Business Supply Chain: A of Zara Plc - Case Study Example

BUSINESS SUPPLY CHAIN: A CASE OF ZARA PLC. Introduction The assignment would deal in explaining the various aspects of supply chain management of Zara Plc the multinational Fashion retailer. The last assignment ended with recommendations for a global procurement or buying to minimize the cost along with new operational units to cut down the supply chain logistics cost for the brand to offer more competitive price to the users globally. Since the brand of Zara relies upon low cost high end fashion of quality to its consumers, therefore the pace at which the supply chain works and delivers remains a key to the business model. Zara is now a global 2000+stores brand with revenue of 7.08 Billion Euro as on 2009. The brands launch 12000+ designs each year with weekly development of product to an industrial average of 6 months for each new design development. This has created the brand to have a fast fashion outlook at a low cost. The strategy of zero advertising mixed with a fast fashion delivery of high end at lower cost has made the brand earn a good name for itself among its consumers where the ‘low cost’ and ‘fast delivery’ are two key to the brands success (FinancialTimes, 2014). Zara is predominantly divided into men’s, women’s and children clothing further subdivided into upper and lower body fashion and fashion accessories like shoes, bags, cosmetics etc. The business is designed accordance to the Toyota model of 90s of Just in Time (JIT) delivery (Chopra and Meindl, 2007). This model helps the business to allow different stages of material production and distribution in a short span of time to be delivered in the stores worldwide. Furthermore, the product of Zara is called a fashion imitator where the delivery was dependent on the very basic understanding of consumer’s choice and making and delivering them to the users irrespective of seasonal influences that the fashion industry traditionally follows. The Zara’s model had been fast acceptance of new designs and reproducing them in a fast pace for end users. The assignment would thus focus on the global procurement process and new plant or production outlet building for Zara to stay competent in such a market of fierce competitions and challenges. Global Procurement: Case of Zara The need for having a renewed structure of business for a supply chain management where the organization recognizes the organizational designs to achieve the integration across various supply chain lines is a need for a global business like Zara. The integration across various supply chain is dependent on the way the supply network can make a difference to the business on the price, cost, and delivery time line like efforts at its best (Stock, 2007). The Supply Chain Integration (Source: Schoenherr, 2009, p. 12) The trends among the new age retailers to have multiple organizational structures become very complex due to its global spread and multiple retail locations. The acquisition of raw materials from different suppliers and getting the product from the warehouse to the retailer’s outlet and end users are all in this supply chain management part. However, Burt et al. (2003) suggested that the organizational centralization for maintenance and development of global purchasing and production activity with distribution at times helps the business to coordinate the business activities. It also mentions that the advent of the information technology and technological advancements has made the procedures simplified and more control can be exercised. Zara’s way of business has considerably made the users wait for the next weeks fashion than next seasons new fresh look. The replenishment of stock twice a week with fresh inventories and unique designs makes the fashion fresh and more attractive to the urban people who have the trend of frequently changing fashion as part of their persona. This is to be admitted that Zara’s way of creating intrusive and market oriented strategies is one major factor that drives the business model of Zara. Since the Zara fashion is based out of Spain thus 50% of all products Zara sells, the production scope of Spain stays major, while rest of Europe had a 26% stake in the entire production and 24% in Asian and African continent. Therefore the main production line is concentrated in Spain and Portugal where the labour cost is relatively cheaper to the Western European standards and the T-shirt like products are outsourced from Asia and Turkey. This flexibility gives the brand of Zara to have 12,000 product varieties a year to 2000 to 3000 variety to its nearest competitors. Again the other upper hand it gives to the brand is in the product lifecycle where the designing to product display can occur in as less as within 3 weeks and for any modifications the process would have only one weeks time to have done that and reached the store. This small period is an edge that the supply chain has given to the business (Colette, 2013). The brand Zara launched its online retails in 2010 as an online boutique brand, and produced the best of designs at affordable prices to a variety of market. This added to the global presence along with ongoing addition of third party retailers in the Zara fashion bouquet. The presence thus is now much bigger and vibrant in the recent days with 76 international economies and markets that it reaches to. This has also increased the supply cost that adds to the retail prices as quoted by the brand. Therefore to have a global presence over its nearest competitors, the brand also needs to design its pricing such that it keeps the record of average 17 visits a year of a consumer to the Zara’ European outlets to 2 to 3 times of other brands competing (Martinez-Caraballo, 2011). Fresh fashion and affordability of price are 2 factors that kept the brand afloat and as vibrant business model globally. Therefore, to have local level purchase and designing along with production and skill developments for such fashion retails is something that would give the business its advantages like: Monitor the change of fashion trends at a more local level, Develop the local skills for the fast changing fashion market locally and Keep the price for the product in control by effective global procurements and product development at market specific locations to reach store on time. The aforesaid model would help the Zara’s business outside its European borders in other major markets like South East Asia, Chinese market, American Continents like huge markets. They may have bigger stakes with the same business model by enhancing local level procurement, design and distribution. New Production Unit building: Zara’s expansion The production in terms of design, size and pattern has to be made to make the product follow its European model globally needs to be set once the procurement plans globally has been assessed. The procurement of local level linen for the fashion for those parts still remains a challenge for the business till the time the production is not over. This is interesting to note that the climatic conditions of South East Asian market are not as European in its conditions. The humid and hot climate needs special linen over the cooler European climate. This also gives the brand to make separate localized model of business to entertain those local markets in the fashion that is in trend thus making a global appeal in the fashion of Zara. The use of linen to suite colours and designs that is traditionally more liked and suited for a culture is different across the globe. Therefore by setting up different production a unit across various locations, not only gives the brand to have a bigger scope in keeping the cost low but also makes the fashion market trendy developing more vibrancy in the style of offerings (Scm.ncsu.edu, 2014). To set up local units needs to have a skill development program and more understanding of local cultures and choices to suite the local market. This is not only cost friendly to the business but also keeps the model of fast delivery and uniqueness alive making the choices more diverse in the offerings of Zara. The procurement of material, storing them, using the material for best purpose and deliveries at the shortest can be achieved by using the global production unit developments (Mentzer, 2001). The Toyota’s JIT model of assembling, that the brand may follow in a more diverse manner however the size of such units can be debated depending upon the market size the brand opts for. The bigger the market, the bigger would be the unit size in terms of space and people resources, while units in smaller markets with limited reach don’t need such cost bearings to undertake. Conclusions The global trends of business along with the developing competition both on online medium and physical retail presence in the current days has made the brand of Zara to look for viable development of supply chain and manufacturing units. Competitive global procurements for best materials at best prices and production of location or region specific designs has made the necessity for such model flourish at a local level. Zara’s supply chain model is recommended to have global procurements and localized units for production to contain the business model as followed by the business in Europe to be successfully applied in other parts of the globe. The cost and design benefits that the brand had would be more enhanced as elucidated in the aforesaid essay, at a global context in such supply chain management model adoptions. Reference List Burt, D., Starling, S. and Dobler, D., 2003. World class supply management. Boston: McGraw-Hill/Irwin. Chopra, S. and Meindl, P., 2007. Supply chain management. Upper Saddle River, N.J.: Pearson Prentice Hall. Colette, M., 2013. Fashion brands: branding style from Armani to Zara. Choice Reviews Online, 50(09), pp.50-97 Financial Times, 2014. Inditex shares up after strong recent sales rise - FT.com. [online] Available at: http://www.ft.com/intl/cms/s/22cbf9f4-811b-11e4-896c-00144feabdc0, Dzara#axzz3Q6Mmin4j [Accessed 27 Jan. 2015]. Martinez-Caraballo, N., 2011. Zara: International brand image and fashion site launch in Western Europe. Intangible Capital, 7(2), pp.15-19 Mentzer, J., 2001. Supply chain management. Thousand Oaks, Calif.: Sage Publications. Schoenherr, T., 2009. Logistics and supply chain management applications within a global context: an overview. Journal of Business Logistics, 30(2), pp.1-25. Scm.ncsu.edu, 2014. The New Purchasing and Supply Management Workplace: Procurement : A Tutorial - SCM | Supply Chain Resource Cooperative (SCRC) | North Carolina State University. [online] Available at: http://scm.ncsu.edu/scm-articles/article/the-new-purchasing-and-supply-management-workplace-procurement-a-tutorial [Accessed 27 Jan. 2015]. Stock, J., 2007. Journal of business logistics: logistics and supply chain management applications within a global context. Journal of Business Logistics, 28(2), pp.209-210. Read More