Operation and Supply Chain Management (A case study of Zara)
Zara is an international fashion retailer based in Arteixo (A Coruna) in Galicia, Spain. It was founded in 1975 by Amancio Ortega as the chairman and Rosalia Mera co-founder, Ortega’s wife (Zhang, 2008).
The first store that was opened dealt with low price clothes, which looked like products from clothing fashion ends that were high and popular.
Instant fashions were introduced in the 1980s when Ortega opened more stores and changed the designing, manufacturing, and distribution process to catch up with time, as they were trending at the time.
Information technologies were used during this time of change and dealt with designers instead of individuals.
As of 2002, 1284 stores had been established by Zara with approximately 27000 employees from all over the world (Oliveira, 2014). Zara dealt with women’s fashion and was located in 32 countries (Oliveira, 2014).
This retail was initially known as Zorba but was later changed to Zara and gained popularity. It captured the United States of America market and France’s market as it continued to spread across the globe.
Its chain involves design, sourcing and manufacturing, distribution, and retailing.
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Design
The clothing designs in Zara are changed every two weeks as their competitors change every two to three months on average. Some competitive companies are, however, not able to make these changes to their brands.
It contains a very responsive supply chain, which has been the main reason for its success. The cube (DC) is the heart of the company as it is automated to offer supply chains to distribute its products.
Agents in this company play an essential role in the business’s advancement. They look for the new and trending fashions from social gatherings and send the sketches to the designers for manufacturing.
Most of the designs in this company cover women who are between the age of 24-35. When the clothes’ production is low in a particular design, it calls for urgency for the buyers to purchase the product while its stock lasts.
It has earned its customers’ trust as it proved itself since the start with a high commitment to providing very high-quality services until today.
The prices set for this company do not involve the manufacturing cost of the product but are based on the demand in the current market; the higher the demand, the higher the price and the lower the demand, the lower the price, but the prices set are always affordable.
With the changing fashions on the streets today, Zara can keep up with everything, resulting in its success. According to Murphy (2008), it is one of the most prominent companies in the market full of buyers because of their brands besides the huge profits they make today.
It is an Inditex and has occupied a large market, creating a high revenue for this group. Most of Zara’s objectives have been achieved, and they are now concentrating on its expansion.
Source: Inditex Annual Report 2015
In its design, the use of wind turbines and solar panels is involved, and it produces 100% toxin-free clothes that attract more buyers due to the assurance of not having any complications after using their brands.
Manufacturing plants are made by use of technology where more complex processes require to be simplified. Zara operates under a mission of priorities and processes required in designing set by the organizing committee.
They are set to contribute to sustaining society in terms of development through interaction in different environments.
Sixty-eight countries receive these sales as there is effective communication between the stores and their customers to inquire about the fashions they would like in the market.
Three significant sections are involved in their products’ production line: female, male, and kids. Over 10,000 new designs are witnessed here, but no characterization is done to distinguish between clothes to be worn by the young and the middle-aged groups of people, as their main focus is to provide the latest and trending fashions.
In the designing sector, the staff is employed that work hand in hand with the company’s management to ensure that the organization’s objectives and goals are well established.
Practical and rational decisions are regarded as the key factor that has allowed them to win over their competitors in the market center.
Zara produces approximately 450 million products every year. According to Zhang (2008), the company focus on improving the new and trending designs, not inventing their own.
No wonder they have been seen to win many buyers in their different brands all over the world. Preliminary information is given by computers on the way to design and what to put up in the market.
A collection of the organization’s total sales is given to the designers, and consideration of the consumers’ feedback is used as a determiner of the next brand required by the buyers and any improvements required.
Different teams are formed in the designing sector, and the supervisor in charge of them determines the winners. When an employee performs lowly in the designing sector, they get fired during team rotation, and the high-performing ones get promoted.
Their prediction is higher when they order their fabrics, the raw material needed to make different clothes. These fabrics are a necessity and should be present before the clothes’ peak season as they may reduce at this time.
High efficiency is delivered when ordering these fabrics. This organization considers it essential to order them plain (without color), to help them design their clothes using the trending colors seen in the market and that please the buyers.
Most of the stock available in this organization is regarded as work in process as they wait for instruction on how configuration should be done.
Not all activities are performed in this organization as outsourcing is highly considered to balance the two parties. An example of outsourcing is sewing and coloring activities requiring huge labor from a company close to its headquarters.
However, this company involved in outsourcing carries a bad reputation as it is well known for mistreating its employees and offering low compensation rates, according to Dutta (2002).
Other activities, such as designing and cutting fabric, are conducted inside the organization. Zara stores receive the clothes after assembling from the factories involved in the sewing processes.
Laser barcode scanners are used to pick and sort different finished products with an error below 0.5% to ensure that all products arrive at their destinations on time.
Procurement Methodology
Procurement is a process of purchasing goods or services, either in raw materials or something consumable, and can be leased.
All the units in an organization in marketing, sales, designing and manufacturing require procurement to ensure that all activities run smoothly.
Procurement is important in every company for a reason, such as a change in the material where a market supplies various materials and sells them at different prices.
This method results in a change in the product and increases competition in a different market, making it acceptable before the buyers appear at relatively low prices.
Change in the mixtures used in companies has resulted in a short life span of products. Zara is one example of an organization that produces its products in a wide variety.
Still, the quantities are small, which develops their shops’ look every week as they cut down any reductions or promotions.
Prices vary in Zara due to the changes in the supply and demand docket as new technologies help monitor these prices as it changes them at different times of the day.
It becomes very easy for an organization like Zara to outsource and contract with others due to its effectiveness in the cost.
The addition of value is seen in this process as the manufactured products are delivered on time and in the right quality and place. Furthermore, procurement is emphasized as an essential tool in supply chain management.
Figure 2 – Zara’s Supply Chain
Source: (Zhang, 2008)
The company’s profit depends on procurement as every cash saved during purchases or after sales are made is considered profit.
Sourcing and Manufacturing
The company works with 44 different markets as their raw material supplier to make their products, with 54% of them very close to their headquarters located in Arteixo.
These sources include countries like Spain, Morocco, Turkey, and Portugal. Sustainability and responsibility are highly considered during the sourcing process (Dutta, 2002).
However, a more environmentally friendly way is being looked into when sourcing the raw material to ensure health standards are maintained in the process and the final products to be made using them.
A more efficient way to ensure that all the raw materials turn into a pleasant product in the buyer’s eyes is also considered.
Some of the materials used in making products by Zara are cotton, ramie, acetate, linen, polyester, and wool.
Manufacturing is done in small proportions to cater to the fast-moving trends in fashion and provide satisfaction to their customers with a feeling of uniqueness. Not everyone wears the brand.
This creates a conducive environment for the organization as not much loss will be experienced when the brand does not favor the consumers and gets rejected in the process.
Zara puts quality as a priority, leading to maximum output (Dutta, 2002). However, they have a weakness as they are the owners of all channels that deal with the supply chain, making it hard for them to expand to locations that are far, as much finances will be required to distribute their products.
A buyer with the knowledge that the product they are purchasing is a unique brand may end up disadvantaged as they believe that they are buying an original product but end up realizing that it was a replication of another rare brand.
It all begins with a team of designers who focus on putting together the mood boards that are trending for the products to make the organization’s next collection.
Next is a team of pattern cutters who are just a few meters away after the design is acquired, putting together prototypes first delivered. A test on models is done after the creation of the prototype.
The signing off on the prototype leads to a digitalized pattern in one of the organizations’ factories. The ten different factories are located on 850,000-square-foot campuses, and they deal with the most trending fashions that require a lot of attention (Linehan, 2016).
These factories connect to their distribution centers through an electric hanging rail on underground tunnels.
However, other items manufactured are sent to external factories throughout the world using modes of transport present in the organization. They are not sent directly to the store as they pass through the distribution center.
The first step is to set patterns to the fabric by fitting different pieces into one material. The layout of the pattern is then sent to a machine used to print life-size copies by using important information about what each piece represents in terms of its part.
A paper is placed on top of the fabric laid out undercutting a very large machine. A tight plastic sheet is used to hold the two materials in place—individual pieces of the fabric when the machine slices through the material.
Fabrics with thin layers can have the machine cut over 200 layers at a time. After cutting, the fabric and the paper are put together in a box.
The paper carries the details of where the material is to be sent next and the part of the garment to be made. When sent to the external factories later, they are sewn together with a prototype attached to ensure that the factory’s exact design is copied.
A product returns to the headquarters of Zara after it has been sewn together. Expensive as well as key products are sent back to the factory to check the quality, individually.
The use of pressing machines flattens the materials. The stitches in sleeves are stretched, and the use of hot air shapes fabrics.
The items are then ironed individually, after which they are checked piece by piece to ensure no faulty stitches are present.
A security tag is placed on the items that pass the checks, as the ones with mistakes are placed in one place for ease of identification, but ones with small mistakes are fixed using the sewing machines.
They are then taken to the distribution centers in boxes using trucks and are passed through the sensor machine.
Distribution
Zara uses two strategies in their distribution; selective and exclusive distribution. Selective involves outlets being located in a particular zone, which may have up to five outlets in an urban area, and receive various products from Zara.
Exclusive distribution involves an agreement where suppliers and buyers agree that a specific wholesaler should receive a particular product.
United States, Asia, and the Middle East are among the 86 countries that act as an outlet for the products manufactured by this organization.
They use a solid distribution network that allows them to distribute their products to the European stores within 24 hours and a period of 40 hours to its American and Asian outlets (Dutta, 2002).
Due to the organization’s centralization, all products go through Spain before they are distributed to various outlets.
Associates in the sales sector use the personal digital assistant (PDA device), a form of technology making them win over their competitors as they question their customers as they try on their clothes (Dutta, 2002).
They are then collected to determine the type of different order stores that need to be added to their stock. They use the trucks that are owned by independent contractors to distribute their products to different retail shops.
Before distribution is done, a weather condition that may trigger the shipments and the consumer requirements is considered to avoid any losses in the process.
Shipments for the retail stores are made two times a week, something considered not normal for any retailer dealing with fashion products.
Retailing
For Zara, the fast fashion that is offered in retail stores and sold to consumers whose purchase rate is relatively high allows them to make huge profits.
Simultaneously, the same is a blow to the traditional retails as they experience a reduction in buyers, which causes their demand and sales to degrade over time.
It is retail that deals with all sorts of fashion. Since no publicity is involved in Zara, they use the prototype stores for advertising and create an image for the public to see in different stores worldwide.
This store acts as the window of the company. The prototype store is also used to indicate the types of offers available in the headquarters for the clients as they choose what pleases them to wear.
The decision is made at the headquarters and then transmitted to the rest of the stores (Dutta, 2002). The redesign team frequently designs to create a better and more attractive vision for potential buyers.
They as well have a piece of common audio music in all the stores. The coordination department ensures the display remains attractive to the public to increase the number of buyers.
Besides, they provide a picture of the display strategies employed in the headquarters and send it to all other stores to ensure that all products are put in the right place.
The window’s image is looked into by the coordination department to give an outline to other stores of how they should look like, as not all are the same.
Challenges and Recommendations for Zara
One of the main problems that Zara has in its operating model is high risk and investment models. It owns so much as the many retail outlets and houses used in designing warehouses and plants.
A downfall of the company means that all these will burden the company a lot due to the large geographic area it covers on its own.
However, outsourcing this organization with another would reduce the burden they are likely to face when it collapses. The loss suffered can be shared in terms of cost.
The most popular designs can be outsourced to Asian manufacturers due to the stability in demand them, as they have no lead time. Zara does not cover the sportswear segment well enough as it is absent at the time.
One of Zara’s (H&M)’s biggest competitors and rivals is well catered for in the sportswear segment and other of their competitors (Dutta, 2002).
Since it possesses the ability to follow a trend and create new designs using the original brands, enrolling in this sector could create a great advantage for the company when it introduces the sportswear segment.
The ownership of too many assets by the company could be a burden to them if they cannot do well enough.
References
Almehairi, R. Zara case study [Image]. Retrieved 24 January 2021, from https://www.youtube.com/watch?v=uBz8Jj4UqGY&feature=youtu.be.
Annual Reports – inditex.com. Inditex.com. Retrieved 24 January 2021, from https://www.inditex.com/investors/investor-relations/annual-reports.
Dutta, D. (2002). Learning from ZARA: A case study. Third eyesight. [Online] Retrieved 24 January 2021, from https://www.scribd.com/document/247817901/Agile-Supply-Chain-Zara-Case-Study-Analysis
Linehan, D. (2016). ‘The centre of everything’: Ireland at the Dundrum Town Centre. In Defining events. Manchester University Press. Manchester University Press – Defining Events. [Online] Retrieved 24 January 2021, from https://manchesteruniversitypress.co.uk/9780719090561/
Murphy, R. (2008). Expansion boosts the Inditex net. Women’s Wear Daily, 195(69), 2. [Online] Retrieved 24 January 2021, from http://jsmith.cis.byuh.edu/pdfs/getting-the-most-out-of-information-systems-v1.3/s07-zara-fast-fashion-from-savvy-s.pdf
Oliveira, C. L. B. O. D. (2014). Zara: marketing in fast fashion: a case-study (Doctoral dissertation). Fast fashion: marketing, recycling and environmental issues. Retrieved 24 January 2021, from https://www.researchgate.net/publication/315727340_fast_fashion_marketing_recycling_and_environmental_issues
Zhang, Q. (2008, October). Analysis of the successful case of the efficient supply chain in ZARA. In 2008 4th International Conference on Wireless Communications, Networking and Mobile Computing (pp. 1-4). IEEE. Retrieved 24 January 2021, from (https://www.sciencedirect.com/science/article/pii/S147466701634366X)