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The Zara Gap:What is Different?

SOURCING JOURNAL SUMMITNEW YORK CITY10.15.15.

INCREMENTAL OR TRANSFORMATIONAL?

Clayton Christensen:“The theory of disruptive innovation describes a process by which a product or service transforms an existing market by introducing simplicity, convenience, accessibility, and affordability….thereby making them available to a much larger population.”

Gary Hamel: “If you want to see the future coming, 90 percent of what you need to learn, you’ll learn outside of your industry. There is nothing that you can learn from inside your industry that will help you get ready for the future. Literally nothing, because you already know it.”

OUTSIDE IN?

Superior profitability is based in supply flexibility

to reduce unwanted markdown, stock-out and

inventory costs.

Lead Time Optimization (LTO)™ links lead times,

earnings and market capitalization.

…We estimate thatpercentage increases in Market Cap due to adoption of Supply Flexibility solutions range from

30% to nearly 40%.

The most powerful lever is the management of

capacity and materials for speed and flexibility.

OUTSIDE IN?

The case study, “InnerMost: Strategies for Fast Fashion,” was written by Professor Warren H. Hausman and Professor Behnam Tabrizi, Department of Management Science & Engineering, Stanford University, and John S. Thorbeck of Chainge Capital LLC. All names and data are disguised.

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Zara vs. Channel Averages

Operating Income / Inventory

Mar

ket

Cap

/ Rev

enue

OPPORTUNITY GAP

Warren H. Hausman and John S. Thorbeck, “Fast Fashion: Quantifying the Benefits,” publication in Innovative Quick Response Programs in Logistics and Supply Chain Management, edited by Edwin Cheng and Jason Choi, Springer Publishing Company.

Retail’s Big Arbitrage

Operating Income / Inventory

Mar

ket

Cap

/ Rev

enue

H&M

E

D C

A B

Fast Retailing

HAS THE ZARA GAP PERSISTED?

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Warren H. Hausman and John S. Thorbeck, “Fast Fashion: Quantifying the Benefits,” publication in Innovative Quick Response Programs in Logistics and Supply Chain Management, edited by Edwin Cheng and Jason Choi, Springer Publishing Company.

CHGBDA

CHAINGE“CHANGE THE SUPPLY CHAIN”

Tightly link product speed and flexibility to

fresh and frequent fashion in stores.

BDA LONDON“BRAND STRATEGY”

The BDA process emphasizes lifestyle,

product and consumer behavior

SPEED STYLE

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BDA London (UK) is a fashion marketing and strategy firm, Dave Edgar, Managing Director.

MAPPING PROCESS INNOVATION – “AS IS”

120-150 DAYS Order to forecast (make to order) Order (sell what you make)

ContractManufacturing

Finished GoodsInventory

WH & Customer

“Staging” Point (push/pull boundary)

Order to forecast

Supply to forecast

Company Inventory

Work inProcess

& Fin Gds

Assemble to order

Make to sell

1. Platform

2. Stage

3. Hedge

4. Postpone

5.Optimize

“Staging” Point (push/pull boundary)

Customer

14-21 DAYS

LEAD TIME OPTIMIZATION (LTO)TM

Lead Time Optimization (LTO)™ is a proprietary solution and trademark of Chainge Capital LLC.

THE MODEL IS DIFFERENT!

• New financial and customer model: sales productivity (full price sales/less inventory), in season speed and flexibility, and significant cash flow.

• New metrics: forecast accuracy (improvement with time), negative working capital, Open-to-Buy % in season, and shared supplier & worker incentives

• New LTO platform: network and optimize total supply chain for product cost, speed and flexibility

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Shared Value**Social Impact***

Supply Flexibility*

3. Sales:Millennials identify

with high social purpose

2. Incentives:Shared value

benefits suppliers and communities

1. Productivity:Untapped economics

via Lead TimeOptimization

INNOVATION FOR VALUE & VALUES

Co

nsu

mers

Retail b

rands

*Warren H. Hausman, Stanford, 2010**Michael E.Porter, HBR, Dec 2010***JPMorgan and Rockefeller Foundation Report

Supplier Communities

MORE INNOVATION?

LOW COST

SPEED AND FLEXIBILITY

ELECTRONICS & SOCIAL IMPACTSources of disruption

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SPEED STYLE

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THANK YOUJohn S. Thorbeck

Chainge Capital LLCjohn@chaingecapital.com