The Global Supply Chain Management - Assignment Example

Abstract This proposed case study is on the Global supply chain management of a famous Spanish clothing retailer known as 'ZARA’. The supply management of Zara has been so successful that it has made this brand a global leader in this respective sector. This brand has been able to sell its products all over the world at any store and this has been possible because of its vertically integrated supply chain system. It targets the latest trends in garments and provides fashionable dresses within just two weeks to all its stores globally. On an average it produces 12,000 designs each year, and new concepts adding every two weeks. This study will examine the procedure of its management in detail and what makes Zara to be one of the top most leaders in supply chain management internationally. INTRODUCTION The globalization of trade in the last 10 years has expanded dramatically and when it comes to 'Fashion', the possibilities are unlimited. Supply chain management contributes the maximum for companies to leverage their business standards internationally. My goal in this paper is to present a study on Global supply chain Management along with its elements and compounds for a better understanding of its function. The paper explores the Global supply chain management through a rigorous study from available books and journals pertaining to the context, and then gradually I would move towards the purpose of this paper i.e. to conduct a case study on ' The Global Supply chain Management of ‘Zara’. Zara is one of the most successful brands in providing fashionable products all over the world. I will try to explore its business model using metrics to measure the performance of supply chain management. My work is supported by some prominent books, journals and online documents. Finally I would conclude the paper with my observation and recommendations. What is Supply Chain Management According to Alan, the supply chain is referred to the sequence or series of events in which the product is flowing or circulating, and adding value to the value of that particular product. The events refer to the assembling, converting, and distributing the products. In other words supply chain management is all about creating a link which connects the producer/manufacturer with the distributors and most importantly to the final consumer. This link is a dedicated service which is transparent in its function (Alan, 2009). While the institute of supply management Inc USA, defines the term as a seamless management and a process that adds value to the organization by reaching the end consumer beyond boundaries. Apart from the essential activities involved in its function, it also encompasses the association and contribution of their respective channel partners, providers, suppliers or intermediaries ("Supply Chain Management"). Fig. 1.0 – Supply Chain Activities Why Global Supply Chain Management? The globalization of the clothing industry has enabled designer brands, manufacturers and retailers to reach out to as many consumers as possible. However, the goods produced by this industry have a short life span, the demand for new concept is huge. To balance this complex chain of demand and supply; many firms have chosen to incorporate with channel partners all across the world in different countries ("SAHCC"). Today most of the top apparel companies are managing their competition through respective partners. it is quite evident that an independent company with all its resources may not be able to give stiff competition to its competitor and with the proper downstream arrangement of the production at the input level, up to the output level and finally being distributed by the collaborated efforts of the channel partners would ensure a successful strategy of overpowering any competition ("Supply Chain Management"). Components of Supply Chain management Joel, in his book highlights the most important elements in supply chain management. They are Supply, Operations, Logistics and Integration (Joel 15). How ever to understand the function of these elements, a better perspective is provided through an online document (Karthik ) which includes the following key components in SCM – i. Strategies: Implementing and optimizing the tools to select the size, location and services for the targeted customers. ii. Demand: Studying the demands and predictions in order to balance the future demand and supply chain. iii. Distribution: To examine and select the supply elements to meet a particular demand in order to carry out the distribution. iv. Manufacturing: Maximizing the strengths of a firm like people, equipments, and supply of materials in order to meet a current demand. It also involves to map out the environment of manufacturing in regards to the future demands, it is a bit complicated yet its better planning ensures improved efficiency, good productions and over all success for the firm. v. Production: Procurement of scheduled plans is carried out under production. This scheduling is to carry out a comparison between required capacity of orders and the production capacity of the firm. vi. Logistics: This section deals with the planning of transportation of the goods, its route, destination, bills and delivery reports are examined systematically. However it will be interesting to understand this process through this figure 1.1 (Lorrie) Adapting the right strategy: - In an international journal; the author writes that the development of a supply chain, depends upon the nature of the product or service a company is selling. There is a strong relationship between product type, sales predictability and supply chain. In this respect, he further classifies products in to two groups namely fashion and commodities. Fashion products carry a very short life span and the demands are uncertain and changing frequently. One of the best examples of a fashion product is 'trendy clothing'(Rachel, Ben, and et al 4061-4070). He further elaborates - The challenge faced by a supply chain delivering fashion products is to develop a strategy that will improve the match between supply and demand and enable the companies to respond faster to the marketplace (Rachel, Ben, and et al 4061-4070). On the other hand, John argues in his book Global Logistics and Supply Chain Management that there should a dynamic capability in the adopted supply chain because there could be different demands existing for the same product. He also refers to the study by Professor John Gattorna, who brought this argument forward in his study that he is against the designing of supply chain for a particular product, he emphasizes that a supply chain should ideally be flexible to be able to adapt to any change (John, Chandra, and et al 46). John further explains different types of supply chains and its adaption by companies i. Lean, constant replenishment- it refers to situations when demand is often predictable and replenishment lead times are shorter, for example a supplier with his regular supply of products to a retailer. ii. Agile, fast and quick response- where demand is unpredictable but replenishment lead times are shorter. Our case study company ‘Zara’, is the perfect example of agility. iii. lean, execution- Where demand is unpredictable and replenishment lead times are longer, in such situation the company can use the combination of agile and lean strategies to create a combo which is termed as 'leagile supply chain'. Export of artificial Christmas tree from Asian countries to USA is a fine example of Leagile execution. About Zara Inditex is one of the strongest retailers in the world today, housing several other brands in the fashion market such as Zara, Massimo Dutti, Pull & Bear, Bershka, Stradivarius, and Oysho. Among these, Zara is the most successful in providing affordable fashion products in different countries. Inditex is a Spanish company which was founded by Amancio Ortea Gaona who began retailing in the year 1963. Presently it has over 2000 stores worldwide which keeps on multiplying, hence creating its monopoly in the affordable trendy outfits (Andrew). Its major step in expansion started by 6 stores in the main cities of Spain in the year 1979, followed by its first international venture established in Portugal. It then moved on to establish its store in New York City in the year 1989 while in Paris, a Zara store was established in 1990. The bigger expansion or diversification of this brand was in the early 1990's by entering 29 European countries, Inditex was able to create its monopoly particularly in America as well as in Asian countries during late 90's and early 2001 . Zara is the largest and the most popular division of Inditex which according to a study generates 75 % of the total sales of Inditex globally ("supply chain management of Zara"). Why is Zara so successful? As Ray, mentions in his book that Zara is globally acclaimed for its fast and responsive strategies and it competes in the process of conceptualization to the actual production and distribution of its products globally within just two weeks. He further states that Zara has one single agenda which acts as a driving force for its business strategies and i.e. its excellent global supply chain management which it executes in many ways (Rajesh 336). Few points from an article by Devanshu Dutta on how, Zara’s retailing is as fast as the fashion itself (Devanshu). a) Speed: - Zara's speed is excellent when it come to identify the trend, developing dresses and distributing to its several stores world wide. Zara can execute all this within 30 days. In most of the cases the product development is often based on the actual feedbacks from emails or phone calls which means that Zara does not depends upon fashion forecast but actually works on the real requirement of trend. b) Availability of resources: - Zara is able to meet quick deadlines and cater to the new demands in the market only because its main manufacturing hub is located in and around Spain where most of its other business operational bodies are established. This enables quick responses, follow ups, quality control, fabric outsourcing, dying and stitching, inspection done timely. Zara actually purchases non-dyed fabrics in bulk and as and when required, the fabric is dyed and molded in to new concepts. Undoubtedly Zara has excelled in keeping control over Man, Machine and Material which happened to be the most important ingredients of manufacturing. c) Distribution:-Zara does not depend upon human sorting when it comes to logistics. It has its own railway track to move goods from one destination to another. With this, it can distribute number of clothing in an hour. d) Supply Chain through IT: - Zara uses Information Technology to increase speed in the supply chain. Fig. 1.2 (Devanshu) Organizational Set Up and Business Model Zara is known as the “Dell in the fashion industry”. The basic concept of Zara’s business execution is to sell affordable fashion garments. Its vertical integration and fast responsive methods are the successful keys for its business model. The business system of Zara comprises designing, sourcing followed by production, manufacturing and then distributing through different channels. This entire process is governed by 4 successful factors namely short cycle time, small sets per product, extensive variety of products in every season and considerably huge investment in information technology and communication. These 4 fundamentals revolves around every aspect of Zara’s business activities ("MBANerds" 2). The Culture Zara houses almost 300 professionals at its headquarters in Spain. These 300 people include talented designers along with specialists and experienced buyers. They work like a team and produce approximately 40,000 products every year, and out of these designs, fairly 10,000 products are selected for production and distribution ("supply chain management of Zara"). According to a report, the real strength of Zara lies in its well developed and excellent work culture. Zara hires young designers and provides them training to make quick decisions. How ever ,failed decision have been reported to be just 1% at Zara (Andrew). A study by Kasra Ferdows, found in the archives of Harvard business school elaborates about the work culture at Zara, Approximately 200 designers are divided in to two rows and seated by a large circular tables in a big hall work rigorously with the specialists and production planners. The walls and tables are filled with latest style and fashion magazines while a small shop is settled in the corner of these halls, which acts as a display shop where these professionals keep an eye on the final products and pass on their verdict (Kasra, Michael, and et al). Fig.1.3 – Designers at Inditex, headquarters Spain (REUTERS). The Administration Designers-Zara’s famous supply chain execution starts from its able and efficient designers who are hired for their talent and enthusiastic approach. The first step starts from survey, the team of designers study the latest trends and fashion through magazines, trade fairs, fashion shows and most importantly on actual feedbacks form customers .The surveying team takes feedbacks from sales stores on popularity basis and the designers sketch out the designs followed by a discussion with market specialist about colors, texture and fabrics. This is then improvised on CAD software to give it a more conceptualized outlook. After this the final images may be considered for production or may be rejected too. Once approved, a sample of the design is produced and is actually executed manually through skilled labors, there is a small work shop right at the corner of each hall and the designing team can be consulted as and when required by these skilled dress makers ("supply chain management of Zara"). In addition to it, samples are also collected from various sources like Prêt-a-porters and haut couture. The culture is also studied through street surveys, or what people are wearing to clubs and lifestyle hotspots (Devanshu). Fig. 1.4- How the Supply chain starts and ends ("cmuscm") Market Specialist- at Zara, every specialist is engaged at a particular store, they are widely experienced professionals. They are always in touch with the store managers, asking them frequently about the affairs in the stores, communicating through phones or emails for quick updates. Each store is dependant upon the final orders from these specialist before any major transaction executes ("supply chain management of Zara"). Buyers- There is a separate relevant group of highly skilled and experienced designers, market specialist and buyers who make the final decision about which product is going for manufacturing, and at what volume. Once the decision is carried out the responsibility of fulfillment is shifted to the buyers. Who are in charge of the complete procurement of fabrics, and other requirements in production, they are monitoring inventories at the warehouse, distributing production to various factories or suppliers. Meanwhile they also keep a check on shortages or if there is a possibility of oversupplies ("cmuscm"). Fig. 1.5 - (Kasra, Michael, and et al). Production Suppliers- Approximately 5o% of manufacturing of the products are conducted in its own network of factories in Spain which are 22 in number and the work is distributed on contractual basis. The rest of the 50% is procured from other suppliers which are around 400 in number. It is however interesting to note that 70% of these outside factories are based in Europe while the rest are in Asia. One of the areas that Zara exploits in order to ensure quick responses and operations is its geographical proximity. Most of the suppliers are fond of taking orders from Zara as the orders are huge and stable too. As for the fabrics procurement, Zara obtains around 40% of the raw material from one of its own subsidiary known as Comdital.Almost 50% of these fabrics are undyed in order to respond faster to the changing trends of color and season. To ensure timely printing and dying, Zara collaborates with one of the dyestuff producer which is under Inditex, it goes by the name Fibracolor.there are other suppliers approximately 260 in number who supply the rest of the fabric to Zara but none of them are even close to even 4% of the total production of Zara. This is also one of the strategy, that Zara does not depends on any single supplier but encourages maximum response from all of them (Michel, Christian, and et al 98). Procurement- Michael writes in his book that the manufacturing and purchasing decisions are made by the procurement and production planners. These decisions are based on speed, expertise and cost-efficiency as well as the availability of sufficient capacity, if a condition arises where the buyers cannot get the desired prices, terms of delivery and quality from Zara factories, then buyers are allowed to seek outside (Michel, Christian, and et al 98). Contractors- Zara has distributed major sewing operations of its selected designs to some of the subcontractors who are based at La Coruna, close to the headquarters. These 500 subcontractors work exclusively for Zara, since they are based very near to Zara's station, it can closely monitor their work and development of the products. When they hand over the finished products, the inspection is followed at Zara’s factory. After inspection, the perfect pieces are packed and sent to the distribution centre along with labeling. Methodology of samples is executed by Zara to ensure quality control over the finished pieces (Michel, Christian, and et al 98), ("supply chain management of Zara"). Distribution Centre- Zara's distribution centre is based at La Coruna; it is a 5 story building and covers around 50,000 Sq. meters of area carrying automated system. It operates for about 4 days each week and has a workforce of about 1200 people. This rigorous task is carried within 8 hours of receiving the goods and each order for its respective store is packed in boxes and shipped timely (Kenneth) , (Michel, Christian, and et al 98). Logistics- There are truck contractors who are engaged in shipping the finished goods from the hub to all the stores that houses Zara’s products, almost 75% of Zara’s products are apparel while the rest are just basic accessories. These trucks have the label of Zara written on it. For freight shipment, products are shipped from either La Coruna Airport or from the bigger airport at Santiago. Stores around Europe receive their good within 24 hours while stores in USA in about 48 hours and in Japan, the stores would receive the orders in 48 to 72 hours. Zara never had a delivery issue, absolutely flawless with about 99 % accuracy always (Devanshu), (Michel, Christian, and et al 98). Zara: The Retailers Zara ensures that the customer enjoys the experience while entering its store and that is the reason why it pays attention to minute details of its store like the products supply which has to be refreshed every two weeks, the interiors of the store, the collection has to be co-ordinate and up to the latest trends in the market, the window display should be attractive and appealing, and an impressive customer care .Since the store is the image vehicle of Zara’s business , it is indeed very important that it is located at the main commercial area of the city to ensure good response from customers ("supply chain management of Zara"). According to the annual report of Inditex, Zara opened 107 retail stores all over the world during the financial year 2011, making a total of 1,830 stores all over the world. In the same year it entered new markets like Peru, Taiwan, Azerbaijan, Australia and South Africa while it also started its online retailing in America and Japan by its campaign ‘Dear America’ and ‘Dear Japan’, Zara has been welcomed be its fans all over the Internet ever since and the number of followers keeps on increasing day by day ("Inditex"). The Network Zara owns and controls its local supply network, and that’s the reason the network can replenish new trendy products to its respective stores within just 2-3 weeks while for its competitors’ ; it might take up to 4 months to add fresh stock (Andrew) . Its global supply network is vertically integrated and its success centers around three aspects - i. Short lead times ensures trendy and fashionable clothes. ii. Lower Quantities would mean scarce supply and iii. More styling would eventually mean offering more choices and more sales. It has been operating on state of the art distribution system and it has arranged an underground track of about 2,000 kilometers for merchandising from the manufacturing hub to its respective destination spots (Kenneth). Measurement of its performance on Global Supply Chain Management The time between the orders placed by the customer until received by him/her is called the Total Order Cycle Time. This link is interconnected between several other processes involved and when there is a disturbance or reduction in the order cycle; it affects the supply chain and that’s why it is very important to measure the performance of a company's supply chain through monitoring its total order cycle time. Zara’s produced goods are the most 'in' as per the latest trends in the fashion market, they use fabrics that are less expensive and their final product is also affordable. No wonder why Devanshu, in his study writes that Zara’s products are loved by a teenager because it is fashionable while it is also liked by her mother as it is affordable. Zara manages to control its supply chain successfully by monitoring each aspect of production from design management, procurement, warehousing to distribution and also logistics (Devanshu), ("cmuscm"). The Operational Level Representation of technicalities of business operation on a daily basis, following the mapped out schedules and avoiding complaints to achieve deliveries that are detect free can be measured under Operational level of a company.( "Supply Chain management") The information within and outside business and products are easily transferred by Zara, it is able to manage its organizational set up, procedures of business operations and performance measures successfully. Zara produces stock in small volume, makes them available on time while the products are displayed in the stores only for a brief period enable its customers to have enthusiasm about its next collection and hence it is successful in creating a strong bond between the customer and the brand. This is a continuous process which eventually saves the amount on advertising (Kasra, Michael, and et al), (“Supply Chain management"). Scheduling Techniques Zara has a very efficient scheduling technique and it can be discussed as under- Inventory is managed centrally, which promises a controlled system and timely delivery of the products to all the stores worldwide. The design cycle time is reduced, it ensures to respond timely on new trends and is quick to alter or add new styles to its stock. The IT system is s great support for its business operation, which allows immediate follow ups and catering to the demands in the market. Distribution and transportation is very fast, accurate and on time which eventually affects its business process positively every time. Conclusion In this case study, one can conclude that Zara is a success story and a perfect example of a company that truly is in sync with ‘fashion’, it flows along with the trends and apes the fashion while providing products which are affordable and stylish. Zara is called the dell of fashion industry and hence it is evident how it has excelled in every department of business operation. Be it designing, procurement, distribution or getting survey reports. Zara's supply chain is its life line and it is no wonder why people from different industry do case study analysis to learn its strategies. Surviving in the high degree of uncertain fashion world and emerging as a leader is the quality of Zara that distinguishes it from other retailers. Recommendations Zara has always been successful in its international ventures, besides this it has its monopoly in Europe and has extended its branches in USA too, however it is recommended that Zara should expand its boundaries to Asian as well as middle eastern countries too. It should not look for initial profits but considering its quick understanding of consumer’s choices, it is advisable that it deserves a loyal fan following and clientele in these regions too. Reference Alan, E. Branch. Global Supply Chain Management and International Logistics. 1st ed. UK: Routledge UK, 2009. 2-3. Print. . "Supply Chain Management - from supplier's supplier to customer's customer." Supply Chain Management. supply chain management, n.d. Web. 5 Dec 2012. . . "A Look at the Fashion Industry’s Supply Chain." SAHCC. San Antonio Hisbanic Chamber of Commerce, 21 2012. Web. 5 Dec 2012. . . "Importance of Supply Chain Management." Supply Chain Management. supply chain management, n.d. Web. 5 Dec 2012. . Joel, D Wisner. Principles of Supply Chain Management: A Balanced Approach. 1st ed. USA: Cengage Learning, 2012. 15. Print. Karthik , Deepak. "Supply Chain Management - Key Components." article snatch. article snatch, n.d. Web. 5 Dec 2012. Read More