They may not be household names, but the global clothing chains that Tadashi Yanai and Pablo Isla Álvarez de Tejera oversee most certainly are. UNIQLO and ZARA are two of the most profitable clothing retailers in the world.
Yanai is the Chief Executive Officer of Japanese casualwear designer, UNIQLO, while Álvarez heads Inditex, the multinational clothing retailer that owns ZARA.
Both have huge global reach. ZARA, has 2,000 stores in 88 countries, while UNIQLO, since opening its first store in Tokyo in 1984, has transformed itself into an international brand with more than 1,500 stores in 18 different markets.
UNIQLO has ambitious plans to keep on growing too. In 2009, it set itself a group sales target of 5 trillion yen (USD$ 61.2 billion) by the year 2020. If it achieves its goal the company will have to grow by 20% each year.
While, last year, ZARA outlined its plans for global expansion by announcing that it would open 500 new stores and give many of its existing stores a facelift.
But why are these behemoths of the fashion retail industry flourishing when many of their rivals are floundering? Is it naked ambition, sheer bloody-mindedness to succeed, or just the fact that both are the clothing chains of the moment? Perhaps there’s some truth in all of these theories, but the real answer lies deep within their supply chains.
Just In Time Manufacturing model
Take UNIQLO for example. It realised very quickly if it was going to expand domestically and globally, it would need to forge a partnership with TORAY, one of the large textile producers.
But working with TORAY presented a potential supply chain headache.
Primarily an industrial products manufacturer, TORAY’s factories operate all year round. But traditionally this is not how fashion retail supply chains work. Most retailers agree seasonal and not annual commitments. If a range of clothing does not prove popular with customers, they simply cut the order so they are not left with excess stock that they cannot shift. This method of course leads to waste, but it is a cheaper model to employ in the short-term because clothing manufacturers don’t have to pay the cost of operating a factory all year round.
UNIQLO solved the problem by tweaking its supply chain model to accommodate Japanese textile giant. It adopted Toyota’s Just-in-time inventory procurement (JIT), a methodology that is championed by Shin Odake, UNIQLO’s Chief Operating Officer. He said recently, “We approach clothes as an industrial product. We figured that since Japan is good at making things like cars and electronics, we should use that knowledge.”
So how has using JIT Production been a game changer for UNIQLO and the fashion retail industry?
Firstly, JIT is a proven methodology which has provided UNIQLO with the necessary tools and framework to reduce inventory in its supply chain.
It does this by using state-of the-art technology to analyse weekly sales patterns at all its stores. Because the information received is exclusively customer-orientated, UNIQLO has the luxury of being able to supply clothing ranges just before they are likely to need them. This of course solves a problem lower down the supply chain. It means that UNIQLO spends less money on storing goods at its distribution warehouses as it rarely over-orders.
In the unlikely event that an item of clothing does not wow its customers, it is returned and re-purposed. So if, for example, men’s cardigans go out of fashion, UNIQLO might simply convert them into jumpers or scarves, meaning that bottlenecks in the distribution section of its supply chain are drastically reduced.
Secondly, JIT has provided UNIQLO’s supply chain with an agility that sets it apart from most of its competitors.
For example, although UNIQLO uses leading-edge forecasting systems to predict trends, even the most high-tech tools are fallible. JIT, however, allows for forecasting errors. So if UNIQLO’s analysis is found wanting and v-neck jumpers do not fly off the clothes racks as previously thought, then, it can manufacture new clothing ranges almost instantly in its factories which operate all year round.
It also employs additional checks and balances to ensure that its inventory sells out. Its merchandisers and Marketing Department do this by introducing special sales periods where customers can receive between 20-30% off the regular price or clothing.
The partnership that UNIQLO has forged with TORAY a decade ago has been so successful that the pair have extended the strategic alliance for another five years. The new deal is expected to generate an additional 1 trillion yen (USD$ 12.2 billion) between the two companies by 2020.
ZARA and JIT
ZARA too has benefited hugely from using JIT production techniques.
ZARA achieves an extremely fast turnover by producing every product in small quantities. New designs are can arrive in store within 15-days, which means that ZARA can respond to its customer demand by producing more of its popular products and disregarding less popular items.
Like UNIQLO, ZARA’s Just in Time inventory procurement is underpinned by a highly developed forecasting systems. Essentially, store managers collect sales data and current trends on a daily basis and send it back to head office where the information is analysed by its leading designers, who then update ZARA’s clothing ranges.
To complement its JIT model, ZARA did not follow in the footsteps of many of its rivals, who have based their main manufacturing bases in the far-east. Instead it took the bold step of centralising its textile factories and main logistics centres in Europe. Today, just over fifty per cent of Zara’s clothing are produced in Spain, Turkey and North Africa, which means ZARA can send garments anywhere in the world within 48 hours.
ZARA achieves an extremely fast turnover by producing every product in small quantities. New designs are can arrive in store within 15-days, which means that ZARA can respond to its customer demand by producing more of its popular products and fewer unpopular garments.
ZARA’s also operates an extremely responsive logistics operation. For example, each of its 2,000 stores receives new items eight times a month. For this to happen, garments are picked, packed and ready to leave its distribution centre in Arteixo, Spain, approximately eight-hours after a store manager places an order.
I define Innovation as taking ideas that are new to you and creating economic, social or environmental value. Both UNIQLO and ZARA took ideas new to the fashion supply chain from the automotive supply chain and therefore innovated, challenging old paradigms in there sector.
Perhaps the greatest complement being paid to UNIQLO and ZARA is that some of their rivals are starting to follow their example. This is certainly an exciting time for clothing retailers and for supply chains too…
This article was originally posted on: https://theleadershipnetwork.com
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Award Winning Professor of Supply Chain Management
Richard Wilding is at the forefront of Supply Chain Management and Logistics as one of the worlds foremost so called Supply Chain gurus. Richard is currently the Chair in Supply Chain Strategy at the Centre for Logistics and Supply Chain Management...
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