Is Zara a Successful Company - Assignment Example

1. Is Zara a successful company? What evidence from the article supports your conclusion? Zara is a Spanish clothing company, and today it occupies aleading position in the clothing industry through out the world. Currently they have 650 outlets spread over 50 countries. The company mainly concentrates on designing, producing and delivering of fashion clothes. The critical successful area of Zara is their superresponsive supply chain system. This system works under the total control of Zara’s design to their distribution process. They follow a systematic production and distribution system by offering a large variety of latest design only with limited quantities in its outlets allover the world. They are displaying the new products only for a two weeks time, at the same the designers are aiming to introduce another latest design. This system helps the company to introduce a large variety of latest products into the market. This is possible due to the organizational structure that the company follows to effectively implement their operational strategies the company follows an effective communication among the departments. Fashion clothing industry is highly depends on time. Fast adaptation to changes in market is the key area of this business. Zara’s effective communication and management system helps them to create good results in their operations. Similarly their fast production and distribution system helps them to generate a good market share in the clothing industry. Their latest products are being sold fast. It is very profitable in nature and they are in a position to earn 85% margin on sales as compared with the competitors. They are still following an average margin of 60-70%. Zara mainly concentrates on price margin and not on sales volume. Their manufacturing pattern highly depends on in house manufacturing. This system helps them to reduce production cost by applying the economies of scale. They are following a centralized production system with the assistance of internal personnel. There is a systematic plan for receiving orders and arranging stocks. At frequent intervals the company conducts meetings in which all internal personnel are involved for taking appropriate decisions in respect of new product designs. Its success is mainly due to its focus on three fundamental areas like: proper communication loop, sticking to a rhythm, leveraging of assets. It is possible to maintain its success by sustaining an environment that enhances its supply chain concept. 2. What is Zara’s ‘big picture’ strategy for supply chain management? How does it differ from conventional wisdom and practice? Why does it work for Zara? Zara clothing company follows a different practice in their production and distribution function. Most of their production is carried out in locally. They reduce the outside production activity and give more priority to the inside partners. Apart from this, they follow a small batch production system which helps them to reduce the cost of production. Zara clothing company’s success, however, is attributable to a strategic supply chain management system that they follow. It is a system that controls all areas of operations including product design, production, and distribution. It is a systematic process in which they apply end to end control over supply chain management, by which they are able to retain the profit for a long period. Zara follow a flat organizational system that helps them to communicate in a seamless manner and take immediate decision. The company concentrates on the areas of communication and information and they ensure the coordination of each department to facilitate smooth flow of processes. Zara uses an advanced information system that connects the retail store and the production unit. This communication system helps to control and maintain the production process on the basis of market change. Retailers provide them sufficient information about the market situations as also transmit to them customers’ feedback about the product. Zara offers a variety of latest design products with a limited quantity which helps them to market the product with a short time period and compete the market in latest design products. The fast production and distribution system helps them to respond quickly to customers’ requirement based on retailers’ feedback and there by earn maximum profit. Zara’s new products are displayed only for a few days in the outlets and at the same time the designers introduce new designs which attract customers. Zara follows an innovative approach in garment marketing and manufacturing. Its supply chain system is its critical success factor. It is entirely different from the competitor’s business strategy and it facilitates good margin on sales. The company follows equilibrium in production and distribution by displaying only a limited quantity of latest design products which minimizes over production. Another area where Zara’s strategy is evident is the small working capital, because their overall sales pattern is focused on limited quantity. The company invests capital on the areas of production and distribution and they give more priority for their communication and management areas. This is another factor for their success. Further, the supply chain management followed by Zara helps to speed up its level of production and information flow. It reinforces the production in small batches which helps to reduce the overall cost as compared to the competitors’ large batches. By maintaining lower capacity utilization, Zara is able to compete with unexpected demand faster than its rival firms. 3. What are the steps in the cycle from forecast to sales at Zara? Zara clothing company follows a systematic supply chain system which helps them to control the whole system and produce better results. The supply chain system starts from the design stage of products. In this stage the designers are collecting the data from their colleagues and they transfer this data to the store managers. The fast communication and interacting system senders this function speed and ease. The store managers and designers take decision about the style, color, fabric and price fixation estimation of the manufacturing and operating costs, and setting of available capacity. Zara retile outlets are very spacious but the shops have only limited stocks. This apart, they display only few clothes. This concept is based on customer psychology. This strategy is applied by the help of their limited batch production system and they produce the products only based on market demand and their stock availability. Their centralized management system and fast and effective communication system helps the company to maintain this production and marketing system properly. By adopting this production system the company is able to compete with other manufactures Zara offers quality and latest products at lesser price. 4. Name and describe three of Zara’s supply-chain management practices that you believe to be most applicable to your own business environment. Describe how you could adapt them to your situation. Zara maintains an efficient and effective supply chain management system. The following practices that they have adopted facilitate their success and these can be tried by other businesses to attain success:- Close the Loop: This is a system followed by the company which helps them to maintain a proper communication between the departments. This system is one of the key successful areas of Zara’s business strategy. This enables them to control their production and distribution function. The company only displays limited number of products for a limited period of time. Their retail shops are spacious with limited displays. They manage these operations by the help of effective communication and information system. The company using a communication system between the production unit and retile shops this communication system helps to manage the production on the basis of market demand and production units can adopt changes on the basis of customer preferences and needs. Another strategy can be found in the areas of design. The designers collect the information from their colleagues and they transfer it to the store managers and they take decision about the fabric, color, style and price fixation etc. The proper coordination of each departments and fast communication system helps the company to sell the product at lower price and distribute latest quality products. Stick to a Rhythm: Zara exercises proper control over its supply chain as compared to other competitors. They mainly follow an in house production system where by smaller portion is produced by outside partners. This control system provides the company time for production and information flow. The entire system moves in a fast but predictive rhythm. Mainly the distribution systems are controlled in this function. Each store manager sets a time for ordering the new products. In Spain and Southern Europe managers’ ordering time is twice in a week by 3:00 pm Wednesday and 6:00 pm Saturday and in other parts of the world their ordering time is place 3:00 pm Tuesday and 6:00 pm Friday. This systematic ordering helps the company to arrange the inventories at proper time and manage the production on the bases of order. It also facilitates cost reduction production. Order acceptance and delivery also follow a strict rhythm. The company follows a centralized distribution system that manages all distribution functions. The trucks distribute the packed full tagged products to each retail outlets. The transportation also follows a cohesive rhythm. Leveraging of Assets: Zara’s strategy for managing their assets is very important in their success. They invest large amount of capital on the areas of their effective management and their communication. This helps them to manage other expenses like production, distribution, transportation etc. The company produces half of their products from their own production centers which enable them to manage the market demand and production. The simple products are mainly produced by the help of outside partners and the complicated products are produced from their own factories. Their effective management and communication system helps them to control the production units and manage the units for higher demand. Most of their production units are single shift and following fast production techniques. This system is more suitable to manage the production process in the seasonal demand. They are using a Just in Time (JIT) policy. “Originally, it described how material should be processed and moved in order to arrive "Just In Time" for the next operation.” (Just In Time Production (JIT), Variation on a Theme of Toyota). Their production technique is very suitable for change the production system in market needs and changes. Finished products are passed through a centralized distribution unit. The fast production system and strict rhythmic ordering system helps the distribution function to become easier apart from and reducing the cost of logistics. The process of ordering, production, and distribution are managed in a rhythmic manner. This system is held in harmony through proper communication between the departments which facilitates the manufactures to market their product at the right time and control their manufacturing system. The main benefit of this system is reduction in cost of transportation and warehousing. Zara follows this system by the help of their fast production and distribution function and sticking to a rhythm strategy. 5. What universal principles can we take away from Zara’s supply- chain strategy and success? The common management principle applied to Zara’s supply chain strategy is to reduce the cost and maximize the profit. Zara’s supply chain strategy is very effective for reducing all types of expenses and to manage their production and distribution on the basis of market situation. This is the main strategy Zara is following. Works Cited Just In Time Production (JIT). Variation on a Theme of Toyota. Strategos Books and Videos. 28 May 2007. . Read More