Valuate the strengths and weaknesses of uniqlo supply chain

To help you understand more clearly about our paper, here are the research objectives: O Research on supply chain theory O Supply chain analysis of UNIQLO company O_ Evaluate the strengt

ABSTRACT Competing successfully in today's volatile business environment requires companies to build an efficient supply chain An efficient supply chain will help businesses save unnecessary costs while enhancing product value This requires the company to take care

of the flow of materials, the design and production process, the service provided, the logistics operations and most importantly, meeting the needs of the customer One of the companies that have achieved worldwide success through effective supply chain management is UNIQLO, a leading fashion brands To understand why an effective supply chain can make UNIQLO successful, we conducted this research paper to analyze the UNIQLO supply chain in detail Thereby seeing the role and benefits that the supply chain has brought to UNIQLO We conduct secondary research in this paper by collecting information about the company through secondary data from the company's sources, the Internet, books and newspapers

ACKNOWLEDGEMENT

We would like to express our deep and sincere gratitude to our lecturer, Ms Ngo Minh Tra for guiding and helping us to achieve the best results in the report Furthermore, we appreciate her enthusiasm and positive energy, which gives us extra motivation to maintain and complete our work We would also like to express our deepest gratitude to all our classmates for their contributions to this course We would not have been able to complete this research paper to its full potential without them Finally, our thanks go to all the people who have supported us to complete the research work directly or indirectly

We respect all the support we had during the making of this report

Sincerely, Group 5

INTRODUCTION

A supply chain is a process that starts from raw materials until the finished product or service reaches the consumer A supply chain is a network of distribution options and means of carrying out the procurement of raw materials, exchanging these materials through intermediaries to produce a product, delivering this product to the consumer To better understand the supply chain in practice, our group chose to analyze the global success supply chain of UNIQLO To help you understand more clearly about our paper, here are the research objectives:

O Research on supply chain theory

O Supply chain analysis of UNIQLO company

O_ Evaluate the strengths and weaknesses of UNIQLO supply chain

O_ Give proposed suggestion for future UNIQLO supply chain operations

I THEORETICAL BASIS

1 Supply Chain

“A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request The supply chain includes not only the manufacturer and suppliers, but also transporters, warehouses, retailers, and even customers themselves Within each organization, such as a manufacturer, the supply chain includes all functions involved in receiving and filling a customer request.”[ CITATION Cho \I 1033 ]

“A supply chain involves various participants who perform a sequence of activities in moving physical goods or services from a point of origin to a point of consumption.” [CITATION Ric15 \I 1033 ] And a typical supply chain may involve a variety of stages, some typical stages including:

O Customers

O Retailers

O Wholesalers/distributors

O Manufacturers

O Component/raw material suppliers

“Each stage in a supply chain is connected through the flow of products, information, and funds These flows often occur in both directions and may be managed by one of the stages or an intermediary.” [ CITATION Cho \I 1033 ]

“The objective of every supply chain should be to maximize the overall value generated The value or also known as supply chain surplus that a supply chain generates is the difference between the customer value and the costs the supply chain incurs to produce the products met customer’s request.” [ CITATION Cho \I 1033 ]

2 E-commerce and E-commerce company

“E-commerce, also known as electronic commerce or internet commerce, refers to the buying and selling of goods or services using the internet, and the transfer of money and data to execute these transactions Ecommerce is often used to refer to the sale of physical products online, but it can also describe any kind of commercial transaction that

transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems.” [CITATION Marl16 \I 1033 ]

There are a number of different types of E-commerce and many different ways to characterize them For the most part, we distinguish different types of E-commerce by the nature of the market relationship— who is selling to whom

Business-to-consumer (B2C) E-commerce

“The most commonly discussed type of E-commerce is business-to-consumer (B2C) E- commerce, in which online businesses attempt to reach individual consumers Within the B2C category, there are many different types of business models: online retailers, service providers, transaction brokers, content providers, community providers/social networks, market creators, and portals.”[ CITATION Ken17 \I 1033 ]

Il OVERVIEW OF THE UNIQLO BUSINESS

1 Market Environment

1.1 Global Apparel Market

The apparel market covers all types of clothing, from sportswear to workwear, from affordable clothing to luxury items The COVID-19 outbreak has had a major impact on the apparel market, as supply chains have been disrupted by trade restrictions and consumption has fallen due to lockdowns imposed by countries around the world However, it is expected that global demand for clothing will increase again The estimated revenue of the worldwide apparel market for 2021 is estimated at 1.5 trillion

US dollars and is expected to grow to 2 trillion by 2026 The United States and China are two countries account for most of the demand for this clothing [ CITATION Sta221 \I

1033 ]

1.2 Global Ecommerce Market

In 2021, global retail E-commerce revenues were recorded at approximately 5.2 trillion U.S dollars[(CITATION Ste22 \t \l 1033 ] According to report from eMarketer and Statista, the projected online retail sales will reach total $6.51 trillion by 2023, with 22.3% sales come from E-commerce websites Although retail has faced lots of difficulties since 2020, every national market covered by eMarketer witnessed double- digit ecommerce growths.[ CITATION Mic22 \ 1033 ]

1.3 Fashion E-commerce Worldwide

With global retail E-commerce sales reaching trillions of U.S dollars, it is promising that the fashion E-commerce market continues to grow in the coming years Starting from a value of under 700 billion U.S dollars in 2021, it is expected to surpass that figure by the end of 2022, and probably reach just over reach just over 1.2 trillion U.S dollars in the next 4 years [CITATION Sta22 \1 1033 ]

Asia is the greatest E-commerce market for fashion, followed by North America Nearly 21% of global fashion retail sales in these regions are made through online channels In other regions like Europe, Oceania, North America and Latin America, online sales of

2 Basic Information of UNIQLO

UNIQLO is a clothing apparel company, which was originally founded as a textiles manufacturer in Yamaguchi, Japan in 1949 Now it is a global brand with over 1000 stores around the world The company’s origins in 1949 has remained unchanged, with 3 main pillars: clothing redefination, high quality and excellent textiles (UNIQLO, n.d.) It

is a wholly owned subsidiary of Japanese retail giant Fast Retailing Co., Ltd At UNIQLO, clothing is defined as LifeWear, drawing inspiration from classic clothing designs to longlasting lifetime wear According to Forbes, UNIQLO has a brand value of

$9.2 billion and ranks 84th in the list of World's Most Valuable Brands The company aims to be the world's leading clothing retailer through strongly competing in the United States, China, and online martket It is slowly catching up to the market share of global fashion giant H&M, with 2019 sales of $24.3 billion If UNIQLO achieves this big goal,

it will overtake Inditex (the parent company of Zara) to become the leader in global apparel sector.[ CITATION Mar21 \I 1033 ]

Here is UNIQLO business model canvas that directly expresses the core concept of UNIQLO

Figure 1 UNIQLO’s business model canvas

Key partners Key activities Value Customer Customer

- Material suppliers |} Product design and_ | Proposition relationships Segments

- Fabric development + Provide - Merchandise Middle-class manufacturers + Product quality customers store sellers customer of all

- Sewing factories control inexpensive - Customer genders and ages

- Logistic companies | Information casual clothing | relationship

- E-business partners | management + Good customer | management

+ Brand management services - After sale service center

+ Fashion design - Physical retail

+ Hightech cloth - Online store

- Logistics costs

(Source: Reproduced from Jiayi Wang’s)

3 UNIQLO’s Ecommerce Operation

Uniqlo’s first e-Commerce website launched in the United States in 2012 marked its debut in the field Since then, the company has been expanding online stores all over the Southeast Asia

The COVID-19 impacts on physical activities led to a significant boost in UNIQLO’s e- Commerce sales during the pandemic E-Commerce, in 2021 accounted only 10% of total sales, is now expected to grow up to 30% At the end of August 2021, the company had launched (new) operations in 21 markets After the expansions into the Indonesian and Vietnamese markets in September and November 2021 respectively, UNIQLO now offers online shopping services in the entire Southeast Asia UNIQLO is consolidating their organizational structure and e-Commerce platform for better customer satisfaction in term of payment and delivery [CITATION Fas221 \t \I 1033 ]

UNIQLO Sales by Region

JAPAN GREATER x850 billion

UNIQLO E-commerce Sales

and Ratio Trends

IB UNGLO e-commerce sales

“© E-commerce proportion of total sales

Figure 2 UNIQLO E-commerce Sales and Ratio Trends

(Source: UNIQLO Business Annual Report 2021)

The UNIQLO-driven and customer-centric industrial revolution is created to deliver not only products but also information about to customers when and where they need In order for that to work, stronger collaboration between physical stores and the e- Commerce department is essential encouraged Also, the inventory and sales network need to go through consolidation UNIQLO understood that only by integrating its physical and virtual stores together a truly omnichannel experience for consumers is possible

After a period of outsourcing many of its e-Commerce functions, UNIQLO has decided

to operate and manage everything in-house and been transforming procedures to speed up the transition UNIQLO has introduced automated warehouses, moved its warehousing operation in-house, and launched a new proprietary e-Commerce platform The platform has been introduced into 50% of the company operations, including in Japan, and on a steady progress being the universal platform for UNIQLO global operations UNIQLO enjoys strong product appeal and a global physical store network They are harnessing these strengths to enable customers worldwide to easily purchase UNIQLO products anytime, anywhere.[CITATION Fas22 \t \| 1033 ]

4 UNIQLO SPA Business Model

To ensure the development of products of exceptional quality, UNIQLO has refined its SPA (Specialty store retailer of Private label Apparel) business model, allowing for control of the entire business process — from planning and design to material procurement and sales [CITATION Fas11 \t \1 1033 ]

It refers to the production and sales management mode from raw material procurement, product research and development, production to warehousing, logistics, inventory control and other processes This is a complete supply chain system The UNIQLO SPA model includes three main phases:

Planing phase: UNIQLO's planning process includes product research and development, procurement to find high-quality raw materials for its garments UNIQLO designers will

work with represenfatives from sales, marketing, merchandise and production department

to discuss and determine new ideas for the next season

Production phase: With partner factories, UNIQLO forges enduring connections and collaborates on production scheduling, quality control, and monitoring UNIQLO employs a number of people in Shanghai, Ho Chi Minh City, Dhaka, and Jakarta to establish commercial ties with partner factories in China, Vietnam, Bangladesh, and Indonesia in order to reach the highest quality The production manager will make weekly trips to the partner's factories to take an active role in problem-solving UNIQLO also shares its innovative solutions for difficulties with the factories it collaborates with Sales phase: UNIQLO focuses on sales and stock because they want to maintain low inventory

{ wrvortory contro

III UNIQLO SUPPLY CHAIN REFORM

1 UNIQLO former supply chain

Only collect a portion of Information which doesn’t Lead time tong on mass ducti Capacity shortage from == Stang discounting storing stock not required it to sell off

get reflected in product ee for retail Personnel costs “ hort design, sales volumes production with ssles soar on tight labor conditions popular Rem —

Global information Long Sales trend-linked Capacity Discount Product shortage Product design, leadtimes productio shortage Tight labor sales 1

3 Qunabe to collect full global QOcreating mass volumes of @ Pre-producing clothes means @Qoscount sluggish items

< information as rely on human high-function, high-quality unnecessary stock enters until the sell, weighing on

° information collection LifeWear requires vast warehouse early, causing gross profit margin

s @Product designs and volumes materials preparation, careful Capacity shortages @ Stong-seling items run out

5 often miss the mark as reflect Production Long lead times Co Receiving, storing surplus as don't have enough stock

a just a portion of information Qhave to produce in advance stock is unproductive but resulting in missed sales

= collected manually to be in time for actual sales requires labor Hard to hire opportunities

$ period Staff, personnel costs soar

Insufficient visualization of important supply-chain related info/volumes, comprehensive SKU management 1)What products produced when, how much? (2) What products stored when, where, how much?

(Where what products are right now? @)What product will arrive at which store when?

Unable to link production partners, warehouses, stores & headquarters directly and uniformly

Current communication works on a relay system so no directly, uniform links between regions, between managers and

staff, or between managers themselves

Moving on to the distribution problem UNIQLO warehouse capacity in overseas countries is not enough to meet the amount of goods to be stored, leading to continuous shifting inventory around and large-scale labor demand, leading to a tight labor supply and a sharp increase in personnel costs At that time, UNIQLO's supply chain was full of contradictions, stores that had to hold excess inventory of products with poor sales had to drastically reduce prices to reduce loads, and shortages in strong selling items occurred consecutively

Overall, there were two major problems with UNIQLO's previous supply chain First, they had to deal with inadequate supply chain-related information and volume visualization, as well as insufficient comprehensive SKU management across all areas Second, they were unable to establish uniform and direct connections between the headquarters, stores, and partners in production

2 UNIQLO’s updated supply chain

mae Design, planning dere ) — Disfributon — 'ÿ Re

Collect vast, high-quality Build system that fulfills As we develop automated Reducing surplus stock, global information in real customer needs through warehousing worldwide, ensure eradicating product shortages time, and reflect in product accumulated materials and we only store & transport will help our shift away from design, sales volumes short lead-time mass production necessary product for retail the discounting model

Goo _ ge Product desi m7 Accumulated materials 20 Production country warehouses Eradicate surplus Move away stock, shortages * sắc

iS $ @ Collect vast, effective global @ Greatly reduce production @Build warehouses in low-cost @PReduce surplus stock and

“=3 information using Google AI processes through initiatives production countries to store eradicate product shortages

Ss ễ petemine accurate designs with our Toray partnership stock Only store required simultaneously

2 5 and sales volumes using and individual production retail stock in retail country Q Improve gross profit margin

= Accenture algorithms based partner factones warehouses and escape need for stock

2 on global information and ae products that customers Odevetop worldwide automated rundown discounting by only

° past performance data want, reduce lead time through warehouses through producing strong-selling

3 partnership with Shima Seiki Partnership with Daifuku items

Use RFID for full visualization of important supply-chain related info/volumes,

SKU management, local store management Attach RFID tags on all products at point of manufacture to facilitate coordinated comprehensive SKU management and achieve true local store management that enables customers to buy whatever they want, wh and whenever they want

Link global production bases, warehouses, stores and headquarters Google

directly and uniformly for fast evaluation, decision-making, implementation

= Use Google G Suite and other tools to facilitate seamless communication between managers and staff in all areas

Figure 5 UNIQLO updated supply chain (Source: Fast Retailing Supply Chain Reform, 2018)

Having address the former supply chain’s issues, UNIQLO was striving to build a supply chain that produces, distributes and sells only what is necessary by forming partnerships with leading companies over the world

UNIQLO is working hard to reflect all user feedback into their product designs To be able to access and collect such a large amount of information, UNIQLO has partnered with Google, using Google search engines and artificial intelligence In addition, Accenture's algorithm is also an important factor in determining the correct design and sales volume based on the collected information and previous performance data During the distribution phase, UNIQLO strives to reduce excess inventory and eliminate product shortages, avoiding reliance on discount programs to reduce inventory To do that, UNIQLO aims to develop automated warehouses across all retail countries Using RFID tags on all products and managing employees through Google Workspaces brings tangible results

In the next part of the report, we will present the supply chain analysis of UNIQLO in

IV UNIQLO SUPPLY CHAIN ANALYSIS

1 Planing

1.1 Research and Development

An important part of R&D at UNIQLO is constantly creating and developing its products

to meet the ever-changing needs of its customers Accordingly, the R&D centers constantly research global fashion trends and new materials, working to anticipate future shifts in the lifestyles and needs of the customers

UNIQLO’s Merchandisers can adapt production to match demand well thanks to the Marketing Department's detailed marketing strategy for each season The process of producing a product is usually conceptualized a year before the product is released In the early stages of that process, creative teams will have concept meetings to come up with a design, then the design will go through many tweaks in color and shape, finally this design can be sent to mass production Not stopping there, when the production process starts, about 400 inspectors will be sent to the production centers to keep the quality stable and solve any problems that arise

In 2017, UNIQLO partnered with Google to implement a project called ARIAKE, which will help the company become a ‘digital consumer retail company’ and initially aspire to become a global brand UNIQLO can use G Suite and Accenture to forecast customer needs and better understand its customers Move away from a "make it and they will come" strategy towards a strategy that turns customer feedback into actual products Each season, the information the company collects will be applied to ideas for creating new or developing products [ CITATION GGandUNIQLO \I 1083 ]

On another way to understand customer’s expectations and take feedback, UNIQLO service counters are available every day Customer’s opinions can be gathered via email, telephone, letter, etc Since 2011, FR has implemented the Customer Satisfaction Web Questionnaire to encourage foreign customers to send feedback in their native language

on all aspects of the product such as: product size, function to product features and then these comments will be sent directly to the Customer Center in Japan Since then,

UNIQLO has partly collected the needs of customers and can analyze and offer products

in accordance with those needs

The latest information is Concepts are created with An overwhelming number of Product lineups for the obtained from stores and the the R&D centers playing a designs are developed season are coordinated R&D centers key role

Figure 6 UNIQLO R&D Process (Fast Retailing, 2016) Another point that have to be mentioned here is while fellow fashion retailer giants, such

as Zara and H&M are driven by latest trends, UNIQLO develops new collections with a strong emphasis on quality and durability According to Luca Solca, an analyst specializing in retail at Bernstein Research " What’s different about UNIQLO is that they have chosen fabric, rather than fashion, as the area where they want to excel” Before researching upcoming latest fashion trends, UNIQLO's Designers and Product teams generate new fabrics Once a new fabric has been developed, they work on designs that will perfectly suits the fabric The focus is always on developing a range of innovative, high quality fabrics, such as AIRism, a breathable material that is “light as air and refreshingly comfortable”, and Heattech, a thin, lightweight fabric with excellent heat insulation properties Branding these innovations gives the fashion retailer a unique edge against their competitors [ CITATION Qui15 \I 1033 ]

While competitors in the fashion industry like ZARA or H&M choose their own strategy

of racing with the latest fashion trends, UNIQLO focuses on the quality and durability of their products, instead, they focus on finding new fashion trends, they focus on creating a innovative fabrics then based on those new fabric UNIQLO will develop appropriate designs The focus has always been on the development of a variety of innovative, high- quality fabrics, such as AIRism, a breathable material that is "as light as air and refreshingly comfortable", and HEATTECH, a thin, lightweight fabric with excellent heat insulation properties With this orientation UNIQLO has created itself an advantage over

1.2 Procurement and supplier relationship management

a Building a strong relationships with core suppliers

By looking at suppliers with high quality materials and materials, it is

the key that makes UNIQLO stand out from their competitors based on

their strategic plan UNIQLO believes that it is essential in its business

strategy to maintain a strong relationship with their partners so that

the highest standards can be maintained From building trusted

relationships with business partners over time and focusing on

maximizing synergies What makes UNIQLO unique is that they only

use factories that meet the most stringent standards

UNIQLO Material Development Team travels around the world to

conduct direct negotiations with top manufacturers in various countries

in order to obtain the best materials UNIQLO has been able to offer

products made of high-end materials at startlingly low prices thanks to

this strategy [CITATION FRReport2016 \t \| 1033 ]

To develop new materials UNIQLO has actively cooperated in material development with manufacturers A typical case is the strategic alliance cooperation of UNIQLO enterprise with Kaihara Corporation (Kaihara Corporation) on raw materials — Denim is produced with the fabric's stretch standards and dyeing specifications fabric, UNIQLO has also partnered with Toray Industries, a leading global manufacturer of synthetic fibers, to create innovative and unique new yarns and fabrics, one of which is the standout HEATTECH, AIRISM

b Strengthen transparency and traceability to raw material level

In 2017 UNIQLO published a list of their main sewing partners In 2018, factories that are considered core factories will be added to the list on the website The company plans

to list factories that have worked with them many times UNIQLO aims to establish product traceability throughout the entire supply chain, when traced, it will know the upstream spinning mill to the raw material level, they also focus on product inspection products at garment factories and core fabric factories.[CITATION Fas21 \t \| 1033 ]

c Responsible Procurement

UNIQLO Respects human rights at every stage of their supply chain and desires a better society, all growing together with the promise: to always work towards a sustainable society By products are produced friendly to nature, do not create undue burden on the environment Furthermore, clothes are created by FR brands from people who work with energy and enthusiasm, in good health and safety conditions Accordingly, the Group is working with partner factories to create guidelines for responsible procurement The following three main principles are being incorporated in these guidelines:

1 Ensure the health, safety, human rights and legal rights of employees, and actively make efforts to improve working conditions and livelihoods for employees

2 Partner factories can expand and improve their stable business model with FR Group

3 Products must be manufactured according to the correct process to gain the trust of customers

In order to carry out responsible procurement, all relevant departments must ensure proper procedures and operations [CITATION Fas18 \t \l 1033 ]

For instance UNIQLO launched a plan to buy all cotton from sustainable sources by the end of 2025 For cotton, they define sustainability as reducing the use of water, agricultural pesticides and chemical fertilizers; protect the fertility of soil and biodiversity; and the consideration for the working environment of farm workers And because the Uzbek government illegally employs children and does forced labor, UNIQLO does not buy cotton grown there

Endorsement of the Code l

of Conduct by the factory Serious

[Ho (Repeated) Review by the Fast Retailing Contact Businoss Ethics review Committee

Improvement action: 6 ø

Annual assessment

(Self-assessment and third- ú

party verification) tolerance

2.1 Building partnerships with partner factories

Committed to providing customers with truly excellent clothing including the background conditions in which its products are made, UNIQLO has effectively built up strict relationships with partner manufacturers; most of them take place in low-labor cost countries like China, Vietnam, etc

UNIQLO partner factories can systematically conduct production and provide sufficient production capacity with advance notice of scheduled orders They regularly hold meetings with senior management and also hold annual factory conference so that they can promptly share business development strategy and product planning new products for partner factories Employees from UNIQLO's production department are assigned to production offices in branches in Ho Chi Minh City, Dhaka, Shanghai, Bengaluru and Jakarta to directly monitor the quality of products and closely monitor the progress of the production process Production Department staff will be responsible for specific factories and visit assigned factories weekly with Takumi artisans and garment industry experts to