This report evaluates the example of Zara in order to understand how supply chain assists companies in generating a competitive advantage. It evaluates the strengths and weaknesses of the supply chain of Zara and analyzes how it assists the company in generating a competitive advantage in the industry.
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0 Supply Chain Management Zara
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1 Table of Contents 1.Introduction........................................................................................................................2 2.Role of Supply Chain in Zara...............................................................................................3 2.1 Strengths and weaknesses...............................................................................................3 2.2 Ability to generating a competitive advantage................................................................4 3.Conclusion...........................................................................................................................7 4.References..........................................................................................................................8
2 1.Introduction Intoday’scompetitivebusinessworld,corporationsfacefiercecompetitionintheir respective industries, and they focus on generating a competitive advantage in order to stay relevant in the market. Effective supply chain management (SCM) assists companies in optimising their costs and improving the quality of their products which assist them in fulfilling the demand of customers (Bosona and Gebresenbet, 2013). This report will evaluate the example of Zara in order to understand how supply chain assists companies in generating a competitive advantage. This report will evaluate the strengths and weaknesses of the supply chain of Zara and analyse how it assists the company in generating a competitive advantage in the industry.
3 2.Role of Supply Chain in Zara Zara is a leading brand in the fast fashion industry which was founded in 1975, and the company is the main brand of its parent company, Inditex Group. Currently, it is the world’s largestapparelretailerthathasestablisheditsoperationsinover10,000locations worldwide (eCommerceDB, 2018). The company has sustained its growth in the market through its responsive supply chain management which enables the company to gain a lead over its competitors and increase customer loyalty. 2.1 Strengths and weaknesses Supply chain management is referred to the management of the flow of goods and services along with other practices which are implemented by a company in order to transform raw materials into final products (Seuring, 2013). The supply chain of Zara has been the cornerstone for its effectiveness since it operates in the fast fashion industry and the success of the company depends on its ability to quickly offer new and trendy products to its customers. The supply chain of Zara has been able to provide a competitive advantage to the company over its competitors such as GAP, H&M, and MANGO. One of the biggest strength of this supply chainis the ability of Zara to replace 75 percent of its merchandise displays on its stores situated globally within a period of 3 to 4 weeks (Qrunfleh and Tarafdar, 2014). Considering the fact that other companies such as GAP require around 6 months to change their offering shows the responsiveness of Zara’s supply chain. The company achieved this efficiency because it has established its supply chain operations in both in-house and outsourced facilities. Around 50 percent of the products of the company are manufactured in its in-house facilities. 26 percent of its products are manufactured in its facilities situated in Europe and the company outsourced rest 24 percent in Asian countries (Crofton and Dopico, 2012). This supply chain structure provides Zara the best of both worlds since it is able to efficiently move its products while controlling its operating costs. The cost-effectiveness is another key strength of the supply chain of Zara since the company is able to reduce its costs by outsourcing some of its manufacturing products to countries where the labour costs are considerably cheaper (Gallien et al., 2015). Since around 50 percent of its operations are in-
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4 house, it is still able to quickly offer trendy fashion clothes to its customers without wasting any time. The company outsourced those products which did not have a high demand in the market. The company has hired a team of designers whose job is to visit fashion shows and design new products which are sent to the local factories of the company. The designers than select the most suitable materials for the production of those clothes and sent them to the manufacturing facilities which quickly prepare them and ship them to its locations globally (Gamboa and Goncalves, 2014). These strengths resulted in providing a competitive advantage to Zara which enables the company to sustain its profitability in the industry. However, there are some weaknesses of the supply chain of Zara as well which creates challenges for the company. For example, the responsive nature of its supply chain did not takeintoconsiderationthesustainabilityaspectsinceitsolelyfocusesonquickly manufacturing more and more products (Holweg and Helo, 2014). It resulted in increasing the wastage of materials which negatively affect the environment, and it also creates a negative brand image of Zara. In the past few years, fast fashion companies such as Zara are criticised for their failure to adopt sustainable business practices since they did not take any steps to reduce material wastage. Another key issue with the supply chain of Zara is that it did not take into consideration the health and safety of its employees that work for the company in developing countries. The company has been accused of ‘slave labour’ in Brazil where it was using its employees to manufacture products without giving them basic human facilities. In 2015, the parent company of Zara, Inditex, faced a fine for failing to provide a good working condition to its employees in Brazil (Butler, 2015). Since the supply chain of Zara did not take these elements into consideration, it resulted in reducing the effectiveness of the company. 2.2 Ability to generating a competitive advantage In the fast fashion industry, companies are competing with each other to attract customers by offering the latest fashion as early as possible. Zara is the market leader in this industry because the company is able to deliver the latest fashion clothes to its customers at affordable prices (Crofton and Dopico, 2012). Customers prefer Zara over its competitors because of its ability to offer the latest fashion without charging higher prices from its customers. Through its responsive supply chain practices, the company is able to avoid the challenges which other competitors face while manufacturing their products. Organisations
5 such as H&M and GAP have to purchase materials from their suppliers after which prototypes are made and sent for manufacturing. These companies also did not have a dedicated team of designers that works dedicatedly to design new clothes for customers. In the case of Zara, the designers of the company quickly check the latest fashion from shows and sent their inspirations to the in-house manufacturing facility of Zara (Orcao and Perez, 2014). The designers in the facilities have access to all the materials which they require to prepare design prototypes for clothes which saves their time. These prototypes are sent for manufacturing on the same day which reduces the time it took to prepare these products. Although Zara has access to most of its materials directly from its subsidiaries; however, it has also built strong relationships with other local suppliers that quickly deliver materials to the company without any delay (Tokatli, 2014). It shows that the company has end-to-end control over its operations which enable it to reduce its operating costs and time. This control is necessary for the company since its business model is focused on generating profits by selling a large number of products. The profit margin of the company is considerably low due to which it generates profits by selling a large number of products. Therefore, it encourages its customers to purchase more designers clothes that change on a weekly basis. Since the company changes over 75 percent of its merchandise display in a period of 3-4 months, it encourages customers to purchase its products in bulk (Gamboa and Goncalves, 2014). The customers also prefer to purchase its products in bulk since the prices are comparatively lower than compared to other competitors such as H&M and GAP. The company is able to keep its costs low through its effective supply chain since it did not have to rely on third parties to manufacture its products. Customers are also encouraged to purchase its products since they are trendy and the company quickly changes them as per the latest fashion trend. Moreover, the company has outsourced some of its operations to further reduce their costs. In these products, the company did not have to closely monitor the quality which makes it a suitable option (de Jorge Moreno and Carrasco, 2016). The supply chain process of the company is efficient because the information flows without any issue. The designers are able to share their ideas with the manufacturing facility which makes it easier for them to deliver high quality of products at comparatively low costs (Qrunfleh and Tarafdar, 2014). Due to effective integration between different parts of the
6 supplychain,Zarahasbeenabletopromotecommunicationandcost-effective manufacturing which resulted in increasing its profitability. Zara has become a market leader in the fast fashion industry due to its responsive supply chain which shows that it has generated a competitive advantage in the market.
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7 3.Conclusion In conclusion, effective management of supply chain assist companies in generating a competitive advantage and efficiently perform their operations which is crucial to increase their profitability. The supply chain of Zara has various strengths such as its ability to change its global merchandise display within a period of 3-4 weeks, reduce the cost of operations and efficiently flow its products from design to stores. However, its weaknesses include high number of wastage of materials and bad working conditions of labours. The responsive SCM of Zara enables the company to offer designer products to its customers without wasting any time which provides it a competitive advantage in the fast fashion industry. Without its supply chain, Zara cannot remain incumbent in the fast fashion industry which shows the importance of its supply chain which enables the company to generate a competitive advantage and sustain its profitability in the market.
8 4.References Bosona, T. & Gebresenbet, G., (2013), ‘Food traceability as an integral part of logistics management in food and agricultural supply chain’,Food control,33, no.1:32-48. Butler, S., (2015), ‘Zara owner Inditex faces fines in Brazil over poor working conditions claim’,TheGuardian,12May, https://www.theguardian.com/fashion/2015/may/12/zara-owner-inditex-fines- brazil-working-conditions-claim., accessed 06/04/19. de Jorge Moreno, J. & Carrasco, O.R., (2016), ‘Efficiency, internationalization and market positioning in textiles fast fashion: The Inditex case’,International Journal of Retail & Distribution Management,44, no.4:397-425. eCommerceDB.,(2018),‘zara.com’,eCommerceDB, https://ecommercedb.com/en/store/zara.com#general-information.html.,accessed 06/04/19. Gallien, J., Mersereau, A.J., Garro, A., Mora, A.D. & Vidal, M.N., (2015), ‘Initial shipment decisions for new products at Zara’,Operations Research,63, no.2:269-286. Gamboa, A.M. & Goncalves, H.M., (2014), ‘Customer loyalty through social networks: Lessons from Zara on Facebook’,Business Horizons,57, no.6:709-717. Orcao, A.I.E. & Perez, D.R., (2014), ‘Global production chains in the fast fashion sector, transports and logistics: the case of the Spanish retailer Inditex’,Investigaciones Geográficas, BoletÃn del Instituto de GeografÃa,2014, no.85:113-127. Qrunfleh, S. & Tarafdar, M., (2014), ‘Supply chain information systems strategy: Impacts on supplychainperformanceandfirmperformance’,InternationalJournalof Production Economics,147: 340-350. Seuring,S.,(2013),‘Areviewofmodelingapproachesforsustainablesupplychain management’,Decision support systems,54, no.4:1513-1520. Tokatli, N., (2014), ‘Single-firm case studies in economic geography: some methodological reflections on the case of Zara’,Journal of Economic Geography,15, no.3:631-647.