Supply Management - Term Paper Example

Supply Chain Management Table of Contents 0. Overview 3 2.0. Secret in the Supply Chain Management of Zara 4 2 What is Supply Chain Management? 4 2.2. The Make-Buy Decision 6 7 2.3. Sourcing Strategies and Supply Chain Configurations 7 2.4. Aligning Supply with Corporate Strategy 8 3.0. The Decision of Zara to Focus on the European Market for Production 9 References 11 Bibliography 13 1.0. Overview With the growing concern towards the opportunities of emerging markets, organisations are increasingly opting to capture them in order to gain extra benefits, such as the Asian markets which provide with increasing customer demand added with low-cost benefits. Due to this reason, numerous companies including the fashion houses are favouring the market to set up their manufacturing units and gain advantages of low-cost raw materials and labours. However, not all the fashion companies have adopted the strategic decision to instigate their manufacturing unit in the emerging Asian markets, e.g. Zara. Zara is an international fashion company which designs, manufactures, and markets the products of fashion industry. Although the company has set up its marketing units in the Asian markets, it seems to be reluctant to shift its focus from the European market with the purpose of manufacturing. The objective of the paper will be to identify the influencing factors due to which the company executes more than 80% of its manufacturing operations only in Europe. With this purpose, the paper shall consider the various aspects of the company’s supply chain and analyse them with relation to the opportunities provided in most of the emerging markets of Asia. 2.0. Secret in the Supply Chain Management of Zara The operations of Zara are entitled to perform various tasks from the preparation of a design and producing the stock to the distribution of the finished products. Therefore, the organisational operations of the company can be observed as a lengthy and complex process which can be defined as the company’s supply chain. 2.1. What is Supply Chain Management? Supply Chain basically refers to the accumulation of the activities supporting the customers’ demand with efficacy. With this virtue, the term ‘Supply Chain Management’ can be referred as the managerial approach adopted to control the various stages of the supply chain in a strategy. It is perceived to be most applicable in the case of manufacturing companies, providing a comprehensive outlook to its operational processes. Four stages can be identified differently in the supply chain of a company, i.e. supply network (the suppliers of raw materials to the firm), internal chain of supply (the manufacturing units of the company), distribution channels and the ultimate customers of the product (Li, 2007). The entire supply chain of a manufacturing company is represented below in a diagrammatic form. Source: (Li, 2007) Being a manufacturing as well as a marketing company, Zara also maintains a supply chain in its operations which is identifiably different from that of its rivals or any other similar companies. Even the corporate strategies differ largely from its competitors. For instance, most of its manufacturing operations are executed internally with minimal support from the external participants of its supply chain. For distribution, the company is depended on its parent company that markets the products of Zara and other brands all around the world. Therefore, the organisational operations of Zara follow an integrated framework which in turn provides it with the opportunity to control its corporate strategies accordingly (Ghemawat & Nueno, 2006). 2.2. The Make-Buy Decision The make-buy decision of a firm relates to its choice of purchasing the required amount of raw-materials from the suppliers in the market or producing those raw-materials under the supervision of the company itself. It also signifies the determined amount of products to be purchased as raw-materials or to be manufactured by the company. Therefore, the make-buy decision of a company holds remarkable significance as a primary stage of the supply chain management (Lambert, 2008). In the case of Zara, the raw materials which are required in order to perform its operations can be recognised as the textiles, fabrics, manpower, designers and others. It is in this context that the company produces its design internally, i.e. through its production centres and with the assistance of its 200 designers. The entire population of designers in the company are divided in the three main clothing lines with which it serves to the customers comprising women, men and children. It also utilises the technological interventions to the highest possible level in order to bring efficacy in the manufacturing process (Ferdows & Et. Al., 2005). Another chief characteristic which can be identified in the supply chain management of Zara is that almost 40% of its raw-materials are produced internally, while the 60% of its raw materials are collected or purchased from the suppliers in the European market. This divides its manufacturing operations with 50% internal manufacturing and other 50% of external manufacturing (Fraiman & Singh, 2005). This in turn not only assists the company to minimise its operational costs but also have complete control on the quality of the finished products. 2.3. Sourcing Strategies and Supply Chain Configurations Zara International, at present operates as a subsidiary of Inditex Group which is recognized as one of the leading participants in the international fashion industry. Zara can also be identified as one of the chief suppliers of products to the organisation. From the managerial view point of Zara, Inditex is the only distributer of its products which depicts that the outsourcing of Zara is limited by the intervention of its parent company, Inditex Group (Inditex, n.d). However, to contextualize its inward sourcing, the company sources almost 60% of its raw materials from external markets and approximately 40% of its raw materials are manufactured by their partners included in the supply chain. This depicts that the company has a strong internal structure to support its inward sourcing operations. For instance, the company is recognized as the sole customer of Comditel which provides the company with sufficient raw-materials all over the year (Fraiman & Singh, 2005). The external suppliers comprise of textile manufacturers in the region and the farm owners as well. It is worth mentioning in this context that the designs produced in the company often use animal hides and other similar materials whish are collected from the food farms located in the region. This signifies the food farms also as the suppliers of the company (Zara, 2010). 2.4. Aligning Supply with Corporate Strategy The corporate strategy of the company has over the time been focussed on its sustainable growth. Presently the company serves its targeted market through its wide spread retail network covering more than 77 different economies in the world. The strategies related to its production and distribution processes has also been defined with due consideration to the customers’ interest and the trends of fashion market in the international platform. In other words, the corporate strategies in Zara have always been customer-oriented in terms of distribution (Inditex, n.d). Due consideration has also been provided to the aspect of organisational benefit in terms of lower operation cost and higher efficiency in the production of designs. As a competency strategy the company focuses on the quality aspect with great significance. It also provides significant consideration to the price structure. To be precise, by lowering its operational cost the company turns out to be able in providing its targeted customers with cheaper price in comparison to its rival companies (Inditex, n.d). 3.0. The Decision of Zara to Focus on the European Market for Production During the period when Zara adopted the strategy to chiefly focus on the European market to execute its manufacturing operations, there were many challenges active in the Asian belt. However, in the current scenario almost every emerging economy in the Asian belt, including India, Bangladesh, China and others are tending to introduce fresh liberal reforms and regimes to stimulate the growth of the industry. For instance, Indian government has announced to re-invest in the industry with a huge amount, the Pakistan Government has also proposed to introduce free trade in its textile and garment industry (Industrial News, 2011). With all these facilities, it is most likely that western companies, i.e. the rivals of Zara will tend to invest largely in these markets, which in turn will increase the level of competition in the market. The fluctuations in the European industry also act as fuel to the situation. Notably this can be identified as a major reason for Zara to be reluctant in entering the Asian markets in order to execute its manufacturing operations. Moreover, rising demand would certainly give rise to the cost in near future due to which the operational costs would also get increased contradicting the corporate strategy of the company. Another reason which can be identified in this context was the rigid and underdeveloped framework of the industry in the late 20th and the early 21st century. For instance, the industry during the period was recorded to be highly influenced by the regulatory interventions and high taxation on the exportation of raw-materials. Moreover, in comparison to the western region, the availability of raw-materials was also observed as scarce in terms of technology and logistic services (Thoburn, 2010). Therefore, it can be stated that although there were great opportunities for marketers during the period with rising demand, the trends were not effective to support the manufacturing functions. Especially in the case of Zara, the trends were to a large extent inefficient to support the corporate strategy of the company with higher tax rates and lesser availability of potential manpower. It is due to this reason that the company opted to focus in the European market rather than expanding in the Asian markets. References Ferdows, K., Lewis, M. A. and Machuca, J. A. D., (2005) Zaras Secret for Fast Fashion. Harvard Business Review. Available at: http://hbswk.hbs.edu/archive/4652.html (Accessed March 28, 2011). Fraiman, N. M. and Singh, M. R., (2005) High Speed Fashion Retailing. Columbia Business School. Available at: http://www.fing.edu.uy/inco/eventos/icil05/01-mon/Fraiman.pdf (Accessed March 28, 2011). Ghemawat, P. and Nueno, J. L., (2006) ZARA: Fast Fashion. President and Fellows of Harvard College. Available at: http://www.carlospitta.com/Courses/Negocios%20Internacionales%20y%20E-Business/Readings%20and%20Papers/Parte%209/Zara%20%28Harvard%20Case%29.pdf (Accessed March 28, 2011). Inditex (No Date) Zara. Concepts. Available at: http://www.inditex.com/en/who_we_are/concepts/zara (Accessed March 28, 2011). Industrial News (2011) Textile Industry Review and Outlook 2011. Manufacturers. Available at: http://www.jihsin.com/manufacturers/textile-industry-review-and-outlook-2011.html (Accessed March 28, 2011). Lambert, D. M., (2008). Supply Chain Management: Processes, Partnerships, Performance. Supply Chain Management Inst. Li, L., (2007) Supply Chain Management: Concepts, Techniques and Practices Enhancing the Value through Collaboration. World Scientific. Thoburn, J., (2010) The Impact of World Recession On The Textile And Garment Industries Of Asia. University of East Anglia. Available at: http://www.unido.org/fileadmin/user_media/Publications/RSF_DPR/WP172009_Ebook.pdf (Accessed March 28, 2011). Zara (2010) Our Mission Statement. United Kingdom. Available at: http://www.zara.com/webapp/wcs/stores/servlet/category/uk/en/zara-S2011/18001/Our%2BMission%2BStatement (Accessed March 28, 2011). Bibliography Blanchard, D., (2007) Supply Chain Management: Best Practices. John Wiley and Sons. Collis, D. J., Montgomery, C. A., Campbell, A. and Goold, M. (1999) Harvard Business Review On Corporate Strategy. Harvard Business Press. Dickerson, K. G. (2004) Inside the Fashion Business. Pearson Education India. International Trade and Finance Association and Fatemi, K., (2006) Globalization And East Asia: Opportunities And Challenges. Routledge. Jespersen, B. D. and Skjott-Larsen, T. (2005) Supply Chain Management: In Theory and Practice. Copenhagen Business School Press DK. Sōgō Kenkyūjo, N., (2001) Industrial Restructuring in East Asia: Towards the 21st Century. 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