VALUE CHAIN ANALYSISTRANSNATIONA L STRATEGIC MANAGEMENTSubmitted By Submitted ToMeenakshi Upadhayay Gaur Dr. H.P. MathurStudent, MBA (IB) ProfessorFMS BHU FMS BHU
Proposed by M.E.Porter in 1980 the value chain analysis simply put is a series or chain of activities in an organization that creates & buildsvalue. It is, in other words a systematic approach to identify & promote the development of competitive advantage that adds to the totalcustomer value delivered by an organization.According to this model, every firm is a synthesis of activities performed to design, produce, market, deliver & support its product. MichaelPorter suggests nine strategically relevant activities grouped under primary and support activities that create value and cost in a specificbusiness.Primary Activities i.e. activities directly concerned with creating and delivering a product. Primary Activity Description Inbound Logistics Activities Concerned With Receiving And Storing Externally Sourced Materials The Manufacture Or Assembly Of Products And Services ;Inputs i.e. Resource Conversion To Output i.e. Operations Products Outbound Logistics Activities Associated With Getting Finished Goods And Services To Wholesalers, Retailers & Buyers Marketing And Sales Informing Consumers About Products And Services Through Marketing Communications & Promotion Mix Service Activities Associated With Providing Service Maintaining Product PerformanceSupport Activities i.e. activities indirectly involved in production, that results in increase of effectiveness or efficiency . Secondary Activity Description Procurement This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials suppliers) Human Resource Activities concerned with recruiting, developing, training, motivating and rewarding the organization’s Management workforce. Technology Development Activities concerned with managing information processing and the development and protection of "knowledge" in a business Infrastructure Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management
Zara is the flagship brand for Europes fastest-growing apparel retailer Industria de Diseo Textil (commonly known as Inditex). Zara, thecheap-chic subsidiary of the Spanish fashion giant, runs about 1,520 stores, including some 230 Zara Kids shops, in more than 75 countriesworldwide. Zara has about 40 shops in the US and 60 in Mexico. The chain sells womens, mens, and childrens apparel and also offers plus-size and maternity lines to clothe its larger customers. Zara Home, which sells home fashions, has about 250 stores, in about 25 countries. Zarais Inditex principal chain and accounts for about two-thirds of its parent companys sales.INB OUND LOGIS TIC S Zara manufacture approximately 50 percent of its products in its own network of 22 Spanish factories but usesubcontractors for all sewing operations. These factories generally work a single shift and are managed as independent profit centres. Theother half of its products are procured from 400 outside suppliers, 70 percent of which are in Europe and most of the rest in Asia. Many of theEuropean suppliers are based in Spain and Portugal, and Zara exploit this geographical proximity in order to ensure quick response to Zaraorders which is critical for fashion products. From Asia, Zara procure “basic” products and those for which the region has a clear cost or qualityadvantage. With its relatively large and stable base of orders, Zara is a preferred customer for almost all its suppliers. 80% of Zara‟s apparel ismanufactured in Europe, mainly in Spain and Portugal.For its in-house production, Zara obtain 40 percent of its fabric supply from another Inditex-owned subsidiary, Comditel (Zara account foralmost 90 percent of their total sales). Over half of these fabrics are purchased undyed to allow faster response to mid-season colour changes.To facilitate quick changes in printing and dyeing, Zara also work closely with Fibracolor, a dyestuff producer part owned by Inditex. The restof the fabrics come from a range of 260 other suppliers, none account for more than 4 percent of Zara‟s total production in order to minimizedependency on single suppliers and encourage maximum responsiveness form them.The make or buy decisions are made by the procurement and production planners. The key criteria for making this decision are required levelsof speed and expertise, cost-effectiveness, and availability of sufficient capacity. If the buyers cannot obtain desired prices, delivery terms, andquality from Zara factories, they are free to look outside.OP ER ATI ONS Zara design the organization, operational procedures, performance measures and even office configurations to makeinformation and product transfer easy. The design and order administration at Zara is very effective and efficient. The company ensureproduct quality by designing its own products. The strategy at Zara is that only those operations which enhance cost efficiency througheconomies of scale are conducted in-house (such as dyeing, cutting, labelling and packaging). All other manufacturing activities, including thelabour intensive finishing stages, are completed by networks of more than 300 small subcontractors, each specializing in one particular part ofthe production process or garment type. These subcontractors work exclusively for Zara‟s parent, Inditex. In return, they receive the necessarytechnological, financial and logistical support required to achieve stringent time and quality targets. The system is flexible enough to cope
with sudden changes in demand. In other words capital-intensive steps are executed in factories owned by Zara, while labour intensiveoperations are outsourced to small shops and manufacturers with whom Zara have collaborative partnerships that include providing themwith the necessary technology and logistics capabilities.Zara‟s workforce includes designers, market specialists and buyers. Together they crank out an astonishing 30,000 items a year versus 2,000-4,000 items offered up at big chains like H&M (the world‟s third largest fashion retailer) and Gap. Unlike their industry peers, these teams workboth on next season‟s designs and, simultaneously and continuously, also update the current season‟s designs. Extensive feedback from thestore network also forms an integral part of the design process.Based on information and inspirations gathered from different resources such as trade fairs, fashion shows, magazines and more importantlycustomer feedbacks, the designers draw out design sketches by hand and then discuss them with colleagues – including market specialists,planning and procurement people. This process helps to retain an overall „Zara Style‟. The sketches are redrawn using a CAD system wherefurther changes and adjustments, for better matching of weaves, textures, and colours are made. Before moving further through the process,it is necessary to determine whether the design can be produced and sold at a profit. The next step is to make a sample, often completedmanually by skilled workers located in the small sample making shop in one corner located in the small sample making shop in one corner ofeach hall. If there are any specific questions or problems, they can just walk over to the designers and discuss and resolve them on the spot.The market specialist has responsibility for dealing with specific stores. They work in close contact with store managers, especially by phone,discussing sales orders, new lines and other matters. Stores rely heavily on discussions with Market Specialists before finalizing orders. Finallybuyers take decisions concerning what products to make, when, and in what volumes are normally made collectively by the relevant groups ofdesigners, market specialists, and buyers and after the decision is taken, the buyers take charge of the total order fulfilment process. Thebuyers are responsible in planning procurement and production requirements, monitoring warehouse inventories, allocating production tovarious factories and third party suppliers and keeping track of shortages and oversupplies.OU TB OUND LOGIS TIC S Zara moves from design to in-store availability in a matter of two weeks to satisfy its young, hip, clientele withfashion for the masses as a result of closely connected highly synchronized arrangements with out-sourced suppliers. It would plan a corecollection, composing nearly 50% of its forecast requirements. The rest 50% would be sourced opportunistically according to demand trendsduring the season, and delivered right there.All products pass through Zara‟s main distribution centre based near Arteixo in La Coruna in Spain from where merchandise is shipped tostores several times a week. The 5-storey, 50,000 square meter distribution center employs some of the most sophisticated and up-to-dateautomated systems. With a workforce of 1200, the distribution center normally operates four days per week with the precise number of shifts
depending on the volume of products that have to be distributed. Orders for each store are packed into separate boxes and racks (forhanging items) and are typically ready for shipment 8 hours after they have been received.Zara has achieved high levels of customer responsiveness by its flexible arrangements and wide supply chain base. Stores usually place theirorders and receive shipments twice per week. Orders have to be placed at pre-designated times. Store employees regularly tour urban hotspots looking for new trends and reporting back to designers. Knowing what‟s in today may be out next month is the secret of the success ofthe Spanish retailer as is the ability to apply operations strategy that puts new fashion concepts on the shelf twelve to fifteen days. Customersseem to relish the results of this high velocity operation and are often seen queuing outside stores on designated delivery days – aphenomenon dubbed as „Zaramania‟.M AR KE TI NG & S ALE S Most companies exploit the advantages of advertising their products and services in various media and theirmarketing strategy is linked with various advertising techniques. However, Zara deviates to this standard strategy.The company haveestablished a policy of zero advertising and they preferred to invest percentage revenues in opening new retail outlets worldwide. Also,Because Zara‟s merchandise is produced in small quantities, provided on predictable schedules, and displayed in the stores for only a shortamount of time; customers visit Zara stores more frequently. This has an added advantage of helping Zara avoid the cost of advertising. Interms of promotion too, Zara is caviar to the general. Comparing with other rivals, Zara only advertises twice a year and no advertising is whenthey open new store. However, due to its clear-cut brand image and prominent location, Zara can always catch consumer‟s eye. In terms of itscommunication tools, Zara maintains an updated, innovative, and inclusive corporate website (www.zara.com), where essential facts about thecompany, product catalogue, collection, store outlets, and other information are posted. This is considered as their major communicationtools provided that they take advantage of the benefits of electronic technologies in marketing their products. Zara has a strong IT Systemthat allows almost immediate communication of sales and inventory information across enterprise.Zara produces clothes that resemble the latest couture creations, but they beat the designers to market. Because they use less expensivefabrics, they can also provide the product at a lower price. To achieve this type of competitive advantage, Zara controls most of its supplychain, by managing all design, warehousing, distribution, and logistics functions.Zara‟s products including casual, occasional, lingerie, underwear and swimwear are not only fashionable but also affordable in the range ofmid-low price with mid-high quality. This is due to the vertical integration of the organization from fabric purchase to distribution. However,as an international retailer, Zara‟s price is different in each country because of the differences in rates of exchange, tax and transport. Zara‟sstrategy of refund guarantee assures Customer of purchases refund in any store but within the same country, and credit will be given forreturned items according to the prices marked in the original tags, disregarding any later sales promotions.
Zara‟s stores are located in prominent city center sites. However it resists the business-wide trend of transferring production to low-costnations.SER VIC ES The Company‟s instant fashion model, completely rotates its retail stock every two weeks. Shoppers addicted to the Zara brandknow exactly when the deliveries will be arriving at their local shop and some even turn up before opening time on delivery days to be thefirst to pick up the latest lines, with delivery day becoming known as "Z-day" and „Zaramania‟ in some markets.The knowledge that clothing items would not be available for very long i.e. released limitedly also encouraged shoppers to regularly visit thestore to see if a new stock has arrived and make their purchases more quickly , shortening the product life cycle and leading to greatersuccess in meeting consumer preferences. If a design doesnt sell well within a week, it is withdrawn from shops, further orders are cancelledand a new design is pursued. No design stays on the shop floor for more than four weeks. Through this strategy, Zara reacts quickly tochanging fashion trends and customers tastes, providing a "newness" to fashion followers.The store is Zara‟s main image vehicle. The overall experience of the customer in the store in considered. Apart from the fashion supply, theinterior design of the store, coordination of collections, maximum care over window displays and customer care are some of the elements thatguar experience. Window display is changed per month and decoration is changed every two years. Clear lighting, white walls and ceiling, andfew photographs in every shop, are aimed at creating an elegant atmosphere while spotlighting the clothesThe stores where Zaraconcentrates the majority of its investment are the essence of the group‟s chains, for which reason the location in the main commercial areasof cities and care over interior design take on vital importance for the company.Customer care is one of the most intangible value that Inditex takes most care of. Each store has different customers segments. Thesesegments have different values in terms of their product choice .Inditex establishments are thought out so that the encounter between thecustomer and fashion can take place in a pleasant environment. Store personnel with supervisors as the main drivers of quality of service,encourage freedom and comfort of the visitor by taking an active role in the shopping process exclusively when the customer requests andreceive training designed specifically to serve this purpose.
Vertically Integrated In-House 5 Million Square Broad & Fast Fashion System ; & Capital Intensive Production : Foot Distribution Undefined Quick Response System 50%; 85% Center; Ceiling- Target Market Firm Infrastructure Production Mounted Racks Through Out And Customized Season Sorting Machines Procurement And Young & Fresh Work Force Of Market Managers & Sales Associates Production Planners; Design Staff; 1200 Specialists; Transmit Sales Analysis; PLC Buyers Team Rotation; Dept. For & Store Trends To Designers Human Resource Autonomous & Acquiring Global ManagementSECONDARY ACTIVITY Flexible Culture Prime Real Estate Locations; Store Refurbishing Technology Strong It Centralized Updated, Intelligent Feedback Orchestrated System ; Cost Distribution Innovative , Gathering Through Personal Technology Development Coordination Of Efficient; Quick System ; Inclusive Digital Assistants (Pda); Suppliers Response Minimized Lead Corporate Instant Inputs From Point Of Communication Time Website Sale( Pos) System 50% Production Just-In Time; Limited Runs; Advertising Exclusive & Updated Products From 400 Outside Centrally 50% Sourced Twice A Year For Every Two Weeks Procurement Suppliers, 70 % In Managed According To New Stores ; Europe Inventory Demand Trends Zero Advertising System Outbound Marketing And Inbound Logistics Operations Services Logistics Sales PRIMARY ACTIVITY
Pizza Hut, the unit of YUM! Brands operate the worlds Number One pizza chain with more than 13,200 outlets in about 90 countriesworldwide. The chain serves a variety of pizza styles, including its flagship Pan Pizza, as well as Thin n Crispy, Stuffed Crust, Hand Tossed, andSicilian. Other menu items include pasta, salads, and sandwiches. Pizza Hut offers dine-in service at its characteristic red-roofed restaurants, aswell as carry-out and delivery service. About 15% of the restaurants are company-operated, while the rest are franchised. The worlds largestfast food company, YUM! Brands runs KFC and Taco Bell in addition to Pizza Hut.INB OUND LOGIS TIC S The local supply chain for Pizza Hut was developed by Yum! And currently 95 per cent of the ingredients they useare locally produced. Pizza Hut imports very few specialty items like pepperoni. It has reduced costs through indigenous sourcing of rawmaterial. It has tied up with a local company Dynamix Dairy Industries Ltd (DDIL) for sourcing mozzarella cheese. The landed cost of importedmozzarella comes to US$ 3.3 - 3.5 per kilogram. The domestic price, however, works out to US$ 2.99 - 3.1 per kilogram. Pizza Hut is adding tothe bottom line by localising equipment as well as by paying attention to inventory replenishment, which has been reduced from 60 to 30days.OP ER ATI ONS Pizza Hut operations are based on what the company called CHAMPS which define the very core of customer expectations.Champ stands for Cleanliness, Hospitality, Accuracy, Maintenance, Product, and Speed. This system of measure has been the company‟s toolto ensure consistency of service and product quality and is align with „customer mania‟ program.Generally, Pizza Hut operates in different concepts. The first is the Full Service Restaurants Based Concept which offers dine-in, takeaway anddelivery services to customers and Home Service concept which offers home delivery and take-out. There are specific menu to these conceptand delivery if offered to customers living within the designated trade zones. The newest concept being developed by Pizza Hut is the Express:Eat-in and Takeaway. The concept is to establish Pizza Hut within food halls and leisure parks across the UK offering informal, quick serviceswith a reduced menu .With these concepts, Pizza Hut basically operates in two units - dine and delivery. They cannot be categorized as fastfood because their service is not as speedy as McDonald‟s. It is more of a casual dining but not as classy as fine-dining restaurants, with abetter ambiance and atmosphere than fast-food restaurants.Pizza Hut invests on skills, knowledge, training and development of employee for different positions. The company has program whichincludes annual performance appraisals designed to let Team members know exactly what the expectations are and what opportunities existfor improvement. Information and skills are well-communicated internally among employees; the company allows open communication all theway to the top .At Pizza Hut, they treat each other as customers themselves so they exactly know what the customer wants and discuss themin every internal meeting wherein every idea of employee counts. Pizza Hut management gives importance to the ideas and opinions of thestaff because they know that these staff are the frontliners of the company who have direct contact with the external customers. The companyalso do not allow bureaucracy instead maintain its culture which is a recognition culture- motivating employees through recognition. Pizza
Hut also created a coaching management system that is managers become restaurant coaches, teaching employees and providing theminformation rather than just giving commands to the staff thereby giving the staff chance for improvement. Internal competition is eliminatedto promote commitment and creativity.OU TB OUND LOGIS TIC S Pizza Hut offers its customers variety of choices on its menu as a strategy of targeting a wider market segment,establishing itself as a family restaurant. Pizza Hut categorizes its menu as Dine-in Restaurant menu and Delivery menu. It also has Kids Menuwhich is menu for children with free toys at selected meal and Collection Menu which features selection of Pizza Hut‟s brands of pizzas such asthe Big New Yorker, Stuffed Crust Pizza and The Italian.Pizza Hut restaurants offer starters and side orders, pasta and salads, desserts, ice cream and pizza. It also serves drinks such as coffee, sodas,juices, tea and alcoholic beverages. It came up with the concept of the ice cream factory wherein for one payment, one can take as much icecream as he wishes which appeals more to children. Some Pizza Hut in UK also features a salad bar and a buffet lunch that gives value tocustomer‟s money.It also offers healthy choices with its salad and its menu indicates which items are suitable for vegetarians. Pizza Hut continuously reviews theirproducts so its menu change from time to time in an effort to meet evolving customers needs and taste preferences. International food chainstypically offer only a few localised products in other parts of the world. However, Pizza Hut‟s local menu is as large as the international one.According to Pizza Hut, the Indian food heritage is very rich, and hence Indians like local flavours. The Tandoori range of pizzas, which wasdeveloped locally, has a menu mix of over 20 per cent.M AR KE TI NG & S ALE S According to Pizza Hut, the role of its marketing is to ensure that the needs of the customers are met; it is whatmakes the business makes money. The company invest resources for research on customers‟ needs and analysing customers‟ feedback aboutwhat people think about pizzas; what do they like or dislike about pizzas; and what do they want from pizzas The feedbacks and research arethe basis of the company for innovation and development of new products.Pizza Hut has gained its name through heavy media and TV promotions which inform the customers of what Pizza Hut can provide them.Pizza hut makes sure that the customers are well-informed and aware on new products, offerings and services it provides.Pizza Hut has increased its visibility by launching a well-received TV campaign aimed at the young crowd. It has formed partnerships withrecognised brands such as Nestle and Pepsi. It also holds regular promotional campaigns targeted at children and uses these alliances to offerpackages during these campaigns.Most Pizza Hut restaurants are located in the metros and smaller metros. In taking long strides across the country, Pizza Hut is consolidatingits position by opening more restaurants in the metros where it already has a presence as well as opening outlets in new markets to increasemarket penetration.
SER VIC ES The Company uses the term „customer mania‟ to describe the importance that customer satisfaction impacts on the success ofthe company. Customer Mania is basically a program which is based on three principles: operational excellence, great marketing and real „situp and take notice‟ standards of customer service. The program aims to instil the basics of customer service to every team member of PizzaHut emphasizing four critical steps. The first step is to set sight on the right target by taking care of customers and creating a motivatingenvironment for staff; the second is to treat customers the right way by determining the kind of experience Pizza Hut wants its customers tohave as they interact with every part of the company; the third is to treat employees the right way by using strategies ranging from smarthiring, to training and development, to managing performance and creating a recognition culture; and the fourth is to build the right kind ofleadership by letting staff decides and think with the support of the manager. It include basics such as smiling and greeting the customer,presentation, good service and dealing with service problems themselves without looking for a manager All over the world, Pizza Hut holds a quarterly customer mania mindset session for its team members who include all the crews, managersand Restaurant Support Centre Team to reiterate and motivate employees on the importance of providing consistent product quality, service,ambiance and value for money to the customers. In this session, recognitions are given to employees who are outstanding in their service tothe customers.In 1995, Pizza Hut launched two customer satisfaction programs: the 1-800 Customer Satisfaction Hotline and the CustomerCall-Back Program, which takes the pulse of 50,000 customers per week. A mystery shopping program gathers information every month onhow each restaurant is performing against customer expectations. The results of this survey are fed back to the restaurant within five days ofthe visit .As part of its customer service, most Pizza Hut restaurants provide facilities for people with disabilities. On its website, Pizza Hut provides aDisability Discrimination Act statement in compliance with the Disability Discrimination Act 1995. The statement stated that the company hasimproved its physical environment with more easily accessible facilities and has trained its employees to better understand and meet theneeds of customers with disabilities.The delivery guarantee concept is also classified as one of the strengths of the company with regards to customer service. The deliveryguarantee concept ensures the Pizza Hut delivers products on the time promised and if it fails to deliver on time the customer will get his nextpizza for free. Pizza Hut newest concept of „Hot Dot‟ ensures that the pizza is hot or else the order is treated as free.In dealing with customers‟ complaints, Pizza Hut provides telephone numbers customers can call to when they encountered problemsregarding the services the company provided them. Feedback forms are provided at each table of Pizza Hut restaurants. The website of PizzaHut also provides telephone numbers and address to be contacted with for customer complaints. As already mentioned, Pizza Hut‟s Deliveryguarantee offers compensation for failure to deliver products on time. Once a customer complains about a product, the staff will try to rectifythe situation by replacing the product if the order is wrong or the quality of pizza or any product is not satisfactory. However, if the customeris still unhappy, Pizza Hut will refund the customers money. The restaurant is also known for its innovation, differentiation and productcreativity with its highly successful Italian- a thin crust pizza and Stuffed Crust Pizza and Tandoori Pizza Range as an effort in providingcustomers value to their money.
Firm Restaurant Based Metro’s & Smaller Innovation; Infrastructure C.H.A.M.P.S Delivery: Dine In, Metro’s Penetration Compliance With Cleanliness, Take Away & Disability Hospitality, Accuracy, Delivery Services. ; Discrimination Act Maintenance, Product, The Express: Eat In 1995; All-Vegetarian And Speed & Take Away Restaurant For Jain Community; Ice Cream Factory Human Resource Recognition Culture Customer Mania ; Coaching Delivery GuaranteeSECONDARY ACTIV ITY Management Employee Ideas Counts Treat Each Others Management Else Second Pizza Free; As Customers System- Manager Customer Mania Become Coaches Program Technology Integrated System to Maintain Online Orders; Hot Dot Development Communication Temperature of Customer Care System; Teradata Pizzas Hotline Warehouse Minerto Procurement Indigenous 95% Ingredients Vegetarian & Non Aggressive Italian Thin Crust Sources; Locally Produced; Vegetarian; Crust Marketing & Tie Ups Pizza; Stuffed Crust Mozzarella Import Few Specialty Variety ;Local & With Popular Brands Pizza Cheese Sourced Items ; International Like Pepsi; Targets: From DDIL Flavors; Healthy Children’s & Young Salads Choice Crowd Inbound Operations Outbound Marketing And Services Logistics Logistics Sales PRIMARY ACTIVITY