Supply Chain Management - Essay Example

Supply Chain Management 1.0 Company Profile Zara has emerged to be the most commercial and money making brand of the Inditex Group – a Spanish clothing group. The first store of Zara was opened in the year 1975 at La Coruña, Spain; which is now the headquarters of the Zara fashion chain. With its operations based in more than 45 countries and 535 stores all the over the globe, Zara has strived to become one of the most successful fashion brands in the Fashion industry. It has also assisted its parent company – Inditex Group to become the second largest fashion retailer in the world. Zara contributes a total of 2/3rd of the total Inditex Group. With a turnover of more than $150 million, the success mantra for Zara is to offer the best quality in shortest time span possible and cheapest prices. 2.0 Supply Chain management at Zara With a rapid change in the market conditions, like every other sector, the fashion industry has been under immense pressure to efficiently manage its supply chins. It has become important for the companies to increase their capacities and better manage its operations in order to save costs and also remain competitive. Supply Chain Management has a very important role to play behind the success of Zara fashions. The creation of the final product an d its final delivery to the customer involved the art and technology of Supply Chain Management (SCM) working to streamline the operational functions and styles of doing work. The Zara managers have clearly defined the role of SCM as a blend of a variety of procedures that begin from the preliminary stage of the product till the completed utilization of the same creation by the customer. It is procedure which entails the development, execution, of these plans, and scheming of the product construct with the purpose of providing absolute fulfillment to the customer with regards to the quality of the product, (Abernathy, Dunlop, Hammond, and Weil, 2000/1). Subsequently, by the application of better management capabilities, Zara supply chain fashion has achieved the following: Greater operational flexibility Ability to expand geographically Focus on core competencies Ease of achieving economies of scale Sourcing Strategies of Zara and its Supply chain configuration As compared to its competitors, the fashion brand – Zara follows quite a different business strategy with regards to the sourcing and its chain structure. Unlike most of its competitors, Zara has not resorted to, or given the slightest inclination towards outsourcing. Normally, most of the major fashion brands, have outsourced more than 90% of the operations to cheaper economies like India and China. More than 80% of the material is manufactured at the in house facilities controlled by Zara in Europe. Although the cost of manufacture is 20% higher in Europe than in Asia, Zara still possesses a competitive advantage over its competitors with relation to its operations. With the help of its business and strategic partners based in Europe, the company easily has a product through put time of 3-4 weeks from the initial conception phase to the final distribution to stores. In order to achieve this time target of 3-4 weeks, as compared to 3-4 months by its competitors, Zara designs and cuts the cloth at its in house design centers and colors the fabric in just four colors to keep the costs low. The process of dyeing and deign printing is kept waiting till the fabric finally enters the manufacture phase, thereby minimizing the waste and inventories. This allows Zara to adopt to the latest market trends and customer requirements in minimal time. On the other hand, the competitors of Zara, who outsource their work to Asia, are not able to take advantage of this aspect – they are not able to offer flexibility to change orders as per ;attests trends and fashion requirements. The orders with these competitors are placed for the whole season in bulk and is kept as inventories in distribution facilities for much larger periods of time as compared to Zara. However, cheap labor and low production costs are the only two advantages fashion companies gain while outsourcing their operations. A quick shift of its operations as per customer demand has provided the advantage to Zara and the willingness to keep all its operations in house rather than outsourcing them. Language barrier and cultural differences between Europe and Asia is another reason for Zara not outsourcing its operations. With a vertical supply chain configuration, the company covers all the fashion phases though its retail stores. Most of its supply chain operations are different from the normal. It follows a very tight schedule for supply to its stores and maintains no stock options most of the times. The supply chain of Zara is a hybrid – a combination of agile and lean methods. In this form of hybrid supply chain, the management recognizes that the market demand is for a mixed portfolio of products. The demand for some of these products is stable, while the demand of some of these products may be unpredictable. The design of its supply chain, both as a lean and agile, has offered Zara the competitiveness in the market and develop a quick response system. A fashion team assesses the market requirements for the latest fashion trends through the point of sale data from Zara stores and market research. Only those particular supply chain operations that enhance cost efficiency like dyeing, cutting, printing, labeling, packing are done in house. The other operations are given to subcontractors in the local area who work only for Zara. These suppliers maintain stringent quality and timeline targets. Zara manufactures its product in small batches which allows the flexibility to change and alter as per client needs. Zara has opted to a limited supply in the market – that is it engages itself in supplying the demand at a slightly less level than the actual demand in order keep its stock moving at all times and maintain zero inventories. Thus the flexibility of the company to adapt to fashion requirements in less time, makes the supply chain agile in nature and the zero inventory concept for providing just in time supply to market demands explains the leanness of the supply chain at Zara, (Birtwistle, Siddiqui, and Fiorito, 2003). Strategic supplier selection at Zara Zara has maintained a strategic supplier selection strategy with a focus upon reduced costs and nearness to its production units. Zara has selected 22 Spanish suppliers and factories for outsourcing its sewing operations. These suppliers work on an independent basis and have single shifts. These suppliers and subcontractors are responsible for collecting the cut out pieces from the company manufacturing unit and after the sewing is completed, they use mini trucks to send it back to the company. The sewn fabric is then checked by machine and hand for quality assurance. Zara is able to save a considerable cost by allocating the responsibility of transport to the suppliers, (Birtwistle, Fiorito, and Moore, 2006),. Most the suppliers are from near by locations and taking advantage of this geographical proximity, Zara is able to follow its quick response strategy and save costs, (Johnson, and Scholes, 2005). On the other hand, the company outsources only a few operations to Asia, where the operations in question have a clear cut cost advantage. Also, Zara has never promoted a single supplier strategy and has always maintained multiple supplier base from which it can access fast turn around, maintain lower inventories, and ensure quality products due to the competition between the suppliers. However, in the process of selecting the supplier base for the fashion house, Zara follows a laid down strategy that decides to select the best supplier for meeting the demands of the company. Here is a list of issues that are taken into consideration before selecting a supplier for Zara – 1. Domain expertise 2. Location 3. Operational management techniques 4. Behavior management and teamwork management 5. IT integration and process control and improvement 6. Willingness to change management techniques Make – Buy Decision The make-or-buy decision is about making a strategic selection between two concepts – manufacturing and producing an item internally or outsourcing it or buying it from a supplier (externally). The make or buy decision concept arise in case when the company has produced some parts of the final product and other parts remain, lack of expertise to finish the complete product in house, or varying demands of the market. In the case of Zara, the make or buy decisions occur both at the strategic and the operational levels. In the case of business strategy, the decision to make or buy is considered in the long term aspect and the company decides to outsource its products only due to lack of expertise or new entry into the market ( to gain customer’s faith by partnering with a superior brand name). however in the case of Zara, both these issues do not make sense, as it has full in house facilities and expertise to finish its products and also possess a high market value in term of its brand. However, operationally, the company does considers the make-buy decision as making some parts of the final product and outsourcing some other parts gives the cost benefit to the company along with fast turnaround times (Barrie, 2004). It also helps the company to maintain a check on quality issues, control the lead times, lower inventory costs, freedom from supplier monopoly. It also helps the company to devote more time internal plant operations, research and market evaluation. Future Recommendations The Fashion house certainly needs some changes in the view of the changing market trends. It is important to enhance the business levels on an international level rate than paying much attention to local and country markets. New joint ventures, internal management changes, diversification of product portfolio may be on the scope. Apart from this, international allocation of budget, sifting of resources and changes in leadership styles is recommended for Zara. References Abernathy, F. H., Dunlop, J. T., Hammond, J. H. and Weil, D. (2000/1), "Retailing and supply chains in the information age", Technology in Society, vol. 22, no. 1, pp. 5-31. Johnson, G. and Scholes, K. (2005). Exploring corporate strategy: text and cases 7th ed. Harlow: Financial Times Prentice Hall. Barrie, L. (2004), "Making a mark: some of the issues to watch in 2004: Fast fashion continues to speed up", Just - Style, p. 17. Birtwistle, G., Fiorito, S. S. and Moore, C. M. (2006), "Supplier perceptions of quick response systems", Journal of Enterprise Information Management, vol. 19, no. 3, p. 334. Birtwistle, G., Siddiqui, N. and Fiorito, S. S. (2003), "Quick response: Perceptions of UK fashion retailers", International Journal of Retail & Distribution Management, vol. 31, no. 2/3, pp. 118. Read More