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Supply Chain/Logistics Management form source to customer

Discuss about the Logistics Management in Retail Manufacturer Zara.

This report aims to study the supply chain management and logistics of fashion retailer, Zara. In the business world Zara has made its name in terms of managing its supply chain in best possible way, therefore this company has been selected for studying the importance of efficient supply chain management. We would discuss the background of the company followed by essential supply chain/logistics management terms and concepts. Thereby we would study in detail the components of supply chain and their role in making Zara a success story. Further we would explore the centralized logistics and strong distribution network of Zara, its Just-in-time policy and inventory management concepts.

The study is to explore the effectiveness of strong supply chain management by Zara. However, its success might not be solely dependent on the strength of its supply chain management but Zara nevertheless, sets an example of well organised and efficient supply chain. The theoretical concepts of moving inventory, good relationships with suppliers, avoidance of piled up stock are all evident in the supply chain of Zara.

Company Profile

In 1975, Zara was established by Amancio Ortega Gaona and Rosalia Mera and it initially dealt with lingerie and night wears for women which were actually cancelled orders and other replicas of high end fashion brands. The company is based in Arteixo, Galicia and is prime brand of the Inditex group, its parent group and largest retailer of apparels across the globe. It also owns brands like Zara Home, Oysho, Massimo Dutti, Bershka, Pull and Bear, Stradivarius and Uterqüe. Zara as well as its parent group place main emphasis on the its customers and its highly effective demand centric supply management (O'Marah and Hofman, 2010).  today Zara has more than 2000 stores across the world and boasts revenue of €11.594 billion in 2015 (Zara, 2015).

The function of Supply chain management (SCM) is to supervise the flow of information, materials as well as finances in the process beginning from the supplier to manufacturer, to wholesaler to retailer and finally to consumer. Supply chain management includes synchronizing and assimilating these flows of the processes in the company as well as among other companies. Logistics management could be considered as a part of supply chain management. Logistics management mainly deals in planning, implementing and controlling the competent forward and reverse flow. It also encompasses storage of goods and other associated information from the origin of product or service to the point of consumption, keeping in view the requirements of the customers. In the current business environment, the SCM and the Logistics Management function handles both upstream and downstream systems (Skjott-Larsen et al, 2007). It is important that the management or the business stakeholders should take the inputs from other stakeholders before developing the specific supply chain or logistics management strategy (Romano, 2009). It would be correct to say that for the large manufacturers like Zara, the strategic decisions are based on the underlying supply chain management strength and weakness.

Supply Chain Components at Zara and Sustainability through the value chain

For Zara, the supply chain management starts from procurement and it ends at the feedback collection from customers. The feedback from the market and customers enable Zara to have an effective supply chain network in place.

The company also uses various other models to connect the Supply Chain strategies with the end customers. According to the Five Forces Model and PESTEL analysis to identify external and internal atmosphere and competitive advantage of Zara listed H&M, Benetton and Gap as its major competitors. However, the biggest challenge for the leaders in fashion industry is ever changing customer preferences. This leads to shorter life span of products, market highly flexible and demanding which makes it difficult for companies to maintain their market positions (Christopher, 2005). In these competitive conditions Zara have a strong hold of market due to its strategic supply chain or logistic management. The speed of delivery, the policy of Just-In-Time and vertical integration sets it apart from its competitors and make for an ideal organisation to understand the theories and implementation of supply chain management. Zara deploys logistics processes which are technologically and thereby assist in maintaining its success. At Zara all the main tasks of supply chain management are collaborated with the strategic utilization of resources and fundamental competencies to give it necessary competitive edge. The supply chain of Zara involves frequent communication between its suppliers, fashion designers, factories and store managers. The blueprint of the Zara’s supply chain management can be shown as:

Zara’s supply chain management

The management of Zara believes that the communication and the interaction with different stakeholders is the key to success for Zara. Therefore, the company has created an agile Supply Chain where different stakeholders can interact without wasting any time. The company has also used the Information Technology to create a nimble and flexible Supply Chain. For Zara, the key consideration of Supply Chain Management is to obtain a balance between efficiency and responsiveness (Wolbrum, 2014). The company is known for its efficient Supply Chain and the inventory in the stores of Zara is replenished at shorter time intervals. It provides a competitive edge to Zara. Therefore, it would be correct to say that Zara has been able to use its Supply Chain Management as its strategic resource that has helped the company to improve its business positioning.

From the manufacturer to the consumer the chain of processes followed at Zara constitutes its Supply Chain. This chain includes the following stages: designing stage, sourcing stage, manufacturing stage and stage of distribution to outlets. At outlets the products are available for the consumers to choose and purchase. Zara enjoys complete control over various production phases of its products. The success of company could also be contributed to its control over its operations, beginning from the stage of designing to crafting, manufacturing and to up till delivery of its products. This helps them in rapidly responding to the ever changing preferences of the consumers in the fashion world.  In the wake of any new design or trend in the fashion world, Zara rapidly able to deliver required products on very short notice, giving its competitors tough time in the market. It enjoys advantages of horizontal supply chain which is generally much easy to control as the assembly line has minimum possible responsibilities.

Centralized logistics and strong distribution network

The most important component of Zara’s Supply Chain are its suppliers. Since the company has adopted vertically integrated supply chain it has tremendous control over its suppliers. This enables them to easily meet the demands and keep the products updated as per the market trends. At Zara the production philosophy is to continuously introducing new designs and bringing them to market with quick launches without the trend being out of fashion. They follow the ideology of providing maximum styles to its customers so that they have greater choices. They follow the strategy of launching their products in few limited stores by supplying few pieces of new products. This makes their latest products exclusive thereby generating curiosity and raising demand for the next launches. This strategy also generates streak of compulsive purchasing among the customers because of limited supply. The products of Zara serve the purpose of advertisement as fulfilment of customer expectation is their primary target. The products line is frequently changing and the stocks remain limited thus the consumers frequently visits Zara stores (Vachon, 2013).

The value chain of Zara and Competition can be shown as:

Zara and Competition

Another important component of the supply chain is storage. Zara owns number of warehouses to store their garments and circulate them efficiently to its outlets. The storing of products is not done for longer period of time as this means that the trend of market could change in the meanwhile. Next important part of Zara’s supply chain is its distribution system. For outlets in Spain Zara ships its products through Corunna depot or Zara Logistics from the manufacturers (Casamassima, 2011). The company keeps its products fresh and latest by not stocking its inventories for long time and distributing them to outlets twice in a week. In case of international distributions logistics carries distribute it across the border of Spain according to the orders from the stores. These orders are taken by the commercial manager who manages them by placing them with the logistics in accordance with the rank assigned to the stores on the basis of their accuracy of orders and sales (Wolbrum, 2014). Zara avoids piling up of stock by immediately ceasing production of type of products which are not selling. By doing so the changing needs and preferences of the customers are also met effectively. Zara’s strong distribution network make sure that the company deliver goods within 24 hours to its stores across Europe and in less than 40 hours to outlets in America and Asia.

Zara uses effective communication technology to ensure that its products collections and designs are updated every week. The store managers can place orders through the La Corunna for both sold as well as unsold products. This technology helps in deciding critical questions whether the product has to be kept in the store or taken off, whether the similar designs are in demand and must be created or not and so on. The designers get feedback from customers regarding the sales, remarks and criticism of their products thereby making effective use of technology to have effective processing. The participant map of Zara’s supply chain can be shown as:

Zara has set a global example for the use of supply chain policy of ‘Just – in – time’. Japanese pioneered the policy of Just-in-Time (JiT) which aims at monitors inventory (Hill, 2009).  As per the observations of Ohno (1988) Toyota, the car manufacturer was able to eliminate wastes by minimizing inventory holding costs, production time and by reducing defects (Christopher and Towill, 2000). Today the strategy of JiT could be found in use at almost every big manufacturing company. This policy is used at Zara in synchronisation with modernisation and principles of customer value. Zara has competitive advantage due to its robust supply chain. The consumer driven market of fashion makes it necessary for the companies to keep on updating its products. Zara has the quest for invention and it makes best use of the latest innovation and technology to maintain its leadership in the fashion industry. Also, its strong partnership, alliance and clarity with its suppliers give its supply chain much needed forte (Romano, 2009).  As per Pedler et al (1997) a company is said to be learning organization when it gives support in collective and individual learning, participative learning, along with partnership, alliance and ecological scanning. At Zara the training, sense of sympathy and cooperative ethos form core characteristics. According to Dalton (2010) learning and core competence are the foundations of competitive advantage. The value chain analysis proposed the core competence of Zara.

Stocking up of inventory means providing out of fashion clothes in rapidly changing fashion world. Zara completely understands that and avoids piling up of inventory at any stage of its supply chain right from raw materials to finished products. they use inventory optimization models so to help in determining the quantity of products to be delivered to each of its retail stores by means of twice in a week shipments (Hamid, 2012). They make sure that the stock delivered is strictly limited so that each outlet gets just what has been ordered. This also helps in making brand image of being exclusive along with avoiding pile up of unwanted stock.

Conclusion

In conclusion we can summarize that supply chain management at Zara provides better understanding of placing emphasis on internal value chain. the policies of Zara which are customer-centric products at very high speed without giving chance of trend of its products being out of fashion helps in making Zara a successful company (Yano, 2010). Zara make use of customized technology, vertical integration, logistics and economies of scale learned from Inditex its parent company. Another important factor of its success are knowledge and information management, collaboration and inventive capacity, and strategy for customer-centric products.

The success of Zara reflects the strength of its operations. The integration of its cross-functional operations strategies with its vertically integrated supply chain make sure that the production is not in mass and the inventories are well managed, this in turn ensures lower markdowns which spells into higher profitability and creation of greater value for all the stakeholders in short as well as long term.

References

Chen, F. Y., & Yano, C. A. (2010). Improving supply chain performance and managing risk under weather-related demand uncertainty. Management Science, 56(8), 1380-1397.

Christopher, M. (2005). Logistics and supply chain management: creating value-adding networks. Financial Times/Prentice Hall.

Christopher and Towill (2000) Supply Chain Migration from Lean and Functional to Agile and Customized. Supply Chain Management: An International Journal, Vol 5(4), pp206-213.

Dalton (2010) Leadership and Management Development. Harlow, Pearson Education Ltd.

Globerson, S., & Wolbrum, G. (2014). Logistics Management and Supply Chain Management: A Critical Evaluation. International Journal of Business and Economics Research, 3(2), 82.

Hajmohammad, S., Vachon, S., Klassen, R. D., & Gavronski, I. (2013). Lean management and supply management: their role in green practices and performance. Journal of Cleaner Production, 39, 312-320.

Hill (2009) Global Business Today. New York, McGraw Hill Irwin.

Ohno, T., 1988. Toyota production system: beyond large-scale production. crc Press.

O'Marah, K. and Hofman, D. (2010). Supply Chain Management The Top 25 show how it's done, from basic cost center to essential weapon. World Trade, 23(9), p.16.

Pedler, M., Burgoyne, J.G. and Boydell, T., 1996. The learning company: A strategy for sustainable development. McGraw-Hill.

Romano (2009) How can fluid dynamics help supply chain management? International Journal of Production Economics, 118 (2009) p467.

Royo-Vela, M., & Casamassima, P. (2011). The influence of belonging to virtual brand communities on consumers' affective commitment, satisfaction and word-of-mouth advertising: The ZARA case. Online Information Review,35(4), 517-542.

Skjott-Larsen et al (2007) Managing the Global Supply Chain.3rd edition, Copenhagen,Narayana Press.

Sukati, I., Hamid, A. B., Baharun, R., & Yusoff, R. M. (2012). The study of supply chain management strategy and practices on supply chain performance.Procedia-Social and Behavioral Sciences, 40, 225-233.

Zara (2015) Available at: https://www.inditex.com/en/brands/zara (Accessed: 6 July 2016).

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