The Inditex-Zara case

The Inditex-Zara consequenceINTRODUCTIONIn todays lastly competitive and global marketplace, the pressure on organizations to find untried ways to create and take in value to the customers grows even stronger. Market development have with new sources of global competition has led to over-capacity in many industries. Putting an incredible pressure on price, as often is the critical competitive variable. This leads to the need of to a greater extent(prenominal) effectiveness and efficiency inside a business.It is against these new conditions that the use of run fibril solicitude has moved to the centre stage over the last two decades (Christopher, 2004). To repugn the put out set up better, is to serve the customers more effectively and yet reduce the personify of providing that helping. There has been a growing recognition that it is by this kind of trouble that it lavatory be achieved a twin goal of constitute reduction and service improvement. Even if the c oncept of integration within the business and surrounded by businesses is non new, the acceptance of its validity by exertrs is.According to Chris Zook managing the supply chain is not an cushy task (Zook, 2001). Most companies do not manage to achieve their int depoted goals. N constantlytheless, those which ar doing well today have on average mortified odds to be doing so in the next five to ten grades. An important key to do well is to understand why some companies succeed and establisher(a)s do not. This to avoid common pitf whollys and alternatively of spending epoch recovering from previous mistakes, the company can focus on the future.With this in mind, this coursework go away look into how businesses manage their supply chain. This by looking into the supply chain of the fastest growing clothing brand in Europe and the world today, Zara, and highlight the main characteristics of the supply chain management as well as its application ( market chain). If the chances ato mic number 18 sm only to succeed, what do masteryful companies do right that others do incorrect? COMPANY PROFILEZara is the flagship chain memory of Inditex group owned by Spanish tycoon Amancio Ortega. Zara is the close internationalized of Inditexs chains. The group is headquartered in A Corua, Spain, where the premier(prenominal) Zara store opened in 1975. Now Inditex, the holding group that includes the Zara brand, has over 1300 stores in 39 countries with sales of over 3 billion. (Zara 2009) The Zara brand accounts for over 75 per cent of the groups fare retail sales, and is still ground in northwest Spain. By 2003 it had become the worlds fastest-growing volume clip retailer. The Inditex group overly has several other branded chains, including Pull and Bear, and Massimo Dutti. In total it employs almost 40,000 people in a business that is known for a high degree of vertical integration compared with most fast path companies.(Cowe, et.al.2008271)It is claimed that Zar a needs just two weeks to develop a new intersection point and demoralise it to the stores, compared with a six month industry average, and launches around 40,000 new proposes each year. Zara has resisted the industry-wide trend towards transferring fast agency production to low-cost countries. bit it spent unretentive on ads, it spent heavily on stores.Zara is a vertically integrated retailer. Unlike similar apparel retailers, Zara controls most of the steps on the supply-chain It designs, produces and distri neverthelesses itself. The business clay that had resulted was particularly distinctive in that Zara manufactured its most fashion-sensitive products internally. Zara did not produce classics, clothes that would always be in style. In fact, the company intended its clothes to have fairly short life spans, both within stores and in customers closets.LITERATURE REVIEWValue ChainThe idea of the value chain is based on the exploit view of organizations, the idea of seeing a manufacturing (or service) organization as a system, made up of subsystems each with inputs, transformation processes and pop outputs. Inputs, transformation processes, and outputs subscribe to the acquisition and consumption of resources-money, labor, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits. Most organizations engage in hundreds, even thousands, of activities in the process of converting inputs to outputs. These activities can be classified generally as either primary or support activities that all businesses mustiness undertake in some form. (Cowe et al.200881). The outlined process of Porters value chains is presented in see Figure 1.According to Porter (1985), the primary activities areInbound Logistics involve relationships with suppliers and include all the activities required to receive, store, and disseminate inputs.Operations are all the activities required to transform inputs into outputs (products and operate).Outbound Logistics include all the activities required to collect, store, and distribute the output.Marketing and Sales activities state buyers nigh products and services, induce buyers to purchase them, and facilitate their purchase.Service includes all the activities required to keep the product or service running(a) effectively for the buyer subsequently it is sold and delivered.Support activities areProcurement is the acquisition of inputs, or resources, for the firm.Human Resource management consists of all activities involved in recruiting, hiring, training, developing, compensating and (if necessary) dismissing or laying by personnel.Technological Development pertains to the equipment, hardware, software, procedures and technical knowledge brought to bear in the firms transformation of inputs into outputs.Infrastructure serves the companys needs and ties its various parts together, it consists of functions or departmen ts much(prenominal) as accounting, legal, finance, planning, cosmos affairs. turn in Chain ManagementSupply Chain Management (SCM) is the management of the relationships and descends among the string of operations and processes that produce value in the form of products and services to the ultimate consumer. It is a holistic approach to managing across the boundaries of companies and of processes. Technically, supply chains are dissimilar from supply networks. A supply network is all the operations that cogitate together so as to provide goods and services through to end customers. In large supply network there can be many hundreds of supply chains of linked operations passing through a single operations. Internal supply network, and supply chain, management concerns guide between processes or departments. Confusingly, the name supply network and supply chain management are often used interchangeably. (Cowe, et.al.2008244)It is worth emphasizing again that the supply chain c oncept applies to internal process networks as well as external supply networks. Many of the ideas discussed in the context of the operation-to-operation supply chain in any grammatical case bind to the process-to-process internal supply chain. It is also worth nothing that the flows in supply chains are not restricted to the downstream flow products and services from suppliers through to the customers. Although the most obvious failure in supply chain management occurs when downstream flow fails to meet customer requirements, the root cause may be a failure in the upstream flow of training. Modern supply chain management is as much concerned with managing information flows (upstream and downstream) as it is with managing the flow of products and services. (See Figure 2)Information System ManagementIn the current competition of the modern world, information relating to inputs, the transformation process and outputs is the vital resource organization owns to tote up value. An in formation system management is a planned system of the collecting, processing, storing and disseminating data in the form of information needed to carry out the functions of management. (Kotler 2006)The development of an philosophy is nowadays greatly facilitated by the increasing sophistication and affordability of powerful personal computers and various other aspects of information technology (IT). Thus, technology is improving the speed and reliableness with which information is passed not only around the individual organization but also around the globe, and dramatic reductions in the cost of obtaining, processing and transmitting information are changing the way we do business (Porter and Millar, 1991).Porters value chain (Porter, 1980, 1985) was developed as a method for analyzing the sources of competitive advantage available to a firm. IS assumes that competitive advantage results from a combination of the many different activities a firm pursues during the course of its bu siness, rather than coming from one individual source.CASE discover ZARAOperation ManagementDifferent organisations have to target customers in set up to offer some services or product that someone is willing to fabricate for it. Operation management is pretty much involved with making this possible. Operation management is the activity of managing the resources and processes that produce goods and services and more specifically operation management examines how the operations function of a business produces products and services for external customers. (Cowe, et.al.2008204). The general transformation process model (Figure 4) shows an arrangement of resources that transforms inputs into outputs that satisfy customer needs.In the case of Zara (Figure 5) the inputs of the organization are comprised of the raw materials, such as the fabrics that after design and manufacturing-retailing will produce the garments, information such as products protocol, human resources such as the des igners that has the skills and knowledge to produce the garments. The transformation process consists of the manufacturing and services operations that are necessary to transform input into output, which are spitted into three basic product divisions mens and womens and kids apparel, such as lower garment, upper garment, shoes, boots, bags, cosmetique and complements.All processes differ in some way, so, to some extent all processes need to be managed differently. In addition processes also differ in terms of the nature of their demand that is why we have to take into account those next four characteristics, which indicate how process need to be managed Volume, build, variation and visibility. In the case of Zara the operations process is unique and envied throughout the worldVolume In terms of volume Zara is high. Although there is a high degree of systemization of the process to produce garments, due to the turnover in each shop is replaced every two weeks is a unique case.Variet y In terms of miscellany Zara is as high as the volume is. It has a wide range of products for men, women and children such as cosmetiques, suits and sport clothes respectively for each one. innovation The variation in demand is quite high because the demand is unpredictable and cannot be planned in advanced, extra resources will have to be intentional into the process to provide a mechanism which can absorb unexpected demand. Zara will have to cope with the general seasonality of the garment market together with the uncertainness of whether particular styles may or may not prove popular.Visibility In terms of visibility of the process is to the customer is low as they are s intend presented with the final product to try on and finally purchase. All the above are summarized in Figure 6.Due to the high volume and variety involved in the process the key process choice is the batch process. A high volume of identical Items are produced together hence the flow is intermittent as each batch although requiring the same basic skills requires different variety and expertise in detail. The lay out type is undoubtedly the product layout type. Once the goods have been produced on the factory floor they are moved to store houses and quickly shipped to the high streets. Hence we can say the fit between the layout and the process type is correct as product based processes are used for high volume processes in general.Supply Chain ManagementSupply chain management is the management of the interconnection of organizations that relate to each other through upstream and downstream linkages between the processes that produce value to the ultimate consumer in the form of products and services. (MacKerron, G. (2009) Lectures slides for MBA)Zara operates using a vertical supply chain, which is a unique strategy in the fashion industry. Vertically integrated business undertakes a variety of activities from designing, manufacturing, sourcing, and distribution to retail stores aro und the world. They choose to handle design, production, and distribution in-house and concentrate the whole production close to their headquarters in Spain. By integrating the intact process, Zara can react much faster than its competitors do to both the ephemeral trends in the world of fashion and the capricious tastes of its customers. At the end of every works day the manager of a Zara store bailiwicks exactly what has been sold to headquarters. This information is quickly relayed to the design department where product lines can be altered, supplanted or created in a matter of days. This gives the company total business management. (See Figure 7)In an interview with CNN, Jose Maria Castellano, chief executive at Inditex, talked about Zaras supply chain and indicated its unusual structure by sayingInvestment banks used to say that this model did not work, but we have shown that it gives us more flexibility in production, sales and stock management, (Zara Who we are, 2001)The Za ra supply chain management operation leads to customer visit the store over four times more frequently than other stores. Spontaneous design, just-in time production and rapid turnover of trade lead to a higher level of fashionable clothes. Even though the labor cost in Europe is higher, the efficiency of this system allows Zara to keep costs down by spending less cost on transportation and keeping inventories low refer. (Figure 7)DesignZara emphasize the importance of design in this market, its design functions are organized in a different way from those of most similar companies. Conventionally, the design input come from three separate functions the designers themselves, market specialists, and buyers who place orders on to suppliers. At Zara the design stage is split into three product areas womens, mens and childrens garments. In each area, designers, market specialists, and buyers are co-located in designs halls that also contain small workshops for trying out prototype desig ns. The market specialists in all three design halls are in regular contact with Zara retail stores, discussing customer reaction to new designs. In this way, the retail stores are not the end of the whole supply chain but the beginning of the design stage of the chain. Zaras around 300 designers, whose average age is 26, produce approximately 40,000 items per year of which about 10,000 go into production.The retailer company has moved away from the traditional industry practice of offering two collections a year, for Spring/Summer and downslope/Winter. Their seasonless cycle involves the continual introduction of new products on a rolling basis throughout the year. This allows designers to learn from customers reactions to their new products and incorporate them quickly into more new products. In the case of Zara the garment is designed a batch is manufactured and pulsed through the supply chain. Often the design is never repeated it may be modified and another batch produced, but there is no design as such. (Cowe, et.al.2008271)ManufacturingIn the fickle world of fashion, even seemingly well-targeted designs could go out of favor in the months it takes to get plans to contract manufacturers, tool up production, then ship items to warehouses and eventually to retail locations. But getting locally targeted designs quickly onto store shelves is where Zara really excels. The average time for a Zara concept to go from idea to appearance in store is 15 days vs. rivals who receive new styles once or twice a season. Smaller tweaks arrive even faster. If enough customers come in and ask for, say a round neck instead of a v neck, a new version can be in stores with in just 10 days (Tagliabue, 2003). To put that in perspective, Zara is 12 times faster than Gap (its direct competitor), despite offering roughly ten times more unique products. (Helft, 2002)Nearly 60% of Zaras merchandise is produced in-house, with an midriff on leveraging technology in those areas that speed up complex tasks, lower cycle time, and reduce error. Profits from this clothing retailer come from intermingle math with its data-driven fashion sense. Inventory optimization models help the firm determine how many of which items in which sizes should be delivered to stores during twice-a-week shipments, ensuring stores are stocked with just what they need(Gentry, 2007). Outside the distribution center in La Corua, fabric is cut and dyed by robots in 23 passing automated factories. Zara is so vertically integrated, the firm makes 40 percent of its own fabric and purchases most of its dyes from its own subsidiary. Most Zara factories and their sub-contrators work on a single-shift system to retain some voume flexibility. (Tokatli, 2007)DistributionZara has invested in highly automated warehouses, close to their main production centres that store, pack and assemble individual orders for their retail networks. These automated warehouses represent a major investment for both c ompanies. In 2001, Zara caused some press comment by announcing that it would open a second automated warehouse even though, by its own calculations, it was only using about half its existing warehouse capacity. Zara is able to deliver the new design apparel from the drawing board to the stores in one or two weeks and indeed can respond very quickly to fast-changing tastes of their young urban customers (Walker et al., 2000).RetailAll Zara stores (average size, 800 square metres) are owned and run solely by Inditex. mayhap the most remarkable characteristic of Zara stores is that garments rarely stay for longer than two weeks. Because product designs are often not repeated and are produced In relatively small batches, the range of garments displayed in the store can change radically every two or three weeks. This encourages customers to avoid delaying a purchase and to revisit the store frequently.Below is a diagram that shows the cycle how a product is made. The companys success is because of the total control in every aspect of the business, from designing, to production, and to distribution. By having total control of the constitutional process, the company can quickly react to the fast changing fashion trend and customer taste, this provides the company an idea of the latest fashion trend. Having total control in all business activities allows Zara to produce and release new design in a short span of time.Key success factors of Zara SCMZara concentrates the perfect success formula pretty much based onShort Lead Time = More fashionable clothesLower quantities = unique supplyMore styles = More choice, and more chances of hitting itFirstly, by focusing on shorter response times, the company ensures that its stores are able to carry clothes that the consumers trust at that time. Zara can move from identifying a trend to having clothes in its stores within 30 days, this means that Zara can quickly identify and catch a winning fashion trend, while its comp etitors are struggling to catch up. Catching fashion while it is hot is a clear recipe for better margins with more sales happening at full prices and fewer discounts. In comparison, most retailers of comparable size or even smaller, work on timelines that stretch into 4-12 months. Thus, most retailers try to forecast what and how much its customers might buy many months in the future, while Zara moves in step with its customers. Trend identification comes through constant look not just traditional consumer market re reckon, but a daily stream of emails and phone calls from the stores to head office. Unlike other retailers, Zaras machinery can react to the report immediately and produce a response in terms of a new style or a modification within 2-4 weeks. Many other retailers have such long supply chain lead times that for them it would seem a lost cause for them to even try and respond to a sales report.Secondly, by reducing the quantity manufactured in each style, Zara not only reduces its exposure to any single product but also creates an artificial scarcity. As with all things fashionable, the less its availability, the more desirable the object becomes. The added benefit of lower quantities is that if a style does not work well, there is not much to be disposed during the season-end sale. The result of this is that Zara discounts only about 18 percent of its production, roughly half the levels of competitors.Thirdly, instead of more quantities per style, Zara produces more styles, roughly 12,000 a year. Thus, even if a style sells out very quickly, there are new styles already waiting to take up the space. Zara can offer more choices in more current fashions than many of its competitors. It delivers merchandise to its stores twice a week, and since re-orders are rare the stores look fresh every 3-4 days. Fresh produce, moving in step with the fashion trend and updated frequently the ingredients are just right to create the sweet smell of success. Now, t he question is how does Zara achieve its three key success factors which would be a nightmare for most other retailers to achieve in such short time spans? So, let us look at the mechanisms that enable Zara to deliver on these parameters as well as some unique aspects of the retailers business model on figure 7Supply Chain ObjectivesThe bearing of an effective supply chain management is to meet the requirements of end customers by supplying appropriate products and services when they are needed, at a competitive cost. Doing this requires the supply chain to achieve appropriate levels of the five operations performance objectives timber, speed, dependability, flexibility and cost. (Cowe, et.al.2008249)The type objective Zara brand name is synonymous with quality and the right price. Stores are located on emblematic streets likeOxford Street and5th avenue the highest standards of products are demanded in these areas. 65% of products sold in Europe are produced in European plants wh ere quality controls are higher and easier to manage. Flawed clothing items would erode the brand name eventually.The speed objective hectic changes in fashion and high street tastes imply a need for logistic speed. Goods can be designed and delivered to the shelf within 6 weeks. In fact items spend so little time in the warehouse that they are already sold before they have to be paid for to their suppliers.The flexibility objective demand for different types of clothing will changes and Zara must react accordingly. Sizes, color, quality and quality will change continuously. The customer has an active role from the start of the chain and is the drive for its business model. Customer requests are considered by the commercial and design team.The dependability objective delivering on time to stores in a must. Customers have come to expect new items on a weekly basis on the shelves.The cost objective affordability is vital to Zaras strategy however only 35% of goods are produced in Asia . This implies that operations management must be at its leanest as they operate within Europe where the cost structure is much higher.Zaras senior managers seem to comprehend intuitively the nonlinear relationship between capacity utilization, demand variability, and responsiveness. This relationship is well demonstrated by queuing theory which explains that a as capacity utilization begins to increase form low levels, waiting times increase gradually. But at some point, as the systems uses more of the available capacity, waiting times accelerates rapidly. As demand becomes ever more variable, this acceleration starts at lower and lower levels of capacity utilization. (Figure )Information System Management of ZaraInformation and communications technology is at the heart of Zaras business. Zara is elaborate about the way it deploys the latest information technology tools to facilitate these informal exchanges. The company undertake different devices in order to increase the speed w hich fundamentally gives them the competitive advantage over its competitors. The information system management of Zara are the followingsCollecting information on consumer needs customized handheld computers support the connection between the retail stores and La Corua. These PDAs supplement regular, often weekly, phone conversations between the store managers and the market specialists assigned to them. Through the PDAs and telephone conversations, stores transmit all kinds of information to La Corua, such hard data as orders and sales trends and such soft data as customer reactions and the buzz around a new style. While any company can use PDAs to communicate, Zaras flat organization ensures that important conversations do not fall through the bureaucratic cracks. PDAs are also linked to the stores point-of-sale (POS) system, showing how garments rank by sales. In less than an hour, managers can send updates that combine the hard data captured at the cash register combined with i nsights on what customers would like to see. All of this valuable data allows the firm to plan styles and issue re-buy orders based on feedback rather than hunches and guesswork. The goal is to improve the frequency and quality of sense making for the design planning teams. In this way, Zara avoids costly overproduction and the subsequent sales and discounting prevalent in the industry. (Rohwedder and Johnson, 2008)Standardization of product information different or incomplete specifications and varying product information availability typically add several weeks to a typical retailers product design and approval process, but Zara warehouses the product information with common definitions, allowing it to quickly and accurately prepare designs, with clear cut manufacturing instructions.Product information and inventory management being able to manage thousands of fabric and trim specifications, design specifications as well as their physical inventory, gives Zaras team the capabilit y to design a garment with available stocks, rather than having to order and wait for the material to come in.Distribution management its State-of-the-art distribution facility functions with minimal human intervention. Approximately 200 kilometers of underground tracks move merchandise from Zaras manufacturing plants to the 400 chutes that ensure each order reaches its right destination. Optical reading devices sort out and distribute more than 60,000 items of clothing an hour. Zaras merchandise does not shave time waiting for human sorting.CONCLUSIONZara has an unordinary supply chain, which gives them a highly competitive advantage. In a time of globalisation and a constant search for lower cost, Zara is a notable exception. They choose to handle design, production, and distribution in-house and concentrate the whole production close to their headquarters in Spain. By integrating the entire process, Zara can react much faster than its competitors do to both the ephemeral trends in the world of fashion and the capricious tastes of its customers. At the end of every working day the manager of a Zara store reports exactly what has been sold to headquarters. This information is quickly relayed to the design department where product lines can be altered, supplanted or created in a matter of days.BIBLIOGRAPHYCowe, A., Mackerron G. And Milliken, A. 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