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Productions Operations Management
Supply Chain of Zara
Supply Chain of the Retailer ZARA
Fashion industry is no more the game of rich only. The cost effective fashion businesses have helped penetrate the fashion industry so deep that today even an average earner can enjoy latest fashion by Zara. Being a Spanish retail fashion designer, Zara is strongly accepted fashion brand in Europe, America and United Arab Emirates. In less than 50 years' time, since 1975, Zara has achieved a status others might take centuries to reach. Zara promises quality as well as affordable prices (Zara: Official Website, 2013). While fashion industry mainly depends on new, creative, original ideas, this report studies if supply chain management is important for Zara too and how supply chain management can be used as a competitive advantage.
How the supply chain management can be used as a competitive advantage?
Supply Chain Management
Supply chain management involves all the activities from the acquisition of raw material for production of goods to handing them over and selling to customers. It involves parties like suppliers, customers, HR Team, Marketing Team, Production Team, and Procurement Team. The series of activities involved in supply chain management can be drawn as below:
Figure 1: Supply Chain Management Process
Thus the supply chain management is not about simply purchasing things from the supplier. It involves deciding about the supplier and decisions regarding type and quantity supplied and sold too. If effectively managed, supply chain offers unique cost as well as quality benefits thus making organization overall effective.
Supply Chain of Zara
The global trends in the business require managing cost as well as quality of a good. Supply chain management helps Zara keep itself good in the global picture by managing cost as well as the quality. To boost customer service, select cheap and reliable supplier, integrate organizational processes and to respond to the growing needs of customers, supply chain management is necessary (What is the Importance of Supply Chain Management? 2013). The supply chain of Zara is discussed here.
For production of bulk items, a company can choose to rely upon outsourcing the raw material responsibility to the supplier or to acquire the supplier. For businesses like Zara, completely owning the supplier would be an additional cost. Also it cannot totally rely upon the supplier for supply of goods because this can affect its unique designs. Thus it uses contracted suppliers as well as new suppliers.
Zara does not keep inventory warehouses full. Yet the company never runs out of inventory. There is always half of inventory present in ware houses. There are two reasons for that. First, not keeping full warehouses reduces the risk of outdated inventory costs. Secondly, the company manages to serve customers without delay. The company holds inventory for 6 days normally based on forecasting. Thus, it is Just In Time system that Zara uses.
The company produces half of goods in-house and rest is procured. The procurement often reaches 60% of the total goods. Thus, it the burden is shared between production and procurement. The balanced reliance on procurement does not offer an upper hand to the supplier. Thus the bargain is a fair deal between the company and its supplier. The company acknowledges that China has mastered in producing cheapest goods at varying qualities. Thus the company does not hesitate to outsource simple goods that do not involve any complications, to China.
The company has smartly used its logistics in order to maintain low costs. Majority of distribution facilities of Zara are located quite near the suppliers. Besides the costs, the company also avoids delays by locating near the suppliers. The company has the capability to deliver goods in the period of just two weeks. Since the company supplies internationally, it uses road as well as air freight (Zhelyazkov, 2011).
Majority production activities of Zara take place in Spain and Europe i.e. about 80%. 50% Production facilities are owned. The owned production capacities offer cost control to Zara. This allows the company to react immediately to the changes in demand. If the company had only out-sourced the production function, it would have much hard to respond in no time to changes in tastes of customers. Also the company maintains innovative environment in these production houses.
Zara has nearly three hundred thousand retail stores worldwide. These retail stores are not simply the point of purchase for Zara, they rather serve as the point of interaction as well as marketing too. The customers like to visit Zara outlets around 17 times annually while the other fashion outlets have 4 visits per year by the customers. The retail stores are a hub of multiple activities thus the arena of the stores is also designed accordingly. The location of these stores is normally at populated and busy places where people can easily access and shop around.
The procurement, inventory management, production and sales, everything at Zara is backed by forecasting. The company stays ahead of its competitors by means of anticipating well ahead of time its needs and needs of the customers. The company does not only forecast on the basis of past trends but also analyses customer requirements for future for forecasting purposes. The warehouses of Zara are linked with the headquarters via internet. This allows in time response and communication (Zhelyazkov, 2011). This connection is another reason that headquarters always knows about trends in demand and supply of the company and can respond immediately.
Unlike other competitor fashion brands, Zara has single digit percentage of marketing expense out of its total expenses. The advertising expense is even low i.e. 0.3%. The company does not spend on fooling the customers since it knows that better quality of the goods with attract the customers naturally. The marketing team of the company on the other hand also plays an active role. It focuses on the youth and adults and casts celebrities as well as ordinary figures in the ads so that the target market can relate them to the product.
Distribution at Zara is ensured to be fast and error free. From forecasting to designs and productions to distribution, technology plays a vital role in Zara. The company deploys hundreds and thousands of optical reading devices that increase the speed and efficiency of system by distributing above 60,000 items of outfit per hour. Thus error and slowness of humans is avoided.
Reasonable component of in-house manufacturing allows Zara to offer classic fashion clothing and accessories at affordable prices. The prices are often even ten times less than other brands including Gucci. The costs and thus prices are kept low by outsourcing assembly processes. The overhead workers are normally family members of regular employees. Thus they work better in order to keep the whole family employed and it saves the cost and time on searching new informal employees.
Besides the designs and cost, it is Zara's customers that make it a success story. The customer tastes play a vital role in defining sales level of the company. Zara is also very responsive towards customer records as well as feedback. The database records what the customers purchase so that the forecasting can be made on the basis of this data. It checks which fabric type and quality is more in demand so that the inventory management is done accordingly.
The quantity purchase by each customer as well as the quantity purchased of each item is a critical indicator of what items are demanded more and by which customers. The company ensures that there is reasonable inventory in the warehouses to back the demand for those particular items. Zara's technique has proved effective i.e. forecasting on the basis of customer feedback and purchase history rather than studying whole industry to make demand forecasts.
For companies running on the demand of the customers, the information serves as an asset. Zara takes information by all means. It gets information from its employees in retail outlets, from the customers and the market. However, the company does not waste time and money on gathering unnecessary information. It keeps things straight by focusing on what can affect the demand and supply of the company. The information helps making strategic decisions too. For example, outsourcing to China was only possible after finding that the Chinese production quality was acceptable by fashion lovers in Europe.
Secret of Success
Fashion industry runs on the style needs of people. There was a time when the royal families could wear fancy hats fascinating young ladies by standing on their balconies waving them from so far. Today, the Hollywood movies, fashion industry, super malls and corporate jobs have enables masses to know, want and get whatever fashion they want. In reaching the hands of a normal and average citizen, the companies have increased their revenues exponentially. There are many secrets behind the success of the fashion retails. Some can be public trends, media, financial and economic standing of people, purchasing…[continue]
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