ZARA’s Supply Chain Strategy Worldwide
Zara is a Spanish fast-fashion company that designs, makes, and distributes apparel across the globe. The business has continued to ensure a trajectory of rapid yet profitable growth by hitting an enormous net income. Zara’s supply chain integration enables the company to reduce production, logistics, and inventory costs while improving quality control. While it is believed that the company adopts one of the best supply chain management models, this case study raises various issues in its strategy.
The case study puts much emphasis on ZARA’s supply chain strategy, which has elevated the company to outshine its competitors in the international sphere. The tremendous growth in specific markets, underpinned by the sale of high-end women apparel. It is also evident that the industry is faced with enormous competition from other players due to globalization and the emergence of new, low-quality products, especially from Chinese markets. Seemingly, investment in the apparel industry is not capital intensive as most of the overheads originate from rent, salaries, and advertisement of products (Madhani, 2016). The case study reveals that Zara’s consumer segmentation primarily comprises female customers aged between 10 and 40 years.
Another issue presented in this case study is Zara’s logistics network, which facilitates its service requirements. The market within which the company operates is characterized by a plethora of factors, including design, price, and quality (Madhani, 2016). Other factors influencing Zara’s supply chain include the frequency of advertisement, alternative packaging, brand image, and operational environment, among others. The case study also reveals that Zara uses market signals to align product demand with the needs of consumers. Efficient and quick turnaround times enable the company to produce and distribute smaller amounts of merchandise more often, which ensures a constant supply of apparel as compared to its competitors. Finally, Zara provides close communication to its clients through speed conversion across the company’s supply chain. It uses technology to monitor and control stock movement, minimize logistics costs, and optimize operations. A well-established distribution center at Zaragoza is equipped with robots that analyze sophisticated algorithms to analyze market data.
Effects of Zara’s Business Model on Operating Economics
From a personal standpoint, Zara has continued to maintain high margins and proper control of economic costs owing to its excellent value chain. The company obtains about 50% “gray” or undyed fabric 50%, which promotes maximum flexibility for its apparel. Zara also cuts costs by centralizing its production in Spain, paving the way for reducing distribution and shipping costs. According to Ghemawat and Nueno (2006), the company also depends on fast turnarounds and low inventory outlays. The case study unveils that Zara uses its storerooms located in different parts of the globe temporary storage locations as the clothes await transfer to its outlet shops.
Besides, Zara manufactures and releases its apparel products in smaller quantities, allowing the company to ensure timely delivery of merchandise in five weeks only. Javed et al. (2020) reveal that most rival companies in the fashion industry deliver a similar quantity of garments within an average of six months. The small batches also create a climate of scarcity for Zara’s customers and urge them to purchase clothes right away.
Zara’s model is based on high levels of control and lows cost (advertising costs are much lower than the industry average). This model has allowed Zara to be more profitable than its competitors, such as H&M, Gap, and Benetton (Madhani, 2016). While most retailers outsource their whole production (mostly to Asian countries), Zara has kept a lot of its significant processes local, thus allowing a higher level of control over the various activities.
How Zara’s advantage works globally
Zara boasts numerous competitive advantages because of its business operations in many countries globally. At the outset, the fashion multinational has always endorsed its products via outlet stores that are managed from a centralized distribution center. This plan translates to decreased promotion and logistics costs in its areas of operation. Unlike other competitor companies such as H&M, who invest profoundly in promotion and distribution channels, Zara focuses on the enrichment of its supply chain model to ensure improved customer satisfaction. Furthermore, retail business in the apparel industry has seen many entrants due to increased globalization and the emergence of cheaper products. This situation puts Zara at a vantage point, considering its robust supply chain that ensures that the company remains competitive. Thirdly, the increased similarity in style has promoted Zara’s brand of clothing because its intended customers are inclined to fashion.
Today, the company has operations in more than five continents with over 1700 warehouses. Europe is ZARA’s largest market and accounts for over 70% of the company’s sales worldwide. Aabed (2017) regards the apparel maker as a transnational retailer whose products have developed popularity among diverse consumers. This unique classification may seem superficial because it dupes competitors to believe that its operating formula is highly standardized (Aggour et al., 2016). However, an analysis of its internationalization strategy would reveal a different scenario.
Nonetheless, the company’s brand image has gained an outstanding reputation and is homogeneous. It also has flexible product development and marketing strategy that play a critical role in the integration of emerging pan-national fashion trends. This practice is revealed through its approach to trading in European markets. The giant fashion multinational recognizes the power of its brand, which aligns with its customers’ appeal for the apparel of Spanish origin. Zara’s products are positioned in the market, especially within the United Kingdom. As a result, the company focused on more fashionable lines within its stores in the country. Indeed, its pricing policy in Britain is more upscale as compared to its local market to maximize its advantages in the market.
Primary Considerations of the Risk, Time, and Cost Function Within the Zara Supply Chain
For its competitive strategy, Zara has focused on a quick-response, small production run chain company that targets fashion-conscious middle and upper classes in countries all over the world. Zara design teams are trained and encouraged to spot trends depending on the geographical location of its stores, which lessens the risk of introducing new products to the market. Zara also has given its store managers the freedom to control product deliveries and cancel items that don’t sell well. The design team also receives fast feedback on what products are popular with the customers, which allows production to shift their focus accordingly. Producing goods that are only meant for sale has helped Zara stay in front of the competition and increase revenues while reducing costs. The linkage of these elements is what Zara’s success and competitive advantage have depended on for years. The company makes quick decisions focusing on the big picture and trying to offer only items the customers are willing to purchase.
Best Way to Develop the Zara Supply Chain
Zara implies “fast fashion,” which means that the company aims at providing modest apparel designs that resonate with modernity. Rather than creating demand for innovative trends and fashion shows, the company studies the needs of the actual customers in their outlet stores, then delivers the desired designs at very high speeds. This approach enables the company to save tons of money on the methods used for delivery. Seemingly, Zara outcompetes many fashion companies by designing and making clothes that are ahead of time. Indeed, it leads to eight other companies in the Inditex Group (Nakano, 2020). Zara’s production cycles are comparatively short, enabling it to launch approximately 11,000 new items compared to 4000 from H&M annually (Öztürk, 2020). The company plans to double its production in the next four years and open 4000 shops in more locations across the globe. This expansion is marked for the European market before pushing it to other niches. However, focusing on the development of a single market is not a feasible strategy for future business endeavors. Zara should also boost the growth of other potential markets in Africa and Asia.
Recommendations to improve Index’s operations in the supply chain and their effect on logistics processes and activities within the value chain
First, benchmarking would be an essential step in improving its operational index. The company effectively used its supply chain to ensure competitiveness, which has resulted in increased share in the global apparel market. Secondly, Zara needs to continuously implement technology and process upgrades, as this approach is widely accepted as a primary factor in the development of novel business strategies (Aftab et al., 2018). It increases not only the value of management but also boosts the overall business processes.
Thirdly, Zara should also aim at demand planning at the end of each business cycle. Today, sources and capacities for production have increased tremendously. As a result, many companies have shifted focus from plant-level manufacturing to adopt more robust demand-driven strategies that underpin better management and satisfaction of consumer needs (Madhani, 2016). Zara fashion apparels are top-rated globally, implying that the company should rationalize its products by aligning the sales workforce with a needs-focused model.
Furthermore, the business sphere is quickly dominated by globalization trends, which have dramatic effects on supply chain management (Litke, 2019). Zara should ensure flexibility in its processes and technology to allow increased integration of global consumers and supplier base. Besides, Zara should review its supply chain to offset increased competition and price pressures by reducing cost and creating a more effective and responsive value chain.
Besides, Zara should look forward to cutting costs around logistics operations, material management, inventory, and production to improve the supply chain index. Another recommendation includes the use of predictive analytics and machine learning to handle big data. Such tools can be important in envisaging outcomes of diverse supply chain scenarios (Aggour et al., 2016). In addition, Zara can use corporate cards such as ApplePay and Google Wallet to streamline supply chain payments as these methods would increase efficiency.
Moreover, Zara should expand its robust strategies outside its primary markets in Europe to gain more client bases in other emerging markets around the world. Finally, the company should improve its operating techniques by embracing the latest high-tech supply chain management tools. For instance, Zara can integrate Kaizen, a popular Japanese philosophy of business improvement. In this approach, the company will focus on teamwork, lean manufacturing, and engage employees in the process.
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