Vertical Intergration Zara

1446 WordsSep 28, 20116 Pages
How is Zara organized with respect to its vertical integration and outsourcing decisions? What governance structure does it appear to follow? Support your conclusions with reference to details of the Zara and the Ferdows reading. Zara manufactures and distributes its products in small batches. Zara is vertically integrated as the company manages all design, warehousing, distribution and logistic functions. Zara outsources sewing of garments to an outside supplier. Zara controls the product it creates from inception to when it is sold to the final customer. Amancio Ortega, Zara’s founder is a strong believer that in order to be successful in the apparel industry retailing and manufacturing must be closely linked as consumer demand is…show more content…
Other companies have tried pushing their products and setting trends through advertising, but this often resulted in “fashion misses”, while Zara, through its responsive supply chain strategy, is able to produce and deliver styles that capitalize on what the customers are looking for. Thus, Zara is able to accurately match supply to demand. Zara’s situation supports its supply chain strategy due to the nature of the apparel industry. Products in this industry tend to have very short life cycles and fashion trends are constantly changing. The nature of the industry demands a very responsive supply chain. To prove this point, we can see that in general, after a product is pushed by most retailers during a season, they need to hold clearance sales at the end of the season to sell through any remaining inventory that wasn’t purchased in order to make room for new products for the next season. Retailers typically sell 30-40% of their products during these sales at a discounted rate of 30%; Zara on the other hand only sells 15-20% of their products at a 15% discount. Also, because Zara is so immediate to matching demand to supply, it’s able to collect 85% of the full ticket price on its retail clothing, while the industry average is 60-70% According to Hayes et al, a key decision for a firm is which activities should be

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