 217...... 9 6.3.4 ABILITY TO EXPAND STRATEGIC FIT SCOPE 200...... 11 6.4 ANALYSIS OF SUPPLY CHAIN DRIVERS TO ACHIEVE SUPPLY CHAIN OBJECTIVES...... 12 6.4.1 SUPPLY CHAIN DRIVERS 973...... 12 6.4.2 SUPPLY CHAIN OBJECTIVES 300...... 14 7. CONCLUSION 193...... 15 8. REFERENCE...... 16 2. LIST OF FIGURES 3. LIST OF TABLES 4. SUMMARY OF THE CASES

Both Gap and Zara are giants in the fashion industry. Gap was founded on 1969 by Donald G Fisher, who was a real estate developer, in San Francisco. Then, founded in La Coruna, Spain, on 1975 by Amancio Ortega, Zara is currently known as parent of game-changing clothes giant.

4.1 Gap

The first store was open in the US on 1969 has been expanding with currently own more than 3,700 stores worldwide and ranked second among US retailers. Gap has been specialized its retailing in casual apparels, shoes, and accessories for men, women, children, and even babies.

4.2 Zara

With more than 6,683 stores in 70 countries around the world, Zara has been crowned as one of the fastest global expansion company in the world within fashion industry. Also, Zara has profitability one of the highest among the industry. Zara has been focusing in textile design, manufacturing and distribution.

Table 1 Comparison of Gap and Zara 5. CRITICAL FAILURE/SUCCESS FACTORS IDENTIFIED

Gap relies mostly on its both foreign and domestic supplier to provide its collection. Therefore, requires a long lead time before showing in stores. Forecasting market or customers’ need a few months in advance is hard, resulting that Gap had too much unwanted inventory on hand, which need to be marked down or written off. Thus, it had reduced Gap’s profits. On the other hand, Zara produced nearly 60% of products in-house, giving a lot flexibility for Zara. In addition, rather than guessing what customer needs, Zara has its employees to gain feedback from customers and even conduct an “investigation” of trend-spotting or reasons of not buying after tried on a piece of clothing. 6. ANALYSIS FROM A SCM PERSPECTIVE

6.1 ANALYSIS OF THE THREE SUPPLY CHAIN DECISION PHASES

6.1.1 SUPPLY CHAIN STRATEGY AND DESIGN Gap has formulated their supply chain strategy and design to outsourced 100% of their total products from both domestic and overseas suppliers and manufacturers by having more than 700 suppliers and manufacture. Therefore, Gap do not have any production facilities available. Thus, Gap have more than 23 distribution centers to support with the supply chain activities. More than half of it mostly located across US and the rest of it located around the globe mostly in Asia and England. The same as the other apparel retailers, Gap uses transport such as trucks and air freight to move its inventory. However, Gap currently are trying to optimize modes of transportation other than air freight and use other transport modes such as rail to have a positive influence on environmental and social sustainability. Zara has formulated their supply chain strategy and design to produce more than 60% of its total products in-house, from dyeing fabric to cutting and fashion designing. Thus, Zara own 11 automated factories, where located in Spain and Portugal, especially in Galicia and northern Portugal. Also, Zara does outsource for clothes with longer shelf lives such as, jeans and tees. Zara uses truck to deliver to places that can reached overnight and chartered cargo flights to farther places. 6.1.2 SUPPLY CHAIN PLANNING Gap has its supply chain planning of demand forecasting by has its CEO to guess the next fashion trend. While Gap has totally 0 production as Gap subcontract 100% of its total product. Therefore, Gap always have high inventory as suppliers usually demand few months in advance for order placement. On the other hand, variety of its products is also lower compare to Zara. Gap highly promotes its brand in a various way, from social media ads, printed ads, to radio and outdoor ads. As Zara produce most of its product in-house, therefore its production planning needs to run all the time. Although Zara’s production runs all the time, Zara do have around 40% of its products leverage to its sub-contractors. Zara has a policy of all production, including designing time, to have the items appear in stores must not be longer than 15 days, thus no item could not stay in-house more than 3 days. Therefore, Zara always has low inventory but have more or less 10 times more variety of products than Gap. However, Zara does not have enough advertising cost, which means, Zara does not promotes its brand enough. Rather, Zara only relies its store images. 6.1.3 SUPPLY CHAIN OPERATION Gap order management is need to at least a few months ahead before. In other words, Gap can only order once or twice every season. This is because of its suppliers high lead time to produce and complete the order, so Gap can only do its replenishment order once every few months to prevent too much of unwanted stocks. On the other hand, as Zara produce mostly in-house with a short lead time as 15 days, every Zara’s in-store manager can order every 2 weeks for new stock and even for their replenishment stocks. Thus Zara always have a lower inventory level as it does not need a high level of inventory and also to prevent any unwanted stocks. Both Gap and Zara has a high level of customer service. However, methods use are different. While Gap focus on expansion and developing a new distribution channel to make it more convenient for customers, Zara focus more on investigating and getting to know more about customer needs for fashion trend and quality product. 6.2 ANALYSIS OF SUPPLY CHAIN PROCESS SEEN FROM PUSH/PULL POINT OF VIEW

As shown in the figure above, Gap seen to adopt process similar to LL Beans where push process consist of procurement, manufacturing, and replenishment cycles. While, customer order cycle is a pull process. Because Gap will forecast what to procure and produce in advance before customers even order.

As shown in the figure above, Zara seen to adopt process similar to Dell where pull process view consist of manufacturing and customer order cycles. On the other hand, only procurement cycle is push process. Because Zara will procure and produce to market demand and fashion trends. 6.3 ANALYSIS OF MANAGING STRATEGIC FIT

6.3.1 DEMAND UNCERTAINTY

As shown in the 2 figure above, both Gap and Zara’s estimated position on the implied demand uncertainty spectrum is between uncertain and highly uncertain supply and demand. This shows that the apparel industry is quite hard to predict its demand and hard to conclude a suitable supply. The reason is because of fluctuating fashion trends and customer needs of the fashion.

6.3.2 SUPPLY CHAIN CAPABILITIES

In the figure above shows that Gap position on responsiveness spectrum, it shows that Gap is more to supply chain efficient rather than responsive. Gap focus more on cost making, which means Gap always sourced for more effective and efficient material to lower the cost of making what customers need. In addition, Gap continuously expands its market size to ensure that it has deliver the right products to customer. By expanding and create goods that suit local taste. In the figure above shows that Zara position on responsiveness spectrum, it shows that Zara is more to supply chain responsive than efficient. To be responsive means that Zara has the ability to respond to and handle a wide variety of fashion designs in a short lead times. As discussed above, Zara offers a wide range of up to date fashion in a certain quantity. Although Zara does not have a large inventory level for all products, but its ability to replenish its stock in 15 day Makes Zara be able to provide and handle a wide range variety of fashion designs. In addition, Zara always has its designers to create an innovative or even create a trendsetting fashion to attract new or younger customer base. Therefore, Zara has a high level.

6.3.3 ACHIEVING STRATEGIC FIT

In the figure above, show Gap position in strategic fit zone. It shows that Gap is off the strategic fit zone. Because Gap tends to be more focus on efficiency in a rather uncertain market thus making Gap not to have the ability to be up to date to fashion, As it tends to be late on s production, Gap is vulnerable to fashion trends changing. In addition, Gap also could not change its supply chain strategy accordingly. Resulting inability to keep up with the demand of having a wider variety range of products and increased in unwanted products that need to be write off and reduces profit.

In the figure above, shows Zara’s position in strategic fit zone. It shows that Zara is strategically supply chain fit. This is because that is rather responsive in a quite uncertain spectrum. As Zara has flexibility in terms of amount, frequency, and variety of new products, as Zara produced mostly in-house. These flexibilities gives Zara the ability to respond fast enough to the markets demand. This also makes saving labor cost, flexibility of meeting deadlines, keeping the designs/fashions strictly controlled possible to conduct. The variety of fashion lines and customer segments makes Zara need to use different best tailored supply chains to supply each products and meets market demand.