Zara is third largest apparel retailer of the world. Its supply chain model made it so special to achieve this success. Zara has achieved this designation not by traditional way of management but by exceptions. Zara’s supply chain management makes its store capable to exceed the customers’ expectations. That’s why Zara has more store visit ratio that industry average. One of the Zara’s success factors is execution of efficient vertical integration between manufacturing, distribution and retailing. Zara’s supply chain is so efficient that it can place a garment in any store around the world in a period between two to three weeks.
The biggest strength of Zara is its ability to spot emerging trends and react quickly. Zara’s strategy mainly works on pull strategy rather than forecasting and mass production. Zara’s 200 designers travel around the world to identify latest trends. Its store managers regularly send data about current inventory and sales to the central office to identify what customers would like to buy. By this strategy Zara is able to maintain the exclusivity of its products. The new stock is arrived twice a week which makes its store unique in service and quality. The other important thing is new trends and designs are based on store manager’s analysis and customer’s interest and not only on designer’s creativity.
Zara has very efficient balance between outsourcing and manufacturing process to ensure quality. The required style and trends is made by Zara while the basic design and knitting is outsourced. Zara’s distribution channel is quite expensive than other retailers. Its distribution network mainly works by planes and trucks rather than trains and ships to deliver the product twice a week. By this system Zara has achieved 98.9% accuracy in distribution process.
Though Zara’s supply chain model is very accurate and makes Zara’s store exclusive, but after recession this model is quite tough to manage. Where other retailers are shifting their production unit to Asian countries to minimize the cost, Zara has not shown any sign to minimize the cost. It has been working on maximizing the revenue for a long time. It could be tough decision for Zara to continue its way of work. Zara’s IT system is so simple and outdated which is again not suitable in this tech savvy business world. Zara’s vertical integration is also now considered as not efficient according to present business scenario. The disadvantage of this system is the lack of economies of scale which made Zara unable to produce large quantity of products.
At the end, the changing business environment, emerging global trends, economic stability of the world and customers buying behavior would decide that should Zara change its supply chain model and business method or not.
1. Zara has a centralized distribution system which is not cost efficient. How can the cost incurred for activities if sorting, rerouting and resorting merchandise and stores between manufacture be minimized without compromising the accuracy of 98.9% in its shipments?
2. How efficient is vertical integration in ZARA? Why it is now considered as outdated and discuss the factors to be considered while implementation of economies of scale?
Dishti ,Nadeem
GLC_RMM 1012
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