Zaras Retailer Company - Essay Example

? Zara’s Retailer Company Zara’s Retailer Company Introduction Zara is one of the six retailers that Inditex own.Inditex is a worldwide company that specializes in fashions; it designs, manufacture, and sells accessories for children, men, and women, footwear, and apparel through its various retailers located in most parts of the world. Zara is the most and largest internationalized of Inditex’s six retailers (Pahl & Mohring, 2009, p.23). Zara operated 507 stores around the world by the end of 2001. Zara has the economy to operate in an independent manner as well as be responsible for its own sourcing and manufacturing, financial results, personnel, product design, and strategy since the role of corporate center at Inditex’s headquarters is that of strategic controller only. This paper looks at various operational and expansion strategies that Zara uses in its quest to boost its economic status as well as expand to other parts of the world. These strategies include advertising and marketing, cost of production and strategic partnerships among others. It also looks at the operational management challenges, effects of manufacturing in China on the company’s sustainability and corporate social responsibility and effect of opening a major warehouse outside Spain on its distribution model and local manufacturers. 1. How should Zara’s operation strategy support its expansion strategy? Zara make use of a business model that is vertically integrated retailer in apparel industry, linking customer demand to manufacturing, and linking manufacturing to distribution and to retailing business. It aims at responding to market demands in a quick manner since they are always changing. It can be broken down into three components that include concept, value drivers and capabilities. Its fundamental concept is to maintain design, production, and distribution processes that help it to respond to shifts in consumer demands in a quick manner. Similarly, this company has necessary resources or capabilities to exploit any opportunity that arise. It has tight control over its production processes while at the same time keeping manufacturing and design in-house or sometimes with some strategic partnerships that are located near its headquarters. In addition, it as strategic agreements with various local manufactures; this ensures timely service and delivery. Zara maintains the expansion and flexibility required to design and produce more than twelve new items each year, thanks to the strategic partnerships and benefits brought forward by the proximity of operational and manufacturing processes (Slack, 2012, p.12). This capability help Zara achieve its expansion strategies as well as its expedited response to consumer demand. Value drivers ensure huge returns of benefits to all stakeholders. Zara has outstanding financial performance, which is a clear indication of its success. For instance, it tripled its corporate profit between 1996 and 2000. Likewise, the company has high level of brad recognition and customer loyalty; hence, increasing the number of customer that buys its products in an enormous manner (Mihm, 2010, p.15). This has further boosted its expansion strategy in most parts of the world. Operational strategies Speed It quickly responds to the demands of its target customers, who are mostly the young city dwellers who are always conscious of fashion. According to Cunningham & Harney (2012, p.67), this strategy helps Zara to time fashion trends and strike whenever a trend is hot; hence, it is never stuck with inventory when it dies off. Its ability to market in product is far is better than that of its competitors; hence, it is able to expand to other locations at a high rate. Its speed provides additional value to customers, stores, and stakeholders in the process of producing affordable fashions at affordable prices (Cunningham et al., 2012, p.89). Decentralized decision making and product development Zara is centralized by a group of commercials that are chiefly comprised of product managers, but it is decentralized within various functional groups. Store product managers who are centrally located serve as the chief interface between Zara stores and centrally located design teams. According to Larmo (2001, p.35), each design team of commercials is composed of two product managers and two designers who work at a particular section of the store. The teams further play a key role in setting prices for retail stores, purchase of materials, and in placement of production orders with the factories. These teams help Zara to decide on the fashion trends. Other employees within the commercial function also play significant role in helping Zara implement its operational strategies; for instance, they settle for the type of clothes that each store would afford to order. In addition, these employees decide which stores would get clothes and which could not when total orders from stores exceeded availability for an item in any period (Aven, 2010, p.1). The process of information on current market trend and conveying it to design and production teams play a key role in expediting the product development and expansion of the company by shortening the throughput time of a particular product by approximately three to four weeks from design to distribution. This strategy help Zara open more companies than its competitors. Most of its competitors have a small elite design that indulges in both design and production needs. These competitors also have little autonomy in settling for products to either put on sale or display. Fashion design strategy Zara adopts low cost, fast turnaround of trends. It responds to instant changes and produce high fashion product in limited production that have short life span. According to Bjork (2012, p.34), product managers carry out frequent visits to store to see what is new. Zara also make use o team concept in design, pairing creative designers and product managers in groups of four in order to have a streamlined design process. Marketing and advertising strategy Zara’s advertising and marketing strategy has enormously contributed to its expansion to various parts of the world. It uses about 0.3 percent of its total revenues in advertising and marketing its products, while their competitors spend about 3-4 percent of their total revenues on similar expenditures (Scham, 2013, p.63). Therefore, Zara maintains a cost advantage over its competitors; hence, it amasses higher savings than its competitors on these expenditures. The saving as well as other profits help Zara expands its offices to other areas and location without any financial strain. Zara choose locate its stores at specific location. It has a testing facility that facilitates the testing of various types of store layouts. Zara remodel its stores after every five years so as to keep with the current trends. Information Technology Zara utilizes a cost-effective, simple, and easy to use technology in its operations. Cost of production and Strategic partnerships Zara has a competitive advantage over its competitors in regard to cost of production and strategic partnerships. This is because unlike its competitors Zara does not outsource its materials from Asia. Approximately 80 percent of the company’s materials are manufactured in Europe, with about 50 percent in Galicia region of Spain where there are many facilities that the company control (Johnstone & Clank, 2012, p.101). On the other hand, most of Zara’s competitors outsource approximately 100 percent to cheap Asian countries. Zara get a product throughput time of about three to four weeks from conception of distribution, thanks to the local strategic partnerships that its maintain with manufacturers in Europe. Zara accomplishes this by designing and cutting its fabric in-house and acquisition of fabrics in only four colors in order to keep costs at low levels. Zara also reduce waste and minimize any need to clear unsold inventories by postponing printing and dyeing designs until close to manufacture. Zara also experience flexibility in adapting their product lines and consumer behaviour in the current market due to proximity of suppliers. This, in turn, helps Zara to expand to various countries and areas that have viable market. 2. Critically evaluate the operations management issues apparent in Zara, and identify any operations management challenges presented by its expansion strategy Stores managers have to assess their inventory manually, which is a relatively slow procedure. In addition, resources are wasted since managers primarily concentrate on administrative ask. This is done to help such managers gain a full insight of the inventory in order to make correct and timely decisions. Similarly, the process involved in breakdown of a new garment is time consuming since store managers have to spend approximately 24 hours in this process. Laquetta (2013, p.1) argues that the process is also tiresome and a complex process since it requires entry of information on a relatively small device. Its expansion in the international markets gives rise to operational management challenges; especially, due to its centralized logistic model. This is because it may cause diseconomies of scale as the company grows. The company face challenges in deciding which territories to enter in its need to expand internationally. Based on H & M experience in Sweden, Zara opportunities to expand within Spain are limited. Zara can choose to expand in Europe itself in order to target Italy in an enormous way. It may also decide to expand in North America but this area suffer from weakening demand, higher operating costs, demand of larger sizes, less fashion-forward sense, intense competition, and retailing overcapacity (Slack, Chamber, & Johnstone, 2010, p.52). On the other hand, South America is subject to profitability pressures and it is much smaller in size. Zara can make high profits in Middle East, but it only offer a small market. In addition, Asian market is extremely competitive. It also face challenge in deciding the type of model it should utilize in each country it aspire to expand to; it is yet to settle for either joint ventures, franchising, or company owned stores. Similarly, Zara is not sure whether to start up chains or acquire existing ones. The real issue that the company faces is to carry out all these activities while at the same time maintaining revenue and profitability growth requirements (Mihm, 2010, p.32). 3. What effect would manufacturing in China have on Zara’s record for sustainability and Corporate Social Responsibility? Reputational risks in regard to working conditions of employees Currently, Zara out sources approximately 40 percent of its fashions to cheaper labor markets, while retaining the bulk of its production in Spain. This contributes to reinforce the brand CSR policies. Zara may face reputational risks if it shifts its manufacturing to China. This is because of the high rate of gender discrimination and child labor present in China; hence, factories are not always safe production places (Jones et al., 2012, p.120). As a result, there is a high likelihood of NGOs that work in field related to fair trade and human rights reporting of any form of abuse that might occur under Zara’s suppliers or manufacturing companies. This, in turn, would bring high losses of credibility and reputation for Zara. In regard to environmental policies, Zara may face reputational risks related to the sustainability of its activities and the ones with its business partners (Slack, 2012, p.152). This is because responsible customers demand for renewable or organic materials for their products and are aware of carbon footprint used to link clothe to their country of origin and means of transport used. However, the company can ensure its sustainability in China by maintaining transparent and clean accounts in order to avoid risks of tainting its reputation. It should also offer fair salaries to be workers since fair salaries and payment of taxes are issues that immensely matter to a corrupt-free society. In addition, it should ensure that its offices are energy-efficient and environmental-friendly, and it collaborates in compensation of any carbon IV oxide emissions it causes. 4. How might the opening of a major warehouse outside Spain affect Zara's successful localised manufacture and distribution model? A centralized logistics model may suffer from diseconomies of scale; in fact, what worked well for 1000 stores may not work well for 2000 stores (Aven, 2010, p.1). However, the increased capacity that Zara may gain from expanding its distribution centers may be of immense significance in supporting the growth of the company. It may also sacrifice the company’s benefits of proximity for low production and labor costs. As a result, its operational efficiencies may be hindered due to the lack of flexibility in changing orders that are based on current trends. Zara’s distribution strategy may also be affected since there is a high likelihood of placing orders for a whole season in advance and then held in distribution facilities until periodic shipment to stores (Scham, 2013, 187). In connection to this, Zara may not be able to respond immediately to shifts in consumer demands. However, the company can easily overcome these strategies since it has all mechanisms to do so. Conclusion Zara continue to shine in the fashion industry due to its appropriate and up to date operational and strategies that it employs. For instance, its store managers have the freedom to decide on what to or not to display. Similarly, it has commercial teams that survey the current market in order to establish when and where to sell their products. However, it faces some operational management challenges that need to be addressed on time and recommendation made. For instance, it is sometimes hard for the company to decide where to open or expand new offices. Sustainability and corporate social responsibility of Zara in China may be viable but it faces some challenges like risk lose of its reputation. References Aven, R. (2010) Fashion Conscious: Lessons in Commoditization from The Fashion Industry. Retrieved from http://iveybusinessjournal.com/topics/strategy/fashion-conscious-lessons-in-commoditization-from-the-fashion-industry#.UqWby66zBdg. Bjork, C. (2012) Zara Owner Inditex to Keep Up Expansion. A Journal of economic, 3, 12-67. Cunningham, J & Harney, B. (2012) Strategy & Strategists. Cambridge: Cambridge University Press. Johnston, R. & Clark, G. Shulver, M. (2012) Service Operations Management – improving service delivery. Prentice: FT Prentice Hall. Jones, P and Robinson, P. (2012) Operations Management. (1sted). Oxford: Oxford University Press. Larmo, J. (2001) Market Entry and Operational Decision Making in East. London: Routledge. Luquetta, O. (2013) The Fashion Industry and China. 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