Zentrill
Zentrill were a medium sized chain of fashion women’s apparel retailers with 120 stores,
typically relatively small units, in premier High Street locations and shopping malls mainly in
California and some Southern states. Their clothes were stylish without being at the extremes of
fashion and aimed at relatively affluent customers between the ages of 30 and 60. Gross margins
(the difference between what Zentrill pay for clothes and what they sell them for) were
undisclosed but, as is common in this part of the fashion market, were very high. Typically an
outdoor coat retailing at $1,000 would cost the company less than $200. Zentrill’s designs were
exclusive and styled by both in-house design staff and outside consultant designers. All
Zentrill’s tailored garments (everything apart from knitwear and accessories) were manufactured
by Lopez Industries, a small but high-quality garment manufacturer in Mexico. Traditionally the
fashion retail industry in the northern hemisphere has two seasons; January to July is the
spring/summer season and August to December is the autumn/winter season. Both break points
between seasons have traditionally been marked by ‘sales’ where surplus product is marked
down for clearance. The proportion of items sold in these sales, or sold through intermediaries
(with the Zentrill label removed) could be very high. Typically at Zentrill, only around 50 per
cent of items were sold at full price. This caused anxiety to Zentrill’s merchandising VP, Mary
Zueski.
‘Achieving only 50 per cent full price sales is obviously an issue to us. Although no worse than
most of our competitors, reducing the proportion of discounted sales is the best way to increase
our profitability. Sometimes we are left with surplus items because our designers have just got it
wrong that season. We can never predict exactly what will sell. However, usually we are quite
good at knowing our market. What is more annoying is when a customer walks out of a store
because an item which we could have sold to her is not in stock or is not available at that store
in her size. Every time this happens hundreds of dollars are walking out of the store with her.
Ideally we would like to be able to promise such a customer that we could deliver the item to
her within 24 or 48 hours. Even if we can’t do that, it is important that we sense how sales of
different lines are going and flex our order quantities from our manufacturer during the season.
Although Lopez is a great supplier in many ways, they do not seem to be very good at being
able to change their production plans at short notice. Otherwise our relationship with them is
very good. Our designers like them because they can make almost anything we choose to design
and their quality is excellent, as it should be in our part of the market’.
Manuel Lopez, the CEO of Lopez Industries, was fully aware of Zentrill’s views.
‘I know that they are happy with our ability to make even the most complex designs to an
exceptionally high level of quality. I also know that they would like us to be more flexible in
changing our volumes and delivery schedules. We obviously could not deliver within two days.
The problem of the customer walking out because a size or style is not available in a particular
store is caused by the way they manage their own inventory. But I admit that we could be more
flexible within the season on a week-by-week basis. Partly, I am reluctant to do this because we
have to buy-in cloth at the beginning of the season based on the line-by-line forecast volumes
which Zentrill provide for us. Even if we could change our production schedules, we could not
get extra deliveries of cloth, nor can we return any surplus cloth to the cloth manufacturers. The
problem is that we only deal with high quality and innovative European cloth manufacturers,
usually German or Italian. They provide the type of cloth which Zentrill’s designers like to
work with. Also, it can give us a competitive advantage because much of the cloth is either
lightweight or stretches or has some other characteristic which makes it difficult to machine.
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Slack and Lewis, Operations Strategy, 2nd Edition, Instructor’s Manual
Over the years we have developed considerable skill in machining this type of cloth to highquality standards. Not many garment manufacturers can do that on a mass production basis.
Sometimes I think we know more about the characteristics of these cloths than the
manufacturers do. Unfortunately most of our cloth suppliers are very large compared to us, so
we do not represent much business for them. Perhaps we should persuade Zentrill to let us use
smaller cloth suppliers who would be more flexible?’
Typical of the cloth suppliers to Lopez Industries was Schweabsten, a German company which
both manufactured cloth and tailored men’s and women’s wear under its own label. Felix
Brensten was Schweabsten’s VP, Marketing.
‘We compete primarily on quality and innovation. Designing cloth is as much of a fashion
business as designing the clothes which it is made into. Around a third of our output of cloth
goes to make our own labelled garments. We do not manufacture these of course, that is done
by a whole collection of subcontract manufacturers. In fact that is our main problem, finding
subcontract manufacturers for our own label products who can cope with high-fashion cloths
and designs whilst still maintaining quality. The other two-thirds of our output go to tens of
thousands of customers around the world. These vary considerably in their requirements, but
presumably all of them value our quality and innovation’.
After discussion with her colleagues, Mary Zueski had recently and reluctantly come to a
conclusion on the company’s supply problem.
‘I guess we can no longer leave everything up to our suppliers. We have to try and organise the
whole supply chain more effectively. This will, of course, mean looking at how we manage the
part of the supply chain that we control ourselves, from our central warehouse to our stores. But
it will also mean taking responsibility for our suppliers, particularly Lopez, and even their
suppliers. The question is how to do this? We don’t own them, even if we have some market
power over them. How do we begin to identify what each stage in the chain could do for the
benefit of the whole chain? More importantly, how do we persuade everyone that it is in their
own interests to cooperate?’
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© Nigel Slack and Michael Lewis 2008