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What is a supply chain network?

A supply chain network is an evolution of a basic supply chain.
To understand supply chain network, we need to first understand supply chain. A supply
chain is a series of processes linked together to form a chain. Supply chain supply network
both describe the flow and movement of materials & information, by linking organizations
together to serve the end-customer.

Network’ describes a more complex structure, where organizations can be cross-linked and
there are two-way exchanges between them; ‘chain’ describes a simpler, sequential set of
links.

Example: Supply chain of an apple juice

Example: Supply chain network of an apple juice

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A supply chain network shows the links between organizations and how information and
materials flow between these links. The more detailed the supply chain network the more
complex and web like the network becomes.

The above example demonstrates a simplified version of a supply chain network of an Apple
Juice organization. The organization will have an upstream network and a downstream
network.

To get a complete picture of an organizations supply chain network; information & material
flow should be mapped. Inefficiency can then be located and removed.

• Material flow: Is the movement of goods from raw primary goods to complete goods
that are to be delivered to the final customer.
• Information flow: Is the demand from the end-customer to preceding organizations
in the network.

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Importance of supply chain Network:

Boost Customer Service

• Customers expect the correct product assortment and quantity to be delivered.
• Customers expect products to be available at the right location.
• Right Delivery Time – Customers expect products to be delivered on time
• Right After Sale Support – Customers expect products to be serviced quickly.

Reduce Operating Costs

• Decreases Purchasing Cost – Retailers depend on supply chains to quickly deliver expensive
products to avoid holding costly inventories in stores any longer than necessary.
• Decreases Production Cost – Manufacturers depend on supply chains to reliably deliver
materials to assembly plants to avoid material shortages that would shut down production.
• Decreases Total Supply Chain Cost – Manufacturers and retailers depend on supply chain
managers to design networks that meet customer service goals at the least total cost.
Efficient supply chains enable a firm to be more competitive in the market place.

Improve Financial Position

• Increases Profit Leverage – Firms value supply chain managers because they help control
and reduce supply chain costs. This can result in dramatic increases in firm profits.
• Decreases Fixed Assets – Firms value supply chain managers because they decrease the use
of large fixed assets such as plants, warehouses and transportation vehicles in the supply
chain. If supply chain experts can redesign the network to properly serve U.S. customers
from six warehouses rather than ten, the firm will avoid building four very expensive
buildings.
• Increases Cash Flow – Firms value supply chain managers because they speed up product
flows to customers. For example, if a firm can make and deliver a product to a customer in
10 days rather than 70 days, it can invoice the customer 60 days sooner.

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Difference between push based and pull based supply chain:

In pull supply chain, the process of manufacturing and supplying is driven by actual customer
demand whereas in push supply chain, the logistics are driven by long-term projections of
customer demand.

The differences are:

1. The type of marketing strategy which involves direction of marketing efforts to

intermediaries is called push strategy. On the other hand, the marketing strategy
involving the promotion of marketing efforts to the end user is called pull strategy.
2. In pull strategy, communication of products or information is demanded by the buyer,
while in push strategy, no such communication is demanded.
3. Push strategy aims at making customer aware of the product or brand. As against this,
pull strategy encourages the customer to seek the product or brand.
4. Push strategy uses sales force, trade promotion, money, etc. to induce channel
partners, to promote and distribute the product to the final customer. Conversely, pull
strategy uses advertising, promotion and any other form of communication to instigate
customer to demand product from channel partners.
5. Push strategy focuses on resource allocation whereas pull strategy is concerned with
responsiveness.
6. There is a long lead time in push strategy. However, it is just opposite in the case of
pull strategy.
7. Push strategy is best suited when there is low brand loyalty in a category. Unlike pull
strategy, is appropriate for the products with high brand loyalty, where the consumers
are well known about the differences in various brands, and they opt for a particular
brand before they go shopping.

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Supply chain network of Zara:

Zara changes its clothing designs every two weeks on average, while competitors change
their designs every two or three months. Zara’s highly responsive supply chain is central to
its business success. The heart of the company and its supply chain is a huge, highly
automated distribution center (DC) called “The Cube”.

Agents for the company are always scouting out new fashion trends at clubs and social
gatherings. When they see inspiring examples, they quickly send design sketches to the
garment designers at the Cube. New items can be designed and out to the stores in 4 – 6
weeks, and existing items can be modified in 2 weeks.

Factories can increase and decrease production quickly, thus there is less inventory in the
supply chain and less need to finance that inventory with working capital. They do only 50 –
60 percent of their manufacturing in advance. So Zara does not need to place big bets on
yearly fashion trends. They can make many smaller bets on short term trends that are easier
to call correctly.

Zara buys large quantities of only a few types of fabric (just four or five types, but they can
change from year to year), and does the garment design and related cutting and dyeing in-
house. This way fabric manufacturers can make quick deliveries of bulk quantities of fabric
directly to the Zara DC – the Cube. The company purchases raw fabric from suppliers in
Italy, Spain, Portugal and Greece. And those suppliers deliver within 5 days of orders being
placed. Inbound logistics from suppliers are mostly by truck. This is the upstream side of
Zara’s supply chain.

The Cube is highly automated with underground monorail links to 11 factories within a 16
km (10 mile) radii of the Cube. All raw materials pass through the cube and all finished
goods also pass through on their way to stores. The diagram below illustrates Zara’s supply
chain model.

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The 11 Zara owned factories are connected to the Cube by underground tunnels with high
speed monorails to move cut fabric to these factories for dyeing and assembly into clothing
items. The factories also use the monorail system to return finished products to the Cube for
shipment to stores.

Manufacturing is centered in northwestern Spain where company headquarters and the Cube
are located. But for their main distribution and logistics hub they chose a more centrally
located facility. That facility is located in Zaragoza in a large logistics hub developed by the
Spanish government. Raw material is sent by suppliers to Zara’s manufacturing center. Then
finished garments leave the Cube and are transported to the Zara logistics hub in Zaragoza.
And from there they are delivered to stores around the world by truck and by plane. Zara can
deliver garments to stores worldwide in just a few days.

Stores take deliveries twice per week, and they can get ordered inventory often within two
days after placing their orders. Items are shipped and arrive at stores already on hangers and
with tags and prices on them. So, items come off delivery trucks and go directly onto the
sales floor. This makes it possible for store managers to order and receive the products
customers want when they want them, week by week.

Zara stores respond practically in real-time as styles and customer preferences evolve. It is a
great business model for success in the high-change and hard to predict fashion industry.
However, a fast-moving and finely tuned supply chain like Zara’s requires constant attention
to keep it running smoothly. Supply chain planners and managers are always watching
customer demand and making adjustments to manufacturing and supply chain operations.