Zaras Supply Chain Management Strategy - Essay Example

? Supply Chain Management - Reasons Why Zara does not outsource from Asian countries - Number and Number of Professor Date of Submission Number of Words: 1,523 Introduction The main of globalization process is to enable large-scale companies to take advantage of the services and low-cost products that are readily available in the Asian countries. Despite the fact that the labour costs in Asian countries are cheap, Zara refuses to enter into sub-contracting agreements with other garment manufacturing companies in Asian countries. Even though there has been quite a lot of manufacturing companies that are currently purchasing their end-consumer products in mainland China, Zara remained loyal in purchasing 80% of its garments in the European sources. The success of Zara lies behind its ability to align its corporate strategy with its supply chain management strategies. With the use of supply chain management principles, this report will focus on explaining the rationale behind Zara’s decision concerning its selection of strategic supplier and supply chain configuration. As part of going through the main discussion, this report will first discuss about the historical case of Zara followed by examining this company’s success within its preferred target market. As part of examining Zara’s supply chain management strategy, this report will explore the actual production and distribution system of Zara before discussing this company’s ability to align its corporate strategies with its supply chain management system. The History of Zara As one of the well-known Spanish clothing company around the world, Zara was able to come up with the clothing design that suites the unique preferences of most modern men, women, the young adults, and children. As of 2010, Zara managed to become the second largest clothing company within the global fashion industry (Zara 2011; BBC News, 2008; Manning-Schaffel, 2004). Ever since Zara was established by Amancio Ortega Gaona in 1975, this company managed to expand and open up to 2,692 retail store outlets all over 62 different countries around the world (Lopez and Fan, 2003). To make the company able to rapidly expand its business in many countries, the management group of Zara decided to hire the services offered by the Inditex Group with its global market distribution. Zara and Its Preferred Target Market Having a strong and powerful brand is even more effective when it comes to developing a special attachment between the clothing company and its target buyers. In line with this, one of the business strategies that Zara is currently using in order to win the attention of its target global markets is to select countries wherein they can effectively promote their brand as a unique clothing designer and seller that is totally different from what other clothing companies are offering to its target consumers (Neumeier, 2006). By nature, clothing and fashion business offer homogenous products to the end-consumers. For this reason, Zara has been very focused and keen on being able to come up with new clothing designs that are relatively new to the eyes of its target market. Even though Zara is actually selling homogenous clothing products to its target buyers, its ability to produce new fashion and clothing designs faster than what its close competitors like Gap or H&M could offer in the market gives them the edge to sell its clothing items at a premium price. Because of Zara’s ability to establish a strong positive brand within the global fashion industry, this company was able to capture the interests of millions of loyal “fashionistas” who are more than willing to spend more money just to be able to be the first one to wear its latest fashion designs and other related merchandises. This particular edge or business advantage enabled Zara to avoid spending large sum of money on its product advertisements (Aaker 1991). Actual Production and Distribution System of Zara Zara has always been trying to narrow down and make its supply chain as flexible as possible. In order to satisfy the principle of just-in-time delivery, Zara keeps a close communication line among its few selected clothing manufacturers within the European market. Because of its ability to closely monitor the day-to-day flow of its supply chain system, Zara was able to maximize the profit return out of using its existing capital and other related resources. Upon analyzing the case of Zara, incorporating the principle of just-in-time delivery system within its supply chain management has a significant contribution to the continuous increase of its corporate earnings. First, it is more cost-effective and cost-efficient on the part of this company to immediately move its clothing items from one store to another. Likewise, the company could also save a huge amount of money from the need to maintain a large-size warehouse in each country. Because of these benefits, Zara is aiming at reaching a zero-inventory goal. Another useful business strategy includes Zara’s decision to invest and improve its communication-line between the warehouse and its official store outlets and among its store outlets. By investing on the most sophisticated communication technology like PDAs, mobile gadgets, further improvements in its computer system and reliability of its chosen ISPs, the company is able to communicate its inventory level and monitor the flow of its moving and non-moving apparels from one store to another (Mangan, Lalwani and Butcher, 2008, p. 149; Ferdows, Lewis and Machuca, 2004, p. 108). Because of Zara’s decision to immediately respond to the changing demands and preferences of its valued customers, the company is able to minimize the risk of getting hold onto obsolete clothing and other related merchandises. One of the strategies that can be used in enhancing Zara’s daily operational flow is through the use of manufacturing resource planning (MRP-II) system. As explained by Lai and Cheng (2009, p. 89), the use of this particular computer-based inventory management system could enable Zara to easily incorporate issues related to its distribution and inventory system with other significant aspects of a business such as its finance and accounting and the use of its human resources among others. To ensure that Zara is able to manage and offer new clothing designs to its valued customers, the company designed and implemented a weekly rhythm wherein its employees will be automatically be obliged to change the range of clothes they offer to its target buyers (Ferdows, Lewis and Machuca, 2004, p. 110). In other words, the ability of Zara to remove the bottle-neck in its supply chain system is the key behind the success of Zara within the global fashion industry. Aside from managing the real-time flow of clothing products, Zara is able to improve its production and distribution system through the marketing and distribution services offered by Inditex Group (Ferdows, Lewis and Machuca, 2004, p. 107). As explained by Stark (2006, p. 17), it has been a business practice of Zara to manufacture and deliver its limited volume of each clothing designs on the store display which is expected to be replaced every after 15 days. Since the company’s product lifecycle is very short as compared to the normal product lifecycle of its close competitors, Ferdows, Lewis and Machuca (2004, p. 106) revealed that Zara’s overall business success is the end-result of its effective and efficient product management control. Fashion industry is an example of time-based competition (Christopher, 2004, p. 145). Since Zara aims to offer new clothing to its valued customers on a weekly basis, this company will never order a particular clothing design in large volume. As far as Zara is concern, there is no need for them to enter into subcontracting business with the low-cost Asian clothing manufacturers because of its decision to purchase each clothing design in small volume. For this reason, it is irrational on the part of Zara to enter into sub-contracting business agreement with the low-cost Asian clothing manufacturers because ordering small volume of each design would only add up to the company’s transportation expenses. Since fashion trend rapidly changes with time, it is definitely not advisable for any clothing companies to keep oversupply of same clothing design because of the fact that each person does not appreciate the idea of wearing the same outfit similar to what other people are wearing. In other words, oversupply of the same clothing design could only make a clothing company unable to sell its product at a premium price. With this in mind, it is safe to conclude that Zara’s business success is due to its ability to make its supply chain system aligned with its corporate strategy – which is to meet the rapidly changing fashion preferences of its valued customers (Ross 1998, p. 1). Conclusion The secret behind Zara’s business success lies behind its ability to enhance the efficiency of its supply chain management system. By using information technology, the company was able to enhance the communication-line among its employees in each of the store outlets. The main reason why Zara does not require the need to outsource its manufacturing system in Asian countries is because of its supply chain system is aligned with its business corporate strategy. By ordering each clothing design in smaller quantities, Zara could immediately sell its clothing line way before each clothing design becomes obsolete in the market. Given that Zara strictly follows just-in-time principle in its production and distribution system, Zara managed to cut down unnecessary operational costs related to warehouse rentals or hiring of extra manpower to monitor the flow of its clothing products. *** End *** References Aaker, D. (1991). Managing Brand Equity. New York: The Free Press. BBC News. (2008, October 30). Zara's owner reports sales surge: THe owner of the Zara fashion chain, Spain's Inditex, has reported a 25% rise in 2007 net profit and says it is upbeat on sales figures on 2008. [online] Available at: [Accessed 19th April 2011]. Christopher, M. (2004). Logistics and Supply Chain Management: Creating Value - Adding Networks. Financial Times/ Prentice Hall. Ferdows, K., Lewis, M. and Machuca, J. (2004). Rapid-Fire Fulfillment. Harvard Business Review. Lai, K.-h. and Cheng, T. (2009). Just-in-Time Logistics. Gower Publishing Company. Lopez, C. and Fan, Y. (2003). Brunel Business School. 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