Supply Chain Management for Zara - Case Study Example

Supply Chain Management for Zara - DRAFT What is Supply Chain Management (SCM)? Wailgum (2008) argues that “Supply chain management (SCM) is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers.” After explaining that “supply chain is the collection of steps that a company takes to transform raw components into the final product”, Venus (2011) goes on to posit that “supply chain management (SCM) is a process used by companies to ensure that their supply chain is efficient and cost-effective.” In a bid to ensuring that the relationship between suppliers, consumers and producers is one that yields profits, companies and organizations have to stay committed to the principles surrounding supply chain management. The make-buy decision In a bid to understand the direct impact of supply chain management on the running and development of organizations, Zara has been chosen to be a focal point in this essay. This essay will critically analyze the supply chain system in place at Zara and how best it is working. It would also discuss the weaknesses of the organization’s supply chain system and how it can be improved. Zara as a fashion retail organization has been chosen by the writer purposely because of the organization is fast developing attention among reviewers who have supply chain management as their focus. Such reviewers as Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca of Harvard Business Review place premium on the recent successes that Zara is recording with its retail of fashion products. The cause of the success has been linked to the company’s supply chain system. In the view of Ferdows, Lewis and Jose (2005), “Zara has hit on a formula for supply chain success that works.” One critical area of retailing, of which Zara as a retail organization is inclusive is the concept of make-buy decision. Make-buy decision would be especially useful for discussion as far as Zara is concerned because Zara is into retail of fashion products, of which it has the choice either to manufacture its products or to purchase them. According to the Encyclopedia of Management (2010), make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buy it externally (from an outside supplier).” Applying the principles of make-buy decision to Zara, it can be inferred that for the organization to make a decision whether to buy or make should be backed by carefully scrutinized strategic analysis. This is seen in the definition given by the encyclopedia, making mention of the word ‘strategic’. It should be observed that fashion is a global language, yet varying and versatile (Akuoko, 2009, p.19). This makes the demand of customers for a particular type or style of fashion change over time. Due to the unstable nature of world fashion, Zara must therefore have strategic analysis at management level that ensures that the core needs of varying consumers are met. Zara has consumers from all over Europe and from different cultures. This is both a challenge and an opportunity for the organization to be diversifying. This way, the make-buy decision should permit the organization to select the kinds of fashion line they can produce internally and those they would have to depend on from external sources. In deciding which to produce internally, the organization must factor in their areas of strength and specialization. Though it is common knowledge that “Zaras designers create approximately 40,000 new designs annually, from which 10,000 are selected for production” (Harvard Business Review, 2005), it could equally be true that the organization cannot be ‘master of all trade’. To this effect, the principle of buy-make decision permits the organization to produce only on its specialization and buy the rest. Sourcing Strategies and supply chain configurations The decision on what to buy or make may be a complicated one but once that decision is complete based on strategic analysis, what becomes left is sourcing strategies and supply chain configurations that ensure that the organization gets value for money and maintains its reputation of high quality and standard. Such strategic sourcing and supply chain configuration would also be responsible for determining the relationship that should exist between the organization and suppliers. The quality of relationship that go on between organizations and their suppliers have been found to have telling effect on the kind of service the organization will receive. Cohlough (2001) observes that all suppliers have their favorites who receive the finest of stock. These favorites are however made not by the suppliers but by the receiving companies. The strategic sourcing and supply chain configuration would also determine whether or not Zara needs one supplier or more. On the sort of sourcing strategies and supply chain configuration, that would work well for Zara as a fashion organization, the Epiq Technologies Journal (2010) puts forward four (4) principles that should be considered in sourcing strategies. In the first place, the Journal suggests that “companies must look at the technology differences between their current country of production and the lower cost alternative.” In this sense, there must be a serious consideration between Zara and the potential suppliers to ensure that their sense of technology is highly advanced. In today’s fast growing business competitiveness, the issue of technology can never be ruled out in deciding suppliers for a well known organization like Zara. This is because technology plays very important role in ensuring easy accessibility, convenience and breaking complex business processes into simplified. To this effect, Cortwell (2009)“Over the years businesses have become dependent on technology so much so that if we were to take away that technology virtually all business operations around the globe would come to a grinding halt.” The next issue tackled by Epiq Technologies Journal (2010) is the issue of marketing strategy of the supplier. Most suppliers with poor marketing strategy do not stay long in competition and cannot be trusted for long term transaction. There is also the issue of cost effectiveness in considering who suppliers will be. This is because once the issue of external sourcing sets in, the purchasing organization becomes disadvantaged in the sense that it assumes a position of having to sell to make profit over what it buys. In order to ensure reduced cost, Graves and Willems (2005) points out certain tangible factors that should be taken into account by purchasing organizations. They posit that “There might be multiple options to supply a raw material, to manufacture or assemble the product, and to transport the product to the customer. Each of these options is differentiated by its lead time and direct cost added.” Finally, there it is the need to look at the perpetual survival of the potential supplier. To this end, the Epiq Technology Journal (2010) states that “the company must create a supply management strategy that will govern the methods of securing a supply of the goods and services needed to continue a steady production after foreign sourcing has been set in action.” Strategic Supplier Selection Currently, Zara has suppliers in Turkey and Asia (Boomberg Business Week, 2005). Zara gives these suppliers low-cost fashion items such as t-shirts. For the company to expand its customer base and reach more consumers, it is extremely important for the organization to put in place suppliers across the globe. Currently, the fact that the organization’s suppliers are mainly in Asia and Europe is recommendable but there could be more. Judging from the fact that supplier selection principles discussed above, it could be said that there should be more suppliers at least in each continent. Those suppliers must also be made of well established outlets that are fully established in with technological background. Again, it is highly commendable that suppliers for Zara are abundant in Asia. This is because as argued by Epiq Technology Journal (2005), cost of supply to Asia is relatively cheaper than those to other parts of the world such as America and Europe. This however does not defeat the fact that there should be suppliers in other continents. As observed by Boomberg Business Week (2005), “A decade ago, Inditex was a middling retailer focused largely on Spain, with sales of $1 billion and net income of $100 million. Today, it boasts stores in 64 countries. Last year sales rose 21%, to $8.5 billion, while profits jumped 26%, to $1 billion.” This means that the more Zara expands its supply and retail base, the larger the organization grows in sales and profit. Aligning supply with corporate strategy In view of Tapper (2005), corporate strategy has to do with the “oversight by people or bodies charged with ensuring that the interests of key stakeholders are not compromised.” In the contest of Zara, the known corporate strategy that the organization embarks on currently can be described to be in threefold. In the first place, there is a conscious corporate effort that ensures that “in Zara stores, customers can always find new products—but theyre in limited supply” (Ferdows, Lewis and Jose, 2005). Secondly, “Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, at much lower prices” (Ferdows, Lewis and Jose, 2005). Finally, “Zaras organization, operational procedures, performance measures, and even its office layouts are all designed to make information transfer easy”(Ferdows, Lewis and Jose, 2005). The three corporate strategies in place are closely designed to align the supply chain of the organization. In the first place, the availability of new products ensure that supply made to consumers always present consumers with new options to choose from. As discussed earlier, fashion is dynamic. This dynamism is satisfied with this corporate principle whereby the organization always makes available new products. Secondly, for the organization to have strategies that ensure that its products are of lower cost is in perfect consonance with the supply chain principle suggested by the Epiq Technologies Journal (2010). When costs of products are low, suppliers are confident of making their profits. This way, the organization becomes a preferred choice for as many suppliers as possible. Most definitely, once there are several suppliers, there is sure to be increased sales and consequently profits. Finally, it is worth mentioning that even though organizational structures are good for ensuring orderliness and well managed approaches for tackling issues in an organization, the wider customer base feel more liberated when bureaucracies surrounding the mode of organizational operations are softened. This assessment is in line with the view shared by the Bursting Bureaucracy Journal (2009), which argues that “"Bureaucracy" is damaging to organizational effectiveness. It divides people within the organization against each other, and misdirects their energy into conflict or competition with each other instead of mission achievement.” REFERENCE LIST Akuoko G, (2009). Contemporary Fashion. PrintMark Publication and World Print Suppliers. Dansoman Accra: Ghana Boomberg Business Week, (2005). Zaras quick turnover lures shoppers, but global expansion could be a strain. Fashion Conquistador. Retrieved April, 6 2011 from http://www.businessweek.com/magazine/content/06_36/b3999063.htm Bursting bureaucracy (2009). Effects of bureaucracy on consumers and employees. Retrieved April 6, 2011 http://www.bustingbureaucracy.com/excerpts/effects.html Cohlough Y. (2001). Living well with Suppliers. Precise Press. Labone: Ghana Cortwell N. (2009). Importance of Technology in Business. Retrieved April 6, 2011 from http://ezinearticles.com/?Importance-of-Technology-in-Business&id=2237597 Encyclopedia of Management (2010). Make-or-Buy Decision. Retrieved April 2, 2011 from http://www.enotes.com/management-encyclopedia/make-buy-decisions Epiq Technologies Journal (2010). eSourcing: Sourcing Strategies. Retrieved April 5, 2011 from http://www.epiqtech.com/eSourcing-Strategy.htm Ferdows K, Lewis A and Jose A.D. (2005). Zara’s Secret for Fast Fashion. Harvard Business Review. Vol. 82, No.11 Graves and Willems (2005). Optimizing the Supply Chain Configuration for New Products. Retrieved April 5, 2011 from http://mansci.journal.informs.org/cgi/content/abstract/51/8/1165 Harvard Business Review (2005). Zara’s Secret for Fast Fashion. Vol. 82, No.11 Tapper C 92005). An Introduction to Business and Technology. Retrieved April 6, 2011 from http://www.asb.unsw.edu.au/futurestudents/postgraduate/mbt/Documents/Introduction%20to%20Business%20and%20Technology%20by%20Craig%20Tapper.pdf Venus D. (2011). What is Supply Chain Management? Wise Geeks Articles. Retrieved April 6 2011, from http://www.wisegeek.com/what-is-supply-chain-management.htm Wailgum T. (2008). Supply Chain Management Solution and Definition CIO. Retrieved April 8, 2011 from http://www.cio.com/article/40940/Supply_Chain_Management_Definition_and_Solutions Read More