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Sample Case Study Paper on Zara's Supply Chain

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Sample Case Study Paper on Zara's Supply Chain

Introduction

Established in 1974, Zara is a Spanish clothing and accessories retailer that has over 6,340 stores. The retailer is a global organization operating across 88 countries. Zara which is part of Inditex accounts for more than 75% of total Inditex sales. Spain is the largest market for Zara, followed by France, Portugal, Mexico and Greece. Other than Europe, Zara has operations in the America, Asia and Middle East (Ferdows, Lewis & Machuca 2003). Over the years, the retailer has expanded its operations into different geographical regions, especially in emerging markets. A typical Zara store has children’s, men’s and women’s sections, all of which are headed by a manager. It is important to note that Zara operates most of its supply chain networks, hence efficiency in its supply chain. In addition, the major distribution centre is located in La Coruña, which is the headquarters of Zara. The unique supply chain management practices of Zara have enabled the organization to gain a competitive advantage over other fashion and clothing retailers around the world.

The report is divided in three sections. The first section describes Zara’s supply chain, its supply chain network and the main supply chain partners. The second section evaluates the role of logistics within Zara’s supply chain and how the organization realizes its logistics objectives. The third part discusses supply chain risk management and globalization and their relevance and impact to the organization. A conclusion is provided detailing the major points.

Zara’s Supply Chain (Its Network and Business Partners)

 A supply chain encompasses a set of activities, people, resources, and information involved in the process of moving products from the supplier or manufacturer to the customer. According to Hessami and Savoji (2011), “supply chain consists of all cases relevant logistics network which is including suppliers, manufacturing centres, stores, distribution centres, retailers’ s market, raw materials, processing stocks and current final products” (p.61). Specifically, a supply chain is made of steps taken by an organization to ensure that products are transported from the manufacturer/supplier to the end consumer, in the desired or set timeframe. Another definition according to Sahin and Robinson (2002) is that a supply chain entails a network of organizations that are involved, through upper and lower connections, in the different processes as well as activities that yield value in the form of products and services delivered to the end and targeted consumer.

Zara’s Supply Chain Objectives

The role of a supply chain is to ensure that its products reach the targeted consumers in the shortest time possible. Respect to Zara, speed and responsiveness are the major drivers of its supply chain, which is its core competitive advantage. In this context, the objective of Zara’s supply chain is to reduce excess stock and inventories from its supply chain and associated risks.

According to Lee (2004), successful organizations create supply chains which respond to unexpected and sudden changes in the market. Agility is necessary because demand and supply of most industries keep of fluctuating widely and more rapidly (Berfield & Baigorri 2013). Most successful and efficient supply chains cope by ensuring speed and reducing costs. In respect to Zara, the organizations operate agile supply chain.

Zara’s Supply Chain Configuration/Network

Zara has a vertically integrated supply chain, which allows the company to place a garment form any store around the world in a period of two weeks. Zara’s supply chain is unique from other retailers in the industry because it controls most of the steps on the supply chain, designing, manufacturing, and distributing of its products (Ferdows, Lewis & Machuca 2005). Moreover, through the use of the vertically integrated supply chain, Zara makes sure that speed is achieved and operational cost cut is down.

This is realized by local sourcing of raw materials supported by faster, effective and efficient which makes sure faster time products delivery of products to the customer. Zara operates an in-house manufacturing process which is automated coupled by labour intensive sewing operations which are outsourced to a network of local ventures (Gallaugher, 2008). Moreover, the suppliers of Zara are close to the production facilities which make it effective and efficient to manufacture and transport products to the major logistics facilities/centres located in Spain. All its suppliers have been integrated into Zara’s supply chain, which makes should that the benefits of vertical integration are achieved.  According to Porter (1998), vertical integration ensures that the concept of clustering is embedded which creates knowledge spill, especially to suppliers. An integrated supply chain ensures sharing of information among the major stakeholders and members of the chain. In addition, synergy evident in value chain analysis is achieved in the case of Zara supply chain. It is imperative to note that Zara uses state-of-art technology on its supply chain, and it has gone ahead to protect it highly valuable proprietary technology behind many of its logistics systems. This has resulted to a competitive advantage to the company.

Figure 1 below is the Zara’s supply chain, which starts from the acquisition of raw materials, suppliers, manufacturing, distribution, and then to the end consumer.

 

 

Figure 1: Zara’s Supply Chain. Source: Praven (2013)

Zhelyazkov (2011) has noted that Zara’s supply chain is agile, which ensures its success and effectiveness. According to Prater et al (2001), agility was introduced because of its ability to respond to dynamic and turbulent markets and customer demand. An agile supply chain has ensured that all its suppliers are integrated in the system, which makes the company effective. The need to cut down costs coupled by the need to increase speed has compelled the company to employ agile supply chain. In addition, the need of decreasing time and being flexible fashion industry compelled Zara to incorporate suppliers in the supply chain (Prater et al 2001). Despite the fact that speed and flexibility of the supply chain have effect a company’s agility, the use of agile manufacturing is still an important part of it. Nevertheless, so as to react on the hasty change in consumer demand, Zara has created an efficient agile supply chain, with all fashion designers, buyer experts, and management in one place and production facility, which is close to its headquarters, guaranteeing full flexibility and agility (Zhelyazkov 2011).

Over the last years, Zara has introduced agile supply chain (ASC) into its supply chains as well as into the global fast fashion industry. As a result of an agile supply chain, Zara has positioned itself in the global retailers market, hence creating a competitive advantage. This network has ensured effective communication between Zara’s its customers, suppliers, and designers. Other than communication, the company has used ASC to enhance competition as noted by Bruce and Daly (2006) the supply chain is an agile process of Zara, which makes working very efficient. The objective of Zara’s supply chain has been to reduce both excess stock holding in the supply chain and risk related with predicting, with the aim of ensuring early delivery.

To promote speed and responsiveness, the company operates are supply chain which is based on Just-in-Production strategy. The retail giant distributes fashionable and trendy numbers supplied for an array of tastes through a controlled and integrated process – just in time. According to Lu (2009), “Zara keeps a significant amount of its production in-house and makes sure that its own factories reserve 85 percent of their capacity for in-season adjustments” (p.1). The implication made is that the company has incorporated its supply chain through Just-in-Production to cut down costs and flexibility.  Zara operates an In-house production which allows the organization to be more flexible in terms of frequency, the amount, and types of new products to be produced.

Moreover, the company depends highly on sophisticated fabric sourcing, cutting, and sewing facilities, which are located near to the Zara’s headquarters in Spain.

The Role of Logistics within its Supply Chain

Logistics is has been defined by Gleissner and Femerling (2013) as the process of managing the flow of goods from the point of origin to customers with the aim of meeting some customers’ requirements.  It has also been defined as part of the supply chain process that entails the panning, the implementation, and the controlling the efficient, effective as well as the forward and reverse flow and storage of goods, related information and services from the supplier to the consumers (Murphy & Poist 2000).

The major components of logistics are warehousing, inventory control and distribution.  According to Zara’s Annual Report (2014), “distribution takes place twice a week and each delivery always includes new models, so that the stores are constantly refreshing their offer” (p. 18). This means that after the products have been produced they are transported and distributed twice a week. During the transportation, all the production in spite of the origin is transported to the 8 logistical centers from where they are distributed to different destinations.

Report by Roberson  (2014) has indicated that “Zara’s manufacturing facilities in Spain, Portugal, Morocco, and Turkey produce its trendiest clothes and account for about half of Zara’s inventory, according to the company” (p. 1).  As a result of the strategic placement of the manufacturing facilities, the organization has been able to reduce or control inventory in terms of delivery to 48hours. Zara operates a centralized system which has assisted the organization become a successful global retailer.

To ensure effective supply chain, logistics have been integrated through the use of state of art technology. For example, the logistical system depends on software designed by the organization. One of the roles played by the logistics employed in Zara is to make sure that the goods are made available to the consumers in the least time possible. For example, the logistics software allows the company to transport and distribute and have the goods received in different stores on the average of 24 hours for European stores, maximum time of 48 hours for American or Asian stores. It is imperative to note that after the products have been delivered to the facilities, they are boxed, tagged, moved, and shipped to different destinations to meet the demands and orders of individual stores (Crofton & Dopico 2010). For all European stores, the finished products are transported by truck in less than 24 hours. For those outside Europe, products are transported by plane and reach their destination within 48 hours. In regard to Zara’s supply chain, the company has 8 logistics centres in Spain, makes 2 deliveries per week with an inventory turnover of 48 hours or two days (Zara Annual Report 2014).

In summary, transportation in logistics ensures that Zara’s products are made available to the consumers at the right time. Warehousing ensures that the processed goods are stored at different logistics centres before being distributed to the different retailers in Europe, Asia, Middle East and United States (Sreenivaas & Srinivas, 2004).

Globalization and Risk Management and its Relevance to Zara
a. Globalization

Globalization is the incorporation and interaction of different practices in terms of products, services, ideas and others aspects of culture at international level. Chatterjee and Tsai (2002) note that “Globalization represents the cross-national functional integration and coordination of spatially dispersed economic activities” (1.) Globalization has different benefits to big organizations such as Zara and other fashion retailers. For example, Lopez and Fan (2009) notes that “removal of all import quotas in the textile and clothing industry from January 2005, involving the unrestricted access of all members of the WTO to the Canadian, European, American markets is considered a key driving force in the development of the clothing sector” (p. 1).  This means that globalization has played a major role in the integration of countries, thus forming an interconnected market. In addition, globalization has resulted to the formation of the European Union, which is a major market for Zara and its products. For this reason, the company has been able to expand into major parts of Europe.

Lopez and Fan (2009) notes that globalization has created opportunities for Zara to enter into large exporters such as China and India. This has considerably increased Zara’s market share at the same time creating opportunities for European Union member states to be competitive internationally. In 1975, Zara opened its first store in La Coruña, north-west Spain.  In a period of 5 years, Zara expanded within the home market, and continued to open new stores in all Spanish cities with a population more than 100,000 people (Ghemawat & Nueno, 2003).  It is imperative to note that the internationalization of Zara has resulted to its expansion by opening stores in other countries such as Portugal in 1988. Lopez and Fan (2009) adds that by the end of January 2006, the company has expanded its operations as a result of globalization to 59 countries. The company also expanded into America (112 stores), Europe (664 stores), and 45 in the Middle-East and 31 in Asia and Africa.

b. Supply chain risk management

To better understand supply chain risk management, it is important to understand supply chain management. Supply chain management is the process of managing all the activities and actions in the supply chain (Chopra & Meindel 2001). Supply chain risk management can be described as the implementation of strategies necessary to manage exceptional of everybody risks along the supply chain based on risk assessments with the aim of ensuring continuity and minimizing vulnerability. Singhal, Agarwal, and Mittal (2011) have noted that “the supply chain risk management (SCRM) has emerged as a natural extension of supply chain management with the prime objective of identifying the potential sources of risks and suggesting suitable action plans to mitigate them” (p. 16). This means that supply chain risk management is a process in supply chain which is implemented to identify any possible risks and coming up with possible solutions to mitigate any problems being experienced along the supply chain. Developing an effective SCRM program plays a primary role in ensuring the success of a supply chain. Jüttner, Peck and Christopher (2003) have defined SCRM as the process used to manage risks experienced along a supply chain. Handfield (2008) noted that “Supply chain risk management systems comprise the set of systems and processes used to manage supply chain disruptions” (p. 2). The major sources of risks in a supply chain are from: (i) operational fluctuations (ii) natural events such as earthquakes, (iii) manmade crises like economic recessions. It is important to note political, cultural and infrastructural differences have supply chain susceptible to risks.

SCRM is significant to clothing retailers like as Zara’s, given its geographical areas of operations and its financial abilities. This is because through SCRM, the managers are in a better position to minimize the risks associated with supply chain by designing supply chains which have the capability contain risk instead of allowing it to spread along the entire supply chain.  Moreover, at each state of supply chain, any possible risks are assessed and mitigated before they can affect the chain, which ensure competitive advantage. It is imperative to note that despite the fact that supply chain risks management may be complex and expensive process, it is very advantageous.

SCRM when implement ensures supply chain efficiency. This improves the company’s financial performance, supply chain resilience, and risk reduction. Tang and Tomlin (2008) notes that supply chain risk management mitigates supply risks. Based on past research, most company’s reduces supply chai risks through SCRM. In this context, Zara can use SCRM to reduce as supply chain risks which may increase costs. For example, the company so far assesses its supply chain to note any risks associated. The company also has Just-in-Production and Total quality Management to reduce process risks which may have effect on the supply chain objectives. Agile supply chain enables the company, which enables the company to adapt to market conditions quickly.

There are four interrelated constructs which form SCRM, and they are summarised in the figure 2 below.

Figure 2: SCRM-the Basic Constructs. Source: Jüttner, Peck and Christopher (2003)

Supply chain risks result from risk resources and result to adverse supply chain risk consequences. The risks can be prevented through supply chain risk mitigating strategies. In the case of Zara, the managers use SCRM to enable supply chain efficiency to as to improve the company’s financial position, by reducing associated risks (Chopra & Sodhi 2014). The company has also been able to deal with recurrent risks (like demand and supply risks) by developing resilience supply chain, which has also prevented disruptive risks.

In the beginning of its operations, Zara’s production and sourcing of raw materials were very expensive as a result of increased costs as a result of disruptions from natural and man-made calamities in different geographic regions. So as to reduce supply chain fragility as well as profits, the company undertook SCRM.  Zara sourced raw materials from low cost suppliers, thus reducing the effect of a disruptive supply chain. For instance, Chopra and Sodhi (2014) notes that so as “to protect itself against supply disruption, Zara’s European operations are set up so that multiple facilities can produce even low-volume items” (p. 1). Therefore, supply chain risk evaluation is useful in the case of Zara because it has assisted the company protect its business resources against basic and significant meaning of supply chain.  To deal with operational risks in Zara’s supply chain, the company has upgrade its techniques used to measure, evaluate and monitor supply chain risks with the core objective of decreasing operational risks. For instance, “the results getting from unsuccessful processes or a few equipment, inefficient employees and systems in external accidents, damages are brought about from processes, improper personnel and defective systems or accidents due to the companies outside factors are those to be mentioned” (Hessami & Savoji, 2011, p. 63). Therefore, new systems and software in Zara’s supply chain have played a primary role in the company’s successful supply chain.

Conclusion

Zara is one of the leading fashion retailers in the world. The multinational retailer operates in Asia, Spain, Europe, Middle East and U.S. In reference to its supply chain, Zara operates agile supply chain which is based on vertical integration. The supply chain is effective and efficient and this has created a competitive advantage of the company. In regard to logistics, the company has reduced its inventory to 48 hours maximum and delivery to 8 logistics centres in Spain and makes 2 deliveries per week. The company has incorporated just-in-production in its supply chain to ensure effective productions of goods. It is conclusive that globalization has played a major role the internationalization process of Zara. As a result, the company has increased its operations to Asia, Middle East, U.S and other parts of Europe. Lastly, SCRM has played a major role in reducing different risks in Zara’s supply chain.

 

 

References

Berfield, S. &  Baigorri , M. (2013) Zara’s Fast-Fashion Edge. [Online] 

Bruce, M & Daly, L.  (2006) Buyer behaviour for fast fashion, Journal of Fashion Marketing and Management , Vol. 10 No. 3 , pp. 329-344.

Chatterjee, L & Tsai, C. (2002) Transportation Logistics In Global Value And Supply Chains. Center for Transportation Studies Boston University

Chopra, S & Sodhi, M S. (2014) Reducing the Risk of Supply Chain Disruptions. [Online] 

Chopra, S. &  Meindel, P. (2001) Supply Chain Management: Strategy, Planning, and Operations, Prentice-Hall Inc.

Crofton, O & Dopico, L. G. ( 2010) Zara-Inditex And The Growth Of Fast Fashion, Essays in Economic & Business History — Vol XXV, pp. 42-50.

Ferdows, K, Lewis, M. A., & Machuca, J.A.D (2005). Zara’s Secret for Fast Fashion. [Online] 

Ferdows, K, Lewis, M. A., & Machuca, J.A.D (2003). Zara. An International Journal, vol.4, no. 2, pp. 62-67

Gallaughe, J M. (2008) Zara Case: Fast Fashion from Savvy Systems. [Online] 

Ghemawat, P., & Nueno, J L. (2003) ZARA: Fast fashion. Harvard Business School Multimedia Case 9-703-416, Harvard University, Boston

Gleissner, H  & Femerling, J C. (2013) The Principles of Logistics [Online] 

Handfield, R. (2008) Reducing the impact of disruptions to the supply chain [Online. 

Hessami, M Z & Savoji , A. (2011) Risk Management In Supply Chain Management. International Journal of Economics and Management Sciences, Vol. 1, No. 3, 2011, pp. 60-72

Jüttner, U, Peck, H &  Christopher, M. (2003) Supply Chain Risk Management: Outlining An Agenda For Future Research. International Journal of Logistics : Research & Applications, Vol. 6, No. 4, pp197-210

Lee, H.  (2004) The Triple-A Supply Chain, Harvard Business Review. [Online] 

Lopez, C. & Fan, Y.  (2009) Internationalization of The Spanish Fashion Brand Zara. Journal of Fashion Marketing and Management (2009), vol. 13, no. 2, pp. 279-296

Lu, C.  (2009) Zara’s secret to retail success – its supply chain. [Online] pectives. Journal of Business Logistics, vol. 21, no. 1, pp. 121-133.

Praven, P. (2013) Supply Chain Management of ZARA [Online] 

Prater et al. M. (2001) International supply chain: Tradeoffs between flexibility and uncertainty, International Journal of Operations & Production Management, Vol. 21 No. 5/6, pp. 823-839

Roberson , C M. (2014) Inditex’s Zara Faces Rising Competition [Online] 

Sahin, F. & Robinson, E. P. (2002), “Flow coordination and information sharing in supply chains: review, implications, and directions for future research”, Decision Sciences, vol. 33, no. 4, pp. 505-536.

Singhal, P, Agarwal, G. & Mittal, M L (2011) Supply chain risk management: review, classification and future research directions. Int. Journal of Business Science and Applied Management, Vol. 6, no. 3, pp. 15-40

Sreenivaas, M  & Srinivas, T. (2004) The Role Of Transportation In Logistics Chain. [Online] 

Tang, C & Tomlin, B. (2008) The Power of Flexibility for Mitigating Supply Chain Risks [Online] Ahelyazkov, G. (2011) Agile Supply Chain: Zara’s case study analysis. Strathclyde University Glasgow

Zara’s Annual Report (2014), Zara’s Annual Report 2013. [Onlie] 

 

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