Partemian Khatsig Alexan

Comparison of Dell and Zara supply chain.

Introduction Dell and Zara are two very successful companies. One produces computers while the

other garments. Apart from the different products, the very structure of the companies is also different. The said structure which is mainly reflected in their supply chains will be the issue of this paper. Firstly each supply chain will be presented and then the advantages and disadvantages of each will be evaluated.

Dell supply chainDell’s supply chain is a fairly simple one in the sense that it consists of three main actors.

The customer, Dell and the suppliers. Everything begins with the customer placing his order, Dell ordering from her suppliers the parts required, construction and immediate delivery1.

Zara supply chainZara’s supply chain is quite different in the sense that the actual company undertakes all

the intermediate procedures from design to the actual product on shelves. Designing, manufacturing, sourcing and distribution to retail stores are the main stages of the Zara supply chain.

Main differences

Type of supply chain Dell follows a horizontal supply chain where Zara a vertical chain. The differences are

clearly shown when you actually compare the production line of both companies. As mentioned above Dell has a more “detached” approach to the production with being dependent on third parties (suppliers) for the final product and delivery.

On the other hand Zara seems to be more self sufficient in the sense that it has control over all “enterprises” which constitute the different stages of production of each garment. The company’s success is due to the total control in every aspect of the business, from designing, to production, and to distribution. By having total control of the entire process, the company can quickly react to the fast changing fashion trend and customer taste, providing the company an idea of the latest fashion trend. This control in all business activities also allows Zara to produce and release new designs in a short span of time.

Another advantage of the horizontal supply chain is that makes it easier to control since you only have a minimum of responsibility for part of what comprises the whole company assembly line, as happens with Dell. On the other hand having to coordinate a number of smaller “procedures” has the advantage of being able to control the whole picture and being able to make all the necessary tuning much more easier. Both seem to work for each company.

Suppliers. Zara in the vertical supply chain has control over her suppliers too. Demand is met easier

and proportionality of production is easier to achieve.It seems that Dells handles supply uncertainty very well since only 15 suppliers provide

85% of their supplies. Also hand having a variety of suppliers to choose from seems to have only

1 http://www.authorstream.com/Presentation/vivek259-194330-supply-chain-dell-entertainment-ppt-powerpoint/

Partemian Khatsig Alexan

Comparison of Dell and Zara supply chain.

the positive effects of speed and variety of choice for Dell. It could have the adverse effect of insecurity and scarcity of products as well as delay in delivering them. But under the effort of minimizing its inventories, Dell demands from its suppliers to provide them with goods in a “high speed”. The fact that 95% of suppliers are situated very close to assembly plants also seems to speed up the process.

Production philosophy Dell operates on a build-to-order strategy. Such a strategy is defined as “a value chain that

manufactures quality products or services based on requirements of an individual customer or a group of customers at competitive prices, within a short span of time, by leveraging the core competencies of partnering firms or suppliers and information technologies, such as the Internet and WWW, to integrate such a value chain”. Through its website Dell provides large variety of customizable products. They also tend to design products that are easily customizable.

Zara is driven by introduction of new designs and releasing new products in just a short time. More styles = more choices2 The strategy is to produce and release products in number or limited in a store which means that a store may only receive ten of the new product. This strategy closely emulates a ‘make to order environment’. This strategy of “exclusivity” builds up customer’s anticipation of the next product or design to be released, making the next product highly anticipated by customers. Lower quantity = scarce supply = impulse purchases.

Zara does not focus in advertising their product either, because Zara does not focus in building a brand image. Their target is production and the customer’s anticipation of their product. Because products are released limitedly, customers regularly visit a store to see if a new stock has arrived. Some product in a region may not be high selling unlike in some region. In Asian market some design are kept and maintain, while in most European country where fashion is at constant change design must be constantly new therefore releasing new product constantly. Customers in other region tend to embrace what is the latest design in Europe, being the fashion capital of the world, these proves that a product can be market in other region such as Asia. 34 So such a production philosophy seems to serve customer’s tastes. Dell resolves this issue with their philosophy of customized products. As mentioned above Dell produces only after the client has placed his/her order.

Storage Dell aims on low inventory costs with having no warehouses whatsoever. A maximum of

7 hours inventory opposed to 10 days is their key to success. Also alternatives like manufacturer storage with direct shipping, distributor storage with carrier delivery or retail storage with customer pickup helps towards this direction. Dell seems to aim towards this policy of no inventory.

On the contrary Zara seems to have a number of warehouses in order to be able to circulate their garments efficiently.

2 http://www.3isite.com/articles/ImagesFashion_Zara_Part_I.pdf3 http://ivythesis.typepad.com/term_paper_topics/2009/08/case-study-zaras-vertical-supply-chain.html#ixzz18OCXdk3P4 http://ivythesis.typepad.com/term_paper_topics/2009/08/case-study-zaras-vertical-supply-chain.html

Partemian Khatsig Alexan

Comparison of Dell and Zara supply chain.

Distribution Dells Indirect Distribution Channel includes: retailers, resellers, integrators, final customer

suppliers as well as the actual final customer. But the majority of Dell’s 5 of suppliers , 90%, order online following the B2B model. The direct model refers to the fact that Dell does not use the retails channel, but sells its PCs directly to customers through its website, Dell.com. This way the intermediary steps that may add time and cost are eliminated, and Dell is directly linked to its customers. This results though in high transport costs6 for Dell.  All the products of Zara are transported from the company’s main central site in Spain, most of them are shipped from the “A Coruña depot” (Zara Logistica). All stocks are not held for long periods and are sent out to all the Zara stores twice a week.  For international deliveries, the stocks are delivered to the border of Spain, and the logistic provider in charge for that country takes over the distribution to the stores.

Stores order their stocks from an offer they received twice a week from the commercial manager who then orders the stock to the logistic who handles the stock. Stores are ranked according to sales and forecast accuracy; this rank will determine the level of priority for store order. If a product is not selling, the company stops the manufacturing. By this means no stock will over pile. If a product is not selling a certain store the company stops manufacturing the product, this avoids over stock of non-selling products. This procedure that takes place during distribution only shows its effectiveness and agility to adapt to consumer’s trends.

Communication All of the functions of the business continuously works together to produce new

collections and designs which are updated and completed on a weekly basis, this allows the company to release new product easily. Zara shop managers report to designers in La Coruña in a daily basis on what has and has not sold. This report is used to determine if a product is to be kept or altered, and whether new lines are to be created. This happens in just a few days. The designers mostly rely on product sales, feedbacks and comments from customers. This highly developed communication is the key for Zara’s cost efficiency and being up to speed.

This seems to be Dell’s week point since they seem to always be a step behind international trends. The customer orders are their only feedback which once it has been placed it is already “too late’.

ConclusionThe conclusion is that the advantages and disadvantages of these formulas are not

necessarily attached to the formulas themselves but to the actual company they serve. A supply chain that works for some may be disastrous for others.

5 http://www.inf.ed.ac.uk/publications/thesis/online/IM070456.pdf6 http://www.slideshare.net/amit_kumar1/dell-supply-chain-presentation