Discuss about the Supply Chain Planning and Control for Zara.
Expansion of a business comes with challenges with respect to operating in multiple locations with different socioeconomic variables and keeping track of item in stock, especially those that need replenishing. The challenge is more problematic in retailer stores offering many different products. One of the main challenges a business encounters includes keeping a current and responsive inventory. One of the ways multi-national corporations are tackling this challenge include the use of Information Technology (IT). While many companies have adopted automation in their processes, few have achieved the level of success witnessed in the Zara Company (Ravilochanan and Devi, 2012). The Spanish company was founded in 1975 and is the world’s largest retailer of fashionable clothing and accessories for women, men, and children. The company uses Radio Frequency Identification (RFID) technology to tag each item. Unlike other companies in the fashion industry that have outsourced a considerable amount of production and distribution activities, Zara carries out a considerable part of its production and distribution activities, either directly or through subsidiaries. Zara is the main brand in the Inditex group of companies.
RFID is a smarter way to keep track of items because it facilitates customization of each store’s packing list at the main distribution centre in La Coruña. Each product the company offers in its stores must go through the centre for ironing and tagging. The clothes are tagged with an RFID chip that stores information about the garment it is attached to. The chip emits the information when prompted to by a scanner. At checkout, the tagged is removed and can be reused. The technology has enabled Zara to push its fast fashion approach in the design and release of clothing and accessories to new heights. Currently, it takes the company 15 days to design, mass produce, and avail a new item in stores across the globe. The technology also enables the company to keep track of and replenish popular items (Moon, Kim and Ham, 2014).
Zara’s business including its organizational structure, store layout, product, and raw materials distribution network is built around RFID technology. Supply chain planning and control is of uttermost importance to companies because it has the potential to increase inventory efficiency and reduce the time it takes to replenish stock. The use of RFID technology can help a business’ inventory records become more accurate and relevant. It improves business processes and eliminates mistakes associated with wrongfully perceiving demand. Zara is pursuing operational efficiency and is a key player in the adoption of IT. Other businesses seek to lower prices periodically to attract customers and eliminate excess inventory (Lee and Myoun, 2014). Zara’s goal is to offer the price-sensitive consumer products at a low price while avoiding excess inventory. The company has achieved this by knowing the precise location of each item and producing a small butch of each design.
The complexity of operations increases as companies grow in size. Zara is uniquely positioned to implement and benefit from the use of RFID because of its level of vertical integration. Vertical integration refers to the combination of one or more stages of production under one company. Unlike other companies in the industry, Zara owns most of its supply chain. The use of just-in-time manufacturing coupled with RFID tags facilitate a level of flexibility that is redefining how fashion companies operate and has implications in the planning and control of supply chains across all industries (Stevenson, 2015). Whenever an item is bought in any Zara store, the information about the transaction is captured and transmitted to the headquarters. Using the information, headquarters knows precisely what each store needs and items that are popular in a given location. The data captured not only informs supply chain planning and control, but also production (Batenburg and Versendaal, 2007).
RFID technology is relatively new and there are a few challenges that are yet to be overcome. The main challenge is the cost of the chips. One of the ways Zara is overcoming this challenge is by reusing the tags by placing them on a security tag that is removed at checkout. This not only address the issue of the high cost associated with procuring the chips, but also the customer’s concerns of privacy because no product can be tracked beyond the store doors. The cost of RFID chips also increases with the amount of information the chip can hold and whether it is a read only or and read/write chip. Zara uses read/write chips to make it easy to reuse them. To make sure the chip have the least memory capacity as possible to reduce cost, the company makes use of an Electronic Product Code (EPC) network. An EPC network stores all relevant information about an item. The information can be retrieved by scanning the code stored in an RFID chip attached to the product (Kingl, 2010). The information stored in an RFID chip acts as an URL that retrieves information about the product. The information is stored in a data base in another location. The information stored in an RFID chip includes the product’s serial number. The serial number acts as a key used in retrieving information about the product. This facilitates the tracking of products through the supply chain (Martínez Barreiro, 2008).
The level of flexibility of Zara supply chain is best demonstrated in ‘the Kate Effect.’ ‘The Kate Effect’ refers to the influence the Duchess of Cambridge has on fashion. The best example of this effect is when she was spotted wearing a Zara blue dress next day after her wedding. At the time all eyes were on her because it was her first day as a member of the loyal family. Once her picture in the Zara blue dress appeared in social media, Zara stores run out of the dress within hours. Although nobody at the company knew the Duchess would wear the company’s dress or the effect she would have on the demand of the same, the company was able to redirect production and deliver more of the blue dress to meet the growing demand within a week. This is a new record considering other companies, such as H&M take months to respond to a change in demand. ‘The Kate Effect’ continues to influence the fashion industry and is most evident in the baby attire department (Milligan, 2016). Every time she is photographed with her children in some attire, parents rush to the stores to buy similar attires. Zara is positioned to respond to such changes in demand and even in instances where the children are not wearing their products, the company has a team of designer ready to design and produce a similar product within record time (Chopra and Meindl, 2013).
Another significant difference that sets the company apart from other players in the fashion industry is the company does not attempt to create fashion trends by marketing products on fashion shows. Zara collects information about what customers prefer and respond to changes in demand in its products. The company has employed more than 300 designers in a facility referred to as ‘the Cube’ in La coruña. The designers develop an average of 30,000 designs every year. Other popular fashion companies, such as H&M, design between two and four thousand items each year (Jones and Ranchhod, 2007). Unlike other fashion companies that have star designers who collaborate with celebrities to come up with fashion trends, Zara designers are divided into teams and each is an equal participant in the development of a new design. The income of designers in the company is predominately based on commissions; therefore, members of a team readily cooperate with each other because their income is dependent on the success of the team. The company also regularly shuffle the team members to stimulate new ideas (Lopez and Fan, 2009).
The fashion industry is fast paced; products go out of fashion as soon as they become available. The time it takes from a product to reach the market is critical to the success of the product. For example, the popular structure of big companies in the modern global economy comprise of a parent company that perhaps only engage in developing new designs. Other activities, such as mass production, shipping, warehousing, marketing, and retail are outsourced to other companies (Bozarth and Handfield, 2016). Zara carries out a majority of the activities from design until the products reach the customer and outsource to local cooperatives limited activities, such as sewing. The company has been working the local cooperatives for so long; they do not operate with a written contract. Zara employs a forward looking strategy in its planning and control of its supply chain. The company collects information about customer preferences and anticipates changes in demand beforehand (Dong, 2012). This enables the company to deliver more of what customers in a certain location are asking for. For example, if the company is offering a V-neck sweater and customers keep asking whether there is a round-neck sweater, the company can have the sweater resigned into a round-neck and delivered to the store within 10 days (Ye and Schmidt, 2013).
Customers who visit a Zara store do so more than 17 times each year. In a typical store belonging to the company, more than 75% of the products change every three to four weeks (Tokatli, 2007). At one end of the supply chain, the company leverages IT to collect information about customer preferences and determine what the next deliver will comprise of. The main tool at the disposal of store staff and managers is the PDA (Digital Assistant) device. While RFID scanners are used to scan items to take stock, determine a delivery, or register a sale, PDA are used to collect customer opinions and search for items in stores and online (Mo, 2015). For example, if a customer like a certain shirt and prefer a colour that the employee cannot locate, he or she can use a PDA to scan product’s barcode and search for similar items of different colour either online or in other stores in the vicinity. When a customer is trying on garments, en employee can ask questions, such as ‘would you like the sleeves longer or shorter?’ The employee enters the information in the PDA and the information is used in packing garments in the category for the particular store (Psychogios, Wilkinson and Szamosi, 2009).
Different Zara stores have different products depending on the preferences of the customers who frequent the stores. The company was one of the fast to adopt technology include the use of PDAs in its supply chain, which has enabled it to become a leader in fast fashion. Fast fashion refers to the transfer of design concepts from the runway and design table to the stores. Zara takes an average of three weeks to design and release a new product into the market (Vanitha, 2012). 72% of the company’s items are produced in Europe. All garments go through the main distribution centre and enter the centre through a rail system that is more than 124 miles long. Success in the fast fashion sector is dependent on the continuous flow of information from customers to designers. Store managers and employees communicate consumer preferences using PDAs to market specialist at the headquarters. Managers also make calls to their assigned market specialists every week to update them on their personal observation about the demand of different products on the ground (Rees and Park, 2013).
Zara’s vertical integration, the use of IT, and the structuring of the company’s management around technology have minimized bureaucracy between different departments and levels of management, which makes communication timely and efficient. Every aspect of the company, including its store’s layout, performance measures, and operation procedures are optimized to make communication easier. The structural design of the company ensures decisions are made easily and at respective levels (Slack, Brandon-Jones and Johnston, 2013). IT plays a paramount role in the structure and is the core of the entire system. The head of the business is the Chief Executive Officer (CEO). The CEO is in charge of the headquarters who are responsible for ensure smooth operations and running of the brand. The Headquarters comprise of Human Resource (HR), IT, transportation, and real estate. In each headquarter, there are commercials. Commercials are organised into teams and their main role is to collect and analysis information from stores in a given region. The store number per team is limited to 40 maximum (Guercini, 2012). Another individual who plays an important role in stores but is located at the headquarters is the HR director. The Hr director is responsible for handling non-operational issues in stores. The HR director is responsible for up to 15 stores and work hand-in-hand with a regional manager; who is responsible for evaluating individual store performance. The regional managers also play an important role in the company’s presence in the social media and are expected to be proactive in social issues. Each Zara store has three product lines. There is a manager who is responsible for each line in each individual store. The lines are based on the type of clothing; therefore. They include men, women, and children clothing. The manager who is the head of the women’s line is also the head of the store. The main feature that makes managers in the company standout is the level of autonomy they are allowed to exercise (Psychogios, Wilkinson and Szamosi, 2009). The managers reserve the right to decide what the store places in display and how much of an item is on display on the shelves. In many cases, store managers are local people with an intimate knowledge about the local culture and consumer behaviour.
Zara’s supply chain model is guided by seven principles and they play an important role in the daily operations of the company. The main principle that set the company apart from others in the fashion industry is producing items in small lots. Releasing items in small lots stimulates exclusivity and keeps customers keeping back to the stores because there are new items on display every other week. The customers are also enticed to visit frequently because items run out of store within a short period (Bonnin, 2002). Unlike other company in the industry, Zara has a centralised production and distribution system. In many companies, designs are developed in one location and transferred to cheap labour locations like Asia and South America. The approach increase the time it takes to produce a new design and increase the response time to a change in demand. It also increases the time it takes for finished products to reach the market and makes it difficult to control quality (Mo, 2015). Each product produced by the company is assigned a team from each department to ensure production, distribution, and marketing runs smoothly. The approach facilitates allocation of resources and streamlining of operations to ensure items that are high in demand are produced in sufficient quantities and reach the market in a timely fashion (Lloyd and Luk, 2010).
The company strictly adhere to schedules. Each line manager in a store can place orders only twice, each week. The distribution centre prepares and delivers orders within 24 hours to stores in the European region. Stores in far locations receive orders within two days of placing an order. Store managers are responsible for ensuring new arrivals are on display the very day they arrive. The steady operation in the entire chain ensures waiting time in each stage is minimal and the company is flexible. The production of items in house means the company can make decisions in real-time (Vanitha, 2012). Managers can make decisions based on demand on the ground and communicate the same to headquarters, who can change production to ensure it is in line with demand. Another important principle that is important to the success of the company is automation. Zara’s main competitive advantage is short response time and flexibility. Automating processes ensure the company has a high level of flexibility and precision. This means the company can produces high quality items and can change production to fit demand within a short period. The final and most important principle is ensuring the company and every individual in the company adhere to all the principles at each level. Failing to adhere to any of the principles at any level of the company makes the entire system ineffective (Willems et al., 2012). Therefore, Zara’s employees are familiar with these principles and adhere to them when carrying out their duties in the company.
Zara is one of the few companies that has gone again the common trend in an industry and has set a new trend. The company’s location in Spain is both an advantage and a disadvantage. The company cannot relocate because of the level of expertise that has developed over time in the area because of its presence. However, the cost of labour in the country is significantly high and consumes a considerable part of the company’s revenue (Bonnin, 2002). The company should open new distribution centres in emerging markets, such as China and South America where the population’s purchasing power is growing. An increase in income level and living standards increase the demand for exclusive and designer wear. China’s population is more than one billion people, which make the market more significant that the European market. The cost of labour in the country is also cheap; therefore, the company can offer competitive prices and increase market penetration (Fiske, 2007). A distribution centre in South America will also be positioned to serve the North American market, which forms a significant part of the company’s market.
Zara is a leader in supply chain planning and control because of the level of IT integration in the company’s operations. Managers and employees use PDAs and Point of Sale system to collect information about the consumer taste and preferences. The information facilitates production and distribution planning. IT facilitates the tracking of individual items across the supply chain. The high level of vertical integration and the use of just-in-time production facilitate the design, mass production, and distribution of items with 15 weeks. Producing items in limited quantities increases the number of times customers visit Zara stores and the likelihood of them purchasing an item because it is only available in limited quantities and for a limited period. Store managers have the autonomy to decide what consumers like and what to display in stores; therefore, consumers are likely to visit different Zara stores because they stock different products. The approach also enables Zara to spend almost zero on advertising and fashion shows. The company also makes targeted investments in IT, which increases the benefits it reaps from its investment and the efficiency of the system. The Management in Zara considers IT as a System, instead of a network of software and hardware. Therefore, the company includes people and procedures in the design of its IT system.
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