Supply Chain Management:

Session 2, Module A
Peeyush  Mehta  
pmehta@iimcal.ac.in  
 
The Swiss Watch Industry  
 
 Swiss  Watch  Industry  
•  1970s  -­‐  50%  of  the  watches  Swiss  make  
•  1980s  -­‐    share  reduces  to  15%  
–  Low  cost  of  manufacturing  from  Japan,  Hong  Kong  
–  Quartz  technology  
–  Mass  producLon  
–  500  million  units  
•  $75  –  450  million  units  
•  $450  –  42  million  units  
•  Top  segment  –  8  million  units  (97%  world  wide  share  by  
Swiss  watches)    
 Framework:  Swiss  Watch  Industry  
•  Competency  view  and  compeLLve  strategy:    
–  High-­‐end  quality  and  price;    
-­‐  Quality  (luxury,  exclusivity,  durability;  in  contrast  to  
reliability,  precision)  

•  Resource  view:  
–  Size:  small  capacity  (1600  companies  =  co_age  industry)  +  
contracLng  
–  Type:  manual,  flexible,  predominantly  highly-­‐skilled  labor  
(crabsmen)  
–  LocaLon  and  network  structure:  dispersed,  co_age  industry  
 Framework:  Swiss  Watch  Industry  
•  Process  view:  
–  Sourcing  &  Customers:  Not  controlled/managed,  not  VI.  
Buyer  relaLonships:  sell  to  fragmented  small  jewelers.  
–  Technology:    
•  Process:  manual:  cost  =  60%  labor,  20%  materials,  20%  
OH;    
•  Japan  -­‐  Seiko:  wages  1/10th,  and  labor  reduced  to  35%  
through  standardizaLon  &  automaLon.    
•  Product:  exterior  (case,  dial,  hands)  and  interior  
movement,  which  contains  about  200  unique  parts  
driven  by  spring  
•  Japan  –  about  50  parts  
 What  should  be  the  OperaLons  Strategy?  

•  Remain  with  high-­‐end,  small  volume,  luxury  

–  Volume  is  insufficient  

•  Presence  in  mid-­‐market  

–  New  value  proposiLon    
•  almost  same  quality,  but  lower  price  
–  Needs  new  operaLonal  system  
 
•  “..Hayek  came  to  the  conclusion  that  the  low  end  of  the  market  must  be  
controlled;  otherwise  there  was  no  hope  for  survival  in  the  long  run.  The  
only  way  such  an  ambiLous  goal  could  be  a_ained  was  by  completely  
redesigning  the  clockwork,  drasLcally  reducing  and  standardizing  the  
number  of  parts  (quartz  resonators,  stepping  motors,  etc.)  used  to  build  a  
watch,  and  revoluLonizing  manufacturing.  Swatch  was  born,  and  the  rest  
is  history,  right?....  Extract  from  WSJ,  May  2011    
Zara’s  OS  
 Zara  
•  Value  proposiLon  and  Competency:    
–  Fast  fashion  
–  Speed  and  variety  (order  winners),  cost  and  quality  
compeLLve  
•  Resource:  Tailored  OperaLons  strategy  
–  High  degree  of  verLcal  integraLon  due  to  Lght  
coordinaLon  requirements  of  value  chain  
–  Capacity  includes:  design  center,  manufacturing,  DCs,  
2  CWHs  in  Spain,  90%  retail  network  
–  Direct  access  to  road  and  rail  network,  proximity  to  
airport  

 
 Zara  
•  Process:    
–  Supply  
•  more  than  50%  suppliers  in  Spain  
•  VolaLle  and  Lme  sensiLve    products  in-­‐house,  predictable  offshoring  
–  Technology  
•  Postponement  of  dyeing  
•  Toyota  engineers  have  designed  the  producLon  systems  
•  Small  set  up  Lmes  and  small  batches  for  Lme  sensiLve  products  
•  Centralized  distribuLon  to  exploit  risk  pooling  
•  Frequent  deliveries  with  short  lead  Lmes  for  re-­‐ordering  
•  IT  enabled  supply  chain  
–  Demand  
•  Short  campaigns,  scarcity  image,  reduces  lebovers  and  markdowns  

 
Toyota’s  operaLons  strategy  

Sustainable???  
When  do  firms  have  SUSTAINABLE    
SCM  advantage?  
Product/Service    advantage    X  
Process  advantage          ✔  
 FedEx v. UPS
“…the  op)mal  way  to  serve  very  dis)nct  market  segments,  such  as  
express  and  ground,  is  to  operate  highly  efficient,  independent  
networks  with  different  facili)es,  different  cut-­‐off  )mes  and  
different  delivery  commitments.”      FedEx  (2000)  
 
 
“Our  express  air  services  are  integrated  with  our  vast  ground  
delivery  system:  one  system  handling  all  products.  This  integrated  
air  and  ground  network  enhances  pickup  and  delivery  density  and  
provides  us  with  the  flexibility  to  transport  packages  using  the  most  
efficient  mode  or  combina)on  of  modes.”    UPS  (2006)  
 
Mieghem  2008