Uniqlo: A Supply Chain Going Global

Case Analysis

Dr. Diane Badame

Fall 2019
Case Agenda


Issues

Situation Analysis

Recommendations

Risks and Mitigations

Summary

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Learning Outcomes of Uniqlo: A Supply
Chain Going Global Case
 Examine the hybrid governance model and how it is central to the
development of Uniqlo’s supply chain.
 Determine how a company’s core competencies can be used to its
advantage.
 Understand the merchandising function of a fast fashion organization.
 Make recommendations on how Uniqlo can successfully compete in the
ever-changing fast fashion industry and be a viable and profitable
competitor both domestically and internationally.

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 Analysis of Uniqlo: A Supply Chain Going
Global Case

https://www.uniqlo.com/us/en/home/ https://www.youtube.com/watch?v=e7s4wFWfECE https://www.youtube.com/watch?v=ODgU5IbBoAA

https://www.uniqlo.com/us/en/special/sustainability/archive/#prettyPhoto 14
Uniqlo: A Supply Chain Going Global Case
Questions
1. What are the issues in the case?
2. What is the hybrid governance model and how is it central to the development of
Uniqlo’s supply chain?
3. What are Uniqlo’s core competencies? How can the company capitalize on these
capabilities? What are metrics of success?
4. What is the function of merchandising for Uniqlo? Can it be utilized as a competitive
advantage? Why or why not?
5. How could Uniqlo reorganize its current supply chain? Could it use its Asian supply
chain to manufacture European and US merchandise as well, or re-create a more
localized supply web specific to each market, for example, one for the US and one for
Europe?
6. What are recommendations on how to take Uniqlo to the next level, and what are the
risks and mitigations to the risks associated with each recommendation.
7. Please prepare a case summary that highlights key marketing principles as reflected in
the learning outcomes and how they were applied to the case.

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Fast Fashion Race Exercise
In small teams, please address the following questions and be
prepared to report your findings.
1. Who do you think is winning the fast fashion race? Why? Please
explain.
2. What are the requirements for firms to compete in the fast fashion
marketplace?
3. How do you see this changing in the future?
4. What do companies in this ever-changing marketplace need to do
to survive and thrive?

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Supply Chain and Merchandising
Exercise
In small teams, please be prepared to present your findings and recommendations in
class based on addressing the following questions regarding Uniqlo or other fast
fashion firm:
1. How would you define the supply chain and merchandising of the selected fast
fashion retailer? Please explain.
2. What most significantly sets it apart from other retailers?
3. What should more traditional retailers, like the Gap and Macy’s, do to better
compete with fast fashion firms, like Zara, H&M and Uniqlo?

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Issues
 Target markets
 Customer experience
 Growth and retail expansion
 Competition
 Hybrid governance supply chain model
 Internationalization
 Limited assortment of products designed to satisfy real customer needs rather than fashion trends
 Quality and price
 Garment and product ingredients, including synthetic fibers which had performance and properties no natural
material could match
 Speed to market
 Merchandising
 Supplier costs and assistance in developing and perfecting Uniqlo’s manufacturing techniques
 Manufacturing
 Consistency in product design, manufacturing, distribution, sales and setting of prices in a way that supports its brand
and value proposition
 Maintaining the brand’s characteristics of quality, exclusivity and tradition and by the drive towards operational
excellence
 Online channel
 New product introductions
 Acquisitions

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The Hybrid Governance Model
 The hybrid governance model is key to the success of Uniqlo’s supply chain model. It defines the
way or mode that a transaction between parties is organized, or if a firm chooses to “make” or
“buy”, by integrating vertically in the case of “make,” or adopting sourcing strategies in the case
of “buy.”
 Ownership of production assets eliminates the variability always present in open-market
purchasing, but at the cost of reducing market-condition flexibility.
 In the outsourcing case, a firm has the ability to increase or reduce quantities ordered to match
market demand, but the firm and its suppliers are constantly negotiating in order to adapt to a
rapidly-changing environment.
 In the hybrid governance model, all firms that constitute a supply chain develop joint objectives
and shared policies to meet targets. The relationships are bilateral and generally driven by a
win-win approach, with collaboration bringing benefit to all parties.
 This model leads to lower transaction costs and higher flexibility overall and can be a source of
competitive advantage due to the development of so-called inter-company assets, created with
long term joint investment from all parties involved, which are usually not replicable by a single
firm, and lead to a strengthening of each party’s core competencies through better interfacing
with the network.

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Merchandising
 Uniqlo’s core competence is the selection or editing of the assortment of its product line. It designs and sets
prices and quality standards for its merchandise, sources parts and materials for production, but does not take
direct part in the manufacture of goods.
 It looks at every Stock Keeping Unit (SKU) sold at its stores as a commoditized component of the marketing
process. Marketing the product so that it satisfies customers is what adds value to each SKU.
 The retailer’s merchandising function is what determines its success. By designing and selecting successful
SKUs, Uniqlo sustains its sales. The capacity to select SKUs that match customers’ request, and are sold at a
profit ingrowing volume, is the real “production process” or value-adding activity of a Store Retailer of Private
Label Apparel (SPA).
 This selection process or “editing the assortment” has a double function of satisfying market demand while
minimizing marketing expenses, and maximizing supply-chain capability while minimizing production costs.
The physical garment-production process or supply chain, and “editing of the assortment,” taken together, are
the retailer’s Supply Chain System (SCS).
 Key to Uniqlo’s success is the decision to follow a functional approach to garment design and collect extensive
customer feedback results in an assortment of only 300 – 400 SKUs, which is only 10 – 30% of its competitors.
Their strategic choice to give fashion and trend elements only secondary value in garment design is entirely
centered on the necessity of optimizing the SCS and the supply chain in particular, This narrower assortment
results in a less complex and more responsive supply chain.
 This optimizing behavior is reinforced by Uniqlo’s advanced stock monitoring capabilities and dynamic pricing
policy, which aims at improving slow-moving items. Sales data is fed back into the design process to
continuously reduce the discrepancy between supply and demand.

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Expansion to Europe and the U.S.
 Uniqlo has had success in developing capabilities outside of its home country Japan. By
localizing production in China, the retailer aimed at accessing low-cost product capacity and
labor to seek cost advantages. It also improved or revitalized its supplier’s technical capabilities
while maintaining control of its supply chain with a hybrid governance model, avoiding direct
investment in production assets.
 As a “born-global” firm, Uniqlo has excelled in internationalizing its supply chain, but the
company has only been partially successful in internationalizing its sales.
 Uniqlo’s ability to optimize its SCS depends on a limited assortment. This is its strategy’s limiting
factor and might impede the firm’s expansion into markets like Europe and the U.S., where
cultural factors like fashion influence apparel retailing to a greater extent than in Asia.
 Additionally, in these markets, its competitors Inditex and H&M have a far stronger presence.
 The “LifeWear” philosophy Uniqlo adopted results in a limited range of products, allowing it to
optimize the supply chain and track customer feedback. The same model would not be possible
if the number of products were increased, and this seems the fundamental barrier to expansion
that Uniqlo faces.
 How could Uniqlo reorganize its current supply chain to accommodate the needs of consumers in
Europe and the U.S.? Could it use tis Asian supply chain to manufacture European and U.S.
merchandise as well, or re-create a more localized supply web specific to each market?

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Conclusions
 Uniqlo chooses to compete on price and quality, keeping the former low and the latter high.
 To achieve its goals, the retailer focuses on a narrow product line or assortment that can still
satisfy customers’ fashion needs.
 Feedback from Uniqlo shoppers becomes the central driver of product development, while
fashion, style and other trend-related aspects are secondary.
 A reduced product assortment allows the Japanese retailer to organize its supply chain so as to
minimize transaction costs, maintain price competitiveness, and minimize opportunistic and
agency behavior by its suppliers, while maintaining high product quality.
 Uniqlo successfully tries to merge the advantages of common, traditional governance models: the
hierarchical, used by Inditex, which is vertically integrated, and the market-governance model,
used by H&M, which relies on a vast number of suppliers engaged in arms-length transactions,
reducing transaction costs while remaining flexible.
 Employing a hybrid governance model, similar to that of other Japanese companies like Toyota,
Uniqlo competes successfully in Asia, emerging as a top player.
 The structure of the firm and its being a “born-global” company allows it to gather competitive
advantages and create superior operational performance.

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Key Takeaways
 Examine the hybrid governance model and how it is central to the
development of Uniqlo’s supply chain.
 Determine how a company’s core competencies can be used to its
advantage.
 Understand the merchandising function of a fast fashion organization.
 Make recommendations on how Uniqlo can successfully compete in the
ever-changing fast fashion industry and be a viable and profitable
competitor both domestically and internationally.

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 Uniqlo: A Supply Chain Going Global
Case Analysis

Dr. Diane Badame

Fall 2019