Case 1 Gateway and Apple: Two different journeys into retailing
1. Why did Gateway choose not to carry any finished- product inventory at its retail
stores? Why did Apple choose to carry inventory at its stores?
Its stores carried no finished- goods inventory and were primarily focused on helping
customers select the right configuration to purchase. Gateway applied a strategy to
avoid carrying finished goods inventory in retail stores.By this way customers had
chance to customize the configurationsaccording to their mean of work. Moreover
there was also opportunity to try anysample product with in the store. By this
strategy gateway had an aim to designa supply chain design that would match
this demand.The decision of gatewaynot to carry finished goods inventory at
retails stores are related to thesefactorsAllow more flexibilityin product
configuration. This flexibility would allow gateway to managecustomer’s demand,
since the final product would only be configured aftercustomers order. This would
also allow the company to imply a CustomerRelationship Management strategy,
since the company would know the specifics ofcustomer’s needs and would be
able to target customer for future products.On the other hand,apple had aimed to
fulfill the customer demand immediately and with provide theexperience of
finished product to customer. There is low shipment cost, becausebundle of
product shipped to retails stores and customers can pick from these stores.
2. Should a firm with an investment in retail stores carry any finished- goods
inventory? What are the characteristics of products that are most suitable to be
carried in finished- goods inventory? What characterizes products that are best
manufactured to order?
There are two main factors to consider in investing in a retail stores carrying
anyfinished-goods inventory. First factor is that when the customers can wait for a
productto be finished. This kind of manufacturing process is made-to-order wherein the
processis activated only in response to an actual order. Second, when the customer
cannot waitfor the time required for the product to arrive. This kind of factor needs a
productionfacility to store their finished products. The kind of manufacturing process in
this factoris the make-to-stock wherein the manufacturer produces standard products
that arestored in finished goods inventory. Aside from that, there are also other factors
incarrying finished-product inventory in retail stores such as the type of the products,
thecost of maintaining them in the retail store, and the like. With these factors,
carryingfinished-product inventory should also be based on supply-chain management
decision.There are several characteristics of product that are most suitable to be carried
infinished goods inventory such as nonperishable goods, goods that have least
possiblestorage cost, goods that have fluctuating/seasonal demand, retailers goods that
havestable demand in the local market, products that doesn’t need a producer
assistance or manufacturer, inventory that easily loses value upon storage or further
configuration,when there is a chance of the product price to increase, and products that
are fastmoving and are of high value and there deficiency can make a big loss to the
firm.There are four factors to consider in making a product manufactured to order.First,
when there is a demand from a customer for a product customization or direct-customer
assistance. Second, if it’s manufactured according to what the customerdemand, it
should be cost effective. Third, products that are highly perishable uponstorage and
have high storage costs. Lastly, products that are very high valuable andriskier to store.
The decision should be based on customer preferencesand on delivery times and
costs. If customers prefer online shopping, then thereno need to carry finished
goods at a retail store. If the delivery time withrespect to the customer’s needs is
deemed to be high (groceries), then there is a need to have finished goods
inventory.On the other hand, if the deliverytime is reasonable/acceptable, then the
company could dowithout having finished goods inventory.Characteristics of
product to carried in finished goods inventory:
•Lowinventory cost products
•Productswith extra inventory life
•Products for less waiting time (groceries)
•High demand product in market
•Characteristics products that best manufactures toorder
•Low inventory life
•High cost inventory products
•Low demand product in market
•Products for which customer can wait
•Products with certain demands.
3. How does product variety affect the level of inventory a retail store must carry?
Issues were perceived as to how product variety affects the level of the inventorythat
retail stores carry. First, the increase of product variety also decreases theinventory
level for every product. Basically, if you have lots of product to sell, the level ofits
inventory will also decrease. The owner or the store caretaker will have to
inventoryeach of the products carefully and it will also waste the substantial number of
time. Andsecond, product variety can compromise on quality since there is a big
possibility that itincreases the likelihood of misplaced products. If a store sells various
numbers ofproducts in the same location, the products will usually be placed from one
product tothe other that would lead to greater misplacement and mixture of products.
Misplaced products, other that it affects the level of inventory, it is also analogous to
defects inquality management that will also lead to decrease in sales. The variety of
product related with inventory cost and also varies with physicalinventory at store
for each and individual product.Higher variety of products implies that
more products have to be keeping at the store and subsequently, the amount of
each product will besmaller. With high product variety
the products and quantities put away at the store have to
be exceptionally carefully. Otherwisethere will be risk of low level inventory and
low sales.
4. Is a direct selling supply chain without retail stores always less expensive than a
supply chain with retail stores?
Yes, the direct selling supply chain without retail is less expensive.Because itsaves the
cost of retail store operation. Shipping cost is also less in thischannel. It avoids the
infrastructure cost between two configurations. This isalso easy to handle return policy
between two configurations.
5. What factors explain the success of Apple retail and the failure of Gateway
country stores?
The customer experience that Apple has beenproviding is an important factor of
differentiation in contrast Gateway was notproviding such a level of customer
service and experience. Delivery time wasanother significant factor that helped
Apple, since the customer was able toget the product while at the store, gateway
also fail to deliver product tocustomer in short delivery time. Eventually Apple was
the only retailer of theirproducts, that guaranteed excellent service across the
board.
Case 2 Zara: Apparel manufacturing and retail
1. What advantage does Zara gain against the Competition by having a very
responsive supply Chain?
They can introduce new design every week and thus change 75% display every 3-4
weeks.Reduce inventory overhead and forecast errors. Sell most products at full price
and only half the markdowns in stores compared to competition. Multiple weekly
shipments allow close match to demand.
2. Why has Inditex chosen both In-house and outsourced manufacturing?
Outsourced manufacturing is for the production of products with predictable demand. In-
house manufacturing is for the production of products with highly uncertain demand.
40% in-house production allows added responsiveness to trends and postponement of
decision until after trends. A strong IT department helps them make quick product
decisions and drive replenishment.
Why has Inditex maintained manufacturing capacity in Europe even though
manufacturing in Asia is much cheaper?
Maintained large fraction of manufacturing capacity in Portugal and Spain (Europe),
despite the higher cost there, it allows Zara to respond quickly to changing fashion
trends in Europe. For ZARA, speed and responsiveness are more important than cost.
Manufacturing Capacity in Europe helps manufacturers offer fast and flexible sourcing
and such products are to be delivered quick instead of at Asia. The above helps Zara
reduce inventories and forecast error.
3. Why does ZARA source products with uncertain demand from local
manufacturers and products with predictable demand from Asian manufacturers?
Products with uncertain demand will most likely be produced at a lower volume to
products with a certain demand and therefore sourcing from local manufacturers
provides ZARA the speed it needs to test and deliver these products before they
become obsolete and have to be sold at a discount. It is part of a responsive pull
strategy. Predictable demand products are made in Asia due to low labor costs and high
volume of products needed. It is more cost effective to manufacture in bulk due to the
fact that predictable demand products have a larger window with which to deliver
products without becoming obsolete. It also means that they can be made before the
season starts as part of a push strategy. This allows for multiple weekly shipments and
close match to demand. They can easily manufacture in-house by responding quickly
to trends and delivering in less than 2 days on a global scale.
4. What advantage does Zara gain from replenishing its stores multiple times a
week compared with a less frequent schedule?
Frequent replenishment allows Zara to match supply and demand more effectively than
the competitors. This allows Zara to respond quickly to changing fashion trends in
Europe. Sell most products at full price and only half the markdowns in stores compared
to competition. This enhances ZARA’s supply chain speed and responsiveness
The frequency of replenishment has made ZARA increase the size and also centralize
its distribution design by handling its global operations through 8 Distribution canters
based in Spain. This centralized structure means that products can be distributed
rapidly from in house manufacturing in order to meet worldwide demands in as little time
as possible.
5. Do you think Zara’s responsive replenishment infrastructure is better suited for
online sales or retail sales?
Whilst its quick distribution system allows ZARA to respond to trends very quickly its
lack of decentralized distribution means that it is better suited to retail as online sales
tend to have more a diverse product demand and customers expect quicker delivery
times. Companies such as Amazon are able to respond quicker to online sales due to
the fact that they have distribution centers all around the world and can offer same day
delivery. ZARA’s 24 hour delivery times from Spain to outlets all around the world may
not be as efficient with online sales as it is with retail sales. Reiterating it in the online
sales will be extremely challenging as the Point-of-Sale is different
