Zara's Logistics Management Essay: Fundamental Reasons For Success.

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.

In 2007 the journal Supply Chain Management Review republished its most requested article in the preceding 10 years since the journal’s first edition appeared in 1997. That article, ‘The Seven Principles of Supply Chain Management’ 17 outlined seven key actions for successful SCM which are still valid today: 

1. Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.
2. Customise the logistics network to the service requirements and profitability of customer segments.
3. Listen to market signals and align demand planning accordingly across the supply chain, ensuring consistent forecasts and optimal resource allocation.
4. Differentiate product closer to the customer and speed conversion across the supply chain.
5. Manage sources of supply strategically to reduce the total cost of owning materials and services.
6. Develop a supply chain?wide technology strategy that supports multiple levels of decision making and gives a clear view of the flow of products, services and information.
7. Adopt channel?spanning performance measures to gauge collective success in reaching the end?user effectively and efficiently.

After reading the case study prepare ( executive summary, table of contents body, conclusions and  recommendations) analysing the issues in the case, and identify logistics management strategies that enable Zara (page 70 in the text)  to become so successful. 

In your report you need to consider :

• The Fundamental reasons for success, with a comparison to another successful and an unsuccessful company
• How can Zara maintain its competitive advantage, here the concept of sustainability may be introduced.

Capacity of Quick New Product Development

Supply chain and logistics management is an important aspect for ensuring the development and success of company’s business and competitive business scenario. It includes the procedure of storing the products and services and their distribution to final users so that they can fulfill the expectations and demands of customers (Fernie and Sparks, 2014). The major objective of this report is to analyze the logistics and supply chain strategies of Zara and their comparison to one successful organization i.e. Dell and one unsuccessful organization i.e. Myer. Zara is one of the most successful retailers that have implemented impactful strategies for its logistics and supply chain management. This company has started its operations in 1975.

It is engaged in manufacturing the cloths and accessories by utilizing different fabrics (Zara, 2018). By implementing exceptional logistics strategies, this company is able to gain effective competitive edge over its competing brands. After the discussion about logistics and supply chain management of Zara, this report includes the aspects how Zara can maintain its competitive advantage.

Logistics Management Strategies of Zara and Fundamental Reasons for Success 

By having top position in textile and fashion industry, Zara is formulating different effective strategies under its logistics management. There are various factors which are the major reason behind the success of Zara (Ralston, et al, 2015). These reasons are discussed below:

Capacity of Quick New Product Development 

In its operations, Zara Company has maintained its processes and practices in such a manner that it can easily introduce new and innovative products very quickly. Due to this, it is able to distribute them in its stores within 4 or 6 weeks (Zara, 2018). It shows that Zara has shorter lead time than its competing brands. Manufacturing and supply chain operations are quick at this textile retail company and it has sufficient agility level so that it can respond to current fashion trends. This rapidity of Zara’s supply chain and logistics management is a great support to its strategies (Gorrepati, 2016).

Vertical Integration

The growth and development of Zara is directly linked with the vertical integration with its parenting firm i.e. Inditex. In its production and supply chain operations, Zara has its own producers, warehouses, distributors and retailers also (Tomlinson and Fai, 2016). This company manufactures its garments in lot that is distributed to its retail outlets, where people can shop these products. About Zara, it can be stated that vertical integration is the major factor that contributes to the introduction of new products rapidly. After choosing new cloth designs and patterns, the company manufactures the cloths and distributes them to its outlets within 2 or 3 weeks. It has established most of its production facilities in Spain and all of these premises are vertically integrated (Mihm, 2010).

Just-in-Time Production Technique 

This is another reason behind overall growth and success of Zara Company. It has adopted just-in-time policy in its manufacturing process. Under this, it designs its cloths and garments as per the changing fashion and trends. In case of new trends, it reacts very fast by designing new and trendy cloths. After manufacturing, some of these cloths are delivered to its retail stores and some are stored at warehouses so that they can use them to manage the situation of shortage (Filippini and Forza, 2016).

Vertical Integration

Extensive and Strong Distribution Network and Inventory Management 

Zara has developed an extensive distribution network that makes its production and supply chain practices better. Its products are distributed from its Spain’s production facilities via Zara Logistica and Corunna Depot. This fashion retailer does not prefer to store the stocks and it distributes stocks to its stores twice in a week. It has a strong network that allow this firm to transport the final products to its European stores in 24 hours and to Asian and American outlets within 40 hours. Additionally, Zara has adopted a lower inventory system as it believes that it is not good for fast changing fashion and trends (Barratt and Barratt, 2011).

Comparison of Zara’s Logistics Management with Dell (Successful Company)

As mentioned above, the major characteristics of Zara’s logistics and supply chain management are vertical integration, just-in-time technique, agility and strong distribution system. For comparison, Dell is chosen as an organization that is operating its business successfully. There are several differences between the logistics and supply chain practices of Zara and Dell Company.

As discussed above, Zara is using the supply chain that is vertical integrated whereas Dell is adopting horizontally integrated logistics and supply chain. Dell is engaged in manufacturing the laptops and computers and hiring the suppliers from third party sources so that they can supply their products to final users (Dell, 2018). The logistics system implemented by Zara is profitable because it can be evaluated and controlled easily as there are very few duties and responsibilities to handle. In the case of Dell, it has to deal, supervise and organize many activities and processes in its supply chain and logistics system. Apart from this, there are some other facts that help in the comparison of logistics practices of Zara and Dell. These facts are discussed below:

Manufacturing Approach 

One of the major differences in logistics and supply chain system is their production and manufacturing approach. Under this, Dell Company is adopting the make-to-order approach in which products are customized in a shorter duration for the customers. The laptops and computers can be customized as per the requirements of customers. These products are available on the physical stores and online website of Dell. On the other side, Zara has the capacity and potential to introduce new and fashionable designs and cloths very fast.

Using this technique, Zara launches apparels in its limited stores. It has the strategy to offer new products as rapidly as possible. It makes curiosity among people about its upcoming cloths. With this, Zara does not advertise its apparels via different promotional techniques as it wishes to establish a great brand reputation in a unique manner (Prajogo, Oke and Olhager, 2016). The objective of this firm is to sell best products in fashion retail market and meet the demands and expectations of customers. Because of limitations of products, people go to the retail stores to check new designs. Thus, it can be stated that production approach of Zara serves the preferences and demands of customers while Dell Company emphasizes on make-in-product process in its manufacturing approach.

Just-in-Time Production Technique

Communication strategy 

In order to develop effective interaction with customers, Zara Company is practicing an effective communication strategy. It creates new designs and collections weekly and placed in the retail stores. Moreover, the products are placed through internet as well so that they can approach a larger population. It keeps the customers updated about its new and trendy designs of apparels. Moreover, it focuses on and considers the customer feedback while designing new garments. An effective communication at Zara makes the overall process cost efficient and easier. As compared to this, it is one of the biggest weaknesses of Dell that there is a poor communication system as the orders of customers are the single feedback for organization (Rao, 2014).

Storage 

About Dell, it can be stated that it has lower inventory costs as it does not have additional costs of warehouses. Some processes such as direct delivery, retail storage and supplier storage help the company in eliminating additional costs. On the other side, Zara Company owns many warehouses so that it can store its fabrics and garments (Rushton, Croucher and Baker, 2014).

Distribution Management 

The distribution system of Dell Company is indirect which involves several parties such as retailers, suppliers, assimilators, distributors and end users. The company has adopted business to business model which allows most of its customers to purchase the products from e-commerce sites. Through these sites, Dell is directly linked to its customers which have cut the extra time and costs. Apart from this, Zara’s products are distributed from its production facilities in Spain (Mangan, Lalwani and Lalwani, 2016).

In this way, it can be stated that there are numerous differences in supply chain and logistics management system of Zara and Dell but both systems assist the organization to become successful and run the business successfully.

Comparison of Zara’s Logistics Management with Myer (Unsuccessful Organization)

Apart from this, Myer is chosen as unsuccessful organization that has expensive departmental store in Australia. The company is failed in managing its supply chain and logistics operations and that led it towards overall failure in Australian retail industry. It faced the failure due to poor management and bad decisions for its departmental stores. It has affected the performance of Myer and it confronted the loss of $476 million. Myer is the organization that did not take any major initiative towards its customer segmentations as per the features and types of consumers (SBS News, 2018). While manufacturing and offering the products, this firm does not consider the demographic and psychographic variables of customers. On the other hand, Zara is engaged in categorizing its market and products as per the lifestyle, age and income of targeted customers.

Under logistics system, Myer has used a direct supply chain model so that it can communicate its business activities and processes. This model has allowed the organization to ship the goods from its production premises to the stores where the people can shop their required products. As compared to it, Zara Company has many intermediate parties such as retailers, wholesalers etc. Same as Zara, Myer is also able in offering the goods and services within predefined timeframe. Myer has an unclear concept i.e. “My store”.

Extensive and Strong Distribution Network and Inventory Management

It has placed its services as the biggest retailer in Australia but its customer services are not satisfactory (SBS News, 2018). Like Dell and Zara, Myer is able to maintain its stock and inventory appropriately. Flow of products is very slow at Myer so it is very important for this company to manage in-time manufacturing processes. In contrast to this, Zara is using just-in-time inventory system that supported the organization to reduce the chances of wastage in production system and supply chain. Myer is using discounted sales techniques to entice its customers whereas Zara introduces seasonal fashion apparels to attract people with effective customer services (Hatch, 2017). Overall, it can be stated that logistics and supply chain system of Myer is failed to attain its management agendas while logistics system of Zara is able to attain its management objectives.

Competitive Advantage of Zara 

In today’s competitive business environment, each and every company is implementing effective strategies so that they can attain sustainable competitive advantage over other competing brands. For them, it is the biggest threat to gain competitive edge and maintain this for a longer time. There are various business activities which work as sources of competitive advantage for Zara Company (Darroch, Miles and Jardine, 2015). Below are two major aspects that are significant bases for the sustainable competitive edge of Zara. These aspects are discussed below:

Operational Effectiveness

Operational efficiency is one of the most significant sources which support the organizations to achieve sustainability in competitive advantage (Tukker, et al, 2017). There are various firms that face problems in enhancing their performance than their competing brands. These companies are not able to understand that they need to implement some specific strategies and approaches. Although, leading fashion retailer i.e. Zara is among the companies which have adopted unique approaches and strategies in order to enhance their operational effectiveness.

It assisted this firm to attain comparative advantage. One of the major strategies is vertical integration that this company has adopted in its supply chain and logistics system (Gorrepati, 2016). It offers more sustainable competitive edge to Zara because other competitors are dependent on hiring the employees from low labor cost countries such as China, Mexico etc. In addition to this, this company is practicing a very unique business model and processes that enables it to design the cloths as per the needs and preferences of customers and changing fashion trends.

Strategic Position 

For each and every competing firm, it is vital that it determines the strategic positioning of its business operations. It is very necessary to assess how they compete and fulfill the needs and demands of customers in targeted market segment. In order to position the products and services strategically, a business entity implements the strategies of other firms in similar or different ways. For attaining the advantages of strategic positioning, Zara Company has adopted updated and modern technologies. This is the major source of its competitive advantages as it has divided the overall market in different manner (Grant, Wong and Trautrims, 2017).

Comparison of Zara’s Logistics Management with Dell (Successful Company)

The company has targeted the educated people and youth as its primary market segment as management of Zara thinks that these are the people who understand the changing fashion trends. With the assistance of advanced technology and internet, Zara Company is promoting its fashion trends and apparels across the world. Due to this promotion and expansion, the company is able to attain significant and sustainable competitive advantage (Wagner III and Hollenbeck, 2014).

Thus, it can be stated that Zara is executing unique business model and strategies so that it can attain competitive advantage with long term sustainability. It models and techniques are very much different from other fashion retailers on global level. It is engaged in delivering significant value to customers for their money. It considers that they are looking for new fashion and trends in choosing their apparels. So, company is making fast changes in its product category accordingly (Qrunfleh and Tarafdar, 2014). In this way, the foremost reason behind its sustainable competitive edge is its strategies of logistics management and modern technology utilization. Thus, these are the sources which assist the Zara to attain competitive advantage with sustainability.

Conclusion

Thus, it is hereby concluded that Zara’s significant growth and success is attributable to its vertical integration strategy in logistics and supply chain management system. The above analysis indicates that Zara is using effective techniques and strategies in its supply chain so that it can attain a top position in global textile sector. In above report, Myer and Dell are chosen for the comparison that shows Dell is using effective techniques but Myer is failed to sustain its business for longer time. Moreover, it is hereby recommended that Zara needs to emphasize on spreading its operations in diverse locations all over the world. It will help the organization to enhance its market coverage for textile products. However, the company has adopted effective processes and techniques in its supply chain system, but it should focus on its marketing activities also. This will assist the organization to improve its brand presence all over the world.

References 

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