Store Location Using the Factor Weighting Method

Save-A-Lot is a good example of a company using a cost leadership strategy to meet unique needs in the  marketplace. This video from Good Morning America provides a nice overview of their strategy from the consumer's side of the check-out counter.



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Save-A-Lot operationalizes their cost leadership strategy using a limited-assortment approach to grocery retailing. Their stores are smaller than conventional grocery stores, and carry a reduced number of SKUs (as you saw in the GMA video). The site requirements you built into your factor weighting grids all play a key role in ensuring each Save-A-Lot location is sustainable over the long term. See Julie, Kristen, Andrew and Eddie's posts for good examples of grids with well considered factor weightings.

Ryan brings up another important point in his grid and question to Eddie: the role of median family income. Save-A-Lot's operationalization of its cost leadership strategy allows it to locate in neighborhoods with median household incomes below $45,000 (approximately). These neighborhoods are often neglected by conventional supermarkets, resulting in Save-A-Lot meeting a real social need. This story from WCPO in Cincinnati illustrates just such a circumstance (note the importance of foot traffic for this location).

This video shed new light on Save-A-lot's site requirements, helping us to understand the role/importance of each factor. A special shout-out to Lauren and Micah who not only created their factor weighting grids, but researched location data to come up with some potential store sites (though they didn't identify this location).  :-)   Nice work!

As we discussed in class, the factor weighting grid can be used for any number of management decisions. You now have a tool you can put to use in a variety of OM settings and circumstances; anytime you have multiple variables against which you need to exercise managerial discretion and judgement in making your decision.

Fashion Supply Chain Case

H&M business concept | Source: about.hm.com

Thanks for your thoughtful comparisons of the H&M and Zara supply chains this week . Many of you made the point that these two supply chains have similarities, but also some important differences. See Kristen, Andrew, Mario, Michael, and Micah's posts for excellent comparisons of the two supply chains using the SCOR model. 

A central concept in supply chain design is effectiveness. How do we determine and design the most effective supply chain for our business? The answer to this question goes back to our company's overall strategy. Do we want an efficient supply chain, a responsive supply chain, or some combination of both? (See Collier & Evans, 2015, chapter 9, for a full discussion of the differences between these choices.)

H&M identifies their core business concept is "fashion and quality at the best price". Fashion certainly implies some level of supply chain responsiveness, but H&M spends significant time and energy outlining the efficiency aspects of their supply chain design as well. H&M ensures best price by designing in-house, purchasing in large volumes, efficient logistics, and overall cost consciousness (H&M, 2015). Zara, as Mario points out in his post, has a different focus. Zara clearly comes down on the responsiveness side of the design discussion with their focus on fast fashion. Your posts this week and earlier in the month detail how Zara delivers on their fast fashion commitment.

Sustainability is an important third measure of supply chain effectiveness. Andrew and Jacob point out H&M's efforts in this area. Resource efficient transportation is an important part of the H&M sustainability mix, as are reverse logistics: taking back used clothing for fabric re-purposing or fiber recycling. Note that the most resource efficient transportation methods are also the slowest. This is not necessarily a problem for supply chains that are strictly designed for efficiency, but can be problematic for supply chains designed to be responsive. It will also be a challenge for supply chain design that seeks to balance both efficiency and responsiveness. 

So, which supply chain design is most effective? The answer is the supply chain that best supports the company's strategy and facilitates delivery of the their customer benefit package. Be sure to consider these issues of efficient, responsiveness, sustainability and alignment with company strategy as you conduct the supply chain analysis in your case studies.

Enjoy the weekend. Stay warm. We'll continue our supply chain discussion in class on Monday. See you then!

References

Collier, D.A. & Evans, J.R. (2015). OM5. Boston: Cengage Learning.

H&M (2015). About H&M: Our business concept. Retrieved from http://about.hm.com/en/About/facts-about-hm/about-hm/business-concept.html. 

Zara Case

Zara, Rittenhouse Square, Philadelphia, PA / Photo by Tsedey Bogale on Google Maps

The Zara case provides us with an interesting example of value chain integration that runs contrary to many of their competitors. Rather than outsource all manufacturing and sell through others retailers, Zara's value chain includes a significant vertical integration component.

Many of you identified Zara's stores as an example of forward integration. But Zara's most unusual approach is their backward integration highlighted by Eddie and Michael. As Kristen and Jacob note, Zara makes 40% of their own fabric and 60% of their own merchandise. Key to their vertical integration are the lean and just-in-time practices identified by Julie, Kristen and Andrew. We'll talk more about "lean thinking" in the weeks to come. The key thing for us to understand at this point is that lean manufacturing and just-in-dime processes significantly reduce waste of all types in the value chain. This helps deliver savings to the organization. Think back to our Interface discussion in class... Interface financed their product and equipment innovations through savings garnered through lean practices. For Zara, lean and JIT help address Tim's question regarding the risk of being on the cutting edge of fashion: what do you do with leftover inventory when customer taste changes? Zara has a lower unsold item rate than the industry average, and they get closer to full price on the clothes they sell than most other fashion retailers. (See the Berfield and Biagorri (2013) Bloomberg Business article.)

Some of your most interesting questions and discussion centered on the value this vertical integration creates for Zara customers, and whether this model can be duplicated by competitors. Julie helps us with this discussion by first clearly linking the value created in the value chain with our value equation (see Collier, 2015, p. 26) and the customer benefit package (CBP) discussed in chapter 1. It is this relationship between affordable price (driven by Zara's lean/JIT value chain) and leading-edge fashion that creates value for Zara customers. Julie, Katie, Kristen, Lauren, Andrew, Kyle, Mario, Michael, and Ryan all ask or discuss this question: can Zara's model be duplicated? Perhaps, but not easily. In a future case we'll see the steps that H&M has taken to speed new fashions to their stores, but they do so without attempting the vertical integration we witness in the Zara model.

So what is it that makes this model so difficult to duplicate? More to come as our study of OM progresses this semester.

Reference

Collier, D.A. & Evans, J.R. (2015). OM5, Boston: Cengage Learning.