Supply chain management at Zara - Essay Example

?Supply Chain Management at Zara Introduction Supply chain management is the management of the network used to acquire raw materials, production and distribution to the customers. It can be said to be the process of attaining raw materials, production, storage and supply to the end users. Every business or company has to employ a good purchasing and supply chain management if it has to succeed in its production. Supply chain management is important to Zara because it helps in recognizing the number of suppliers that can be accessed by the company, their location, the distribution centers, management of inventory and warehousing facilities. It also helps in determining the strategy to be used in integration of information within the supply chain. This paper discusses the supply chain management in one of the excellent organizations in the world; Zara. It is a fashion provider that is known all over the world because of its success. This paper addresses different areas of supply chain and how they have contributed to the success in Zara. The make-buy decision Zara opened its first store in Spain in 1975 and since then its stores gave grown into giants and are distributed all over the world. It holds about 1000 stores which have been successful. Zara’s success is contributed by its unique style in fashions and accessories as well as its supply chain management (Annual Report 2006). Decisions relating to the product to produce, when to produce and the volume to be produced are usually made by all the major stakeholders concerned. This includes designers, buyers, and market experts. Over the years, the fashion industry has been undergoing a substantial change. This has been as a result of the increase in competition globally and the change toward global supply sequence. The end users play a major role in terms of selection of suppliers and in decision making of products which is changing from being operational to being strategic. The increased number of retailers resulting from emergence of new entrants in the market has led to increased competition. Consumers have become choosy due to the increase in the number of product options in the market. They now desire for an exciting shopping in innovative stores. This has led to increased operation cost on the side of retailers trying to match up with the customer need (Lowson 2002). Zara has been chosen for this analysis because of its success despite the stiff competition that is evident in the clothing industry. Sourcing Strategies and supply chain configurations For the management of supply chain to be successful, it requires a change from the management of individual activities to the integration of all the activities in the supply chain process. There are two crucial departments in the supply chain: the purchasing department and the marketing department. It is the work of the purchasing department to place orders for the company and to let the requirements of the company known to the supply chain manager (Venus 2010). The work of the marketing department is to distribute the finished goods to the customers. In doing so it interacts with the customers, gets view concerning the products and makes recommendation to the supply chain. In its attempt to respond to the demand of the customers, it gets in touch with the available retailers and distributors in their locality. The partners in the supply chain share information with one another through process integration. This involves collaboration between the suppliers and the buyers and the internal processes of production. For this integration to be effective there should be free flow of information among the key components (Christopher 1992). In the fashion industry, the chain of supply is complex especially for the retailers. It is rather long with many parties involved. In order to achieve a rapid response, proper management of the supply chain is required which will help in reducing the lead time and which can use other approaches to fasten the whole process. According to Daly & Towers (2008), there has been intensity in globalization of the textile and clothing industry. This has resulted in an increase in the number of intermediaries in the supply chain. Such intermediaries are either export or import agencies. Many industries within the sector are opting to source components from other countries or move their manufacturing units to countries where the cost of labor is lower as compared to home country. Zara is an international company with many outlets on many parts of the world. It has to make sure that it meets the customers demand at all times. The purchasing department has to consider the quantity of products that the company requires at any given time taking into consideration the warehousing facilities, the speed of the internal processes and the rate at which the finished goods are moving Aligning supply with corporate strategy Supply chain market takes two strategies: product pull, and product push. In product pull, customers determine the kind of supply channel to be adapted by the business. Focus is directed on the products demand rather than the production capacity. On the other hand, product push supply chain is determined by the company’s production. It can be said to be influenced by products supply rather than its demand. Both product ‘push” and demand “pull” have distinguishing characteristics. In demand pull supply chain, production and delivery decisions are initiated by the entry of a customer order rather than a forecast (Sovereign 2008). For it to be successful, information and management technologies should be capable of providing fast flow of customer demand information. Demand pull supply chain reduces production costs, inventory, and warehouse expenses. Push based supply chain is built based on a long term forecast. It is appropriate for industries because it puts more emphasizes on the long term rather than the short term like in the product pull strategy The fashion industry is unique in its way in that it is characterized with a short life cycle, high instability, unpredictability, and high chances of impulse purchasing. To effectively manage the supply chain the key issue of utmost importance is to build strong relationships between the suppliers and customer (Kang & Sullivan 1999). Zara’s supply network is locally owned and controlled. The network is responsible for designing and replenishing hot fashions in a matter of less than three weeks. It entails retailing, product design, and dyeing among other operations that are deemed necessary. It is only sewing operations that are outsourced from outside. The corporate strategy used by Zara helps it in building powerful brands and responding to changes in demand. It is estimated that, Zara takes only two weeks to respond to shifts in customer demand by converting ideas into products that are displayed on the shelf for its young clients who embraces fashion (Annual Report 2006). Employees are empowered to come up with innovative ideas by touring other stores in the urban centers. The secret of Zara lies on its ability to relate operations strategy that helps it to design new fashions which are displayed for not more than fifteen days. Zara executes capital-intensive steps in all its factories and outsources labor intensive operations to small manufactures and stores where it has collaborative partnerships including the provision of technology and logistics (Porter 1996). Strategic supplier selection Just as a supplier can bring services to a locale within ones country, it can also bring one to new markets on other continents because of its global locations. The more places in the world a company can provide such presence, the more opportunities one has to grow his global customer base. When considering a potential outsourcing in hopes of advancing into new markets, one has to determine the cost benefits of such endeavors. An estimate of potential revenue that would be received in the new capabilities has to be made and such estimate has to be reasonable. The estimated revenue has to be compared to the prices from suppliers in order to determine whether the new capabilities are cost effective. If a particular company is interested in going global, it has to look for suppliers who have the capabilities to take the company there. In order for the company to compete in the global market, it has to be available globally Fifty percent of all Zara’s products are manufactured in its own factories while sewing operations are subcontracted elsewhere. All the factories operate in single shifts and are managed independently. The remaining fifty percent of its products are acquired form 400 of its suppliers. Seventy percent of these suppliers are in Europe and the rest is procured from Asia. Most of the European suppliers are based in Spain and Zara takes this opportunity to ensure that products are supplied within the shortest time possible. The products procured from Asia are basic products which are of high quality. Zara has a large and constant base of orders, although is preferred by most of its suppliers (Annual Report 2006). About forty percent of Zara’s fabric for in-house production is supplied by Comditel, an Inditex-owed subsidiary. Most of these fabrics are supplied before they are dyed for easy response to color changes especially during the mid-season. All of Zara’s products pass through La Coruna (the major distribution center). This center uses the most sophisticated systems with over one thousand employees. It usually operates four days every week on different shifts (Porter 1996). Conclusion Zara gives an example of how organizations and can manage their supply chains to compete favorably in the market. It is considered as one of the biggest retail centers in the world. It operates in about one thousand stores which are distributed all over the world. It has been able to succeed in the provision of quality products due to its management of the supply chain; this includes designing, purchasing, distribution as well as retailing of its products. Zara ensures that every element of its supply chain network adds a competitive advantage to its operation. Reference List Annual Report 2006, Indetex. [Online] Available at: http://www.indetex.com/en/shareholders_and_investors/investor_relati [Accessed April 16th 2011] Christopher, M. 1992, Logistics and supply chain management, Pitman Publishing, London Daly. L & Neil T. N. 2008, Operations Management in the Retail Sector; The Strategic Response, FIOM, Indigo Retail Solutions number 8. [Online] Available at; http://www.littoralis.info/iom/secure/assets/20050213.316217_copy.pdf [Accessed April 16th 2011] Kang, J K & Sullivan, P. 1999, ‘Quick Response Adoption in the Apparel Manufactuting industry: Competitive Advantage of Innovation’. Journal of small Business Management, Vol. 37, no. 1, p. 1 Lowson, R H 2002, Strategic Operations Management: The New Competitive Advantage, Routledge, New York. Porter, M.E. 1996, ‘What is Strategy’, Harvard Business Review, pp61-79 Sovereign, R. 2008, Importance of Supply Chain Management in Modern Businesses [Online] available at; http://ezinearticles.com/?Importance-of-Supply-Chain-Management-in-Modern-Businesses&id=1240176 [Accessed April 16th 2011]. Venus D. 2010, What Is Supply Chain Management? Conjecture corporation. [Online] available at; http://www.wisegeek.com/what-is-supply-chain-management.htm [Accessed April 16th 2011]. Read More