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Zara’s business model
Zara's Supply Chain: Case Study Essay
What advantage does Zara gain over the competition by having a very responsive supply chain
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Through the use of literary articles and other academic material this paper will review the strategic supply chain initiatives that gives Zara an advantage over it’s competitors. The report will examine other fashion retailers supply chain model to show how Zara has mastered the supply chain model to gain advantage over others. The Report will also examine the following areas. i. Origins and history of the organization. ii. Examination of Zara’s supply chain model. a. New product design. b. Manufacturing. c. Distribution & Logistics. d. Store size and layout. iii. Examine other supply chain in high street fashion. iv. Compare and contract findings of Zara and other retailers. The overall aim of the report is to show how Zara while trading in a highly competitive market has produced a supply chain model, which is unique. This uniqueness has led to the overall success of Zara and helped to make the organization a worldwide success. Origins and history of the organization Zara is a sister company of the Inditex Group which is owned by the Spanish tycoon Amancio Ortega. Inditex is one of the world’s largest fashion retailer and its foundation dates back to 1963. Zara opened it first store in 1975 near the Inditex headquartered in La Coruña, Spain. The store featured low-priced lookalike products of popular, higher-end clothing fashions. In 1979 the Zara brand had 6 stores. These stores proved to be successful, and in 1988 it opened its first store outside Spain. However, by 1990 Zara had stores across the world, ranging from stores for example in Oporto, Portugal, New York, and Paris. According to Inditex Annual Report 2012, Zara opened a total of 120 stores in 2012, thus reaching 1,925 stores in 86 markets worldwide. Zara sales i... ... middle of paper ... ...gistics department. They are shipped by time zone to allow Zara to better meet customer demand. Zara utilizes the services of third party logistic providers to manage all its freight and delivery’s. It takes two days to ship merchandise by truck to their European retail stores. The non-European shipments are shipped by air. When the deliveries arrive in store the merchandise process downstream is simplified. Store will receive all orders on ready to hang assembly, all store assistance need to do is hang the rail, remove the protective plastic cover and items are ready for sale. Store size and layout Stores receive delivery of products twice weekly. These deliveries are based on information received from its stores worldwide. This insures that Zara is always offering what the customer wants. This may be exciting designs or items redesigned to suit consumer demand.
They look at the raw materials that is used for the bake shop and meat department and make sure that there is enough stock in the warehouse to last until there next bulk order comes in. Then that bulk order is broken down into smaller but still bulk orders for the different stores to use. Some products are delivered straight from the suppliers warehouse to the store. They also make sure that the product isn’t damaged when received or sold to consumers.
This can be accomplished by using disciplined delivery time windows, developing close relationships with a small group of reliable transportation carriers, and shipping only what is needed at a particular time, which means small lots being delivered more frequently often using partially filled trucks” (Taylor, 2013, p. 6).
...ng luxury, not many people want to wait two weeks to receive their product. When an item is ordered, it is needed immediately, and if it is received immediately then it not only improve the relationship to the customer. But it will also add value to the purchase which makes that customer that much more likely to buy the product again in the future, as opposed to your competitors. If you have customers in remote areas you do not have the luxury to send their shipment in a large batch of items, you must pay more to have that item shipped individually, which is costing more money.
In the 1960s through the 1970s, companies realized strong engineering, design, and manufacturing functions were strong market strategy keys to create and capture customer loyalty. As the demand for new products rose in the 1980s, these market requirements were to increase their flexibility and responsiveness to adapt existing products and processes or to develop new ones in order to meet customer needs. As manufacturing improved in the 1990s, managers began noticing material and service inputs involving suppliers and their major impact on an organization’s ability to meet customer needs. As a result of these changes, organizations now find that it difficult to manage their own organizations. First, they must be involved in the management of their network of all upstream firms that provide directly or indirectly, as well as the network of downstream firms, which are responsible for delivery and market service of the product to the end customer. In order to succeed, managers have to realize that they cannot do it alone and they must work together on a daily basis with the whole organizations in their supply chains. Because supply chain management involves all functions within an organization, managers need to know what a supply chain is, why it is important, and the impact of supply chain management on the success and profitability of their organization. Today, Wal-Mart topped the list of the America’s biggest companies on the Fortune 500 list, “with sales of almost $345 billion — more than a quarter of a trillion dollars” (Forbs). Wal-Mart’s supply chain management is becoming recognized as a core competitive strategy.
Zara sources fabric, other inputs, and finished products from external suppliers. It has purchasing offices in Barcelona and Hong Kong. This gives Zara a competitive advantage towards the costs of goods sold, as it can purchase from both Europe and Asia according to prices. Buying more from China in the future might reduce even more the costs of goods sold.
They produce their products in twenty-two countries around the world where they are then sent to the distribution factories that are in the United States (Responsibility Supply Chain, N.d). Once the products are in the distribution facilities, they are then sorted and sent to the stores. Before the technology advancements, stores would tally up items sold, their stock at the end of the week, and contact the distributers to get the new orders. With the advancement of technology there has been improvements to routing system where the has been online systems and now an app. Lululemon now uses a backroom app which is a more efficient routing of order through the distribution centers. This app is also more convenient to customers because they get access to the companies online inventory an in-store inventories (Soni,
Analysis & Recommendation: Zara’s main strategy is the ability to respond very quickly to the demands of target customers which called for identifying trends of the customer in advance. The company has been able to identify the trends and meet the demand with the help of its autonomously organized structure and its effective value chain systems. The present system followed by Zara has been very effective and very easy to maintain, which as a result has persuaded the company to continue without any change in the present system so far. The problem that Zara faces right now is that the system that they use, P-O-S (Point of Sale terminals), runs on DOS which Microsoft does not support anymore and any hardware change in the POS terminal will not be compatible with the current POS software. Although the sense of urgency for the change may not be that high, investing in IT infrastructure is a must as MS Dos is an obsolete technology and there is no contract or guarantee from their POS terminal vendor that they will continue supplying the same terminal with out much changes in the hardware for any specific period of time, therefore change is unavoidable. The other main issue that Zara faces is that the stores don’t share inventory information electronically and hence inventory management becomes highly difficult and manual. The decision making process is based on the judgment of employees throughout the company instead of relying on a small set of decision makers; the majority of the decisions were made by store managers and as a result they placed orders for the items rather than simply accepting and displaying what headquarters decided to send them.
For example, occasionally M&S has products shipped to Asia to be created, then back to the UK for packaging and labeling, and back once again to Asia to be sold in their retail stores. This increases production costs and time, placing them at a disadvantage to Zara. Zara uses two main centers for their products, a supply center in Beijing and it’s manufacturing center located in Spain. M&S also creates collections in mass numbers compared to Zara, therefore, failed designs cost the company far more money. Zara’s success in inventory turnover lies in the process of creating far less product, keeping its exclusivity, and decreasing its risk of profit
In the textbook, “International Retailing” by Brenda Sternquist, the company focus on the company Zara, shows the company overview from the beginning when the brand started in Spain. The study describes the company’s international expansion, business systems, production, and distribution within the U.S. markets. Zara is part of a parent company called, Inditex Group which is centralized in Spain. At first, Zara started as a lingerie company and quickly expanded into three sectors of fashion as a women’s, men’s and children’s fashion brand. Zara takes pride in their private label, which keeps their brand image high and keeps advertisement costs low, which also drive their company profit margin. They also depend on the fast turn around in the products to keep their stores efficient and exclusive. Zara’s turn around time, a total of three weeks, keeps their customers motivated to shop in their stores often to get the trendiest and newest fashions. They have limited new items on their shelves and sell out within two days, which create exclusivity to customers and low amounts of markdowns or discounts on their items. Zara keeps a centralized distribution system and make about 10,000 items per year. Zara’s international expansion began in 1988 when they first opened a store in Portugal and used a strategy of expanding one store per country each year. During expansion, Zara really focused on opening flagship stores in major cities before expanding into nearby and smaller cities. All Zara stores in Spain are wholly owned stores, but the company has also incorporated joint ventures and franchises in specific countries such as Russia and China for parts of their expansion to enter markets. Currently, Zara is in 60 countries with ...
b) Zara can focus on expanding and increasing the number of outlets in Asian countries such as China and India. The scope of development is very high and the demand for fashionable clothes is increasing at a very fast rate. But it will have to focus on other local competitors who provides the latest fashion at a cheaper rate. As Zara is a known brand, so it would be easy to increase awareness among the consumers through advertisement, promotions and celeb endorsements.
Inditex produces for serval other retail store. ZARA has grown in 86 countries till date. Amancio Ortega founded ZARA in 1975 and years later founded Inditex to expend their production. ZARA is a well known that have a vertical integration system.
The fundamental business strategy of Zara is very simple which is linking customer demand to manufacturing, and liking manufacturing to distribution. Zara has been running their business in fashion industry which is susceptible to seasons and quick changing customer tastes. Zara has been approached to and considered their business as a perishable commodity business just like a fresh baked cake or bread to be consumed quickly.
This has been possible through a remarkable and strategic supply chain of the company. Design, purchasing, production, distribution, and retailing are arranged in very unique way. Zara produces clothes that are not so much dissimilar to other manufacturers, but they beat them to the market (Sartal et al., 2017). The company has employed a policy that use less expensive fabrics, which has helped them to dispose the products at a lower price as compared to other competitors. Pricing policy at Zara has given the company a resounding marketing advantage that has helped it compete effectively in the congested industry. Supply chain has given the company due competitive advantage and it has been able to maintain it by design, warehousing, distribution, and logistics functions (De Jorge Moreno, & Carrasco, 2016). Zara has made this possible by design the organization, operational procedures, performance measures and even office configurations that has helped the flow of information and product easy. Zara manufacture its products in small quantity, which make the products, last in the stores for a small time and give it easy to manage and change the fashion depending on trends. To help the company meet its distribution and customer demands, the company has implemented a scheduling techniques, centrally managed inventory, reduced design cycle time, strong it system and logistics and distribution channels that were
To sum up, window display is a significant way to promote the brand image and seasonal products in the highly-competitive fashion industry. As a typical successful retailer brand, the distinct brand identity of Zara is one of the most important factors to be outstanding comparing to other brand. Zara clearly understand its brand image according to its market positioning strategy and target customers through using the props, colours and themes to create a suitable space that the impression of Zara want to be given to people.
Shopping and shipping: Zappos tried to put effort to make shopping enjoyable. The Zappos website was known as the easy shopping center. Zappos provides direction that how customers improve features, plan inventory and adapt search results. Zappos was adopted simplicity, creativity, great service of inventory and distribution. Zappos provides