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Supply Chain Management Strategy Of Zara

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Question:

Discuss about the Supply Chain Management Strategy Of Zara.
 
 

Answer:

Introduction

Supply chain management is associated with three aspects including operational, tactical and management leaves an overall impact on the business strategy (Dedhia 2017). Product development, customer’s management, logistic and vendor management are also parts of the supply chain management.

Any company can select the strategic global suppliers by leveraging the entire purchases of an organization. This current study deals with the supply chain management in the context of Zara and UNIQLO. These two organizations are very popular in the international fashion industry. However, the blend technology of Zara allows them to be a major outsource manufacturer in the low-cost countries. On the other hand, UNIQLO has developed a positive impact on the inexpensive clothing market. This study will give a brief overview of the supply chain management strategy of such two organizations and their operation process in the global market.

Case study of Zara

Zara is a well-known fashion industry in the global market. Hence the blend technology is one of the vital strategies of Zara makes a good record for Zara in the fashion industry. This organization is a major player in the outsourced manufacturing in the low-cost countries. Zara keeps huge swaths in their in-house production process. Between the year 1996 to 2000, this firm becomes tripled in size and gained a huge profitability (Zhelyazkov 2011). However, due to the poor strategic decision of the competitors, Zara is going to be one of the fastest global fashion industries in the international market. On the other hand, the profitability regarding the supply chain management is high in Zara among the fashion retailers. Over the period of time, Zara becomes the devastating and innovative retailer in the fashion market. In order to manage the problems related to the outsourcing, Zara has been started to lower their price to enhance their profitability and sales revenue generation. However, to reduce the labor cost many fashion retailers have used the children as a worker that leads them to face ethical issues in the lower cost countries. Hence, for the fashion marketers, it is important to not only think about the ethical practices for their own firm but also for their partners and the suppliers. However, by using vertical integration and the technology coordination this organization is able to improve their manufacturing process and logistics management (Gallaugher.com 2017).

Zara is mainly popular for their unique design in the fashion market. This organization prefers to develop the design based on the customer demand rather than exhibiting their innovation through the catwalk fashion show. Data regarding what has been sold and what are the customer expectations go to The Cube in La Coruna.  There is a team including 300 fashion designers involved in developing 2000-4000 items. However, the designers of Zara are mostly young and they are able to take feedbacks from the customers. Zara establishes a plan to make a contract to the manufacturer and tool up the production. After that, they ship the items to their wear house and from there the products are transferred to the retail stores. This firm is able to make 40 percent of its own fabrics and they purchase their dyes from their own subsidiary.  Zara has approx 565 stores in 33 countries, however; their main concentration is on Spain (Dedhia 2017). From the extensive market research, it has been found that Zara has a good target market with sufficient size.

Zara aims to establish their stores in the prestigious locations and high traffic location.  These retail locations are very expensive and most of the selling places of Zara are seemed to be empty in order to make a good selling environment for the customers. Hence, the customers can walk and browse in such locations. People find something new in Zara's store and this firm offers products with a unique design with low cost. Hence, this low inventory policy is followed by Zara, as a result, their stocks become empty at the end of the day and they are able to gather new products in their inventory (Lu 2014).

 

Case study of UNIQLO

UNIQLO is casual wear designer, established in Japan and operates in the global fashion market (Usui et al. 2017). This organization is popular for the manufacturing and retailing of the clothing products. UNIQLO has 300 stores in Japan. In the UK Uniqlo has 23 stores and the first store is opened in London. Providing high-quality products at a reasonable price for a vast target audience is the prime motto of Uniqlo. The Yanai the founder of Uniqlo has considered Uniqlo as the technology company rather than the fashion organization. This organization aims to bring innovation in their product design and manufacturing process to fulfill the customers need. Uniqlo follows three stages for their product innovation. One is HEATTECH stage that focuses the manufacturing of the inner wears with hollow fibers inside the cloth that allow the air to pass inside the clothes.  The second stage is flagship products with AIRism line and associated with the manufacturing of the undergarments. This design keeps the body cool by releasing the moisture. Therefore, the dry stretch pant is the third stage of their innovation (Fetcher.tufts.edu 2017).

Low pricing strategy is a vital part of the supply chain management of Uniqlo. The authority of this organization thinks that price and the quality of the product are the two basic elements that influence the purchasing behavior of the customers. It is important for the fashion industry to identify the factors properly that is associated with the needs of the current market to maximize their business performance (Christopher 2000). This is the first company of Japan that has adopted Specialty store retailer of private label apparel or SPA model. Stages regarding the pre and post productions can be controlled by this model. However, this model allows the organization to make a flexible production structure and cost saving process. Uniqlo adopted the production process that is reduced the production cost.

Rising price of the raw materials increases the production cost in the business that brings a big threat for the fashion retailers (Usui et al. 2017). For this reason, Uniqlo has developed three major ways to minimize their production. Inventory control, production and quality control and research and design are the vital three ways that keep the sustainable production in the context of Uniqlo. In the year 2005 Uniqlo entered into the US market and started to differentiate products to gain the concentration of the target market. They established flagship stores at the high profile streets of US to enhance their sale. Their main goal is to become number one apparel in the international fashion market by 2020. Uniqlo has been facing challenges to achieve their future goal, however, the performance of such organization in North American market and US market is crucial to meet their objectives. Such markets will bring major challenges for such organization with which this organization has to deal in near future (Chen and Fan 2017).

 

Analysis of the critical success factors in context of Zara

Zara is one of the popular retailers that is crushing sales in the challenging retail environment in the global market. This fashion retailer is known as the giant retailer in the global world. Implementation of the Omni channel experience and vertically integrated strategy enable such organization to alter their products (Sziva 2017). However, unique product design and low inventory strategy are one of the vital factors of Zara that lead them to achieve the success in their supply chain management. Zara focuses on the manufacturing of the products in their company owned factories. This factor enables Zara to gain competitive advantages in their supply chain management. This also allows Zara to supply the specific items to the consumers that they want. However, by providing seasonal clothing Zara is able to increase their consumers’ numbers (Kim 2013).

Development of the Omni channel business is another success factor of Zara. This channel highlights on utilizing the supply chain of Zara to distribute a great customer experience. A comparison can be made between the Omni channel business strategy and multi channel supply chain management strategy, which focuses on the ways through the customers pay for a product. Zara aims to adopt the latest trend in the fashion market for this reason they focus on the elements associated with new trend rather than the cost. Implementation of the Omni channel Zara will be able to introduce their new products at the right place and right time. This Omni channel allows Zara to develop a synergy between the operation and business strategy (Yamaguchi and Yoshida 2011).  On the other hand, based on the nature and size of the business Zara uses omni-channel supply chain strategy.

Integration of the operation and business strategy allows Zara to take control over their supply chain management (Gomes et al. 2017). Their supply chain is vertically integrated that ensure their ownership of the supply chain. However, through the application of vertically integrated strategy, Zara is able to reduce their cost as minimizing the outsourcing to various suppliers. Zara opens location in the central business districts that mitigate the issue regarding their delivery of clothes to different stores. Manufacturing and distribution of the products in small batches enable Zara to get full control over the wear housing, logistic function, and distribution.

 Zara innovates new features in their product continues to meet the demand of the target market as well as the success in their supply chain management. They deploy new design rapidly in the global market to attract the customers and to fulfill their demand. Zara launches 12000 new designs in every year that focus on their success in the business (Viardot and Nylund 2017).

Analysis of the critical success factors in context of Uniqlo

Production capacity is one of the most important factors of Uniqlo to lead them towards the success. However, Uniqlo reduces speculative production capacity and maximizes the reactive production capacity. However, reactive production capacity lowers the operation cost and need little maintenance in the manufacturing. Uniqlo gives value to their customers and offer products that are associated with the daily life of the customers (Park and Kim 2017). Reactive production strategy of Uniqlo made them fast in the international market.

Technology is another vital factor of Uniqlo that lead them to achieve success in their business. Use of modern technology in the product development opens a new door for the Uniqlo to expand their sales as well as the number of customers. However, by utilizing the new technology in the product manufacturing makes Uniqlo one of the growing fashion retailers in the international market (Anwar 2017).  The product innovation technique of Uniqlo is unique as they follow three steps to complete their innovation. HEATTECH line is one of the greatest strategies of their innovation that produce jeans, leggings and inner wear with curated hollow fiber that allows the air to pass through this cloth. Hence, the second step highlights on the flagship product that is AIRism line includes undergarments. The third step focuses that this organization uses an advanced type of fabric, which is known as Cupro. Use of this fabric in the clothes reduces the moisture and makes the customer comfortable while using these clothes. However, such innovation by utilizing the technology is a big factor that allows Uniqlo to achieve success in their supply chain management (Paik et al. 2017).

Uniqlo conducts a regular meeting to their merchandise regarding the development of the marketing and materials. They developed a new design before 1 year of their product launching this enables them to get sufficient time to source the materials cheaply and manufacture their clothes in a low-cost manner. They give the large order to the vendors to achieve the low cost per unit. This provides assurance about the high-quality product at low price. Therefore, the expert engineers of Uniqlo give assurance about their product quality and show a quick response to the operational process (Huang et al. 2017).

 

Analysis of the performance of the two firms

Three decision phases in the supply chain management of Zara

Supply chain strategy, supply chain planning, and supply chain operation are the three decision phases of the supply chain management. In the supply chain strategy phase, the decision is taken by the management (Ren et al. 2016). In the context of Zara, they consider the quality of the product while developing any strategy. Low inventory strategy is taken by Zara to increase the sale as retention of the old product in an inventory for a long time affects the business growth. Planning of the supply chain is done based on the demand. Hence, Zara gives their concern to the design which includes the evidence of customer demand rather that catwalk fashion show. This enables such organization to make a connection between the customer’s expectation and the goods that are sold. Therefore, from the manufacturing house, entire products of Zara are shipped back to Spain that is the central location of this business. From there products are distributed to different countries and stores based on the individual’s demand. Zara establishes their stores at the high traffic areas to gain customer attention as this is the part of supply chain operation. Therefore, the inventory optimization model is used by Zara to identify which items in which size are delivered in a store in every week.

Three decision phases of supply chain management in context of Uniqlo

Uniqlo uses low pricing strategy to enhance their sale. However, offering a high-quality product with low price is a good supply chain strategy to enhance the profitability in the global market (Truong 2016). Uniqlo mainly operates in the inexpensive market to meet the demand of their target customers. In order to establish a good supply chain planning, Uniqlo has started negotiation with the manufacturer. This enables them to produce top quality products in a high volume and low cost. Uniqlo has adopted new technologies to improve their innovation process. In order to carry out the supply chain management operation, Uniqlo uses advanced dying technology to improve their product manufacturing.

Push or pull view in the supply chain management

Zara follows small batch production in order to cut the cost of transportation and finished goods. Hence, a high cost of the raw material, transportation, and finished products act as the push factor in the context of Zara that leads them to adopt low inventory strategy. This push factor allows Zara to explore the new design and to identify the acceptance rate of the new products in the market (Khurana and Ricchetti 2016). Risk regarding the production of large quantities products that are not preferred by the consumers can be reduced by this push factor. Zara follows a pull model to manage their supply chain and inventory. By following such model Zara evaluates the customer spending in their store and identify the current demand based on which they develop their design.

High demand of the consumers leads Uniqlo to produce a large number of products. Hence, consumer demand is the main push factor of Uniqlo to manage large inventory and offer a high-quality product at low price. They developed earlier supply chain planning in order to buy raw materials with low cost. Hence, to get high-quality raw materials with low cost from the supplier is another push factor of Uniqlo that enable them to manage the supply chain properly (Sorescu 2017).

 

Supply chain capabilities, scope of strategic fit and implied demand uncertainty in context of Zara and Uniqlo

Zara controls its supply chain properly, however, 50% of its total production comes from Spain that is the central business area of Zara and 25% comes from Europe. Then the whole production is warehoused in Spain and distribution is started from there to various stores. New models come into the inventory twice in a week and European stores receive their deliveries within 24 hours while American stores receive within 40 hours. Vertical integration strategy of Zara allows them to establish the strong merchandising strategy. Through this strategy, Zara can develop an environment of opportunity. The high rate of innovation and the product variety often lead Zara to face implied demand uncertainty (Sorescu 2017).

Uniqlo manages a large inventory hence, 50% of the total production comes from Japan. Then the entire products warehoused. However, the third party is involved in the transpiration process of the product of Uniqlo. Uniqlo focuses on producing a high quality product that is affordable to all. They produce high volume product with low cost while dealing with the suppliers and they use simple and cheaper process to manage their inventory. High customer service and the variety of distribution channel lead Uniqlo to face implied demand uncertainty (Lorenzoni 2016).

Use of various supply chain drivers in context of Uniqlo and Zara

Zara has an effective team of young designers that enable this organization to make an innovative design. However, they use low inventory strategy to understand the market demand and to reduce the risk of huge products in their inventory that can be rejected by the customers. Zara uses quick transportation network that enables them to distribute merchandise within 1 to 2 weeks. They give fast delivery and quick response to the supply chain. Zara uses PDAs or personal digital assistants to accumulate their customer's information. Barcelona and Hong Kong serve as the source of Zara for the fabric materials to manufacture their products. Zara follows cost leadership strategy to offer the product at low price (Khurana and Ricchetti 2016).

Uniqlo has a strong team of the design executives called Takumi team that provide them facilities to innovate new features in their product. However, inventory is the second driver of supply chain management hence; Uniqlo has a large inventory with the variety of products. The third party is involved in the transpiration of the products from ware house to stores in context of Uniqlo. However, Uniqlo is technologically advanced in comparison to other fashion industries. Takumi system is used by them to gather customer data. Maximum raw materials for the manufacturing come from China in context of Uniqlo. Apart from this, the pricing strategy is another driver of supply chain hence, Uniqlo follows low pricing strategy to increase their sale (Anwar 2017).

Conclusion    

The sale of a business depends on the management of the supply chain. Manufacturing decision focuses on the technology and the infrastructure of the manufacturing as found in the case studies from Zara and Uniqlo. According to the high forecasting process and estimation of sales organization takes their strategic decision regarding the manufacturing of the products. Strategic supply chain management requires strategic policies to manage the suppliers in context of both Uniqlo and Zara. However, product variation is the main aim of Zara while a high quality product with low price is the prior area of Uniqlo. Moreover, Zara focuses on low inventory strategy while Uniqlo possesses the large volume of products.

 

References

Anwar, S.T., 2017. Zara vs. Uniqlo: Leadership strategies in the competitive textile and apparel industry. Global Business and Organizational Excellence, 36(5), pp.26-35.

Chen, Y.L. and Fan, K.K., 2017, May. Exploratory study on corporate brand image and customer satisfaction on consumer purchase behavior: A case study of UNIQLO. In Applied System Innovation (ICASI), 2017 International Conference on (pp. 1190-1193). IEEE.

Christopher, M., 2000. The agile supply chain: competing in volatile markets. Industrial marketing management, 29(1), pp.37-44.

Ci, C., Park, S. and Kim, B., 2017, July. DIFFERENCES IN THE BRANDING STRATEGY OF THE BIG 3 SPA BRANDS: ZARA, UNIQLO, AND H&M. In 2017 Global Fashion Management Conference at Vienna (pp. 65-66).

Dedhia, P. 2017, “Logistics - supply chain management of Zara – a case study”, pp.56-100.

Fetcher.tufts.edu. 2017. UNIQLO: Innovating to be Number One. [online] Available at: https://fletcher.tufts.edu/~/media/Fletcher/MIB/pdfs/B236%20Student%20Case%20Studies/Uniqlo%20Case%20Study.pd [Accessed 13 Sep. 2017].

Gallaugher.com. 2017. Zara Case: Fast Fashion from Savvy Systems. [online] Available at: https://gallaugher.com/Zara%20Case.pdf [Accessed 13 Sep. 2017].

Gomes, R.M.D.A.B., Carneiro, J.M.T. and da Rocha Dib, L.A., 2017. A contingent look at retail internationalization: Proposition of a taxonomy and discussion of theoretical challenges. BASE-Revista de Administração e Contabilidade da Unisinos, 14(1), pp.2-15.

Huang, P.Y., Kobayashi, S. and Isomura, K., 2014. How UNIQLO evolves its value proposition and brand image: imitation, trial and error and innovation. Strategic Direction, 30(7), pp.42-45.

Khurana, K. and Ricchetti, M., 2016. Two decades of sustainable supply chain management in the fashion business, an appraisal. Journal of Fashion Marketing and Management, 20(1), pp.89-104.

Kim, B., 2013. Competitive priorities and supply chain strategy in the fashion industry. Qualitative Market Research: An International Journal, 16(2), pp.214-242.

Lorenzoni, G., 2016, June. The Fast Fashion Business Model. In International Conference on Advanced Information Systems Engineering (pp. 65-71). Springer International Publishing.

Lu, C. 2014, “Zara supply chain analysis - the secret behind Zara's retail success”, pp.23-67.

Paik, Y., Kwon, J.W. and Chen, D., 2017. Global Business: Connecting Theory to Reality. Taylor & Francis.

Ren, S., Chan, H.L. and Ram, P., 2016. A Comparative Study on Fashion Demand Forecasting Models with Multiple Sources of Uncertainty. Annals of Operations Research, pp.1-21.

Sorescu, A., 2017. Data?Driven Business Model Innovation. Journal of Product Innovation Management, 34(5), pp.691-696.

Sziva, I., 2017. Smart destinations for smart Generation?–The requirements of Generation Y in the area of innovative communication.

Truong, N.V., 2016. Fashion Supply Chain Management: Strategies for Lead Time Reduction and Environmental Sustainability: Case Studies from Zara and Everlane (Doctoral dissertation).

Usui, T., Kotabe, M. and Murray, J.Y., 2017. A Dynamic Process of Building Global Supply Chain Competence by New Ventures: The Case of Uniqlo. Journal of International Marketing.

Viardot, E. and Nylund, P.A., 2017. Conquering the Digital Customer: How Zara Is Confronting the. Socio-Economic Perspectives on Consumer Engagement and Buying Behavior, p.334.

Yamaguchi, T. and Yoshida, H., 2011. Fast retailing: an analysis of FDI and supply chain management in fashion retailing. Bachelor thesis, Henley University of Reading.

Zhelyazkov, G., 2011. Agile Supply Chain: Zara's case study analysis. Design, Manufacture & Engineering Management, Strathclyde University Glasgow, Velika Britanija, pp.2-11.

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