The Supply Chain Management of Zara - Coursework Example

Summary

Zara has an agile supply chain with the fast fashion industry and its supply chain is behind its success. Its supply chain is fast and hence deliveries are made fast. There is also a close communication between customers and designers and hence Zara is not only able to supply products according to customers’ demands but it is also able to ship the desired products weekly. This indicates that an agile supply chain is very effective in improving competition between companies. It is also evident that Zara has been able to maintain an efficient production coupled with good balancing between in-house and outsourcing and this results to small lead times and increased market share for the company. Through its efficient supply chain, Zara responds quickly and therefore decreases the excess stock holding within the supply chain and also reduces risks allied to forecasting. The success of Zara manifested in enhanced customer satisfaction, increased market share, and reduced risks can be attributed to its efficient supply chain. The location of its stores and manufacturing locations also have played a significant role in ensuring the company’s success. The location contributes to customer satisfaction, reduced lead times and more importantly reduces costs and risks associated with unnecessary shipping and transportation.

Topic 1 (a)

Zara Company maintains a large quantity of its productions in-house and ensures that its industries reserve 85% of their capacity for in-season changes. In-house production enables Zara Company to be flexible in the quantity of frequency and diverse new products it launches (Tang & Tomlin, 2008). Zara is highly dependent on fabric sourcing, cutting as well as sewing facilities that are located close to its design headquarters within Spain (Ferdows et al, 2013).

Zara utilizes its supply chain to change its operations within an extremely traditional industry. Zara has an agile supply chain. According to Tang & Tomlin (2008) agility allows companies to respond fast to unpredictable changes of demand. Turker & Altuntas (2014) further explain that agile supply chain is the capacity of the network to constantly identify and capture business opportunities faster than its competitors do. Agile supply chain is a fast response and a flexible demand driven supply chain (Barnes & Lea-Greenwood, 2006). In regard to Zara Company, information like market data and information sharing between its stores and businesses within the supply chain drives the supply chain. Therefore, the visibility of Zara’s supply chain enables it to be more responsive to demand changes within the market place.

Zara has consistently built a unique real-time supply chain and therefore its rivals have to do a lot of training in order to have such effective operations processes (Tyler et al, 2006). Warehousing began playing a very critical role in the supply chain about two decades ago when globalization and internationalization of business took shape. According to Hill and Gareth (2012), the role of warehousing has evolved significantly and it incorporates different storage facilities based on length of storage. Unlike its competitors who outsource heavily with production taking place in Asia or South America, Zara has chosen to have most of its production in Europe and mostly around the headquarters in Spain.

To be able to support its policy of just in time production, Zara has kept a larger proportion of its production in-house made sure that owned factories at all times reserve 85% of their capacities for in-season adjustments. The company has twelve inventory turns annual in comparison to its rivals who have 3-4 inventory annually. Stores make orders two times weekly and this is what compels factory scheduling. According to Tyler et al (2006) short term focused order cycles have precise forecasts. For Zara Company, its factories can increase or reduce products fast and hence there is always fewer inventories within the supply chain and less requirement to fund the inventory with working capital. Zara does 50-60% of their manufacturing in advance and hence the company does not require placing high bets on annual fashion trends (Bhardwaj & Fairhurst, 2010).

In addition, Zara purchases huge amounts of just a few kinds of fabric and performs the garment design and allied cuttings and dyeing in-house. Therefore, fabric manufactures are in a position to make fast deliveries of bulk amounts of fabric directly to the Zara DC. Zara buys raw fabric from suppliers within different locations such as Italy, Spain and Portugal. All these supplies make deliveries in 5 days after order placement. In most cases, truck is used for inbound logistics from suppliers (Christopher, 2016).

Figure 1: Zara’s supply chain model

Zara owns 11 factories that are interlinked to the Cube via underground tunnel using high speed monorails for moving the cut fabrics to the factories foe dyeing and assembling of the fabrics into clothing items. In addition, factories utilize the monorail system for returning finished products to the Cube in order for the finished products to be shipped to the stores (Christopher, 2016). In regard to the company’s manufacturing operations, the company’s specializes on flexibility and agility when it comes to competition rather than low cost labor (Bose & Pal, 2006). The company has around 3,000 employees for manufacturing operations within Spain and the company’s factories utilize flexible manufacturing systems for speedy change over operations. Tokatli (2008) further indicates that 50 percent of all items for Zara are manufactured within Spain, 26 percent in other parts of Europe while 24 percent of Zara’s items are manufactured within Africa (Zhang, 2008). Since no single store requires a truck full of clothes two times every week, the strategy in the Zara distribution center is consolidate orders from various stores on each truck. According to Yildiz et at. (2015), packing is done on reverse order such that the last boxes to be packed are the first to be offloaded as they are destined for the first initial stop. Sometimes trucks from Zaragoza drop loads at smaller distribution centers in the targeted countries from where smaller Lories do the capillary distribution to different individual stores.

Figure 2: physical distribution of logistics

Basically, Zara Company has the ability of making deliveries globally within just 4 days and makes use of trucks for delivering its deliveries to stores located within Europe and utilizes air freight when shipping clothes to other markets (Brun et al, 2008). Zara has the capacity to withstand and afford the high shipping costs since it does not require doing a lot when it comes to clothes’ discounting and also spends less money on advertisements (Caro et al, 2015).

As aforementioned, Zara Company has a lean and agile supply chain. Stores receive deliveries two times weekly and they receive ordered inventory in just 2 days after order placement. During shipment, items reach the stores with price tags. Therefore, products arrive from shipments and delivery trucks and go direct to the sales floor. This enables store management to order and get the products per customers’ preferences weekly. Christopher (2015) also adds that Zara stores respond in real-time in accordance with the customer preferences. Zara’s supply chain model is an efficient business model for the efficacy within the high-change and it is also difficult to forecast fashion industry. This implies that around 50 percent of the items Zara sell and most of the company’s high margin fashion products are manufactured basing on vastly precise, short-term demand estimates (Ferdows et al, 2015). Since Zara’s supply chain model tracks extremely close to real customer demand from one month to the next month, the model frees the organization from being trapped within cyclic market ups and downs that entangle its competitors (Masson et al, 2007). According to Ferdows et al (2005) turbulence within the global economy has caused lots of harm to numerous competing fashion retailers but due to its efficient supply chain model, Zara has remained stable and has had a gradual, profitable growth irrespective of the turbulence within the global economy. Nonetheless, Donald & Turconi (2008) provide that a speedy-moving and flimsily tuned supply chain such as in Zara needs regular monitoring to ensure its smooth operation. Supply chain management should always keep a close watch at customer demand and make amendments to manufacturing and supply chain operations when necessary. Amendments that are necessary to ensure supply chain works well include the product rates, vehicle, shipment and delivery routes as well as schedules (Macchion et al, 2015).

Topic 2

How important is facility location to Zara’s company’s success?

Zara has all its designers, buyer professionals and management within one location and production facilities near them. Additionally, there are some stores on actual Zara store locations. The significance of facility location is that it leads to shorter lead times and hence more fashionable clothes (Carugati et al, 2008). This is because shorter lead times enable the company to always have the stock of clothes that customers want. Zara moves with the customers and provides them what they want to purchase at any specific time and therefore does not need to try to predict customers’ preference in future (Ferdows et al, 2015). Information communications technology is right at the heart of Zara. There are four critical areas of information that confer speed to Zara; a close watch on consumer behavior, quick decisions, inventory control and distribution. According to Priem and Swink (2012), consumer needs and trends information streams on a daily basis and is fed into databases at the head office from where it can be accessed by designers. This real-time is used by designers to come up with new designs, and make adjustments on existing fashions. Standardization of product information permits quick and accurate response in design preparations (Carter, Kosmol, & Kaufmann, 2016).

The facility location also enables Zara to produce items in smaller qualities per style and this lowers the company’s exposure to any single product and also results to artificial scarcity. According to Christopher et al (2004) the lower the availability the more attractive an object is. There is also advantage where if goods are in small quantities and there is no traction and hence poor sales, the company does not have to dispose high volumes of stock (Bhardwaj & Fairhurst, 2010). The concentration of the facilities at one place also allows the company to produce more amounts per style and hence the company is able to produce more styles. Therefore, even if one style sells out extremely fast, there are more new styles to take up the space and hence this implies that customers have more choices (Yang et al, 2015). Moreover importantly, the concentration of facilities reduces costly transportation and shipping costs and hence saves the company’s resources and finances (Chan & Wong, 2012).

How Zara controls its stock against demand fluctuations, cost pressures, and strategic issues

Zara is an agile company that has a customer driven process which is more customer focused. Agile companies also used technology with an aim of promoting productivity, developing new products as well as for customer satisfaction (Yao & Liu, 2015). Accordingly, Zara is an agile company where the link between customers and designers forms the basis of the company’s success (Caro & Martínez-de-Albéniz, 2015). Using its internal interfaces, Zara collects information such as sales, personnel, leftovers, customer complaints etc and puts into considering all these aspects to control its stock. Agility is allied to the response to the market’s turbulence and customer demand. Agility has direct impact on the supply chain (Chan & Wong, 2012). The requirement of reducing lead times as well as the flexibility within the fast fashion brings suppliers within the process as being important to their capacity to achieve high levels of customer satisfaction. Even though the rapidity and flexibility of the supply chain has an impact on organizational agility, the agile manufacturing is a fundamental aspect of it (Cai-feng, 2009). Nonetheless, for Zara to be able to respond to the changes in consumer demand the company has an efficient agile supply chain with all its designers, buyer professionals and management within one location and production facilities near them, and this assures complete flexibility and agility (Carugati et al 2008).

Moreover, Zara Company owns its store chain and does not contract the chain and this eliminates standard problems. Zara’s stores are specifically organizes and the products vary from each other in according with the store manager’s forecast (Turker & Altuntas, 2014). Moreover, since consumer needs keep changing hence erratic, this indicates the pressure of the entire supply chain (Brun et al, 2008). The modern fashion industry is very competitive with more pressure for fashion firms to compete on many aspects ranging from the price, to their capacity to deliver novelty and “revive” product. Zara has been able to pioneer within fast fashion with twice weekly supply to its stores and this ensures that the products in the stores are fresh, latest and interesting to customers (Sull & Turconi, 2008). The company also produces small amounts and several varying outfits throughout the year. These two elements assist to reduce markdowns during lowest times within the fashion industry (Yang et al, 2015).