Edinburgh Napier University

Compare and contrast the approaches

taken by H&M, Benetton and Zara to managing
their supply chain
Logistics and Supply Chain Management
SOE 10104
Lecturer: Claire Lindsay

Author: Adelina Negru

Student number: 40131528
Date: 13.03.2014

Executive summary

Table of contents:
Introduction.............................................4
Fast-fashion and supply chain concepts..........5
Overview of the companies..........................8
How Benetton, H&M and Zara manage their
supply chain.............................................9
Conclusion.............................................12
References..............................................13

Introduction
Nowadays, fast-fashion industry represents one of the most competitive and challenging
business sectors. Volatile demand along with other customer-related factors have driven
companies such as Zara, H&M and Benetton towards constant improvement of their supply
chain in order to make them more efficient and responsive. This task has become more
difficult to fulfil, since the fashion-consciousness of consumers is maintained by media
sources, which deliver information on latest catwalk trends. Therefore, continual renewal,
updating of ranges and up-to-date design have become focal points in their strategy, as to
meet and exceed customers expectations. As a result, companies, which operate in the second
market segment, emphasise agility, process integration and use of information technology to
achieve speed-to-market goal. Notwithstanding, each company has adopted its own specific
approach in management of the supply chain according to its market niche and product
characteristics.
For a better understanding of the motives, which make companies to adopt certain strategies,
the first section of this paper will explore the basic concepts related to supply chain and fastfashion market. In addition, it will explain the importance of supply chain in meeting market
requirements and overcome challenges. What comes subsequently is a brief overview of Zara,
H&M and Benetton performance over the last years, with particular focus on operations.
Then, this paper will discuss the approaches these companies have adopted to manage
effectively their supply chain. In the end, the conclusion section will summarise the main
points of the report concerning the importance of finding the right approach for supply chain
management.

Fast-fashion and supply chain concepts

According to Christopher (1992), the supply chain represents the network of organisations
that are involved in through upstream and downstream linkages, in the different processes
and activities that produce values in the form of products and services in the hands of
ultimate consumer(p.12). Therefore, companies seek to create and maintain sustainable
relationships with the suppliers and downstream customers in order to add value to their
products and reduce the overall cost (Bruce et al., 2004; Christopher, 1992). Moreover,
management structures have to assess the nature of the demand for the products, which they
supply; otherwise, they risk choosing a wrong approach in managing the supply chain.
It is argued that competition has shifted from company versus company model to supply chain
versus supply chain (Bruce et al., 2004; Christopher, 1992). Nowadays, many marketplaces
are volatile and do not have a specific demand pattern. Consequently, the focus in designing
the companys strategy must rely on building up a responsive, fast and flexible supply chain,
which is possible only if pursuing an agile approach (Fisher, 1997; Christopher and Towill,
2002). However, the industries, which operate in the functional market that includes products
with a predictable demand, are more likely to pursue leanness, since it is more feasible than
being agile. Nevertheless, agility and leanness should not be interpreted as opposing
philosophies. Their performance is strictly related to the situation in which they are applied,
as shown in Table1.

Table 1: The distinguishing attributes of lean and agile

Distinguishing attributes

Lean supply

Typical products
Marketplace demand
Product variety
Product life cycle
Customer drivers
Profit margins
Dominant costs
Stockout penalties
Purchasing policy
Information enrichment
Forecasting mechanism

Commodities
Predictable
Low
Long
Cost
Low
Physical costs
Long-term contractual
Buy goods
High desirable
Algorithmic

Agile supply
Fashion goods
Volatile
High
Short
Availability
High
Marketability costs
Immediate and volatile
Assign capacity
Obligatory
Consultative
Source: Mason-Jones et al. (2000)

In the case of mid-end fashion segment, companies have to face short life cycles, high
volatility, low predictability and high-impulse purchasing (Bruce et al., 2004; Christopher et
al., 2004). Therefore, when matching the given attributes of lean and agile strategies, which

are summarised in Table 1, with the market characteristics mentioned above, it is more likely
for a company, which operates in apparel industry to adopt an agile approach.
Agility and leanness underpin such concepts as Quick Response (QR) and Offshore Sourcing,
which represent common patterns adopted by companies operating in fast-fashion market
towards their supply chain. Lowson (as cited in Christopher and Towill, 2002) argues that
decisions adopted in QR movement rely on information regarding demand, thus attempting to
maximise diversity and minimise lead-times, expenditure, cost and inventory. Information
transfer and profitable exchange of activity make possible the integration of enterprises in a
mutual network (Wikner et al., 1991). The essential breakthrough made in QR was identifying
and employing the fact that supply chain is a system of bi-directional flows (Christopher
and Towill, 2002, p.2). This means that goods flow from producer to the customer and
valuable information about demand and other aspects is transmitted back to the
manufacturers. All these characteristics move QR closer to agile supply principles, whereas
Offshore Sourcing emphasises leanness. This trend is efficiency-driven since companies want
to minimise the cost while achieving economies of scale, but it may significantly affect its
flexibility and responsiveness.
Since the nominated models along with JTI concept and demand chains (Barnes and LeaGreenwood, 2010) work only in specific context, a hybrid strategy would be more appropriate
for the apparel industry. Therefore, some companies have separated baseline and surge
demands (Christopher and Towill, 2002, p.2.), thus an agile approach will be used
downstream and leanness upstream from the decoupling point in the supply chain (MasonJones et al., 2000). Bruce et al. (2004) argue that leagility enables upstream chain to be cost
effective and provides the downstream chain with high service levels in a dynamic
marketplace. Lowson (2001) has analysed the financial performance of three European
clothing retailers who pursued different sourcing strategies. Table 2 shows that leanness
results in highest gross margins, whereas agility offers the greatest return on investment.
Based on the same data, a combined strategy will offer intermediate values, which for a
company relying on agile pipelines means bigger gross margins and slightly lower investment
profitability. Data from Table 2 provides strong incentives for companies to pursue a mixed
strategy, which assigns higher percentage of lean for basic items and conversely, lower
offshore rate for products with unpredictable forecasts (Christopher and Towill, 2002).

Table 2: How the Responsive Pipeline Delivers Enhanced Bottom-line

Performance

Sourching Strategy

Gross
Margin
(to sales
revenue)

Resultant Sourcing Performance Metric

Gross
Service
Self Through Inventory
Margin
Level
(proportion
Turns (per
Return on
(chance
of
season)
Investment customer
merchandise
finds first
sold at full
choice
price)
SKU)

Retailer A Lean
Pipeline
0.61
2.20
Offshore, low cost
strategy
Retailer B Hybrid
Lean/Agile
Pipelines
Combined Strategy 0.47
4.43
using foreign and
domestic sources
in the same season
Retailer C Agile
Pipeline
Domestic,
0.43
5.75
responsive and
flexible strategy
Source: Based on Lowson, R. (2001)

71%

71.80%

1.70

81%

80.78%

5.30

96%

91.4%

7.20

For the companies, which operate in apparel industry, a hybrid strategy is the most feasible
one; nevertheless, each company has its own concept of leagility, which is designed
according to organisations objectives and situation. Therefore, this paper will further discuss
the characteristics of management approaches in case of Zara, H&M and Benetton. In order to
do so, it is important to define the framework, which will facilitate the understanding of
supply chain as a part of the business strategy. Therefore, the discussion will focus on how
companies manage and integrate their supply chain processes. According to the Global
Supply Chain Forum (Lambert, 2006), there are eight main processes, which can be
synthesised into four parts: product organisation and design, purchase and production,
product distribution and ultimately, sales and feedback (Zhang, 2008). Each of them will be
further discussed, but first it is important to see the company background and then assess the
impact of companys mission upon management approach in supply chain.

Overview of the companies

Benetton Group
Luciano Benneton founded Benetton Group in 1965. Now it accounts for 6500 stores spread
around 120 countries, which in 2011 have produced net revenues of 2.032 billion. The
business model relies on flexible operational approach in both wholesale and retail
distribution channels.Companys vision builds up on innovation and integration. Fashion is
regarded as a global village where young people of every race live. On their website, they
claim to be driven by progress exclusively in operating value-adding activities. These values
are shared by the Groups brands: United Colours of Benetton, Sisley and Playlife (Benetton
Group, 2013).
H&M
The history of H&M brand begins in 1947 with one store opened in Sweden. Now, the store
network accounts for 3100 stores in 53 countries. It comprises six brands: H&M, COS,
Monki, Weekday, Cheap Monday and & Other Stories, which have generated a net sales
revenue of 14, 53 million (H&M Full-Year Report, 2013). The business concept of H&M is
to offer fashion and quality at the best price. As for the values, this fashion giant relies on
teamwork, as fundamental driver for performance with strong believe in members
empowerment (H&M, 2013).
Zara
Zara is the oldest and most successful brand from Inditex group. Since 1975, Zara has
expanded the number of stores to 1808 in 86 countries and has constantly surprised with its
up-to-date fashion design. This fashion brand relies heavily on customers feedback in order
to give shape to the ideas, trends and tastes developing in the world (Inditex Group, 2013).
In 2012, Zara has experienced an 18% growth in sales, up to 10, 541 million (Inditex
Annual Report, 2012) and is striving for further expansion in emerging markets.

How Benetton, H&M and Zara manage their supply chain

It is a known fact that manufacturer push is no longer a source of competitive advantage in
the apparel industry. Nowadays, fast-fashion giants rely on consumer pull (Doyle et al.,
2006; Sull and Turconi, 2008), therefore they tend to reduce the number of processes in the
supply chain in order to satisfy consumer demand at its peak (Barnes and Lea-Greenwood,
2006, p.259). Continual renewal and updating of ranges have become key features in secondmarket supply chain management; hence, it builds up on the in-season buying and lead-time
reduction to integrate newness (Barnes and Lea-Greenwood, 2010) in their competitive
strategy. Hence, an agile approach with lean elements has become the key-point in the
management of supply chain. Nonetheless, it is necessary to investigate to what extent agility
and/or leanness are implemented in the supply chain processes.
Product organisation and design
Since the target consumer group for all three companies is youth (Benetton Group, 2013;
H&M, 2013; Inditex Group, 2013), they try to follow the latest fashion trends in order to
deliver high-end looking items at an affordable price (Carugati et al., 2008). Therefore, the
initial supply chain process seeks for equilibrium between price, quality and fashion, which
underpin the business concepts of Zara, H&M and Benetton (Benetton Group, 2013; H&M,
2013; Carugati et al., 2008). Product development stage in H&M involves 160 in-house
designers and 100 pattern makers who work in Stockholm to develop collections, which will
meet, or preferably exceed customers expectations. The design process in Zara is rather
interpretative, than innovative, therefore the company focuses on integrating the newest
information regarding fashion trends in order to sketch new kinds of products. At the core of
this complex process is the customer, which, involuntary becomes an important part of the
product creation and organisation. Shop managers constantly send feedback to headquarters
regarding inventory levels, customers opinion and shop assistants ideas, which emerge from
meticulous observation of the items that consumers prefer to buy, or wear themselves (Zhang,
2008; Carugati et al., 2008). This process is efficient because of intensive use of information
systems. The real-time transfer of data via PDA enhances visibility and helps head offices to
elaborate a proper design and production plan according to demand trend (Zhang, 2008).
Although, Benetton and H&M also seek to diversify their product range and make it more

responsive to the changing demand, they cannot achieve Zaras performance in terms of
responsiveness. This is the main reason why Zara has a higher global average of 17 visits per
customer in a year (Carugati et al., 2008). For Benetton, the in-house design process has
expanded to a global range, thus reducing the ratio of customised garments from 20% to 510% in attempt to minimise costs (Slack et al., 2006). This aspect reflects the fact that
Benetton, unlike Zara and H&M, has adopted lean elements in upstream level (Bruce et al.,
2004).
Purchase and production
Zara, H&M and Benetton have adopted different approaches towards management in
purchase and production processes; hence, they have designed their supplier network
according to the performance objectives, which they rely on. For example, H&M has
completely outsourced its production in Europe and Asia, mainly directed by efficiency
seeking motives, thus cost reduction. It has a network of 800 independent suppliers, who are
close long-term partners (H&M, 2013). This strategy meets entirely the idea of lean enterprise
developed by Womack and Jones (as cited in Bruce et al., 2004) which comprises the idea of
operational synchronisation of legally and functionally separated companies. Nevertheless,
the dyeing and cutting can be made at a later stage, which represent an agile element.
Notwithstanding, the offshore sourcing impacts negatively the lead-times, since it takes from
six weeks up to three months (Slack et al., 2006), depending on the type of product (H&M,
2013), conversely to Zara, which is considered to be the fastest in the industry, because the
lead-time is up to two weeks (Slack et al., 2006; Carugati et al., 2008). This is an indicator of
pursuing an agile approach towards manufacturing. Therefore, 50% of products are
manufactured internally, whereas, the rest are outsourced to Europe and Asia. Moreover,
eighteen factories for internal manufacturing, out of twenty wholly owned subsidiaries are
located at the core of its market, in Arteixo, Spain (Zhang, 2008). Unlike H&M, Benetton and
Zara have both integrated production and retail to meet the constantly changing demand. It is
surprising that Zara and Benetton had a similar vision towards the supply chain, but the
companies had not achieved the same performances. The reason is because Zara has
efficiently implemented the categorisation of products towards manufacturing, therefore the
trendiest items, which are time-sensitive are located in proximity to headquarters, whereas the
price-sensitive ones are outsourced to less costly labour markets. In addition, Zara has built a
reliable network of subcontractors, which are specialised in labour intensive activities (Sull

and Turconi, 2008), thus benefiting from companys financial, technological and logistic
support.
Product distribution
In terms of product distribution, Zara and Benetton emphasise a similar strategy (Slack et al.,
2006) since they operate in both retail and production sector, whereas H&M is exclusively a
retailer, that is the main reason why it relies on efficient flows and cost-consciousness in the
distribution process. Logistics centres are of particular importance since they are the core of
the strategy. They control the flow of products between suppliers and stores, avoiding
overstocks. Moreover, H&M builds up on green transports. In 2012, the transports from
suppliers to distribution centres via rail, or sea, have accounted for 90% (H&M, 2013).
Conversely, Zara uses preponderantly air transport for delivery of items to emergent markets
in order to achieve speed-to-market goal. As for the European market, it uses truck shipment,
which is less costly than other means of transport. Zara and Benetton both invested heavily in
automatisation of warehouses, but what differentiates them is the number of deliveries per
month. Zara has deliveries twice a week, while Benetton does not approach such a responsive
strategy. Although, they both inspect, iron, fold, bag and tag garments in manufacturing
complexes, before sending them to distribution centres (Zhang, 2008; Carugati, 2008).
Sales and feedback
The feedback question was addressed in the design section; therefore, this part will focus on
retailing strategies pursued by the fashion giants. Zara aims to create an environment of
scarcity and opportunity in its stores by changing the product range twice a week (Carugati,
2008), whereas other stores do not pursue similar tactics. Notwithstanding, all three
companies locate stores in visible areas and choose big venues. Benetton started to sell
products in warehouse-type of buildings as part of its changing strategy since 2000 (Slack et
al., 2006), whereas Zara and H&M have always followed this pattern. A common
characteristic of all three companies is that they heavily invest in the appeal of the stores in
order to deliver a unique customer service.

Conclusion
Many scholars argue that over the last decades competition has shifted from company versus
company model to supply chain versus supply chain. Therefore, it is mainly important for
companies to choose a management approach towards supply chain appropriate to the market
characteristics in which the company operates. Short life cycles, high volatility, low
predictability and high-impulse purchasing are only few of the challenges, which companies
need to overcome in order to be successful in the fast-fashion market. This enhances the need
to design a proper management style for supply chain, which often is a combination of
leanness and agility.
The analysis of management approaches elaborated by Zara, Benetton and H&M prove the
fact that a hybrid strategy is the most feasible for this highly competitive sector. Failure to be
responsive to the changing demand may cause serious problems that cannot be solved in
short-term. Achieving speed-to-fashion goal has become an imperative in the apparel
industry; therefore, companies have to be very consistent when assessing the strategy which
they want to pursue. As seen from the discussion of management approaches towards supply
chain, the effectiveness of information systems is mainly important for achieving speed-tomarket goal. Information technology makes it easier for companies to coordinate activities
since it reduces costs and enhances accuracy, therefore it offers the opportunity to adopt
control by information , rather than control by doing (Gattorna and Walters, 1996)

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