Logistics of Zara Company - Case Study Example

TABLE OF CONTENTS SECTION 1.0 COMPANY PROFILE 1 THE EXISTING PROCESS AND LOGISTICS OF ZARA   SECTION 2  2 Strategic Advantages Disadvantages 2.2 SWOT and PEST ANALYSIS 2.3 PEST Analysis                                                                                  2.4 EVALUATION OF THE EXISTING PROCESS FLOWS IN THE OPERATIONS CHAIN OF ZARA SECTION 3 3.0 IMPROVEMENT SUGGESTIONS FOR BETTER LOGISTICS AND OPERATIONS MANAGEMENT AT ZARA 3.1 Suggestions for Operations 3.2 Suggestion for Logistics  4.0 CONCLUSION 5.0 REFERENCES    SECTION 1  1.0 COMPANY PROFILE  In an atmosphere of severe competition where products and business concepts are being launched on a daily basis, it would apparently be very difficult for companies to stay on the top slots continuously. More than the Companies, it is the advanced Operational strategies and logistics of the Companies which are in competition. This paper attempts to present the operations and logistic management strategies of Zara, a fashion company, part of the Inditex Group. Zara’s contribution to the European fashion market sales account for a staggering two-thirds of Inditex’ total 9002 Million Euro, of which net profit was 1002 Million Euro.  1.1 THE EXISTING PROCESS AND LOGISTICS OF ZARA A team of designers in Zara is charged with the responsibility of spotting emerging trends in response to consumer demands. Valuable feedback from consumers is received from Store Managers also. The information collected by them on design, outlook and demand is transmitted through a wireless network. These inputs are used by the design Management team to develop the latest products for Zara, (Sull, and Turconi, 2008). Development of a detailed Cost Analysis of the proposed production and assessment of Zara’s existing production capacity for the product’s needs is done by the Procurement and Production planning departments of the company. The Prototype is quickly produced within a few hours. A sampling process is carried out with the help of CAD software, which makes the process swift. Trial production is made in small quantities and the product life cycle is kept low. Fabric cutting through an automated process and the cut pieces are then stitched together in the sewing workshops in Galicia and Portugal. The whole process of design and cutting takes about 10 days. After the prototypes are produced, they undergo a decision process wherein the management decides which of them will go into commercial production. This decision is made on the basis of a special algorithm and the conditions and demands in the market. Generally only about 40% of the prototypes become commercial products for customers. They are then returned to the manufacturing centers to enter the production chain, checked for quality control, and packaging, (Sullivan, 2005). The ready material is moved to the automated distribution centre in Arteixo, which is the main Distribution Centre with no storage facility. Logistics models assist the management in assessing the number of batches that should be delivered to the stores twice a week through shipments, which makes sure that the stores are not overloaded and are delivered as per their demands. A fleet of trucks reach out to places with overnight distances and chartered cargo flights are used for larger distances. The company squeezed its shipping models and decided to go with air cargo, so that flights can organize outbound consignment of all company products with return journey loaded with raw materials and half-finished products, (Burt, Dawson, and Larke, 2003). Fig1: Complete Operations chain of Zara Fashions   Fig2: Outline of operations at Zara SECTION 2  This section presents the advantages / disadvantages, SWOT, PEST analysis of Zara and evaluation of current operations and logistics at Zara.  2.1 Strategic Advantages Being different from traditional retails, its does not outsources its operations or products Vertically integrated form of business operations has offered to maintain a strong merchandiser strategy Capital intensive orientation of the whole business In house production provides higher flexibility to meet customer demands than traditional players in the market With inventories strictly controlled and limited producing, customers feel that a scarcity is always maintained, which leads to more sales Quick response system integrated with modern IT technologies help to serve the customer better Seasonal based designs offers higher sale Centralized distribution capacity reduces lead and logistic times  Strategic Disadvantages Zara holds over 86% of the Inditex’s total global sales, which makes it risky to invest all the finances and resources in one brand Zara has been a failure in the American fashion market due to lack of sense of customer demand and poor supply chain formation due to a centralized logistics model based in Europe only, and not in the US Vertical integration does not allow attaining economies of scale. This means that they cannot derive profit from producing large bulks and sealing it off at low prices Lack of capital investments from Inditex Higher costs for frequent new products, training of workers and research work   2.2 SWOT and PEST ANALYSIS Strengths Established, very strong brand image Design, technology International presence Increase in number of their Directly Operated Stores Ability to control its distribution channels by avoiding middlemen such as suppliers and retailers Aggressive one product strategy (mono brand) Weaknesses Customer Service Long term debt Instability in management and financial department High priced products lead to tough penetration in some markets Opportunities Growing market  economies like India and China Acquisitions of small fashion companies Internet Client database Threats Competition is also effectively minimized by the intense competition from other brands Companies with multi brands and products launching products High cost of brand maintaining and promotions Independent control of distribution channel leads and other strategies take the bulk of company’s operating budget. 2.3 PEST Analysis                                                                                  1. Political - This issue concerns the government rule and strategy for the fashion markets and the impact of these rules on the business decision making of Zara. Also the trading systems for the countries where Zara has its businesses, should be known to the company management. 2. Economical – This concerns the interest rates and taxation issues related to the business of Zara. It is important that the company should know about the duties that will be levied for business purposes. It differs foe each country.   3. Social – Any changes on the social upfront n the places of business for zara would impact the demand for the Zara products. The company should work as per the social trends in the society and meet customers demand, (Sull, and Turconi, 2008). 4. Technology – Technology has definitely benefited Zara and will continue to do so, if Zara embraces the advanced IT systems and integrate them efficiently within its business and supply chain.   2.4 EVALUATION OF THE EXISTING PROCESS FLOWS IN THE OPERATIONS CHAIN OF ZARA The globalization of business has brought into focus the potential of Operation Management to influence the international ranking of companies. These have helped Operations management to enhance their efficiency, quality and output. But companies like ZARA have to go even further in order to reach and remain at the top of their industry. In view of the company, being a vertical supply chain company, (it has all the manufacturing processes in house), Zara has been able to achieve a high degree of efficiency in delivery schedules and accuracy as compared to its competitors, (Tokatli, 2007). Its production cycle time is low, by limiting production to small batches at a time and producing just in time, on demand. As against the industry average of six months for design development and three months for production, ZARA completes this process in four months. This advantage allows it to produce even within the season and accumulate stocks close to the Season (avoids piling up of inventory), (Sull, and Turconi, 2008). Management at ZARA initially was not alive to logistics management as a key area where they could derive benefit. Competitors have already gained a lead over them in this aspect of business. Zara’s Management has recognized the need to define internal improvements and expand its planning horizon far beyond the current confines of the present enterprises. The global reach of business and the growing demands of discerning customers make it obligatory for the company to be alert and excel over the competitors. To be able to do this, building of relationships and partnerships beyond its geographical limits and also beyond industry vertical boundaries becomes necessary, (Sullivan, 2005). Such a situation promotes collaborative planning and develops capabilities for accelerating management processes and information sharing. This approach has to become part of the business reality if leadership in the industry is to be reached and maintained. 3.0 IMPROVEMENT SUGGESTIONS FOR BETTER LOGISTICS AND OPERATIONS MANAGEMENT AT ZARA This section looks at the opportunities for ZARA to derive advantage of its operations and logistics activities with the help of modern technologies in Management. 3.1 Suggestions for Operations Quick Response System (QR) for Operations Management. Zara can develop its own quick response system to feed the customer demand in order to gain advantage. This method facilitates the production and supply of the right quantity, with the right quality, at the right price, as dictated by the demand situation. ZARA can apply this strategy to decrease inventory levels and avoid forecasting errors, (Christopher, 1997). Since Quick Response system encompasses all parts of operations chain, it reduces the process time. Linear Operations and short term visibility Lean manufacture refers to curtailing non-essential steps and waste features in manufacturing in order to achieve cost reduction and efficiency. It helps to cut response time from receipt of orders or information about a product concept. Zara can profit immensely from adopting a lean manufacturing practice. This will add to customer benefit also. A lean supply chain would restructure Zara’s Logistics, delivery and information management as well, (Vitzthum, 2001). Zara has ample potential to improve its capability to predict near term visibility of customer demand for any specified period, almost accurately, through installing demand driven supply chain which looks out for orders from clients .It would help in transfer of the point of sale (POS) data from the Cash Registers at the sales outlets directly to the Company’s data base at the headquarters several times every day. This information, when aggregated and processed would help to sequence the shipments to the store distribution centres and create a better customer satisfaction level. De-coupling Point Approach Zara can incorporate operations chain strategy to maintain a significant portion of its inventory in unfinished or basic form and build the final alterations on the basis of exact information about demand and volume from the field. This method allows making end time design changes and quantity variations if required by the customer. Also this offers the facility of producing smaller batches which is helpful for maintaining transportation economics.  3.2 Suggestion for Logistics  E-Logistics This model is a strong combination of infrastructure and Communication that can be used to enhance the order fulfillment experience of Zara customers. It comprehensively covers the whole process from receipt and confirmation of order to packing, dispatch, facilitating tracking by customer, and implementing appropriate return policy, ((Christopher, 1998). It gives the purchaser the ability to: Electronically place the purchase order, Track his order from source to delivery, and Select the suitable time of product deliverance. 4PL Logistics  4PL Logistic management is a new concept which can be introduced to the fashion house. This technique will allow Zara to outsource its logistics requirements to another company which will only assist in logistics with the help of smart computing. These types of logistics companies possess intellectual resources and recommend inclusive end to end logistics services for the company. This will help to company to reach destinations which were previously inaccessible and will also allow the managers to spend more time in other concerns rather than worrying about logistics. EDI and Logistics Electronic data Interchange of logistics information systems like MIS, DSD, and GIS are the relevant I.T. applications for Logistics needs, (Christopher, 1997). These can turn out to be of immense use for Zara. Opportunity exists for Zara to have an electronic ware house where product information can be stored and made available to the customers and the supply chain. These systems are a solution to the company’s present helplessness to process data for planning and administering logistics data and integrating it with the operational management data. These new software also integrates the various business processes like procurement, distribution, accounting, finance, H.R, etc. Better connectivity with clients and customers, is an added advantage. 4.0 CONCLUSION The paper studied the existing operations at Zara fashion house and suggested a number of techniques to optimize its operations to achieve better competitive benefits. Operational management solutions facilitate the management to renew the entire business activities, rather than just focusing on the end products. An efficient assimilation of technology with operations and logistics will help the company management to anticipate and forecast the requirements of the business chain, which will finally lead to both client and company benefits from improved methods and performance. Concluding, Zara with its high reputation for products and services has further potential to grow and maintain its lead over peers in the Fashion Industry by enhancing its logistics and operations through advanced solutions. 5.0 REFERENCES  1.      Sull, D., and Turconi, S., “Fast Fashion Lessons”, Business Strategy Review, Summer 2008. 2.      Sullivan, L., “Designed to Cut Time”, InformationWeek, Feb. 28, 2005. 3.      Surowiecki, J., “The Most Devastating Retailer in the World”, The New Yorker, Sept. 18, 2000. 4. Christopher, M (1997) Marketing Logistics, Butterworth-Heinemann, Oxford   5. Christopher, M (1998) Logistics and Supply Chain Management, FT/Prentice Hall, London   6. Vitzthum, C., “Zaras Success Lies in Low-Cost Lines and a Rapid Turnover of Collections”, The Wall Street Journal, May 18, 2001.   7.      Tokatli, N., “Global sourcing: insights from the global clothing industry—the case of Zara, a fast fashion retailer”, Journal of Economic Geography, Oct. 2007. 8.      Sellers, P., “Gap’s New Guy Upstairs”, Fortune, April 14, 2003. 9.      SWOT Analyasis. (2010). Strategic Management – Swot Analysis. Retrieved May 20, from http://www.quickmba.com/strategy/swot/ 10.  Burt, S L, Dawson, J A and Larke, R (2003) Inditex-Zara: re-writing the rules in apparel retailing. Paper resented at the Second SARD Workshop, UMDS, Kobe, April 2003   Read More