Wal-Mart vs Amazon

Question 1. Compare the financial metrics of Wal-Mart with Amazon based on the
following metrics : 

In Table 1, Amazon performs better in PPET and C2C, however, Wal-Mart performs
better in ROA, ROE, ROFL, Profit Margin, Asset Turnover, APT, ART and INCT.

Question 2 Which metrics does Amazon perform better on? Which metrics does
Wal-Mart perform better on?

As shown in Table 1, Amazon had a PPE turnover of 14.17 and a cash to cash circle
of -11.33 while Wal-Mart had a PPE turnover of 3.99 and a cash to cash circle of
-2.44. Moreover, Amazon also performed better in APT and ART with the figure
2.56 and 19.18 respectively. Conversely, Wal-Mart performed better in ROA,
ROE, ROFL, Profit Margin, Asset Turnover and INCT

Question 3 What supply chain drivers and metrics might explain the difference in
performance?

Amazon performs better on PPET and Cash-to-Cash cycle because Amazon is an
Internet base company, therefore, Amazon will be more efficient and prudent in
property, plant and equipment turnover rather that Wal-Mart which is a retail
cooperation and the drivers that explain this differences in performance is the
“facilities”, since facilities are the actual physical locations in supply chain network.
For storage site, Amazon obviously need less storage site than Wal-Mart according
to the product that are provided in Amazon is basically Books, Electronics and
furniture while Wal-Mart is a retail chain that usually have a fixed physical location
for the selection and purchase of its goods.

For cash-to-cash cycle which roughly measures the average amount of time from
when cash enters the process as cost to when it returns as collected revenue, Wal-Mart who faced small C2C indicate that their financial leverage is limited when
comparing to amazon. The driver that can explain this difference will be information
and sourcing since good information can help improve utilization of supply chain
assets and the coordination of supply chain flows to increase responsiveness and
reduce cost to the firm. Whereby sourcing decision are crucial since it also affect the
level of efficiently and responsiveness as well, for amazon where time that they
generate revenue and time that they pay supplier is quite large, they can leverage their
money more efficient and can be more responsive to customer’s demand faster than
Wal-Mart who have to save up quite amount of money for supplier.

For others matrix, the driver that explain that difference in performance are the pricing and inventory since Wal-Mart have a better return on investment made by
shareholder (ROE) and return on each dollar invest by firm asset (ROI) better than
Amazon which means that Wal-Mart have a better performance. For profit margins,
which measure the profit as a percentage of revenue, Wal-Mart is higher which imply
that Wal-Mart is more profitable than Amazon. The reason behind this may be because
Wal-Mart is less responsive comparing to Amazon. For inventory driver, we can see
from the inventory turnover since Wal-Mart is higher, it may imply that Wal-Mart
is better at inventory management than Amazon or the ability to generate sale
is better.

Therefore, Amazon has lower invest in the supply chain drivers of facilities and
inventory than Wal-Mart which explain this difference in performance that is Amazon
better in the C2C and PPET metrics.  

Question 4 In 2010, WalMart announced that it planned to move into urban areas in
the US by establishing and operating smaller stores compared to the large stores it had
operated until that point. Explain which supply chain metrics will be impacted by this
move? How will this move impact the various financial metrics? Why?

Wal-Mart announced that moving to urban areas and operating smaller stores are
“facility-related” decisions to decentralize and also related to transportation metrics
that will impact both the supply chain’s responsiveness to customers and the financial
performance of the firm in terms of ROA, Asset turnover, Profit margin, APT and
INVT.

To clarify, with the smaller stores in urban areas, Wal-Mart will be more enclosed to customers so that they will reduce time to response to customers needs and increase
the possibility to sell the products. Therefore, the facilities and inventories will be
increased. Nevertheless, if the inventory turns go down as well as return on assets as
they increase the total assets in grand supply chain. This affects the Return on Asset
(ROA), and Asset turnover.

Moreover, because of expanding the business to urban areas, it also links to the
transportation since they have to choose the choice of transportation modes that best
fit with the company to moved product to the new areas. The modes of transportation
they choose will affect transportation costs and the cost of goods. All of these are
connected to Profit margin, Accounts Payable Turnover (APT), Inventory Turnover
(INVT).

Supplying Fast Fashion

According to the case of Benetton, Zara and H&M, we divide the discussion topics into 3 steps to achieve strategic fit which are understanding the customer and supply chain uncertainty, understanding the supply chain, and achieving strategic fit.

To begin with the first step, in terms of uncertainty, H&M and Zara tend to have uncertain demand because both of them provide wide ranges of product for customer in order to response to verities of customers’ demand, in contrast to Benetton that tend to less fashion, but higher quality and durability.

Zara and H&M they tend to focus on fast fashion’s design that can be identify as new products in the life-cycle position. In contrast to Benetton that can be identify as mature product since they concentrate less to fashion design. Therefore, Benetton have less supply uncertainty.  

	Benetton	H&M	Zara
Quantity of product needed	Large	Large	Small
Tolerate Time	High	Moderate	Low
Varity of product	Low	High	High
Service level	Moderate	Moderate	High
Price	High	Low	High
Desired rate of innovation	Low	Moderate	High

For the designed rate of innovation in the product, Zara and H&M are quite high since customers expect latest trend from both of them epically Zara, so Zara face uncertain demand, comparing to Benetton where customers already know what kind of Benetton style. The response time that customers are willing to tolerate seem to be high for Benetton in relation to the expectation of customer. 

Zara forced season-end markdown is relatively low which comply with low implied uncertainty demand since Zara less likely face oversupply of some product comparing between three of them. Benetton and H&M tend to rely on forecasting trend, standardise product and still stick with traditional industry practice, so Benetton face less uncertainty comparing to H&M and Zara where both of them provide seasonless cycle where it allows designers to learn from customers’ reactions to their new products and incorporate them quickly into more new products.

Lastly, There is a correlation between implied demand uncertainty and product margins since Zara and H&M have uncertain demand, so their product margins can be charge higher than Benetton which tends to have certain demand, but Benetton position as high quality product, so they can charge higher. As well as H&M that their business concept are fashion, price and quality, so they buying volumes are priority compare to delivery dates. Therefore H&M can offer lower price to customers than Zara because of their buying volume.

The second step is understanding the supply chain. Zara's and H&M's actions to best meet customers demands are launching new product continually and learn from customers' reaction. H&M hire high-fashion designer to design outstanding products which are reasonable price and quality. While Zara's strategy is designing around 40,000 items and selecting the most appropriate 10,000 items to be produced. In contrast, Benetton's customers needs are the good quality of clothing. Hence the company tends to provide less fashion but higher quality and durability.

In order to respond to wide ranges of quantities demanded,  Zara decides to react market demand, so it produces the less products, but it changes new products every 2 or 3 weeks to attract customers to revisit. In contrast, H&M provides various kind of products to consumers, the products designs are updated continually. In term of the Benetton reaction can limit the consumers demand by providing the high quality of products. 

To handle a large variety of products, Zara and H&M allow the designers to learn the customers' reaction on their products, and then produce new products quickly to respond  consumers' satisfaction in each areas especially Zara can react Asian people based on the factor of raw material and labour cost. On the other hand, Benetton produces global products with the same quality around the world.

Zara has its full ownership in design and retail sections while its supplier and distribution have high degree of ownership, and own 60 percent in manufacturing. For Benetton, it has 100 percent ownership in design and partial degree in production, handing out and retail without any possession in supplier section. Lastly, H&M, it possesses full scale in retail and relatively high degree in design.

From the table, Benetton could not meet a very higher service level than H&M, and Zara because they have their own full ownership, but another has partial ownership.

Last but not least, to achieve the strategic fit, Zara and H&M which have uncertain demand choose the high responsiveness supply chain while Benetton can apply the efficient supply chain to deal with the certain demand as the following graph.

Zara : Apparel Manufacturing and Retail

Solution to Question

1. Zara is an apparel manufacturer that relate to the fashion domain. Zara use the strategy which is decrease the time of design the new merchandises (limit to 5-6 weeks ). Zara has ability to introduce new designs every week, thus, the apparel in its stores are fresh, therefore, its will satisfied the customers demand. Also this strategy will increase the sales volume and reduce the cost about the save the goods in warehouse.

2. Inditex choose to have both in-house and outsourced manufacturing. Firstly, Zara have 40% productivity by Inditex. The main reason not only is this strategy will insure the produced is fashion in current season, but also it has a flexible and quick supply delivery to reduce the delivery time to the Europe market. Moreover, another productivity are come to Asian and Latin American countries, because the lobar market and cost in these country are cheap than Europe even include the transport fees.

3. The local manufacturers response the new design product because it will be fast to support the Europe market. However, Asian manufacturers produce the apparel is predictable because these product has simple design and stable market that Zara never change them.

4. Because of the demand of customers, Zara change 75% goods in its stores and increase the speed to create new product. These change not only will satisfied the customers requirement, but also will decrease the circle that means the apparel will sale as soon as possible.

5. Frequency of replenishment affected Zara’s distribution since Zara’s originally had a single Distribution Center (DC) in Spain and a small satellite DC’s in Latin America but Zara is now compiled to build another DC in Spain.

6. In my opinion, Zara’s responsive replenishment infrastructure is suited for online shopping. The reason is that Zara has more DC which will support the fat delivery and help Zara organize its apparels. Also, the online sales and retail sales has low cost than vision shopping that will add more profit in Zara.

7. Firstly, as an apparel manufacturer, Zara need some customers demand information that can
help the designer to created more product to require consumers. Secondly, a effective delivery systems are significant in Zara because when the designer create a new product how to put them to market will influence Zara to be success. Moreover, Communication infrastructural required by

Zara are segregated as follows:
Zara and its customers: Since Zara deal more directly with its customers, Zara should train its sales person to be able to interact with customer to know their needs while the broad business development team should be on look out for new trend and communicate to the production (manufacturing) department.

Zara and its retail unit: Zara should maintain an open communication based on computerised infrastructure that the retail unit will use to inform the manufacturing (production) department on the inventory level versus the rate of turnover for particular designs which should be in real-time.

Zara and its suppliers: Zara should also maintain a direct communication link based on latest computer and telecommunication infrastructure with its suppliers on the speed needed for the delivery of goods.