Zara Supply Chain Essay

Zara’s core competencies can be divided into four areas: process development, distribution, marketing and integrated business structure (referred to Appendix 1). Zara’s unique process development allowed Zara to produce in a shorter cycle time and more quickly response to the

Zara is the most successful retailer brands of Spanish company of the Inditex group. In May 24, 1975, Zara opened the first store in the coastal town of A Coruna in downtown La Coruna, Galicia, Spain, and opened first retail store by Amancio Ortega and Rosalía Mera. Zara is a Spanish clothing and accessories retailer in

Unlike most European retailers, who outsource manufacturing to Asian countries, Zara’s production is mostly concentrated in and around Spain close to its various other business functions-this helps in coordination, closer control, taking joint decisions quickly and great flexibility as production capacity is available on demand. Zara buys undid fabric in bulk from the Far East in advance as per the forecast and this gives them the flexibility to color or print the fabric to the desired effect.

A Supply Chain (SC) is an integrated process where involves various parties who are directly or indirectly working together to fulfil a customer’s demand. These parties can be manufacturers, suppliers, transporters, warehouses, distributers, retailers and end consumers. The functions of the SC cover a variety of areas, such as R&D, information flow, marketing, finance, distribution, operation, and customer services.

Second, in fulfillment, we can also see speed in responding to demand. For example, the replenishment, as well as production will be optimized according to supply and demand as quickly as possible. Besides, the fulfillment will commonly completed in one or two days, clothes flowed quickly, and without stopping, from factories to DCs to stores, where they were immediately put on the sales floor. Third, in design and manufacturing, we can find how Zara respond quickly to demand. Zara brought out new items continuously throughout the year, including both changes to existing garments and entirely new creations. The network of production had made design from conception through production and into the DC in as little as three weeks. Besides, Zara did not have to predict what would be selling six months, or even one month, in the future; it could continuously sense what customers wanted to buy and respond “on the fly.” All these operations reflect the speed-chasing and target-oriented nature of Zara business.

There vertical integration allows small batches of produce to be distributed and tested out allow them to save more money and cut inventory backlogs. Zara maintains a low cost by avoiding outsourcing (where possible) and producing all its merchandise and produce in home soil in Spain. Also Zara own many fabric dying, cutting and processing equipment that provided Zara added control and flexibility to adopt new trends on demand. Effectively Zara is able to design and manufacture products as well as deliver them in less than two weeks in contrast to competitors such as Benetton and H&M which require at least between five weeks and 4 months lead time to fill orders from its retail operations. One major unique characteristic was that Zara own its in house production which gives Zara the flexibility of quantity, variety, and the frequency of the designs they produce.

Zara is a name that seems to always come up when people talk about Spanish fashion. It is one of Spain’s most famous clothing brands and Zara stores can be found all over the world. The company was founded in 1975 by Amancio

Zara’s value chain differs from the other traditional models a lot. The design and creation rely extensively on copying fashion trends observed at the fashion shoes and at competitors’ points of sale, which based on buyers and designers alike.

No business in this type of industry has total control over the market price and there are no barriers to entry and exit. Because of its monopolistically competitive playing grounds, Zara’s conduct is to increase its market power by producing demand for its heterogeneous products. Through differentiation and cost leadership, Zara attempts to increase market demand by offering new items weekly while keeping a low inventory, thus making its products unique and attractive to consumers. Because of its backward vertical integration model, Zara creates a strong synergy throughout its production process. Zara has sustained a competitive advantage globally by expanding into new markets and becoming more efficient. In a monopolistically competitive industry, Zara is expected to make profits in the short run but will break even in the long run because demand will decrease as average total costs increase. This means in the long run, a monopolistically competitive firm, such as Zara, will make zero economic profit (AmosWEB, 2001).

Zarawas able to catch a trend while it was hot thus customers were willing to pay a higher premium for the product increasing their gross margin. In addition, Zara did not have to commit to its suppliers several months in advance of a season on the style and amount needed unlike its competitors. Zara was able to create in smaller batches, thus decreasing risk by limiting the amount of inventory on hand. The downside of owning and controlling production is that it often leads to higher costs of labor compared to labor in developing countries (south-east Asia). To lessen the costs, Zaradecided to outsource the main commodities of apparel such as the undyed fabric, buttons and zippers. Because these were basic ingredients to any apparel it did not affect the final product and cut down cost. Also, 85%-90% of their styles were standard across stores and countries which benefited from economies of scale. Lastly by playing both role of manufacturer and retailer Zara is able to get profits on both sides. The short-lead times provide flexibility to Zara; however, Zara needs to provide the consumer with the latest trends in order to increase profitability. Therefore, Zara invests heavily in their product development teams compared to their competitors. Extensive continual market research was performed on current trends from fashion shows, universities and key trend

The basic strategy for fighting competition is to attract buyers at lower prices, more unique designs, high-quality design, efficient customer service and solid image brand. Thus bargaining power of buyer for apparel industry is high as the products falls under the basic needs in human lives. There is no much difference in terms of products offered by the apparel company, so if buyer is unhappy with the product or service they can easily switch to another brand. Thus, Zara are trying to strengthen its position in the market by using their unique strategy by giving priority to buyer to meet their special needs.

The supply chain from raw material to consumer it's from design and production to distribution and retailing. Zara has unique and rabid supply chain today. Design and production are internal process and are done in company. At Zara's headquarters, there are creative teams of three hundred professionals doing a design process. They responsible for design the designs which will satisfy customer needs and keep pace with fashion. Zara can take a product from concept through design, manufacturing, and store-shelf placement in as

Zara uses vertical integration, in a vertical integration several stages of production and distribution of a commodity are influenced by a single company.

The core concept of Zara 's business model is they sell "medium quality fashion clothing at affordable prices", and vertical integration and quick-response is key to Zara 's business model.  Through the entire process of Zara 's business system: designing, sourcing and manufacturing, distribution and retailing, they presented four fundamental success factors: short cycle time, small batches per product, extensive variety of product every season and heavy investment in information and communication technology.  These four elements are involved in every aspect of the business.

First, “Retail companies have become involved in supply chain management in order to control product quality, inventory levels, timing, and expenses.” (About money). For this reason, Zara’s strategy ensured that its supply chain capabilities supported its ability to satisfy the targeted customers. In addition, Zara collects information on customer needs, integrates data with design, manufacturing and distribution functions. With this in mind, Zara concentrated its product to short lead time, lower quantities, more styles and use an effective distribution system. Similarly, Limited Brands, shifted to a high end product line that required a strategy to bring product to market and customer satisfaction. Furthermore, Limited Brands management approved the project of building a global