The responsible managers receive variable compensation to stimulate incentive for progress.
Once the finished merchandise reached the distribution center it will be sent out immediately via shipments or aircraft by third-party delivery.
Direct shipping from central distribution centers reduces cycle time and helps the company to be the first to market.
H& M differs from Zara because it outsources all of the production, it is more price oriented and spends more money on advertising. 1% The operating margin can be used as a measure of each firm’s capital efficiency.
But both companies are based in Europe, are fashion forward at lower price retailers, and have a strong international expansion strategy. 16% Inditex was the most profitable firm, measured by ROIC. It shows that Inditex has a greater power to earn a profit per each Euro of sales than H& M. 40 million Euros in current assets for every Euro in short term debt.
The self-owned centralized distribution facility consists of a high-tech information system to insure that clothes are stored only for a short while and to enable Quick Response.
Consequently it’s easy to manage scheduling, avoid conflicts, and reduce forecast variations / errors, minimizing the bullwhip effect and the necessity of Working Capital.
It has rather developed a combination of differentiation and cost leadership.
By limiting production from external parties and operating each step of the value chain, Zara is able to minimize costs and fees to third parties and maximize profits by creating a business model based on a Quick Response system and backward vertical integration.
Inditex is on top position compared to all competitors with an impressive growth rate of 47%.
H& M has the closest result and is the only company besides Inditex whose market value has been growing in 2001.