Zara stays in Europe while other brands outsource to offshore manufacturers - Essay Example

? SUPPLY CHAIN MANAGEMENT: Supply change management (SCM) in simple words can be defined as the process of transformation of goods from the raw materials state to the final product and finally handing it over to the end customer. SUPPLY CHAIN MODEL Different companies have different SCM strategies which vary depending upon the short and long term objectives and goals the company wants to achieve. Also factors effecting SCM strategy depends upon the structure of the company i.e. either it’s a manufacturing company , a distribution company, a retailing company or a mixture of these companies. Zara is one of the five apparel retailing chains owned by Inditex group. Although Inditex manages designing, manufacturing and retailing of its goods but it enjoys major presence globally in the market through its chain of retail stores. The key to Zara’s success was the implementation of a unique SCM strategy. While other retailers in the business were focusing on completely outsourcing there manufacturing to offshore; mostly countries like China, India, Bangladesh etc. saving costs by utilizing cheap labor, Inditex decided to digress from this convention being followed and managed to succeed in its approach. MAKE-BUY DECISION : With all the firms entangled between the decision of manufacturing the products in-house or outsource it to off-shore suppliers majorly because of cost saving which involves availability of labor at much cheaper cost i.e. margins 18 to 20 times less for hiring of what you get locally in Europe or America or more expertise available across borders and other reasons. Similarly these factors have influenced the decisions in the Apparel industry aswell with the entire thought process working behind the reason that cost saving in the manufacturing will yield much more profit in comparison to opting to an in-house or nearer manufacturing options. The giants of the fashion apparel industry like GAP, H&M and many other smaller brands choose to outsource their manufacturing completely offshore. Although one benefit they yielded through this that their manufacturing process saved heavily by employing cheap labor but on the other hand they became open to many risk factors including Global trade policies. International treaties. The social responsibility of providing employment to local labor. The harmful manufacturing process to the environments as a result of mass production which recently gained awareness of population and started to effect the sales and the image of companies and brands. Longer lead times i.e. the replenishment time for the inventory were quite high and could affect sales quite heavily in case the company and stores fell victim to inventory stock-outs. Unexpected weather risking the timely delivery of product. While on the other hand Inditex choose to be different from the trend of outsourcing manufacturing offshore and made the most of this opportunity. Zara being an emergence of Spain opted to the unique strategy of opening manufacturing plants near to where the retail stores were located. Apart from that Zara dost not entirely own the manufacturing process but in Spain and Portugal it own a series of workshops which are bonded in contract with the firm. In doing so Zara was affording labor cost 18 to 20 times higher than its major competitors but still managed to yield profits on the same scale and competitive advantage on the competitors by Quicker replenishments. Continuous and innovative designs. The Entire process of SCM was interlinked. Environmental friendly projects. Proving itself more socially responsible by hiring local employees. While all the major competitors of Inditex specifically to ZARA like The American GAP and the Swedish H&M SOURCING STRATEGIES AND SUPPLY CHAIN CONFIGURATIONS The sourcing strategies in the apparel industry were majorly divided between two major chunks. One was relying on cheaper product sourcing by outsourcing offshore which lead to few designs being in limelight for longer periods throughout the seasons. The other chunk selected to keep their sourcing in-house or nearer to retail sites but decided to keep the manufacturing and designing a continuous and dynamic process throughout the year. The first strategy followed by H&M,GAP etc had a supply chain configuration which had gaps within supply chain partners There was no real time link between the designers and the manufacturers. No assurance of the quality of product as demanded. Higher replenishment times and hindering the sales process during seasons. The capacity was not being utilized to the fullest. Timely reaction to instant demand was not possible by manufacturers even if it was then it could not be timely delivered. While the supply chain configuration at ZARA helped boost its performance by The store managers were provided with handheld computers which would continuously update sales trend to the manufacturing sites and contractors through the headquarters. It promoted accurate demand forecasts and gave an idea of what design were considered HOT in the apparel world hence giving designers an overview of what lines to think upon while designing new products. The suppliers for the basic raw material like cloth weren’t even very far away from reach. As the company was monitoring sales and predicting sales trend the order to raw material was automatically given hence giving them a competitive edge over other apparel makers in the industry through shorter lead times and continuous design activities. The sourcing process under this configuration was so agile that even if any product failed, there was no significant effect on sales or the reputation because that designed was replaced within a matter of weeks by newer and fresher designs. Also inventory was made according to the approach that each product would only become available to few lucky customers hence making them the fashionable few in the market.. STRATEGIC SUPPLIER SELECTION The process of strategic supplier selection process is a mix of analysis of various business activities. These activities involved selecting such a supplier that not only provides acceptable rates for the products demanded but at the same time understands the needs of the organization and is willing to work with the organization in long run. Establishing strategic relations with suppliers are mostly beneficial as they are for longer spans and the trust relation between the organization and supplier elevates to quite a high level and risk of disputes minimize. Zara would have to select suppliers which would understand the business model of the company, coping up with core competency and meet the company’s demand for goods that are required. For this purpose Inditex has established its own manufacturing plants within the heart of where the brand emerged from’ Spain. The main reason for this can be related to core competency of the business of always being ahead of market and having inventory which customer will demand. On the other hand Zara needs subcontracted manufactures and suppliers are there to merge in the joint effort to fulfill the demand need of the ever rising number of styles. ALIGNING SUPPLY WITH CORPORATE STRATEGY The strategy of Zara with its contracted manufacturing partners works on a short term model basically because of the reason that Zara relies on the quick and agile designing and even quicker delivery to its retail outlets. Zara has a design team of 200 people who are constantly busy in coming up with new and customized designs and is known for coming up with about 12000 styles a year which are exponentially more than any other apparel retailer out there. Keeping this in mind , not all suppliers and manufacturers can cope up at this pace and being able to deliver end products. For this reason Zara maintains short term contracts with the manufacturers because in case any supplier ill-performs , it wouldn’t affect the company in the long run. Also Zara follows a JIT system in which goods are ordered on demand and to follow this system and matching the replenishment times the manufacturing sites should be close to retail stores . This is another major factor to be considered while selecting supplier which could meet the company’s demand and supply needs . CONCLUSION If Zara would choose to outsource its manufacturing , it would lose this very competitive edge over its competitors and at the same time would be digressing from the core competency of its business which we effect the overall brand image and persona. Choosing to manufacture in Europe was a key decision took by Inditex giving Zara that very competitive edge. Zara is also expanded its business and is not only limited to Europe. For capitalizing on the growth opportunity Zara must contain that single image which the brand is globally recognized. Opening a manufacturing plant in Asia was a positive step showing its conviction and dedication on maintaining its reputation. REFERENCES AND CITATIONS Charu Chandra, Janis Grabis, Chandra, Grabis, 2007. Supply chain configuration: concepts, solutions and applications By . Illustrated. -: Springer Davangshu Dutta. 2002. Retail @ Speed of fashion. [ONLINE] Available at: http://www.3isite.com/articles/ImagesFashion_Zara_Part_I.pdf. [Accessed -]. Lyes Benyoucef —Hongwei Ding — Xiaolan Xie. 2003. Supplier selection problem : selection criteria and methods. [ONLINE] Available at: http://hal.inria.fr/docs/00/07/18/60/PDF/RR-4726.pdf. [Accessed -]. Technology in business. 2011. Analyzing Zara's business model. [ONLINE] Available at:http://www.harbott.com/2011/03/03/analysing-zaras-business-model/. [Accessed -]. Read More