Case Study
24257010160000393360462280Case Study“Rapid Fire Fulfilment”Kevin Chan n9216120QUT??Gary Mortimer8820090900Case Study“Rapid Fire Fulfilment”Kevin Chan n9216120QUT??Gary Mortimer8445544450000857254290060Assessment 3Word Count: 1070Assessment 3Word Count: 1070 Executive summaryThis case study aims to examine the logistics of Zara as a fast fashion chain and their owners Inditex as a whole. Being one of the most successful retailers in the world, their procurement strategies, production cycle and global distribution is explained throughout. The study shows that the company has a unique vertical integrated system in place which makes the flow of production faster through short lead times and high flexibility for adjustments. The successful implementation of Zaras’ supply chain management means that fewer garments are sold at reduced prices, leading to maximized profits because of the exclusivity of the small frequent batches. However, being one of the largest players in the fast fashion market, Zara must consider to continue strengthening its channels. Especially in avoiding “chain liability” which seems to be one of the company’s largest criticisms for providing poor labor resources. All in all, Zara still has areas to improve within the supply chain, long term sustainable growth for the future will rely on positive social innovation. Table of Contents TOC \o "1-3" 1.0 Introduction PAGEREF _Toc465341355 \h 42.0 Supply Chain Management PAGEREF _Toc465341356 \h 52.1 Procurement Strategy PAGEREF _Toc465341357 \h 52.2 Production Cycle PAGEREF _Toc465341358 \h 62.3 Global Distribution PAGEREF _Toc465341359 \h 73.0 Summary PAGEREF _Toc465341360 \h 84.0 Reference List PAGEREF _Toc465341361 \h 95.0 Appendices PAGEREF _Toc465341362 \h 121.0 Introduction Zara is internationally known for its cutting edge in-trend apparel, with a staggering sales network across 88 countries. The Spanish label is run by the biggest fashion group in the world Inditex, who has played a large part in the enhancement of the apparel industry in recent years (Cortez, Ng, Tu, Van Anh, Vegafria, 2014). Being the powerhouse of fast fashion, the company requires solid structuring in its logistics channels. Through displaying a responsive yet flexible design, production and distribution processes allow Zara to capitalize on demand trends as they are detected (Gallien, Garro, Martín, Mersereau, 2015). This paper aims to outline the differentiation in Zaras’ logistic channels that makes the firm successful. This will be done by specifically taking a look into procurement, production and distribution channels, before summarizing how the firm will be able to maximize resource usage for the future. 2.0 Supply Chain Management 2.1 Procurement StrategyZara broke the traditional two campaign paradigm commonly used in the clothing industry which was Spring-Summer and Fall-Winter collections, they developed a super responsive and quick supply chain also known in the industry as ‘Pronto Moda’ or ‘Rapid-Fire Fulfilment’ (Errasti, Martinez, Rudberg, 2015). Causing many retailers to also rethink their supply chain strategy. Procurement is the initial phase of success for Zaras’ supply chain, through small yet frequent batches right in the middle of the season, the company is able to deliver the latest consumer trends in fashion (Sardar, Young, 2015). Although there is a loss in economies of scale, this strategy is able to lead directly to reduced overstock. Furthermore, to accommodate these fast fashion product complexities raw materials are purchased from low cost countries from all around the world such as Turkey and Mexico, or far east Asia as a trade-off. Purchasing materials for large initial shipments reduces lost sales in the critical first days of the product life cycle, and by maintaining stock at the warehouse allows restocking flexibility once initial sales are observed (Gallien, et al., 2015). Inditex aims to continue in operating in its large number of stores worldwide, so that through the information infrastructure they can connect consumer demand through the upstream of design, aiding procurement decisions (Moreno, Carrasco, 2015). 2.2 Production Cycle Zara produces each particular design only once; its production concept and designs have to be flexible so that it can switch from producing one product to the next without incurring significant set-up time or set-up costs, this can also be referred to as a job shop process (Fan, Lopez, 2009). The company therefore displays a lean and agile production system through a vertical integrated design. Zaras’ logistic channels emphasize on delivery and sales, low inventory, quick response policies and advanced information technology which enable a flexible structure to adapt to customer's changing demands (Robinson, 2015). Zara breaks the fashion supply chain rules by holding low stock and updating its collections continuously. Furthermore, product categories are manufactured locally through medium-cost countries, where an office would be located close to the production site; Zaras designers, textile manufacturers and laborers are all combined at one location (Errasti, et al., 2014). Having closer network relations within the companies own supply chain enables collaboration between different departments. Therefore, lead times are shortened whilst offering a wide range of quality products to the market. Results show that 85 per cent of stock achieves to sell at full ticket price, against an industry norm of around 60-70 per cent (Strategic Direction, 2015). With vertical integration, combined with the balance of using both low-cost procurement and medium-cost manufacturing allows higher flexible adjustments closer to the market with shorter replenishment times, therefore reducing the bullwhip effect (Jiang, Lin, Lui, Wang, 2013). 2.3 Global Distribution Zara has developed a long term competitive advantage through a unique distribution channel with vertically integrated sell points and stores, possessing a tightly coordinated supply chain (Filieri, 2014). As seen in appendix A, the company is able to distribute new products into shop floors within 10-15 days from the initial designing process (Moreno, Carrasco, 2015). To distribute at such incredible speed Fan & Lopez (2009) states that it requires rapid feedback about what customers actually buy, Inditex owns all their shops and uses a unified information system to track global sales to allow this information to be processed, they are also able to locate manufacturing for fashion lines closer to the market. As mentioned in section 2.1, to avoid excess inventory only a small number of items of each garment is distributed. Implying that new designs will not be available for long, this cycle often creates an attitude of “buy now” within stores that encourage customers to come back more often (Moreno, Carrasco, 2015). Evidently, Google search trends have also shown that Zara hold more searches than main competitors H&M and GAP respectively (See appendix B). 3.0 Summary With 2015 sales and profits both up by 15% over 2014, these figures show that Inditexs’ Zara convention is going towards the right strategic direction (O’Marah, 2016). Using a vertically integrated system allows the company ability to cut out costs of outsourcing to third parties, whilst improving organisational efficiency. Zara was designed from day-one to be responsive and agile. Rather than outsourcing completely to Asia, Zara uses a network of automated factories in Spain and over 300 small finishing factories across the world to constantly create unfinished products. Dr. Warren Hausman of Stanford University says that this innovative way of working allows Zara to reduce unwanted markdowns and lost sales (Denning, 2015). However, for further maximization of sustainable growth the company must consider strengthening its logistics approach. Especially in avoiding “chain liability” which seems to have caught the media’s attention in recent years (Hartmann, Moeller, 2014). According to Catalan (2014), Zaras’ factories in South America, with the likes of Brazil and Chile, have been associated with abuse of labor resources. These actions do not support Zaras’ corporate social image nor does it align with modern day supply chain practices. Additionally, Zara was also blamed for toxic chemicals usage to dye apparel (Hartmann, Moeller, 2014). These irresponsible acts represent unsustainable behavior as they lead to severe negative consequences for the environment and local inhabitants. By minimizing these actions from the supply chain, this will not only reduce bottle necks but add to the long term success as social innovation continues to prove of great importance in society and businesses to improving economic growth (Dohndt, Korver, Oeij, 2011). 4.0 Reference ListCatalan, B. (2014, April 10). The exploitation of Zara workers in Chile. Retrieved October 25, 2016, from Cortez, M. A., Tu, N. T., Van Anh, D., Ng, B. Z., & Vegafria, E. (2014). FAST FASHION QUADRANGLE: AN ANALYSIS. Academy of Marketing Studies Journal, 18(1), 1-18. Retrieved from Denning, S. (2015, March 13). Forbes. Retrieved October 27, 2016, from Errasti, A., Martinez, S., & Rudberg, M. (2015). Adapting Zara’s ‘Pronto Moda’ to a value brand retailer. Production Planning and Control, 26, 723-737. , R. (2014). From market-driving to market-driven. Marketing Intelligence & Planning, 33(3), 238-257. doi:10.1108/mip-02-2014-0037Gallien, J., Garro, A., Mora, A. D., Vidal, M. N., & Mersereau, A. (2015, February 20). Initial Shipment Decisions for New Products at Zara. Operations Research, 63(2), 269-283. doi:10.2139/ssrn.2378859 Google trends. (2016). Compare Trends. Retrieved October 27, 2016, from , J., & Moeller, S. (2014). Chain liability in multitier supply chains? Responsibility attributions for unsustainable supplier behavior. Journal of Operations Management, 32(5), 281-294. doi:10.1016/j.jom.2014.01.005Jiang, Z., Lin, W., Liu, R., & Wang, L. (2014). The bullwhip effect in hybrid supply chain. International Journal of Production Research, 52(1), 2062-2084. , C., & Fan, Y. (2009). Internationalisation of the Spanish fashion brand Zara. Journal of Fashion Marketing and Management: An International Journal, 13(2), 279-296. Moreno, J. D., & Carrasco, O. R. (2015). Efficiency, internationalization and market positioning in textiles fast fashion. International Journal of Retail & Distribution Management, 44(4), 397-425. doi:10.1108/ijrdm-04-2015-0064 Dhondt, S., Oeij, P., & Korver, T. (2011). Workplace innovation, social innovation, and social quality. The International Journal of Social Quality, 1(2), 31-49. doi: 10.3167/IJSQ.2011.010204 O'Marah, K. (2016). Zara Uses Supply Chain To Win Again. Retrieved October 27, 2016, from Robinson, N. (2015). How Zara used Lean to Become the Largest Fashion Retailer. Retrieved October 25, 2016, from Sardar, S., & Young, H. L. (2015). Analysis of product complexity considering disruption cost in fast fashion supply chain. Mathematical Problems in Engineering, doi: Strategic Direction. (2015). Fast fashion goes global: Benetton’s changing strategy. Strategic Direction, 31(11), 17-20. Retrieved from 5.0 AppendicesAppendix A: The typical distribution timeline of a Zara articleSourced from: Gallien, et al., 2015.-36385526543000-44259584391500Appendix B: Google search trends for Zara, GAP and H&M from 2011-2016Sourced from: Google Trends, 2016. ................
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