OperationManagement
ByAmaliaNurhidayati-29323110
One-SetDenim CollaborationZaraxGoodAmerican
X
TableofContents
1. Background&ProblemStatement
ZaraxGoodAmericanTriumphoverOverstockdue tomiscalculatingforecast,
2.ForecastingDemand
ZaradeterminedemandpastdataandZaraanalyze weightedmovingaverageVSsinglemovingaverage, whichoneisthebestforecastingmethod
3.InventoryManagement
Zaraanalysistheinventorymanagementbycalculating Daysofinventory,ABCAnalysisandRecord Accuracy.Afterthattheyimplementstrategyfor inventoryimprovement
4.MRP&ERP
Afterimplementstrategyfor6month,Zaraanalyzethe MRP&ERP.MRPincludesBillofmaterialandMaster ProductPlanning.ERPincludesCashtoCashCycleto knowhowtheimprovementstrategyworks.
5.Conclusion
OverallSummaryfromanalysisforecastingdemand, inventorymanagement,MRP&ERP
Company Profile
● Zara'sjourneybeganin1975intheheartofACoruña,Spain,underthevisionofAmancioOrtega.Fromhumblebeginnings asasmallwomen'sclothingstore,Zarahasevolvedintoafashionempirewithover2,200storesspanning96countries worldwide.Zaraisknownforitsfastfashionbusinessmodel
● GoodAmericanisadenimbrandfoundedin2016byKhloéKardashianandEmmaGrede.Thebrandisknownforits inclusivesizing,whichrangesfromsize0to24.GoodAmericandenimisdesignedtoflatterallbodytypes.
● ZaraxGoodamericanhaveaspecialcollaborationforNewYearcampaignlaunchedin2018.TheOnesetclassicDenim canbefoundinalloverZaraStores
VISION MISSION
Zaravisionistobethemostadmired fashioncompanyintheworld.The companyiscommittedtoprovidingits customerswiththelatestfashiontrends ataffordableprices.
● Tocreatevalueforitscustomersbyofferingthemthelatestfashion trendsataffordableprices.
● Toprovideitscustomerswithagreatshoppingexperience.
● Tobeasociallyresponsiblecompanythatiscommittedtoenvironmental sustainability.
X
BackgroundZaraxGoodAmericanTriumphoverOverstock
Zarastandsasabeaconofstyleandaffordability.Renownedforitsrapid responsetotrendsanditsabilitytodeliveron-pointdesignsatattractiveprices. However,behindthisglamorousbrand,theyfacecomplexoperational challenge:managinginventory.
ZarahaveacollaborationwithGoodAmericanthatproduceJeansmaterials. ThecollaborationlaunchedonNewYear2018.Theproductis:OneSetClassic
Denim(skinnyjeans+denimshirt),ThepriceisRp1.000.000
ThisisachallengeforZarabecauseActualProductSoldisbelowthetargetand impactingtheoverstock,thishappenedbecausemiscalculatingforecast sales.Accuratelyforecastingdemandforfashionitemsisnotoriouslydifficult, astrendscanchangerapidlyandconsumerpreferencesareoften unpredictable.
Zara
XGoodAmericanSKU: OneSetClassicDenim Price:
Misjudgmentsindemandforecastingcanleadtooverstock,resultinginexcess inventorythattiesupcapitalandreducesprofitmargins. Rp
1.000.000 source
TheBackground-Zara'sTriumphoverOverstock#2
Toaddressthisissue,Zaraembarkedonajourneytotransformitsinventorymanagementpractices.Atthe heartofZara'stransformationliesafocusondata-drivendecision-making.Thecompanyhasinvestedheavily indataanalyticstoolsandsystems,enablingittocollect,analyze,andamountsofinformationaboutcustomer preferences,salestrends,andmarketconditions.
Zarahasrefineditsinventorymanagementstrategies.Thecompanyhasimplementedstricterinventorycontrol measures,optimizeditsproductionschedules,andenhanceditscollaborationwithsuppliers.
ThecompanyhasdeployedMRPandERPsystems,enablingittotrackinventorylevelsinreal-time,optimize procurement,andcoordinateproductionactivitiesseamlessly.Zara'seffortstoaddressoverstockhaveyielded impressiveresults.Overthepastfewyears,thecompanyhassignificantlyreduceditsunsoldinventorylevels, freeingupcapitalandimprovingprofitability.Zara'ssuccessstoryhighlightsthecriticalroleofdemand forecasting,inventorymanagement,MRP,andERPinmitigatingoverstockandensuringefficientoperationsin thefashionindustry.
ForecastingDemand
ZaraxGoodAmericanDenim
ForecastingSales DATAPASTYEAR
First,weneedtoseepastdataofsalesOneClassicSetDenim.Zara,consistentlystrivestomeetcustomerdemandbyaccurately forecastingsalesforitsproducts.However,duringtheperiodfromAugusttoDecember,salesforecastingforZara'sone-set denimfailedtoachieveitstargets.Thisresultedinstockoutsandexcessinventory,causingfinanciallossesandcustomer dissatisfaction.
PastData2017salesVSActualsales forOneSetClassicDenim
The sales not achieving the target from July to December 2017.
Target just 57% achieved in that period
● Zarafoundoutthattheyhavetomakestrategyto increasingSalesforOneSetDenim.Thestrategywill focusingonRe-forecastingdemand,inventory managementandERP&MRPsystemadjustment
● Theannualtargetsales=85.5Billion
● AnnualActualsales=
● Achivementrate=78%.Mostlynotachivedthetarget dromJuly-December
● Theproductwillre-launchinNewYear2018.
● Therewillbeincreasingdemandby20%inNewYear season(learningfromthepastyear)
● wewillmakeaforecastingbasedonthissalesdata, usingsomemethodtoknowwhichforecastgivesus themostaccurateresult.
● So,productionteamswillknowhowmanydenimeach monththeyshouldmakefor2018
WeWillComparingThedemandforecastingZaraWhich ForecastMethodsThatZarawillchoosefornextyear?
- WeightedMovingAverage or
- SingleMovingAverage
ForecastingDemand
WeightedMovingAverage
ZarausesaWMAtoforecastdemandforitsone-setdenim.Itisatypeofmovingaveragethatassignsweightstodifferentdata pointsinthetimeseries.Thisgivesmorerecentsalesdatamoreweightintheforecast,whichhelpstoensurethattheforecast isaccurateandup-to-date.
WeightedMovingAverage
● TheWMAforecastshowsthatMoMforecastisalmoston targetsales.Thismethodisthemostaccurate
● WeighedMovingAverageshowsthatweuse0.5for currentperiod,0.3forpreviousperiodand0.2fortwo previousback.
Period
SalesExisting PastdATA
Forecasting WMA
TheFormula:
ForecastingDemand SingleMovingAverage
ZaraalsousesanSingleMovingAveragetoforecastdemandforitsone-setdenim.ThecompanycalculatestheSMAbyaddingup thesalesdatafromthepreviousnperiodsanddividingthesumbyn.Thevalueofnistypicallychosentobebetween3and9
● Thediagramshowsthatsinglemovingaverageforecastingisfarawayfromsalessituation. Sowe’renotusingthisforecastingmethod
● TheforecastSMA3monthmeansdividedthelast3monthssales by3,
● and SMA9monthmeansdividedthelast9monthsalesby9
SingleMovingAverage
Period Sales Past Data Forecasting SMA(3 months) Forecasting SMA (9 months) January 5,000 5,033 5,978 February 4,500 5,044 6,086 March 5,600 5,226 6,263 April 5,500 5,101 6,336 May 6,500 5,124 6,429 June 6,000 5,150 6,421 July 7,000 5,125 6,468 August 6,000 5,133 6,409 September 7,700 5,136 6,455 October 7,800 5,131 6,316 November 8,200 5,134 6,354 December 8,300 5,134 6,384
WhichForecastingShouldZaraChoose?
WeightedMovingAverage
- Moreaccurate
- Assignsdifferentweightstodifferentdatapoints
- Morecomplexduetoweightingmechanism
- Moresuitableforforecastingtrendsthatchange quickly
- LessAccurate
- Assignsequalweightstoalldatapoints
- Lesscomplexandeasiertoimplement
- SMAissimplertypeofmovingaveragethat assignsequalweightstoallhistoricaldata pointswithinaspecifiedtimeperiod.
WMAiswell-suitedforforecastingdemandforproductslikeone-setdenim,whicharesubjecttorapidlychanging trends.Byassigninghigherweightstorecentdatapoints,WMAcapturesthelatestfashiontrendsandpreferences moreeffectively.
WeightedMovingAverage SingleMovingAverage
SuggestionZaratoimproveforecasting
1. UseReal-timeData:Integratereal-timesalesdata,inventorylevels,andcustomerfeedbackintothe forecastingprocess.ThiswillenableZaratorespondpromptlytochangesindemandandoptimize inventorymanagement.
2. UtilizeMachineLearningandPredictiveAnalytics:Machinelearningalgorithmscananalyzelarge datasetsofhistoricalsalesdata,customerpreferences,andmarkettrendstoidentifyhiddenpatterns thatcaninformdemandforecasts.
3. Collaboratewithsuppliers:Establishclosecommunicationwithsupplierstogaininsightsintosupply chaindisruptionsandpotentialdelays.Thiswillfacilitateproactiveadjustmentstodemandforecasts.B
4. RegularlyReviewandUpdateForecastingModels:Thiswillensurethatthemodelsremainaccurate andrelevant,providingreliabledemandpredictionsforone-setdenim.Zarashouldestablisharegular reviewprocessforitsdemandforecastingmodels,involvingdataanalysts,marketingexperts,and productdesignerstoensurethatthemodelsareupdatedwiththelatesttrends,marketconditions,and customerpreferences.
Sales&OperationsPlanning(S&OPGlobalPractice)
Zara'sS&OPglobalstrategystandsasatestamenttoitscommitmenttoefficiency,innovation,andcustomersatisfaction.Zara's S&OPglobalstrategyisfoundedonseveralkeyprinciplesthatdriveitseffectiveness:
1. FastFashionApproach:Zaraembracesafastfashionapproach,characterizedbyrapidproductioncycles,frequentstore replenishments,andafocusonadaptingtochangingtrends.ThisrequiresahighlyagileS&OPprocessthatcanquickly respondtomarketsignals.
2. Real-timeDataIntegration:Zaraintegratesreal-timedatafromsales,inventory,andcustomerfeedbackintoitsS&OP process.Thisenablesthecompanytomakeinformeddecisionsbasedonup-to-dateinformation,reducingtheriskof stockoutsorexcessinventory.
3. CollaborativeDecision-making:Zarafosterscollaborationamongvariousdepartments,includingsales,merchandising, production,andsupplychain,toensurethatS&OPdecisionsarealignedwithoverallbusinessgoals.
KeyComponentsofZaraS&OPGlobalPractice:
1. DemandForecasting:Zarautilizesacombinationofhistoricalsalesdata,markettrends,andcustomerfeedbackto forecastdemandforitsproducts.
2. InventoryManagement:Zaramaintainsstrictinventorycontrolmeasurestoensurethatithastherightamountofstockto meetcustomerdemandwithouttyingupcapitalinexcessinventory.
3. ProductionPlanning:Zara'sproductionplanningprocessiscloselyalignedwithdemandforecastsandinventorylevels.The companyadjustsproductionschedulesbasedonreal-timedatatoensurethatitproducestherightproducts
InventoryManagement
OneSetDenimZaraxGoodAmerican
InventoryManagementinZara
Fromthepreviouschapter,weknowthatthesalesdidn’tachievethetarget.TheInventoryis overstocked.Wehave300.000pcsforOneSetDenimfor2018thathasbeenproduced,sohowthis inventorymanagementstrategyforoverstockeditems?
First,weneedtoanalyzetheDaysofIntervalLevel,ABCAnalysisandRecordAccuracy.AfterAnalyze this,wewillmakestrategyforInventorymanagement
Inthiscase,ZarawantstoanalysisDaysofIntervalLevel,itshowstheanalysisofhowlongittakesfor inventorytobesoldandreplace.Itiscalculatedbydividingtheaveragedailysalesbytheaverage inventorylevel.AlowerDILindicatesthatinventoryisturningovermorequickly,whileahigherDIL indicatesthatinventoryisturningovermoreslowly. AndwewillmakeABCanalysistoclassifyproduct,itisamethodofinventorymanagementthatdivides inventoryintothreecategoriesbasedontheirvalueorimportancetothebusiness.Thisanalysisis Improveinventoryturnover,Reducetheriskofobsolescence,managingthemostimportantinventory items. AndwewillanalyzeRecordAccuracy,referstothedegreetowhichtherecordedinventorylevelsmatch theactualphysicalinventorylevels.
DaysofInventory
WewillanalyzeDIL,itisameasureofhowlongittakesforinventorytobesoldandreplaced.Itiscalculatedbydividingtheaverage dailysalesbytheaverageinventorylevel.AlowerDILindicatesthatinventoryisturningovermorequickly,whileahigherDIL indicatesthatinventoryisturningovermoreslowly.
Zaraisknownforitsfastfashionbusinessmodel,whichischaracterizedbyrapidproductioncyclesandfrequentstore replenishments.ThismeansthatZarahasarelativelylowDIL,whichisakeyfactorinitssuccess.DILofinventoryzarais56,9days
DataCollection:
● AverageInventoryfortheYear(AI)=Rp780Million
● CostofGoodsSold(COGS)=Rp5Billion
● CalculateCostofGoodsSoldperDay:
● CostofGoodsSoldperDay(COGSperDay)=COGS/365(number ofdaysinayear)
● COGSperDay≈Rp5billion/365≈Rp13.698.630
● CalculateDaysofIntervalLevel:
● DaysofIntervalLevel(DIL)=AI/(COGSperDay)
● DIL≈780.000.000/Rp13.698.630≈56,9days
TurnoverRatio:
=COGS/AverageInventoryfortheYear
=5Billion/780Million =6.4
Daysofinventoryforone-setdenimis56.9daysmeansthatittakesonaverage56.9daysforZaratosellthe denim.Thisisarelativelyhighnumber,whichsuggeststhatZaramaybeoverstockedwithdenim.
Itisbecausethecompanyhassimplymisjudgeddemandfortheproduct.Andtheproductisnotsellingwell andisthereforenotturningoverquickly.
ABCAnalysis
TheOne-SetDenimcanbesoldseparatelyasShirtandSkinnyJeans.TheABCanalysisshowsthattheSKUshirtandSKUSkinny JeansareimportantitemsforZaratomanage.Zarashouldfocusonensuringthatithasasufficientsupplyofbothitemsto meetdemand.
● SKUDenimShirt
TheSKUshirtisahigh-valueandhigh-usageitemforZara, Volume/User=75%soitis popularitemthatsellswellthroughouttheyear.Zaraneedsto ensurethatithasasufficientsupplyofSKUshirtstomeetdemand.
● SKUDenimSkinnyJeans
TheSKUskinnyjeansisahigh-valueandhigh-usageitemforZara, RupiahVolume/User=24,6% denimislesspopularitemthatsellswellthroughouttheyear.
ITEM NUMBER ANNUAL VOLUME UNIT ANNUALRUPIAH VOLUME RUPIAH VOLUME / CLASS Denim Shirt 480.000 89.000 Rp42.720.000.000 Denim Skinny Jeans 450.000 31.000 Rp13.950.000.000 Total 930.000 120.000 Rp56.670.000.000
Summary
SKUDenimShirt
SkinnyJeans
Record
RecordAccuracy
Referstothedegreetowhichtherecordedinventorylevelsmatchtheactualphysicalinventorylevels.Recordaccuracyisacrucialaspectof inventorymanagement,particularlyforZara,ahigh-fashionretailerthatreliesonrapidproductionandreplenishmentcycles.Accurate inventorylevelsensurethatZarahastherightproductsavailabletomeetcustomerdemand,preventingstockoutsandoverstocking. Record
Arecordaccuracyof87.5%.Thisisarelativelyhighlevelofrecordaccuracy,whichisimportantforafast-fashionretailerlikeZara.Accurate inventorylevelsallowZaratoensurethattherightproductsareavailabletomeetcustomerdemand,preventingstockoutsandoverstocking.
● 12.5%ofthetime,therewillbeadiscrepancybetweentherecordedinventorylevelandtheactualinventorylevel.Thiscouldbedueto avarietyoffactors,suchashumanerror,dataentrymistakes,orsystemglitches.
● Zarawillneedtoconductcyclecountingtoidentifyandcorrectanydiscrepancies.Thiswillhelptoensurethattherecordedinventory levelsremainaccurateovertime.
● Eventhoughthereisa12.5%chanceoferror,87.5%recordaccuracyisstillagoodlevelofaccuracyforafast-fashionretailer.Thisis becauseZaracanuseitsinventorydatatomakeinformeddecisionsaboutpurchasing,production,anddistribution,evenwithsome discrepancies.
Accuracy(%)
CountedUnit/ActualInventory*100%
700.000/800.000*100%
87,5%
=
=
=
AccuracyCalculation
WhatNeedtodoforZaratoimproveInventory Management?
Zara'sinventorymanagementsystemisalreadyquiteefficient,buttherearealwaysareasforimprovement.Herearesomethingsthat Zaracandotofurtherenhanceitsinventorymanagement:
1. Continuetoinvestintechnology:Zarahasalreadymadesignificantinvestmentsintechnology,suchasbarcodescanners, RFIDtags,andautomatedinventorymanagementsystems.Thecompanyshouldcontinuetoinvestinnewtechnologiesthat canhelptoimproveinventoryaccuracyandefficiency.
2. Refinedemandforecasting:Accuratedemandforecastingisessentialforpreventingstockoutsandoverstocking.Zara shouldcontinuetorefineitsdemandforecastingmodelstoensurethatitisproducingtherightproductsintherightquantities attherighttime.
3. Optimizereplenishmentstrategies:Zara'sreplenishmentstrategiesshouldbeoptimizedtominimizeleadtimesandensure thatthereisalwaysenoughinventorytomeetdemand.Thecompanyshouldalsoconsiderimplementingmoreflexible replenishmentstrategies,suchasusingjust-in-timeinventoryordemand-driveninventorymanagement.
4. Empoweremployeeswithreal-timeinventorydata:Zara'semployeesshouldhaveaccesstoreal-timeinventorydataso thattheycanmakeinformeddecisionsaboutproductallocation,replenishment,andcustomerservice.
5. Regularlyreviewandupdateinventorypoliciesandprocedures:Zarashouldregularlyreviewandupdateitsinventory policiesandprocedurestoensurethattheyareup-to-dateandeffective.Thiswillhelptopreventerrorsandensurethatthe companyistakingfulladvantageofitsinventorymanagementtechnology.
Byimplementingthesestrategies,Zaracanfurtherimproveitsinventorymanagementsystemandmaintainitscompetitiveedgeinthe fast-fashionindustry.
StrategyforOverstockDenimtoincreaseDemand
CreateDoubleDate Campaignmonthly
FlashSaleinOffline store&E-commerce
Doubledatecampaignis every11.11,12.12etc.We canofferadiscountonly onspecialdates.Thiswill beincreasingthedemand forOne-SetDenim
Aflashsaleisagreatway toclearoutoverstocked inventoryquickly.By offeringasignificant discountonone-setdenim foralimitedtime,itcan generatealotof excitementandencourage customerstobuymultiple items
Bundlewithother merchandiseGoodDenim B2BorReseller Program
B2Bprogramonlyfor OneSetDenim.Wesellitto theresellerorother businessthatmakebulky orders(minimal100pcs),it willgetdiscountprice.This willbegreatstrategyto sellproductquickly
Bundlepricewithfree merchandiseGoodDenim, thiswillbegreat promotionalactivityasa gimmicktocustomer
SummaryAnalysisfromInventoryManagement
● ZaraanalysistheinventorymanagementbycalculatingDaysofinventory,ABCAnalysisandRecordAccuracy
● DaysofInventoryfor OneSetDenimis56,9days.Theitemsisoverstockedtoolonginthewarehouse,thisisbecause theproductnotsellingwellandmisforecastingdemand
● FromABCanalysis,wefoundthatSKUDenimshirtisahigh-valueandhigh-usageitemforZara,Rupiah Volume/User=75%soitisclassifiedasan"A"item.TheSKUskinnyjeansisahigh-valueand high-usageitemforZara,RupiahVolume/User=24,6%soitisclassifiedasan"B"item.Thedenimisless popularitemthatsellswellthroughouttheyear.
● RecordAccuracy=87,5%,itisgoodforZaraaccuracy,andneedtomaintainthisaccuracy
● TheimprovementforZara’sInventoryManagement:Investinforecastingtechnology,RefineDemand forecasting,Empoweremployeeswithreal-timeinventorydata, Empoweremployeeswithreal-time inventorydata
● AndZaraalsocanincreasedemandbycollaboratewithmarketing&salesteam:Createpromotional strategylikeDoubleDateCampaignmonthly,FlashSaleinOfflinestore&E-commerce,B2BorReseller Program,BundlewithothermerchandiseGoodDenim
MRP&ERP
MRP&ERPDescription
Fromtheinventorymanagement,weknowthatDaysofinventoryneedtobeimprove.Zaraimplement theimprovementstrategyforoverstockedOneSetDenimin6months.
Then,theoperationdepartmentanalyzetheMRP(ManufacturingResourcePlanning).MRPincludes BillofmaterialandMasterProductPlanning.Theobjectiveisidentifiesandmanagesthematerials requiredforproduction,ensuringthattherightcomponentsareavailableattherighttime.
Then,afterimplementtheimprovementstrategy,ZaraAnalyzetheERP(EnterpriseResource Planning),itincludesCashtoCashCycletoknowhowtheimprovementstrategyworks.Theresulthas significant=Cashtocashcycleis20,51days.Itisrelativelyshort,whichsuggeststhatthecompanyis efficientatconvertingitscashintomorecash.
MRP(ManufacturingResourcePlanning)
MRPwillhelpZaratogrowthebusiness:
1. ScheduleProduction:MRPschedulesproductionactivitiesbasedondemandforecastsandinventory levels,ensuringthattherightproductsareproducedintherightquantitiesattherighttime.
2. ManageMaterialRequirements:MRPidentifiesandmanagesthematerialsrequiredforproduction, ensuringthattherightcomponentsareavailableattherighttime.
3. OptimizeProductionCapacity:MRPoptimizesproductioncapacity,ensuringthatresourcesareutilized efficientlyandthatproductiontargetsaremet.
4. MinimizeProductionCosts:MRPhelpstominimizeproductioncostsbyoptimizingmaterialusage,labor allocation,andscheduling.
ERPandMRPplayacrucialroleinZara'soperations,providingthecompanywiththetoolsandinsightstomanageits complexbusinessprocesseseffectively.Byintegratingthesesystems,Zaracanoptimizeitssupplychain,production planning,andinventorymanagement,leadingtoimprovedefficiency,reducedcosts,andenhancedcustomer satisfaction.ThesefactorscontributesignificantlytoZara'ssuccessasagloballeaderinthefashionindustry.
BOM(BillofMaterial)
Abillofmaterials(BOM)isacomprehensivelistofallthecomponentsandrawmaterialsrequiredtoproduceaproduct.Forone-setdenimZara, theBOMtypicallyincludesthefollowingitems:
Level0
One Set Denim
Level1
Level2
Summary
● ZaraBOMLevel0includes=OnesetDenim,Level1=SkinnyJeans(B1)ANDJeansShirt(B2),
● Level2includes=Fabric->C1(Zarausesavarietyoffabricsforitsdenimgarments,includingcotton,cottonblends,and stretchdenim)
● Zippers->C2(Zarausesavarietyofzippers,includingmetalzippers,plasticzippers,andinvisiblezippers)
● Buttons->C3(One-setdenimmayalsofeaturebuttonsfordecorativepurposesortoadjustthefit)
B
C
C
Skinny Jeans Jeans Shirt A(1) B (1)
(2) C (1) Fabric
(2) Zippers
(3) Buttons
materialsintherightquantitiesattherighttimetomeetitsproductionneeds.Thishelpstopreventstockoutsandexcessinventory,whichcanboth
ERP(EnterpriseResourcePlanning)
ERPisacomprehensivesoftwaresystemthatintegratesandmanagesvariousbusinessprocesses,including:
1. OrderManagement:ERPstreamlinesorderprocessing,ensuringaccurateordercapture,fulfillment, andtracking.
2. InventoryManagement:ERPprovidesreal-timevisibilityintoinventorylevels,enablingZarato optimizestocklevels,minimizestockouts,andreduceexcessinventory.
3. ProductionPlanning:ERPfacilitatesproductionplanningandscheduling,ensuringthattheright productsareproducedintherightquantitiesattherighttime.
4. SupplyChainManagement:ERPconnectsZarawithitssuppliers,enablingefficientprocurementof rawmaterialsandcomponents,managingleadtimes,andreducingsupplychaindisruptions.
5. FinancialManagement:ERPhandlesfinancialtransactions,includingaccountsreceivable,accounts payable,andfinancialreporting.
6. HumanResourceManagement:ERPmanagesemployeedata,payroll,andperformanceevaluations.
CashtoCashCycle
Thecashconversioncycle(CCC)isameasureofhowefficientlyacompanyconvertsitscashintomorecash.Itiscalculatedby addingthedaysinventoryoutstanding(DIO),thedayssalesoutstanding(DSO),andthedayspayableoutstanding(DPO).Alower CCCindicatesthatacompanyismoreefficientatconvertingitscashintomorecash.Thisisbecausethecompanyissellingits inventoryquickly,collectingpaymentfromitscustomersquickly,andpayingitssuppliersslowly.
1
2
Calculation
Datacollection
AverageInventoryValue = 780.000.000
SalesOverLast30Days = 6.508.333.333
COGS = 5.000.000.000
AccountReceivable = 3.500.000.000
AveragePayable = 50.000.000
Average days of inventory = 4,68 days -> means that it takes the company an average of 4.68 days to sell its one-set denim.This is a relatively low, which suggests that Zara is managing its inventory efficiently.
Average days account Receivable = 16.13 days, it takes the company an average of 16.13 days to collect payment from its customers for one-set denim sales.This is a relatively high, which suggests that Zara may have some room for improvement in collecting payments from its customers.
DaysofInventory(Id) = I/Cd = 4,68
DaysInventoryOutstanding(DIO) Average
AverageDailySales(Sd) = S/d = 216.944.444 CostofSales(CS) = COGS/Totalsales = 0,77 AverageDailyCostofSales(Cd) = Sd.CS = 166.666.666,67
DaysAccountReceivable (ARd) = AR/Sd = 16,13
DaysInventoryOutstanding(DIO)
Average
CashtoCashCycle#2
Next,weneedtocalculatetheDaysPayableOutstanding(DPO)andCashtocashcycle.APdisameasureofhowlongittakesacompanytopay itssuppliers.Itiscalculatedbydividingtheaverageaccountspayablebalancebytheaveragedailypurchasesanddividingtheresultby365.The cash-to-cashcycletimeisameasureofhowefficientlyacompanyconvertsitscashintomorecash.Ashortercash-to-cashcycletimeindicates thatacompanyisconvertingitscashintomorecashmorequickly,whichcanleadtoincreasedprofitsandimprovedcashflow.
Calculation
3DaysPayableOutstanding(DPO)
AverageDaysofAccountsPayable(APd) = AP/Cd
= 0,30
4Cash-to-cashcycletime
Cash-to-cashcycletime
= DSO+DIO-DPO
= 20,51
= 20,51
the cash-to-cash cycle time for Zara One-Denim Shirt : 20,51 days.
Summary
Zara'sAverage Days ofAccounts Payable (APd) = 0.3 days means that the company takes an average of only 0.3 days to pay its suppliers for one-set denim purchases.This is a very lowAPd, which suggests that Zara is highly efficient at paying its suppliers promptly.
Zara's cash-to-cash cycle time of 20.51 days is relatively short, which suggests that the company is efficient at converting its cash into more cash.This is due in part to Zara's very lowAPd, which means that the company is not tying up much cash in accounts payable.
Zara'slowAPdandshortcash-to-cashcycletimesuggestthatthecompanyismanagingitscashfloweffectively.This canbeasignificantadvantageforacompany,asitcanfreeupcashforotherpurposes,suchasinvestinginnew productsorexpandingintonewmarkets
Conclusion
OverallConclusion
ZarasellOne-SetDenim
● ZarahaveacollaborationwithGoodAmericanthatproduceJeansmaterials.ThecollaborationlaunchedonNew Year2018.Theproductis:OneSetClassicDenim(skinnyjeans+denimshirt),ThepriceisRp1.000.000.Thisisa challengeforZarabecauseActualProductSoldisbelowthetargetandimpactingtheoverstock,thishappened becausemiscalculatingforecastsales
● ZarasalesnotachievingthetargetfromJulytoDecember2017.Targetjust57%achievedinthatperiod.Itwill impacttheoverstockproductinwarehouse.Theyneedre-forecastingthedemandforthenextyear.Zara analyzeforecastingbasedon2methods:WeightedMovingAverageandSingleMovingAverage.Theresultfor WMAismoreaccuratethantheSMA
● Afterdeterminetheforecastdemand,wewillseetheinventorymanagementlevel.First,weneedtoanalyzethe DaysofIntervalLevel,ABCAnalysisandRecordAccuracy.AfterAnalyzethis,wewillmakestrategyforInventory management
● DaysofIntervalLevel(DIL)=56,9daysandTurnoverRatio=6.4.DIL56,9daysarearelativelyhighnumber, whichsuggeststhatZaramaybeoverstockedwithdenim.Itisbecausethecompanyhassimplymisjudged demandfortheproduct.Andtheproductisnotsellingwellandisthereforenotturningoverquickly.
● ABCAnalysisfoundthatSKUDenimshirtisahigh-valueandhigh-usageitemforZara,RupiahVolume/User= 75%soitisclassifiedasan"A"item.AndSKUskinnyjeansclassifiedasan“B”item.RecordAccuracy=87,5%
OverallConclusion#2
● Zaraimplementstrategyforoverstockproductsin6months.TheimprovementforZara’sInventory Management:Investinforecastingtechnology,RefineDemandforecasting.AndZaraalsocan increasedemandbycollaboratewithmarketing&salesteam:Createpromotionalstrategylike DoubleDateCampaignmonthly,FlashSaleinOfflinestore&E-commerce,B2BorResellerProgram, BundlewithothermerchandiseGoodDenim.
● ThelastoneiswedetermineMRP&ERP.MRP(ManufacturingResourcePlanning).MRPincludesBillof materialandMRPPlanningSchedulingStatusRecord,MasterProductPlanning.
● Billofmaterial:Level0includes=OnesetDenim,Level1=SkinnyJeans(B1)ANDJeansShirt(B2),Level 2=Fabric->C1,Zippers->C2,Buttons->C3
● ZaraAnalyzetheERP(EnterpriseResourcePlanning),itincludesCashtoCashCycletoknowhowthe improvementstrategyworks.Theresulthassignificant=Cashtocashcycleis20,51days.
● Averagedaysofinventory=4,68days,AveragedaysaccountReceivable=16.13days,Zara's AverageDaysofAccountsPayable(APd)=0.3days,Zara'scash-to-cashcycletimeof20.51days, whichsuggeststhatthecompanyisefficientatconvertingitscashintomorecash
● Attheend,afteranalysisZaracanmitigatingoverstockforOneSetDenimin2018andmakethe operationismoreefficient
