A CASE STUDY ON

SUPPLY CHAIN ISSUES OF ZARA

COURSE TITLE: SUPPLY CHAIN MANAGEMENT
COURSE CODE: MGT 410

PREPARED FOR,
MR. MD RUBEL
ASSISTANT PROFESSOR
DEPARTMENT OF MANAGEMENT STUDIES
PREPARED BY

“AUTHENTIC”
MEMBERS ID BATCH
1.TAMANNA NUSRAT MEEM 1810 7TH
CONTACT NO.01634325197
EMAIL:[email protected]
2.DIPA RANI NATH 1805 7TH
3.JUTHI BASAK 1808 7TH
4.MD. PARVES ALI 1838 7TH
5.MD.AZIZUL ISLAM 1848 7TH

SUBMISSION DATE: MARCH 31 ,2021

 Zara: Apparel Manufacturing and Retail
Zara is an apparel manufacturer that relate to the fashion domain. Zara use the strategy which
is decrease the time of design the new merchandises (limit to 5-6 weeks). Inditex choose to
have both in-house and outsourced manufacturing. Firstly, Zara have 40% productivity by
Inditex. The main reason not only is this strategy will insure the produced is fashion in current
season, but also it has a flexible and quick supply delivery to reduce the delivery time to the
Europe market. Moreover, another productivity is come to Asian and Latin American countries,
because the lobar market and cost in these country is cheap than Europe even include the
transport fees. The local manufacturers response the new design product because it will be fast
to support the Europe market. However, Asian manufacturers produce the apparel is
predictable because these product has simple design and stable market that Zara never change
them. Because of the demand of customers, Zara change 75% goods in its stores and increase
the speed to create new product. These change not only will have satisfied the customers
requirement, but also will decrease the circle that means the apparel will sale as soon as
possible. Frequency of replenishment affected Zara’s distribution since Zara’s originally had a
single Distribution Center (DC) in Spain and a small satellite DC’s in Latin America but Zara
is now compiled to build another DC in Spain. In our opinion, Zara’s responsive replenishment
infrastructure is suited for online shopping. The reason is that Zara has more DC which will
support the fat delivery and help Zara organize its apparels. Also, the online sales and retail
sales has low cost than vision shopping that will add more profit in Zara. Firstly, as an apparel
manufacturer, Zara need some customers demand information that can help the designer to
created more product to require consumers. Secondly, an effective delivery systems are
significant in Zara because when the designer creates a new product how to put them to market
will influence Zara to be success. Moreover, Communication infrastructural required by Zara
are segregated as follows:
Zara and its customers: Since Zara deal more directly with its customers, Zara should train its
sales person to be able to interact with customer to know their needs while the broad business
development team should be on lookout for new trend and communicate to the production
(manufacturing) department.
Zara and its retail unit: Zara should maintain an open communication based on computerized
infrastructure that the retail unit will use to inform the manufacturing (production) department
on the inventory level versus the rate of turnover for particular designs which should be in real-
time.
Zara and its suppliers: Zara should also maintain a direct communication link based on latest
computer and telecommunication infrastructure with its suppliers on the speed needed for the
delivery of goods.
Zara is one of the most successful apparel manufacturing and retail business in the world today.
They are not the biggest, but their profit margins and growth rates are leading the industry.

CASE SOLVING

Question 1: What advantage does Zara gain against its competitors by having a
responsive supply chain?

When done effectively, supply chain management helps a business to gain a competitive
advantage by delivering products more quickly to customers. Here are a few ways in which
ZARA accomplishes this without requiring the company to lower prices:

1. SCM supports the strategic plan of ZARA and helps to build the infrastructure to support
future growth, even on a global scale.
2. SCM helps ZARA to balance the supply of products with market demand.
3. SCM allows for more efficient and effective customer service. Customers receive their
products quickly and as promised.
4. It allows ZARA to match demand for fickle trends more accurately. This in turn means that
they can sell products at full price and thus secure their margins and make a profit.
5. It also increases customer loyalty to the brand as ZARA builds a reputation for being up to
date on trends which increases demand products.
6. It also allows ZARA to reduce inventories and forecast error.
7. Decrease purchasing cost and production cost of ZARA by reducing operating cost.
8. Increases Profit Leverage – ZARA value supply chain managers because they help control
and reduce supply chain costs.
9. Increases Cash Flow – Supply chain speed up product flows to customers.
The ultimate goal of effective supply chain management is higher profits through improved
customer satisfaction and a lower cost of doing business. Profits are healthier when costs are
controlled and reduced where possible. Operating costs go down when the costs of buying raw
materials and producing goods to sell go down.
Question 2: Why has Inditex chosen to have both in-house and outsourced
manufacturing?

To be responsive in the rapid changing world, Inditex opted for both outsourced manufacturing,
for the production of products with predictable demand, and in-house manufacturing, for the
production of products with highly uncertain demand.
In-house manufacturing is used as part of a responsive pull supply chain strategy and also as
the final leg of its manufacturing process. After the sales season has started Inditex begins to
use in-house manufacturing as a way of quickly responding to trends. It either makes new
products or turns incomplete products made from its outsourced manufacturers and turns them
into specific finished-goods in response to market demands. Outsourced manufacturing is used
to create non-specialized products that can be produced in bulk.
Inditex chose to have both in-house manufacturing and outsourced manufacturing because In-
house manufacturing allows Zara to be able to respond quickly to the changing trend. Zara will
be flexible in producing products with uncertain demand especially the fast move of new
product design. Outsourced manufacturing is for the general, common and out season products.
This outsource manufacturing also benefits the company as low cost of production, supplier
knowledge bases and development and the available of new technologies and innovations.

Question 3: Why does Zara source products within uncertain demand from local
manufacturers and products with predictable demand from Asian manufacturers?
Zara’s main competitive advantage is responsiveness and to retain it Zara source products with
uncertain demand from local manufacturers because local manufacturers offer flexible
sourcing and such products are to be delivered quick instead of at low-cost (with greater lead
time as it is manufactured in Asia). Another reason for Zara to produce goods in Europe
because it wants to test the demand for new innovative design before it distributes to worldwide
market for better customer understanding of that specific goods because it will be fast to
support the Europe market. And these products with uncertain demand will most likely be
produced at a lower volume to products with a certain demand and therefore sourcing from
local manufacturers provides Zara the speed it needs to test and deliver these products before
they become obsolete and have to be sold at a discount. It is part of a responsive pull strategy.
This strategy is to respond to the fickle need and to improve customer satisfactions.
Predictable demand products are made in Asia due to low labor costs and high volume of
products needed as it can be readily available with the specific specifications requested and
will be delivered in good time to the warehouse. Moreover, Asian manufacturers produce the
apparel is predictable because these product has simple design and stable market that Zara
never change them. However, this allows for multiple weekly shipments and close match to
demand. Since it has certain demand with the large volume of productions, Zara chose to
manufacture that good with low cost but large amount of goods for greater profit margin. It is
more cost effective to manufacture in bulk due to the fact that predictable demand products
have a larger window with which to deliver products without becoming obsolete. It also means
that they can be made before the season starts as part of a push strategy.

The main concept (that mentioned above) is expressed in a short diagram which is to be more
understandable for everyone:

Local Asian Optimize

Quick Cheap

More
Uncertain Predictable
Pro
fits
Question 4: What advantage does Zara gain from replenishing its stores multiple times a
week compared to a less frequent schedule?

Zara has ability to introduce new designs every week, thus, the apparel in its stores are fresh,
therefore, it will have satisfied the customers demand. It will increase the sales volume and
reduce the cost about the save the goods in warehouse. Furthermore, it is responsive to the
fickle nature of the fashion market if a new trend comes into fashion Zara need to be able to
adapt their strategy quickly and change their products in store merchandise to meet customer
demand. Frequent replenishment allows Zara to continue supply new design as customer
desire. This replenishment is one of Zara inventory management strategy where all stores are
well managed. This means each store keep update the stocks and replace with high demand for
goods base on consumer desire in geographically. With the effective strategy brought greater
customer satisfaction and gains more market share globally.

Question 5. What information infrastructure does Zara need in order to operate?

Zara’s business success has demonstrated from the accuracy of demand forecasting, efficient
distribution, flexible resources. She needs a constant flow of information in the form of sales
data to accurately forecast demand and respond quickly. They aid to centralized information
coordinate infrastructure distribution and obtain information close to real time. Once visitors
are on her site, she need to keep them there and compel them to buy from Zara. That’s the job
of her marketing team. Whether it’s website design, social media, search marketing,
merchandising, email, or other forms of advertising etc. all about those noticed by Zara. Basic
customer service for sales and post-sales activities can be handled using email and, for more
extensive needs, phone support. A customer-management system will make those activities
easier in her online sales business. Zara ecommerce company use outside services for vendor
payments, payroll, and other basic accounting activities. She decides to focus on the sales,
marketing, and customer service. This allows them to maintain a focus on growing their
businesses, instead of paying an internal accountant or doing that work herself as the business
owner. She also managed her HR department like recruiting, setting up compensation,
maintaining compliance, and other HR activities are specialized and time-consuming.