Different Inventory Approach Used by Zara - Case Study Example

Table of Contents Introduction 2 Basic Information about Zara 2 Different Inventory Approach used by Zara 3 Conclusion 6 References 7 Introduction The success of any organization is dependent on the manner in which the organization is able to manage the different resources. The efficiency and effectiveness through which organizations manage their inventory helps to gain a financial advantage and provides a scope and room through which better results are achieved. This report will analyze the manner in which Zara fashion has been able to gain and improve their business through the strategy of low inventory. The report will focus on the manner different inventory level approach which has been used by Zara and the different benefits and demerits which have been achieved. This will thereby help to provide conclusive direction and evidence through which other similar business models can work and improve the overall efficiency and effectiveness in the use of different resources. Basic Information about Zara Zara which is based in Spain has grown and expanded its business by focusing on a business model where they look at maintain low inventory, continuous innovation and development based on customer needs and demand, use different batches to produce goods and ensure that the products provided are exclusive. Further, Zara has ensured that they use the best facilities and have used different inventory management techniques which have helped them to save on cost of inventory and proper lag and order time has helped them to grow and expand their business all around the globe. One of the key aspect which has contributed towards the success of Zara is the ability to use different inventory models and approaches which has helped them to deal with the financial requirements and have reduced the chances of inventory becoming obsolete as the clothing industry is a fashion industry where taste and preference for the customer changes rapidly. Different Inventory Approach used by Zara Zara fashions to maintain a low inventory level and to ensure that stocks don’t run out have used different inventory approach and models which are presented below along with the different positive and negative impact it has on the organization Minimum Stock Level: Zara has identified the minimum level of inventory they will require so that unnecessary inventories are not held. The organization has been able to achieve the feat due to the experience and knowledge they have about the consumer demand and taste. This is aided by the fact that the designers and employees work in close contact with the customer which helps them to understand the amount of a particular quantity will be required. The use of minimum level stock approach has helped Zara to gain advantages like the cost of investment in inventory is low; the chances of stock becoming obsolete is less; production is done based on the needs and requirements of the customer; and better inventory management strategy is possible (Hammer, 2003). Using the minimum stock level has also raised certain risk for the business as it increases the chances of the inventory being in short compared to the demand; increases the risk as customers demand might not be met; and might also raise chances of being unable to meet the unexpected demand due to wrong forecasting of customer demand. Stock Review: Zara looks to conduct regular stock reviews so that the customer needs and demands can be identified. The process of stock reviews helps Zara to work on the process of maintaining inventory as required and reduces the chances of inventory becoming obsolete (Hammer, 2003). Having regular stock reviews ensures that stock are verified and if any discrepancies arise it can be amended; it helps to make timely changes to the customer needs and demands so that goods and services can be produced accordingly; and reduces the chances of the stock becoming obsolete. The method of inventory management also has certain negatives at is increases the cost of hiring a specialist that will conduct the stock audit and since personal decisions are taken it increases the chances of using the information for their personal gains and might provide wrong information. Just-In-Time: Zara has worked on using the business model of just-in-time where goods are replenished when they fall below a certain limit. Since, Zara develops product both through the process of in house manufacturing and outsourcing it has helped to manage the different resources efficiently. Further, having local designers and quality employees provide correct and complete information from the customers which provides an opportunity to manage for the required inventory (Hutchins, 2009). This has helped Zara to gain different advantages like the cost of investment in inventory is low; the chances of stock becoming obsolete is less; production is done based on the needs and requirements of the customer; and better inventory management strategy is possible. Using the minimum stock level has also raised certain risk for the business as it increases the chances of the inventory being in short compared to the demand; increase in cost; requiring expertise who are capable of handling the technology. Re-order Lead Time: Zara has a low re-order lead time which is around 15 days has helped to maintain low inventory. This has become possible due to the fact most of the work is carried in house and have designers and employees who work in close relation with the customers. Further producing different batches which are different in design helps to ensure that new stock is provided every time. This has provided to gain different advantages like the cost of investment in inventory is low; the chances of stock becoming obsolete is less; production is done based on the needs and requirements of the customer; and better inventory management strategy is possible. The risk in the method is that it increases the chances of inventory running out; unable to meet the demand for customers; improper forecasting and lack of proper planning Economic Order Quantity: Zara further uses a process of economic order quantity where using the past expectations and business model a formula is developed and based on it the minimum stock levels are maintained (Norris, Hurley, Hartley, Dunleavy, John, 2000). This has provided to gain different advantages like the cost of investment in inventory is low; the chances of stock becoming obsolete is less; production is done based on the needs and requirements of the customer; and better inventory management strategy is possible. The risk in the method is that it increases the chances of inventory running out; unable to meet the demand for customers; improper forecasting and lack of proper planning. The overall aspect of using the process of economic order quantity has helped to manage inventory in a better way. Batch Control: Zara has further used a model of batch control where they aim to produce different clothing in batches. Further, Zara ensures that the next batch produced is different in design which thereby limits the quantity of goods produces and reduces the chances of inventory becoming obsolete (Chase, Aquilano and Robert, 2004). The process of batch control has also ensured that customers gets something new every time they come to the store and thereby has helped them to gain effectiveness in managing the inventory levels. RFID Technology: Zara also aims to use RFID technology which helps to manage inventory using chips which are attached to clothes. This helps Zara to keep track of the different inventory and the process determines the goods which need to be produced when they fall below a certain limit. The process using technology has helped them to reduce the dependence on physical counting and verification of inventory becomes quick (Chase, Aquilano and Robert, 2004). This method further ensures that Zara is able to exercise better control over the inventory and is able to determine the minimum level of inventory which needs to be carried over. Conclusion This report thereby analyzes the manner in which Zara has used different inventory management approach and techniques while managing the inventory. This has helped to ensure that inventory are kept at low levels and has multiplied the overall effectiveness through which productivity has increased. Zara has thereby developed its business model through the use of different inventory approach and has been able to gain from it. References Chase, B., Aquilano, J. and Robert, F. (2004). Operation Management for Competitive Advantage. In Operations Management, pp. 111-136, McGraw-Hill Custom Publishing, Inc. Hammer, M. (2003). Reengineering Work: Don’t Automate, Obliterate. In Business Process Reengineering: Current Issues and Applications, pp.25-35, Norcross: Industrial Engineering and Management Press Hutchins, D. (2009). Just In Time. 2nd ed. Hampshire: Gower Norris, G., Hurley, R., Hartley, M., Dunleavy, R., John D., (2000). E-Business and ERP: Transforming the Enterprise. New York: John Wiley & Sons, Inc. Read More