Agile, dynamic companies have the best chance of thriving in an increasingly volatile and dynamic business environment. These are the thoughts of Mats Abrahamsson, logistics professor at Linkoping University in Sweden. Specializing in business development with focus on flow-based business models and dynamic capacity, he is often engaged by international companies. Read about Zara-Inditex and get inspiration from one of the most successful agile companies today.
"Globalization. All companies are affected by it – directly or indirectly." These are the words of Mats Abrahamsson, who also points out that there are more millionaires in third world countries than there are inhabitants in the northern parts of Europe. Thus, the playing field is growing fast - and the challenges grow along with it. Logistics as a mean of competition is getting increasingly important as faster, more efficient and environmentally sustainable deliveries are demanded.
The 24/7 society and more demanding customers
We are also entering a 24/7 society where we are expected to be accessible at all times, Mats says. This means that the flow of materials and information has to become even better. Companies need to segment their customers more, and create services to match the customers – who also are increasingly "shopping around" rather than sticking to one single supplier. Furthermore, service and quality are becoming standard, minimum requirements – and not something you can charge extra for. The fact that customers compare and measure their supplier is something you will have to get used to.
Flow control is getting increasingly important
The winners of globalization will be those who can adapt and make sure that their market strategy and operations work in perfect harmony. A distinct, flow oriented business model which focuses on efficiency from suppliers and partners all the way to end customers is crucial. Strategy, structure and process together create the foundation for fast adaptability, growth and profitability.
A company in control of the flow can easily adjust to environmental challenges and new technologies. It also has a more stable economy and is less affected by economic fluctuations.
Living in a volatile world
Speaking of fluctuations, what can we learn from then? - We will have to learn to deal with them, Mats says. For instance, the habit of cutting operational costs when in a recession could easily become a problem, such as the inability to catch up or a slow start when things change. To be a winner in the long run you need a complete business model and high dynamic capability; high strategic efficiency combined with high operational efficiency. Creating sustainable competitiveness over time, a company should ask itself: "What are we really good at?" and then specialize, since we all can´t be best at everything.
A flow oriented business model: Zara- Inditex
Zara-Inditex is an example of a successful dynamic company. With complete End-to-End control of the supply chain, stores all over the world and more than 100 companies operating in textile design, manufacturing and distribution, it is one of the world´s leading fashion retailers.
Three basic principles
The company uses its own logic, "Fast fashion", with very short cycles and the ability to switch clothing lines at the stores in just 15 days – compared to the normal rate of 3 to 4 times a year. The Fast fashion system is built on three basic principles.
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"Stick to the rhythm"
Time is a central factor which the business evolves around. The pace is set and involves everything from design to sales – all is minutely scheduled: "Stick to the rhythm".
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"Close the Communication loop"
A successful system depends on the constant flow of information throughout the supply chain—from customer to store manager. No information should be lost. One goal, says professor Abrahamsson, is to have customers visiting the Zara stores much more frequently than competitors: 17 visits a year compared to 4 visits at the average store. In order to make this come true and lay several steps ahead, the company performs customer surveys continuously.
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"Leverage your capital assets to increase supply chain flexibility"
This indicates that all the sufficient resources are in use at all times — such as its own factories, weaving mills and low-cost production facilities.
Scheduled deliveries and flexible distribution centre
The scheduled replenishments for the stores often take place overnight from the central warehouses, and every store manager knows when a delivery can be expected. The manager also knows that all ironing, tagging and pricing is already done before shipping at the distribution centre, saving time at the store.
In addition, the company makes sure that all extra capacity is always at hand with 1/3 temporary staff.
What can we learn from Zara-Inditex?
Zara-Inditex is a company with operational excellence and true customer focus, says Mats Abrahamsson. The business model combines high strategic efficiency with high operational efficiency which equals strong competitiveness. One strategic weapon is, of course, the power to control the whole flow from supplier to end customer much more efficiently than the competitors. Just remember that this requires fast and demand-controlled IT-solutions. And having access to knowledge and resources within logistics and IT is undoubtedly very valuable.
It is easier to copy a "unique" product than it is to copy a unique supply chain. Operational excellence and customer focus is hard to build – but almost impossible to copy.
Mats Abrahamsson was key note speaker at the Swedish customer event focusing on WMS login:2011.