Oct 3, 2018 in Case Studies

1. As completely as possible, explain the supply chain for Zara from raw materials to consumer purchase.

The supply chain of Zara is integrated and company controlled from the beginning to the end. The key to its ‘fast fashion supply chain’ is complete automation and reliance on information systems or procurement, inventory management, and delivery to stores. Figure 1 shown below illustrates the supply chain process.

1.1 Design Process

The process begins with the notification of the latest trends obtained from store managers, customers’ enquiries, fashion media, etc., which is then forwarded to the information portals maintained by Zara that are integrated with the headquarters that are operated in Spain. The in-house designers, as soon as information on trends is received, replicate the designs into product lines for Zara. They order raw materials, 40 per cent of which are manufactured and made by the company itself.

1.2 Manufacturing Process

Once the raw materials are obtained, fabric cutting takes place in a mass assembly line. The fabrics are sent to local operatives for sewing. Once these are received, they are ironed, labeled, and wrapped in the in-house assembly line and then sent to the warehouse.

1.3 Computerized Inventory Management in Warehouse

In the warehouse, the products are sorted, packed, and allotted in quantities specific to the stores they are to be sent to; all is under computerized inventory management.

1.4 Delivery to Stores

For stores located in Spain, trucks are used. Whereas for stores located elsewhere around the world, the product batches are delivered via cargo. Transit times are fast and accurate.

1.5 In-store Marketing

All stores are owned by the company and that is why they follow the same marketing strategy (Newman and Patel 772). The store staff creates product displays and conduct in-store marketing, which attracts customers who then make the purchase, or conduct specific investigations by inquiring the customers feedback on the collections. This provides the necessary information about trends, which designers then use in new product lines and in preparation of the next order.

2. Discuss the concept of horizontal and vertical conflict as they relate to Zara

The case provides minimum information about existence of any channel conflict. As evident from the case, the core focus of the supply chain and marketing philosophy of Zara is complete integration of all the activities, which removes potential sources of conflict and discrepancies between the channels, and induces maximum efficiency in performance outcome of each channel and the supply chain process as a whole.

Zara maintains complete control over each of the activity of the supply chain that eliminates sources of vertical conflict. Channel members at the horizontal level comprise of factory workers and store workers, both of which enjoy minimal power and authority over the marketing practice of Zara. However, it is important for the company to ensure that the staff is motivated to be fast and responsive towards orders and customers (Birtwhistle 120). But these correspond to internal affairs, which are handled and controlled by the management. No external influence that could produce a vertical or horizontal conflict in the supply chain of Zara is evident.

3. Which type of vertical marketing system does Zara exhibit? List all the benefits that Zara receives by having adopted this system.

Zara operates an integrated vertical marketing system, where it owns a large percentage of the processes. Based on the findings of the case study and external reading, the marketing system that best fits the description of Zara is a corporate vertical marketing system. This marketing system enables Zara to obtain benefits in the following ways:

3.1 Maximum Control

Zara owns a large key portion of its marketing system, which enables to exhibit maximum control over all activities that translate into higher profitable returns. This control is beneficial in terms of keeping each of the supply chain activities completely focused on customer satisfaction and efficiency, as desired by the company.

3.2 Minimum Labor Cost

Due to heavy reliance on automation, labor costs are minimal for Zara (BBC). While rivals are suffering from high production costs, Zara does not have to worry about low cost suppliers that employ cheap labor.

3.3 Maximum Efficiency

Automation in most of the activities of the supply chain and fast response culture among employees present in the supply chain enables to achieve and benefit from a maximum efficiency.

3.4 Lower Inventories

The production is kept “Just-in-Time” and there are frequent shipments, which results in lower inventory levels in warehouses. Inventory management is computerized, which further removes the amount of labor employed in the company and thus, there are lower labor costs and more efficiency due to automation.

3.5 Faster Design-to-Shelf

The key philosophy is behind the efficient supply chain, which brings trends to shelves faster in the form of product lines so as to meet customer expectations and even go beyond their expectations in availability of designs (Telegraph). While retailers take months to transform trends into designs for customers, at Zara new trends are available within two weeks.

3.6 Maximum Profitability

As product lines at Zara have lower shelf lives, customers rush to purchase them, which means all sales are done on retail prices and the retailer never has to use discounts and seasonal sales offers to attract customers and get rid of left over items.

4. Does Zara incur disadvantages from its “fast-fashion” distribution system? Are these disadvantages offset by the advantages?

The only disadvantage that Zara is facing is that its fast fashion distribution system is not employing cheaper labor and using cheaper suppliers from low cost countries, like China or India. Fashion retailers outsource production from low cost countries in order to cut down on production cost (Reuters). Zara relies on complete production in Spain. This is not necessary offering cost advantages to the company in terms of raw materials and labor. While cost of production may rise because of this, Zara offsets this amount by cost savings from use of automation and minimum labor in its supply chain and higher revenues from sales, resulting from selling all items on retail prices and not on discount prices.

5. How does Zara add value for the customer through major logistics functions?

The unique feature of the fashion retail industry is that fashion trends change rapidly and so does customer demand. As a result, customers seek retailers that provide the latest fashion trends the very next day they witness some celebrity clad in it on the television screen (Barnes 259). The challenge therein is that they demand the same fashion trend at affordable price. Translating latest fashion trends into retail store shelve products takes a considerable amount of time and investment, which charging low prices fails to recover and thus puts the companies at the risk of suffering from huge operational loses.

Luckily, Zara, which has been quite responsive to the industry trends, has been following a ‘fast-fashion value chain model’ (Barnes 260) using in-house designers that charge less for their services to replicate the in-demand trends, and automated production and inventory management facilities that provide Zara with Just-In-Production benefits of operational efficiency. This has been one of the key drives of its competitive advantage, as other players have yet to replicate this business model, which requires an integration of operational resources (Economist). The supply chain allows Zara to incur minimum production costs, which translates into affordable retail prices. The customers, in their turn, benefit in terms of faster availability of designs in the stores, quality and accurateness of the designs, and affordability. 

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