Zara's Supply Chain Vulnerability Despite the proven success of the aforementioned supply chain strategy, Zara is not problem free. To elaborate, its production is still heavily concentrated in Spain, where average wages are relatively. high as compared to low-cost sourcing countries such as Bangladesh, and thus the current manufacturing practice may undermine its philosophy of offering affordable clothing lines. Any weather, labor, or terrorist disruptions to the area will have a serious impact on its global distribution, because there are few alternative distribution centers in Europe. Because production is carried out mostly in a small radius of Northern Spain, Zara is also vulnerable to financial instabilities in Europe as most of its cost base is denominated in Eures, which has been devalued due to recent financial crisis in Europe. Finally, unstable oil prices resulting from the political unrest in Middle-Eastern countries will affect profits because twice-weekly air express deliveries mean higher transportation costs, Another challenge stems from its diversified product lines with multiple channel sales; online sales through its website (www.zara.com) or brick-and-mortar retail store sales. In comparison to its competitors 2,000-4,000 items, Zara puts 11,000-12,000 different items varying in color, size, and fabric on the store shelves in a single year (Ghemawat and Luis Nueno, 2006), Putting a variety of goods on the shelves in worldwide store locations requires an unusual (though not unique) logistics strategy for the company, Zara ships goods from its single distribution center (or hub) in Spain to other foreign markets via air express, usually in small batches. In the 1970s, The Limited used a similar logistics strategy to support its test marketing, air expressing small quantities of new styles from Asia to U,S, stores, In Zara's case, however, the speedy shipments (e.g., 24-to 48-hour delivery to its stores from the distribution center) are its core business/supply chain strategy of "fast fashion," not just test marketing. Under its Just-In-Time delivery and manufacturing principles, Zara also ships frequently, allowing lower inventories while serving its multinational market from a single distribution center in Spain, However, with rising fuel cost, this sir express delivery strategy. may backfire. To make this strategy more challenging, Zara's products have multicountry labels and can be redistributed to another store in another country where they may fare better, if any particular product line is not selling well in any particular country Although Zara used to trade higher transportation costs for lower warehousing and inventory carrying costs thanks to the compact density of Zara's store locations in Europe, it would not be feasible for the company to achieve the same level of logisticsefficiency in less condensed store locations in North America. Notice that Zara's small, boutique-type store that specializes in clothing lines with short shelf lives needs much faster turnaround time than others. Without any doubt, Zara's fast transportation supperts its speed-to-market strategy, which is the heart and soul of its new product development and market penetration strategy. However, the recent disruption of air express services resulting from unexpected events, such as a volcano eruption in Iceland in 2010 and 2014, has created another headache for this strategy. New Directions You are summoned to report to Zara's CEO's office to explain the reason for recent supply chain problems. Your boss has also made it clear he wants you to come up with immediate solutions to these problems. Zara's task forces have been assembled and informed that "quick and sensible solutions" Gre needed as soon as possible. As one of Zara's management team, you should address the following questions: al Do you think that Zara should consider mollifi ing its pull supply chain strategy to overcome current supply chain challenges? If so, why? Otherwise, why not?
Zara's Supply Chain Vulnerability
Despite the proven success of the aforementioned supply chain strategy, Zara is not problem free. To elaborate, its production is still heavily concentrated in Spain, where average wages are relatively. high as compared to low-cost sourcing countries such as Bangladesh, and thus the current manufacturing practice may undermine its philosophy of offering affordable clothing lines. Any weather, labor, or terrorist disruptions to the area will have a serious impact on its global distribution, because there are few alternative distribution centers in Europe. Because production is carried out mostly in a small radius of Northern Spain, Zara is also vulnerable to financial instabilities in Europe as most of its cost base is denominated in Eures, which has been devalued due to recent financial crisis in Europe. Finally, unstable oil prices resulting from the political unrest in Middle-Eastern countries will affect profits because twice-weekly air express deliveries mean higher transportation costs,
Another challenge stems from its diversified product lines with multiple channel sales; online sales through its website (www.zara.com) or brick-and-mortar retail store sales. In comparison to its competitors 2,000-4,000 items, Zara puts 11,000-12,000 different items varying in color, size, and fabric on the store shelves in a single year (Ghemawat and Luis Nueno, 2006), Putting a variety of goods on the shelves in worldwide store locations requires an unusual (though not unique) logistics strategy for the company, Zara ships goods from its single distribution center (or hub) in Spain to other foreign markets via air express, usually in small batches. In the 1970s, The Limited used a similar logistics strategy to support its test marketing, air expressing small quantities of new styles from Asia to U,S, stores, In Zara's case, however, the speedy shipments (e.g., 24-to 48-hour delivery to its stores from the distribution center) are its core business/supply chain strategy of "fast fashion," not just test marketing. Under its Just-In-Time delivery and manufacturing principles, Zara also ships frequently, allowing lower inventories while serving its multinational market from a single distribution center in Spain, However, with rising fuel cost, this sir express delivery strategy. may backfire. To make this strategy more challenging, Zara's products have multicountry labels and can be redistributed to another store in another country where they may fare better, if any
particular product line is not selling well in any particular country
Although Zara used to trade higher transportation costs for lower warehousing and inventory
carrying costs thanks to the compact density of Zara's store locations in Europe, it would not be
feasible for the company to achieve the same level of logisticsefficiency in less condensed store
locations in North America. Notice that Zara's small, boutique-type store that specializes in clothing
lines with short shelf lives needs much faster turnaround time than others. Without any doubt,
Zara's fast transportation supperts its speed-to-market strategy, which is the heart and soul of
its new product development and market penetration strategy. However, the recent disruption of
air express services resulting from unexpected events, such as a volcano eruption in Iceland in 2010
and 2014, has created another headache for this strategy.
New Directions
You are summoned to report to Zara's CEO's office to explain the reason for recent supply chain
problems. Your boss has also made it clear he wants you to come up with immediate solutions to
these problems.
Zara's task forces have been assembled and informed that "quick and sensible solutions" Gre
needed as soon as possible. As one of Zara's management team, you should address the following
questions:
al Do you think that Zara should consider mollifi ing its pull supply chain strategy to overcome
current supply chain challenges? If so, why? Otherwise, why not?
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