The Most Fashionable Supply Chain in the World
By: Kristina &
Zhencen
Coming in at #52 on the Forbes 500
list, Zara is considered to be one of the leading retail brands in the world.
Zara’s home base is located in Spain but they have amassed global popularity
with presence in 73 countries and 1,800 plus stores. For fashion conscious
adults aged 18-35, by closely imitating styles of high end designer brands yet
maintaining lower costs, Zara has won the hearts of many shopaholics and
includes a strong celebrity following. Zara manages to dominate in the fashion
world thanks to their unique supply chain model that allows them to stay on top
of the latest trends.
In an industry where styles are in one
day and out the next, it is rather difficult to predict the required raw
materials needed to keep business flowing. As a result, Zara has chosen to
ditch the old school push model where suppliers base production off of consumer
demand.
Zara’s supply chain uses vertical
integration, allowing them to focuses on the JIT (Just in time) model to supply
the freshest designs to their stores. By incorporating work cell organization
Zara improves response times due to simplified internal communication. With
lead times averaging just two weeks, Zara aims to produce small batches of the
latest designs. In house production allows them to centralize design and
production, cutting down on delivery costs to their distribution centers. As a
result money is saved on transportation costs. Zara has shown success due to
their ability to minimize inventory buildup and create demand due to the
limited quantity of their items.
By avoiding overproduction Zara manages
to mitigate the bullwhip effect, which damages many of their competitors.
Surprisingly, their limited quantities of merchandise also help them avoid the
additional costs incurred with running out of a product because the racks are
always stocked with new designs.
Perhaps Zara’s most impressive feat is
that they manage to succeed without spending money on advertising. Limited
qualities of products also helps create a sense of exclusivity meaning
customers are drawn to visit the stores, without being prompted by
advertisements, in order to snag the latest styles. Instead that money goes to
fund the creation of new designs and the never-ending stream of new selections.
Direct competition from stores such as
H&M and Bennington create a threat to Zara. The flexibility that puts Zara
on the map also creates a hurdle for them as higher costs stem from their scale
of operation and cost per unit. In last year, the total revenue from H&M
was higher than Zara. However Zara pulled in higher operating profits, proving
their efficiency. In conclusion, Zara must focus on maintaining superiority
over their competitors by finding ways to circumvent the costs that their
flexibility creates.
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