Demand Planning in Logistics
What is the role of demand
planning in logistics?
First of
all, let’s define what is demand
planning.
Demand planning
represents a set of methodologies and information technologies for the use of
demand forecasts in the process of planning. The aim is to accelerate the flow
of raw materials, materials and services beginning with the suppliers through
transforming to products in the company and to their distribution to their
final consumers.1
Kevin Hsu - Jan 19, 2017
Fashion
demand is highly unpredictable due to their short life cycles which are
typically just a few months. Is because of that the demand planning becomes an
important aspect in the apparel industry in order to not loss money and
accumulate stock.
The well
known Inditex brand, Zara, is a good example of it. Moreover, its supply chain
is its competitive advantage.
The supply
chain of Zara is an icon, relying on a contrarian strategy of vertical
integration in retail apparel to introduce dramatically more new items each
year. The virtuous circle this approach sustains includes more frequent shopper
visits to stores, fewer sales on markdown and faster cash conversion cycles.
The
relatively recent trend of offshore sourcing in the apparel industry has led to
long production lead times due to which companies operating in the field need
to buy products months in advance their sale. This has increased the importance
of demand forecasting in the apparel industry but Zara works in a completely
different way.
Zara works
with just in time production. It keeps a significant amount of its production
in-house and makes sure that its own factories reserve 85 percent of their
capacity for in-season adjustment. Instead of offshoring working in-house
allows the organization to be flexible in the amount, frequency, and variety of
new products to be launched.
It is true
that the wages of the European workers are higher than the offshoring workers,
but the turnaround time is miraculous.
Zara also commits six months in advance to only 15 to 25 percent of a
season’s line. And it only locks in 50 to 60 percent of its line by the start
of the season, meaning that up to 50 percent of its clothes are designed and
manufactured smack in the middle of the season.
On the demand-sensing side, Zara was a pioneer in using technology,
including PDAs (personal digital assistants) to capture real-time consumer data
not only on transactions, but also on preferences underlying perceptions of
value. Once they know what the customers prefer, store managers report customer
feedback to Zara’s designers who begin sketching
This then translates to frequent shipments and higher numbers of
customer visits to the stores, creating an environment of shortage and
opportunity.
This strategy allows Zara to sell more items because of the sense of
scarcity and exclusiveness. Is because of that Zara’s total cost is minimized
because the reduction in stock as compared to competitors. As they save money,
Zara can afford extra labor and shipping costs needed to satisfy changes in
customer demand.
Inventory optimization models are put in place to help the company to
determine the quantity that should be delivered to every single one of its
retail stores via shipments that go out twice every week.
Many experts believe that the secret of Zara to their success has been
the centralization that allows making decisions in a very coordinated
manner. Each store sends in two orders per week on specific days and timing.
Garments are already labeled and priced upon destination. Every staff involved
knows the timeline and how their activities pan out with respect to other
functions what is also extended to the customers who know when to visit stores
to find new clothes.
Zara’s strong distribution network enables the company to deliver goods
to its European stores within 24 hours, and to its American and Asian outlets
in less than 40 hours.
Nowadays, Zara is trying to see if a new way of distribution for the
e-Commerce works. Until now, they have used the “click and collect” based on
buying through the web and pick it up in the store. But now Zara wants to send
a QR code or PIN number with the data of your purchase and that this serves as
'key' to pick it up in a box office locate in the store. Always developing new
ideas in order to reduce cost and optimize the logistics.
To sum up, we could say that Zara don’t work with demand forecast as
their major part of the clothes are designed and manufactured in the middle of
the season relaying on what the customers like more. This can be achieved
because of the just in time production.
Bibliography
Clara Lu. (Dec 4th,
2014). Zara supply
chain analysis - the secret behind Zara's retail success. https://www.tradegecko.com/blog/zara-supply-chain-its-secret-to-retail-success
Kevin O'Marah . (Mar 9th, 2016). Zara uses supply chain to win again. https://www.forbes.com/sites/kevinomarah/2016/03/09/zara-uses-supply-chain-to-win-again/#46a218731256
El Ideal. (Sep
16th, 2017). Zara quiere ir más
allá en la entrega de pedidos online. http://www.elnortedecastilla.es/sociedad/zara-quiere-alla-20170916185728-nt.html
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