Analyzing Zara's Supply Chain And Management Strategies Essay.

Zak Based in La Coruna in North Western Spain, Zara is one of the fastest growing apparel companies in the world. Its supply chain is key to its success, in particular in terms of speed and lower inventory levels than its peers. As a result it is not hindered by product obsolescence, a key difficulty for many apparel manufacturers who are often stuck with fashion lines that the market does not want and which they cannot get rid of. 

Zara's designers stay close to the latest fashion trends and design and manufacture new products within a short time frame. All of this is done within the same facility to minimise delays and ensure maximum interaction among colleagues. Industry observers describe the Zara model as 'fast fashion' where buyers don't have to wait months for the latest fashions. After manufacture, product is shipped to Zara's various stores according to a fixed distribution schedule. Most store managers use handheld electronic devices to post real-time orders from the distribution centre, which organises twice weekly deliveries according to a fixed schedule. Products contain multi-country labels so if a line is not selling, the store manager simply puts it back on the truck and it is redistributed to another store via Zara's hub and spoke network where it may fare better. 

From the store managers with their handheld ordering devices all the way back upstream to the single design and manufacturing site, Zara has full visibility of its supply chain. Another key feature of Zara's supply chain is that it has spare capacity on hand (in terms of trucks, warehousing and production not always being full) and it can facilitate fast response when needed. Professor Kasra Ferdows of Georgetown University and co-writers labelled this 'rapid fire fulfilment'. 16 Many other companies in the retail sector have closely examined Zara so see where they themselves can apply some of its key success factors. 

Logistics Case Study.

Analysing the issues in the case, and identify logistics management strategies that enable the company to become successful, and/or will be necessary for the company to maintain/improve its success in the future. Specific issues to address and conclusions to be drawn will be given with the case study. 

Zara Background Overview

For any organization, managing supply chain is a fundamental aspect that leads to an organizational success in both the industry and global markets. With the help of dynamic strategies, an organization can gain sustainable competitive advantage.  Logistics management is one of the primary aspect Supply chain management. It deals with planning, implementing and control efficiency. From the corporation manufacturing point to the distribution and destination of consumption, Logistics management deals with various information in order to meet the customer needs in an effective manner (Seuring & Muller, 2008). To compete in the market, most of the organizations approve supply chain mechanism to handle widespread and inclusive information. This will help the business enterprises to align their operational and management strategies to the supply chain strategies.

For broadly understand the term supply chain and logistics management, the report use case study of Zara, a Spanish company. Moreover, this informative report critically analyses and measures the company logistics management strategies.

A global Spanish fashion retail company, Zara was founded outback in 1975. The company was vertically integrated into an organization called Inditex. The major operations of the company are in Europe as Zara and the design of their manufacturing system is far ahead from the other retailers in the industry. In addition, Zara also is known for adopting latest trends and delivering high quality products at affordable prices (Roll, 2018). In most of the countries, Zara tried to create fresh fashion so have to make competitive stand in the market. Moreover, the target group of the company includes those individuals having high and medium purchasing power and needs of fashionable fashion. Zara also takes advantage of advanced technology for the development of new merchandise and make the optimum utilization of the available resources (Fernie, Sparks & McKinnon, 2010). This helps them in executing new and creative ideas in an adequate time. H&M, Benetton, Gap are some of the major competitors of the company, however, the company develops as the best regarding fashion at reasonable prices.

The vision and mission statement of Zara emphases on the sustainable growth of the society in align with the environmental aspects. This sustainable approach tends towards the improving of welfare in respect with the general society (Zara, 2011). In addition, the approach to environmental friendliness focused on developing plans for curbing environment pollution due to the business operations and activities.

• To diversify their activities and operations in the international market to gain market share globally (Gclitty, 2018).
• To increase profit margins of the company by establishing new stores in the countries where company already have their operations.
• To create plans for enduring profit both in short term and long term of the business.
• To increase reach in all the markets.

One attribute of Zara success is their speed and rapid responses to the wants related to business attention. This can be perceived by the fact as since 1975, Zara has successfully opened around 2,200 stores in 96 countries around the globe (Forbes, 2018). Moreover, their revenue and sales are growing annually on continues basis with high margins. The organization is majorly known for its innovation in the fashion industry and apparels with quickly delivering of the products to all the stores in the continents with small batches. For instance, a store manager ordered the cloth within a week and also two times a week the new fashion reaches (Cambra-Fierro & Ruiz-Benitez, 2009). One of the reasons that help company in achieving this competitively is their substantial logistics management.

Vision and Mission Statement

The synergy between Company Operations Strategy

 The Zara prodigious growth is connected with the vertical integration to Inditex and diversification of the various products manufactured by the company. The retail stores get the clothes manufactured and designed by Zara within a timeframe of two weeks. Its own the entire value added chain and this makes them involve a new concept of “fast fashion” in relation to speed to market (Chu, 2017). The manufacturing facilities in Spain allow the company from quick response with the help of efficient ownership and control. In addition, the company also have various high-tech distribution systems that enable them to deliver the products at a faster pace to all the stores across Europe. This all highlight the smooth connection and coordination between Zara business strategy and its operation strategy. Moreover, for improving their supply network, Zara uses various marketing research data and information generated by its sales staff by analysing local differences and customer preferences.

From the above argument, it can be said that if the company adopts substantial supply chain and logistics strategies, their future will tend towards success else failure will be inevitable. For instance, United Technologies Corporation is known for its creative ideas, but the weak supply chain and logistics system led them behind in the global success (Rossetti & Choi, 2008).

Zara delivers various fashionable and trendy clothes meeting up with all the consumer prefers and tastes and this all controlled with an integrated process – Just in Time (Lopez & Fan, 2009). The success of Zara is on manufacturing of superior quality products and for this, the organization restrict its limit by reserving 85 percent of their capacity for in-season adjustments. This gives the company a flexibility to meet the annual demand in an efficient manner with constant launch of various varieties of new products. This strategy is also supported by their in-house production system, which ensures frequency of the products contrived. In the changing environment of fashion industry, business enterprises also react at very fast pace with introducing new fashion in large quantities. From these fresh manufactured designs, some are delivered to the retail stores and rest is taken as reserve to deal with scarcity that may occur in the industry as of indefinite suspensions.

In relation to the customer demand, a feedback is offer by every employee due to the encouragement of the company. The production department and top management gather this feedback with the help of stores manager to ensure that the new designs are manufactured according to the preference of the customers or not. To meet up with customer demand in more efficient way, Zara operates with additional capacity and this will also handle fluctuations in demand hold out annually (Dossa, 2015). This approach of the company also gives them a competitive edge over their competitors as it can sell its products at full price due to high demand. In addition, market down stock is condensed dramatically distinct to the customer competitor and this will result in reduction of overall costs.

Zara Strategic Goals

To strongly commit its supply chain and logistics system, Zara also compels six months earlier to only 15 to 25 per cent of a season line. The company also sorts 85 percent of the full price on its clothes, while the market or industry average is 60 to 70 percent (Gorrepati, 2017). Moreover, their unsold items take a space of only 10 percent of the stock in comparison with the industry i.e. 17 to 20 percent.

The company understands they do not have to rebate as much they can expend on other things. The company see more benefits and rhythm in the supply chain. In support of their logistics system, this helps the company to afford extra labour and shipping costs needed to lodge in the satisfaction of customer and market demand. This slow flow of the company product has been proved to be successful as per Just-in-time production.

From various researches, it is ascertained that if a business piled up lot of inventory in the firm, it will have severe impact on the supply chain and logistics system. An organization need to avoid piling up as whether it is finished goods or raw materials. Correspondingly, Zara knows the significance of efficient inventory management and thus setup consistent and innovative strategy relating to inventory management (Caro & Gallien, 2010). Moreover, the company also put in place the inventory optimization model to control the amount of quantity that is needed to be allotted to each retail stores. Each store receives only what is can sell as company inventory shipped is highly confined. This helps the company in preventing them from situation where the stock is not sellable to the market due to change in fashion or being outdated.

This shows that Zara is fully aware of the edge – “inventory= death.” Annually, Zara designs and manufactures 10,000 new models and refills varieties within every one of its 650 stores twice per week, but the capacities of inventory is strictly confined (Basu, 2018). This helps the company to give their promise to the customer by proving exclusivity and freshness designs. Moreover, it also avoids building up of larger quantities of unpopular stock and thus reduces the burden on the supply chain and logistics system. From the above analysis, it can be clearly said that inventory management is a very significant phase of logistics management.

One of the key aspect of Zara success is centralization. The organization always takes decision in a very coordinated and comprehensive manner. These decisions are made in a predictable way and for the objective of ensuring fulfillment of consumers orders with the help of organisation retail stores. For instance, each week, the organization sends two orders to confirm satisfactory monitoring trucks departure at a stated time and shipments are supposed to the destinations at the particular time (Klaas Jagersma, 2011). When the products arrived at the retail stores, they are already priced, packed and ready for sale. In realization of business objectives, Zara also focuses on every activity so as to ensure that all aspects are on the right roadmap ranging from raw materials, production, distribution and logistics.  As a result of this clearly defined roles, every staff member also involves in the supply chain and logistics starting from design, procurement, production, distribution and retail. This process also extends towards the Zara customers in respect with purchase decisions. Their reliance on centralized order fulfillment helps the company to maintain the operations streamlined towards the robust distribution network (Tokatli, 2008). However, this success factor was not perceived by United Technologies in respect with their in effective supply chain and logistics system.

Zara Logistics Management

The strong and integrated distribution network of Zara helps the organisation to deliver commodities in 24 hours to the European stores. Moreover, the company also able to manages delivery of their products in its American and Asian stores with less than 40 hours of time (Petro, 2012). This helps them in providing the company products on time to customers. On the other hand, if a company like United Technologies Corporation have a poor distribution network, then any customer can easily experience the poor delivery of products.

Information systems are also a driver of quick response communication strategy. Zara is using various technologies that help the company in speeding up of complex tasks, reducing cycle time and operations are being made with full accuracy with zero error. In respect with the logistics management, every manager in Zara stores carries Casio computers and devices to share necessary information with the headquarters like data of factory distribution department, RFID data and son on. Moreover, it also handheld information related to selling trends, order placement and customer comments. Zara has very strong IT systems that support its distribution system and logistics management. The company also uses RFID technology that helps in identification of each product connected to clothing via radio frequency and a chip inside the alarm at the logistics centres of Inditex. This allows organisation to track their every product during all levels of supply chain.

One of the major challenges is faced by the organization in this current dynamic world is that to maintain a sustainable competitive advantage on their distribution network and supply chain. In addition, a competitive advantage gives the business enterprise a distinct edge in the industry where business can develop strategic decisions. Hence, managers need to plan effectively and ensure those strategies that help organization in sourcing of competitive advantage by using sustainable approach for both short period and long run. Zara also conscious of this ideology and thus set various standards for the establishment of competitive advantage. On the below following aspects, it bases its competitive advantage.

Operational Effectiveness – Most of the business enterprises try to achieve better than the rivalries in the changing global environment. They not able to analyse the fact that every industry or company using same techniques for market penetration. However, Zara is moving with different strategy and concept. Their demand and supply chain are based on vertically integrated strategy dissimilar to the other companies who are looking to outsource cheap labour from china. Moreover, their business model also aimed towards delivering quality fashionable styles to the customers at reasonable prices (Harbott, 2011).

Strategic Position – Zara also adopts various modern technologies to gain the benefit of strategic positioning strategy. With the integration of these technologies into internet devices, Zara is delivering new fashion styles and products to all corners of the world in an effective manner. Their logistics system is also integrated with new technologies such as cloud computing, RFID devices, AU, etc. (Bjork, 2014).

Other than these competitive strategies, Zara also preserves sustainable competitive advantage by sustaining its control in both the global marketplace and industry.

• Moreover, they have distinctive business model and this makes the company differentiate from the other traditional textile designers.
• Exploring value to consumers by delivering them innovative fashion style at reasonable rates.
• Dominate the market with the help of effective online strategy.

Factors behind Zara Logistics Management Success

Conclusion

It can be said that the key success factor of Zara is their vertically business integrated model. In addition, the company have outstood with their leadership posting in the industry due to straddling designs, out-of-box marketing strategy, Just-in-time production, inventory management and sales strategies. Due to their effective and unique business model, the consumer demand is effectively met in the shortest time possible. However, the European textile market is being saturated where Zara is focused on their activities and strategies. This can be a challenge for the business future market growth and can also affect profitability.

With the help of all the analysis and evaluation made in the report, it can be said that Zara is in growth stage of its business life cycle. However, due to the changing aspects in the dynamic business environment, Zara should tactically position itself to meet with the future uncertainties. For instance, the saturation of market in Europe where the business is keenly focused their activities and strategies may have a negative influence on the future success of the organization. Hence, in respect with recommendations, Zara need to expand their operations in other developing and developed countries to gain more market share. Moreover, Zara also needs to learn of those competitors strategy, penetrating Asia markets effectively.

References

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