Strategic Supply Chain Management of Zara Fashion Store

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Table of Contents

Strategic Supply Chain Management: A Detailed Analysis of Zara Fashion Store. 2

1.0 Introduction. 2

2.0 Zara’s Supply Chain: An Overview.. 3

3.0 SCM Strategies Followed by Zara. 4

5.0 Zara’s Comparison with H&M… 9

6.0 Conclusion. 10

7.0 References. 12

1.0 Introduction

The introduction of new technologies and involvement of internet based operations in the business has made the market conditions more unstable. Nowadays, every company must deal with some kind of business operations in the internet and so every company needs a strategic supply planning. Some of the best MNC’s around the world are using the newly introduced powerful management resources. One of such management resources is called supply chain management. Supply chain management refers to the co-ordination and integration of different aspects, processes, and business operations for the overall profit maximization of the company. Supply chain management deals with the issues related to manufacturing, operations, transportation, purchasing, and distribution.
PMP 13 - Strategic Supply Chain Management of Zara Fashion StoreThere are many issues in an existing SCM (Supply Chain Management) that can be handled by implementing strategic features in it. Any SCM would not be complete if it is not built based on strategies used for the specific industry, for which the SCM is being built. The advent of internet and new technologies has totally changed the approach of customers nowadays. The customers who would earlier have to go to the market to buy any product; can now easily order it on the internet. These customers can also now order any luxury product from the foreign countries from the international E-commerce sites. This change in buying approach and behavior of customers also creates more challenges of flexible supply and timely delivery for the SCM. This is the reason why some international fashion brands like Zara has totally changed their approach of SCM and hiring employees; to cope with the changing conditions in the market. This paper deals in detail about these changing trends of SCM and its impact on the market. The case study of Zara fashion brand has been analyzed in detailed to find out these trends (Recklies, 2001).

2.0 Zara’s Supply Chain: An Overview

Zara is the major international clothing retailer, having its headquarters in Arteixo, Galacia (Spain). Zara is a subsidiary part of the group called Inditex, which was founded by Rosalia Mera and Amancio Ortega in the year 1975. Since then, Zara has touched the new benchmarks of the success in the fashion retailing business. Zara has a well-managed SCM system with around 17 manufacturing branches in Barcelona and La Caruna.

Zara has adopted a unique way in its SCM by starting these branches when compared to other fashion retailers who do not personally own such kind of manufacturing facilities. These fashion retailers instead approach different network of suppliers that are located in partially industrialized countries. Zara has increased its production chain to many countries from Vietnam to Morocco, which other fashion retailers are unable to achieve yet. Burger (2005) recognizes this strategy as an ‘exception to globalization’ a reputation that Zara has achieved due to its innovative SCM and business model (Somaiya, 2012).

The trends in the fashion industry have been changing rapidly. A fashion which is famous for a few days would get obsolete in the next month. Social media and social networking websites like Facebook, Twitter, and Instagram has played a major role to start this new trend. This is the reason why the fashion industry is now considered to run on high uncertainty. Zara has recognized this uncertainty within the fashion retailing business and it has adopted following strategies in their SCM: —

  1. Quick Responses to Customers’ Demand: — Zara has recognized that a quick response to the changing customer demands has become crucial for the success of fashion retail industry nowadays. Therefore it is following a pull model in their SCM model. Zara creates up to 1000 unique designs, depending upon the current trends and sales of the fashion apparels every month. Zara gathers data of the changing buying behavior and fashion apparel sales in the market and then understands and evaluates for which type of designs are consumed more, and then provide suggestions to their manufacturers for these changes.
  2. Small Batch Production: — Fashion apparel industry has to follow time constraints and if the company fails to do so, then the products may not sell and remain idle in the warehouses of the company. This is why Zara choose small quantities of the designs that are sent to the manufacturing branches of the company. This provides the company an opportunity to understand what designs are successful. This also reduces the risk of overproduction and thus saves a lot of investment for the company.
  3. Central Distribution Center: — Every flexible SCM needs a flexible distribution and management system and therefore Zara has a strong IT system to bolster its distribution. All the clothes manufactured by the company are first shipped to the main branch in Spain. They are then distributed to different locations on the requirements of a locality and demands by the customers of specific countries(Tokatli, 2007).

3.0 SCM Strategies Followed by Zara

Zara has reached the heights of new success and sales benchmarks by adopting unique strategies in their SCM. Following are some crucial strategies used by Zara: —

  1. Zara produces small product lots: — The very first strategy adopted by Zara is to produce the products in small lots to follow the model of lean production and JIT (Just in Time) production. The simple logic behind following this strategy is that small lot can create a sense of exclusivity. The market of fashion apparel is very uncertain and therefore providing a small quantity of apparels in the store can motivate the customers to buy it until it goes out of stock.
  2. Control the scheduling strictly: — Another great strategy of SCM adopted by the Zara is to control the scheduling. The store managers at Zara emphasize to place the orders at least 2 times a week, while the shipments are delivered strictly within 24 hrs and the products are available to display on the store at the same day they arrive. This strategy can decrease the waiting time by many folds.
  3. Zara tries to keep the production in-house as much as possible: — Many fashion retailers are now outsourcing their requirements to other countries and small manufacturers. However, Zara believes in in-house production and avoid low cost country outsourcing and make investment as much as on in-house manufacturing. This decreases the time required for the shipment and outsourcing process. Zara also maintains the quality of their apparels by manufacturing most of them in their own manufacturing plants at Barcelona and La Caruna.
  4. Zara automates warehouse and production facilities: — Zara managers are very strict with time and therefore the company uses the advanced IT systems for the automation of warehouse and production facilities. This can further help the company to synchronize the demand of apparels with the production and supply of the company.
  5. Zara follows centralized design and product development: — Many fashion retail company nowadays are using both merchandisers and in-house staff for their product requirement. However, there may be some delay in the merchandiser option since the suppliers need to send samples to the buyers many times before the final shipment. This is the reason why Zara only emphasizes on in-house production. Elimination of this back and forth communication process can increase the time of availability of the apparels to the customers, which further helps in increasing the sales for Zara(Benjabutr, 2016).

4.0 Value Chain Map for Zara
cshow - Strategic Supply Chain Management of Zara Fashion Store

The value chain map for the Zara company can be designed with the help of SOCR racetrack. SCOR (Supply Chain Operations Reference) model is a process reference model designed by the SCC (Supply Chain Council) a non-profit organization that manages all official standards for supply chain management implementation and diagnostics.

SCM Zara 300x140 - Strategic Supply Chain Management of Zara Fashion Store

Figure 1. SOCR Model (Monczka, 2001)

The main purpose of process reference model is the capability to describe the process architecture of a company in a sensible manner to the key business partners. The value chain of Zara may cut across multiple departments like manufacturing, warehouses, and stores, so a SCOR reference model can provide a common language for managing such processes. Meanwhile, the value chain model can be implemented with the help of racetrack model as shown in the figure 2 below: —

supply chain management zara 300x225 - Strategic Supply Chain Management of Zara Fashion Store

Figure 2. SCOR Racetrack (APICS, 2015)

SCOR model implementation is a complex process and explaining all the steps of SCOR racetrack is beyond the scope of this paper. However, a detailed information will be provided in this section for how to improve the performance of the value chain with the help of SCOR performance attributes. The performance section of SCOR consists of 2 main parts: Metrices and Performance Attributes. SCOR level 1 metrices refer to the high-level measures, strategies, cross multiple SCOR processes. On the other hand, the lower level metrices are connected with the narrower subset of processes. However, the main purpose of creating the value chain map for the company is to improve the performance in different departments and their concerned processes and operations (SCC, 2016). So, this paper will elaborate more about the performance attributes of the SCOR model, which are as follows: —

  1. Reliability: — Reliability is responsible to address the ability to perform tasks as per the expectations by the managers. Reliability can also be used to focus on the predictability of the outcomes of any process in the supply chain. There are mainly 3 different reliability attributes as: right quantity, right quality, and on-time that must be managed for the value chain.
  2. Responsiveness: — Responsiveness is another crucial attribute in the SCOR model that describes the speed used to perform various tasks. A perfect example of such attribute within SCOR model is the cycle-time metrices. The SCOR KPI to handle responsiveness is the Order Fulfillment Life Cycle Time. Responsiveness is always considered as a customer focused attribute.
  3. Agility: — Agility is 3rd crucial attribute that can be used in the SCOR racetrack value chain to improve the SCM. The agility attribute is responsible to describe the ability to respond to the change and external influences.
  4. Cost: — Any value chain mapping is not beneficial without mentioning the cost attribute and therefore the cost is the crucial attribute in the SCOR racetrack. It includes material, labor, and transportation costs of the SCM.
  5. Assets: — Finally, assets is the final attribute for the SCOR racetrack value chain mapping which describes the ability to use the assets efficiently for the required SCM. Some reliable asset management strategies within a supply chain are inventory reduction, in-sourcing, and outsourcing(Camargo, 2013).

5.0 Zara’s Comparison with H&M

H&M (Hennes and Mauritz) fashion retailer has been chosen for the comparison with Zara company. H&M has been precisely chosen for the comparison because both have almost same number of stores and H&M is another high performing fashion retailer. H&M came into inception in the year 1947 in Sweden. H&M has outsourced almost 50% of its apparel requirements to the European countries, thereby implying lead times, which were good by industry standards.

However, the time of production and delivery of the apparels has been increased in case of H&M due to this outsourcing as compared to Zara that emphasized in in-sourcing and own manufacturing houses. Being an older company than Zara, and implementing the strategies of outsourcing; H&M managed to quickly internationalize their business and generate more outside its home country by the year 1990, which is 10 years earlier than Zara. H&M also focused to enter the international country markets one-by-one, while putting extra emphasis on the European markets. This has further helped the country to bolster its market because most of the outsourcing companies of H&M were European (Ghemawat, 2015).
cshow - Strategic Supply Chain Management of Zara Fashion Store

Another strategy of H&M that can differentiate it with the Zara’s SCM is the collaborations with the international designers like Alexander Wang and Versace. H&M marketed their fashion apparels with some of these renowned names in the European fashion industry that helped the company boost its own reputation. It also helps the company to provide extra variety to the customers for purchase of apparels that are different in style, design, and looks from the regular designs of the company.

H&M also tried to provide the apparels in lower prices as compared to its rivals like Zara that further consolidated its position in the market. H&M has purchased and developed brands to provide unique styles to its consumers at affordable prices. H&M brand has its own visual concept and price range, e.g. Collection of Style sells at higher prices as compared to the company’s main basket of products that focuses on European markets. Meanwhile, Monki is another subsidiary brand of H&M that sells apparels at half the price of those sold by Collection of Style. Monki also feature some extensive designs that are becoming famous among younger consumers (Gereffi, 1999).

6.0 Conclusion

The future of fashion retailers in today’s changing environment is looking bright. This investigation of the Zara’s SCM strategies can help the future entrepreneurs learn some basics of SCM. However, the results of the findings have been a bit contradictory. On the one hand, Zara can be accepted as the best SCM strategist as being a part of the larger company Inditex that has around 17 manufacturing plants in La Cruna and Barcelona. On the other hand, it seems that Zara has lacked in some cases where other companies like H&M has increased their business rapidly by implementing outsourcing to some European and Asian countries where the labor cost is cheaper.

Meanwhile, Zara is still a successful fashion retailer due to many new SCM strategies employed. Zara’s production chain has now become quite large, having its reach from Vietnam to Morocco. Zara has managed to provide the best in class fashion apparels to its worldwide customers and even the highly tailored fast fashion items of the company are sourced from its firms in Morocco, Turkey, Bulgaria, while some relatively cheaper and faster items from the firms in faraway places in China, Sri-Lanka, Pakistan, or India. Although Zara is not totally dependent on some countries like China for its fashion retail requirements since it owns some manufacturing plants also, which other rivals like H&M does not.

The future of fashion retailers like Zara is looking bright and it can further increase its sales and revenue generation by adopting the strategies of SCOR as explained in the value chain section of this paper. The SCOR racetrack model can help the company to find out the bottlenecks and further consolidate its various processes involved in the existing SCM. The implementation of latest technologies of SCOR and step by step SCOR model implementation will become crucial for the overall development of the company.

Subject – Management

Pages – 10

Word Count – 2500

Price – Only $1.99

 

7.0 References

APICS. (2015). SCOR Racetrack. Retrieved February 2017, from apics.org: http://www.apics.org/docs/default-source/industry-content/scor-racetrack.pdf?sfvrsn=2

Benjabutr, B. (2016). 7 Rules of Fashion Supply Chain (Zara Case Study). Retrieved February 6, 2017, from www.supplychainopz.com: http://www.supplychainopz.com/2013/09/7rulesfashionsupplychainmanagement.

Camargo, M. E. (2013). Supply Chain Management Operations Reference (SCOR): Study Bibliometric. International Journal of Operations and Logistics, 36-64.

Gereffi, G. (1999). International Trade and Upgrading in the Apparel Commodity Chain. Journal of International Economics, 37-70.

Ghemawat, P. &. (2015). ZARA: Fast Fashion. Harvard Business School, 1-35.

Monczka, R. (2001). SCOR: Supply-Chain Reference Model . Retrieved February 2, 2017, from http://www.tecnoali.com/files/emensa/D11/Report%20Ilim.pdf

Recklies, D. (2001). The Value Chain. Retrieved February 4, 2017, from www.fao.org: http://www.fao.org/fileadmin/user_upload/fisheries/docs/ValueChain.pdf

SCC. (2016). Supply Chain Operations Reference (SCOR®) modelOverview. Sweden: SCC.

Somaiya, M. (2012, September). Fashion Forward – Zara’s Supply Chain Strategies. Retrieved February 6, 2017, from http://cmuscm.blogspot.in: http://cmuscm.blogspot.in/2012/09/fashion-forward-zaras-supply-chain.html

Tokatli, N. (2007). Global sourcing: insights from the global clothing. Journal of Economic Geography, 21-38.

 

88x31 - Strategic Supply Chain Management of Zara Fashion StoreAll the research papers on this website are written by the Author himself and has copyrights for the same. The users are free to share it for personal use, but shall not distribute for commercial purpose. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

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