Executive Summary

The case study revolves around Zara’s supply chain, which is a retailer based in Spain and deals with accessories and clothing. It has been in existence since 1975, and its supply chain has been among the key contributors to its success. The company practices a co-opetition strategy of enhancing efficient collaboration with suppliers. This a strategy has proved to be efficient due to the company’s practice of lean thinking, agility, vertical integration, quick responses and strategic responses. Despite the current success, the company can maximize on e-commerce and foster strategic alliances for increased sustainability. Secondary data collection method has been used in collection of viable information for the case study. This involves data from commercial and journal articles regarding various supply chain aspects about the company.

1. Introduction

Zara is a retailer based in Spain, which deals with accessories and clothing. It was founded in 1975 and has grown to become Inditex group’s main brand. Initially, it was an outlet for women’s lingerie and night wears’ canceled orders. This set-up has enabled the company to establish a strong foundation in the realization of association between retail trade and the producer. Currently, the organization has over 2,100 stores across 88 countries (Stevenson, 2016). The company normally selects expensive and suitable real estate locations in order to open designated flagship stores. Zara tends to prioritize on consumers and establishment of a demand-centric supply management. In 2015, Inditex actualized a valuation of 100 billion Euros; which is the highest figure since its inception. Zara has been the flagship brand for this group, and as of 2014, it accounted for more than 66% of the total sales (Stevenson, 2016). There are several factors that contributed to the success that Zara is experiencing at the moment. Among them is the establishment of a super-fast turnaround, taking consumer preferences into account and having a variety of products. The logistics work quite favorable hence making the company quite appealing to the target audience.

2. Theory

Zara has established a core co-opetition strategy; which is efficient collaboration with suppliers. This has enabled the company in operating effectively and becoming a favorite brand for most consumers. There are various components that are likely to underpin the operation of this co-opetition strategy. Among these components are lean thinking, agility, integration, strategic management and quick responses. Lean thinking involves the ability to produce exactly what is needed and within the desired quantity, where it is needed and when it is needed (Christopher &Towill, 2000, p. 208). The latent theme involves attaining more with fewer resources while according consumers exactly what they want. It is more of creating value while eliminating waste. Agility, on the other hand, revolves around how fast an organization can respond to varied changes in consumers’ preferences, the environment and competitive forces among others. Organizations ought to adapt swiftly to various changes relevant to the supply chain in order to remain viable and competitive (Christopher &Towill, 2000, p. 211). Integration involves coordination and alignment within a given supply chain. It involves parties responsible for raw materials, fulfilling purchase, manufacturing the product, supporting services and transporting completed items. Under strategic management, an organization tends to make high-level decisions related to the supply chain that are relevant to the entire organization. The decisions made ought to reflect the overall organizational strategy. Quick responses, on the other hand, tend to follow the concept of lean thinking. These aspects are likely to hinder Zara’s co-opetition strategy of collaboration with suppliers if they are not used in the appropriate manner. However, in Zara’s case, they have worked in strengthening the co-opetition strategy since they have been integrated into the supply chain.

3. Practice

The success of the company is rightly attributed to its efficiency in supply chain management. Although the company produces more than 450 million items every year, it has largely remained efficient in its supply chain giving it a competitive advantage over other industry players. Every week, two deliveries are made in all the company’s stores across the world. The success behind this precision in deliveries stems from the company’s overarching control of its manufacturing and supply chain functions. Indeed, this is a unique trend and is different to strategies employed by most of its competitors. According to Ghemawat & Nueno (2006), the diversification of the company through vertical integrations is efficient in the attainment of significant growth for the company. Clothes appearing in their original designs in catwalks are replicated in the company and retailed at the stores within two weeks. Ultimately, the success boils down to the fact that the company owns its supply chain. Its strategy involves competing on its speed to market with an embodied philosophy of fast fashion.

Choosing Zara for this case study is based on its working co-opetition strategy that accords the company a competitive advantage in the market (Ferdows et al, 2003, p. 63). The company’s supply chain management incorporates most of the components and concepts that make the co-opetition strategy adopted to bring positive results. This paper identifies the main co-opetition strategy used in the company and the rationale behind its application. Additionally, the implementation of the different strategies is analyzed with a focus on their effectiveness and overall benefits. Most of these strategies are the key towards the effectiveness of the co-petition strategy of forging positive relationships with suppliers. Secondary data collection method has been used in collection of viable information for the case study. This involves data from commercial and journal articles regarding various supply chain aspects about the company. Lastly, the paper provides recommendations for further improvements in areas that are faced with challenges.

4. Analysis

Enhancing efficient collaboration with suppliers has made Zara’s supply chain effective. This is because it ensures that the suppliers comply with the requirements of the organization. Among the key success factors in this supply chain is:

4.1 Lean Thinking and Agility

The concepts of lean thinking and agility are seen in the company’s use of the just in time strategy. The company uses the just in time strategy to deliver trendy and fashionable clothes that are catered for different tastes. In this regard, production is done minimally to reduce wastages in an efficiently integrated and controlled system. Just in time is a model borrowed from Japanese technology to aid in the control and monitoring of inventory. It minimizes wastage in production through reduction of defects, inventory holding costs as well as production time. The strategy is in use across different manufacturing units in the world. Zara has capitalized on this strategy in keeping its inventory in check. First, it maintains a relatively large volume of production in-house making sure that the factories reserve about 85% of their production for in-season adjustments (Cowe et al., 2011). This adjustment is important in ensuring that the company maintains a high level of flexibility in the variety, amount and frequency of goods produced.

Besides having a flexible mode of production, the company also relies on a heavily sophisticated process of making garments from facilities that are near its design location in Spain. Although the cost is relatively higher, the company benefits from improved turnaround time making it highly efficient. The strategy also ensures that Zara has ample time to make adjustments on its designs midway through the seasons. For instance, the company only commits about 15 percent to its advance production of about six months before the entry of a new season. Then, the company avails about 50% of its production by the start of the season and uses the new stock to test the market. In so doing, the company spares about 50% of its clothes to be designed within the season thus giving it more flexibility in terms of designs (Anon, 2008). The significant room left by the strategy allows for the company to design new styles that are in high demand in the market. In 2004, for instance, a popular musician went on a tour of Spain with her dressing sparking excitement among the youths. Before the musician wrapped her last performance, every teenager was rocking a similar design from Zara’s stores.

The just in time production strategy is highly effective as it allows store managers to send feedback from customers in real time. According to Mihn (2010, p. 58), this information is forwarded to the designers and new or improved designs are made depending on the feedback from customers. Also, the company has adequate capacity to respond to new and changing demand as it arises. Its production strategy allows for frequent shipments creating temporary shortages that increase demand and opportunity for sales. The sense of scarcity exuded by just in time production strategy translates into the sale of products at full prices thus increasing the company’s profit margins. The costs of production are also reduced as the company reduces the volume of marked down merchandise immediately. This strategy is central to most competitors that struggle to clear the inventory of a specific design before coming up with another design. Essentially, Zara’s unsold items account for about 8% compared with the average of 18% among its competitors (Smith, 2008, p. 54). The reduced wastages result in Zara acquiring about 85% of the full price of its products against an industry’s average of 65% (Smith, 2008, p. 54).

Christopher & Towill (2000, p. 209) assert that the strategy provides the company with increased agility as it allows for forecasting errors. Consequently, cloth designs that perform lower than projected are scratched immediately and newer designs introduced to compensate for the dip in sales. The result is that Zara operates under a super fast turnover through the production of all products in relatively smaller quantities. New designs are stocked in the different stores within 15 days thus allowing for the company to respond to customer demands in time (Stevenson, 2016). Customer feedback is continually used to increase the production of more popular designs while disregarding those that are less popular. Sales data is assembled on a daily basis by the store managers and communicated to the design headquarters for immediate action. Also, the company reduces bottlenecks in distribution by identifying products that are less popular and redesigning them, into other products. This trend is in contrast to the competitors who struggle with the clearance of existing products even when they are not in high demand.

4.2 Strategic Management

Inventory management, efficient business model and centralization of logistics work to show Zara’s concept of strategic management. Among key aspects in the success of Zara’s supply chain management is its effective management of inventory. It is rare to come across excess stock in any of the company’s warehouse or store. The company employs a philosophy of lean inventory across its supply chain ensuring that all resources are maintained at lean levels from the finished garments to the raw materials (Hansen, 2016). The company employs a continuous assessment of the requirements of every one of its stores and determines the quantity that should be supplied. In this undertaking, the company employs inventory optimization models and effectively ships the products biweekly. The strategy ensures that stores receive a limited amount of inventory to include only what they require. This is in contrast to other companies that stock their stores with large quantities of a product with the aspiration that they will be purchased. Eventually, the maintenance of lean inventory helps in building the company’s brand as an exclusive store that doesn’t stock unpopular products.

The company’s increased turnaround time ensures that it avails regular batches of popular products within a smaller timeframe. The close proximity with which the production facilities are located to the distribution headquarters ensures that shipments are done more regularly and in smaller quantities (O’Marah, 2016). The benefit of this strategy is that the company does not suffer huge losses in the unlikely event that a product design performs poorly in the market.  In situations where this is the case, the company returns the products and redesigns them within no time. Because of the small quantity of the batches shipped, the company has little-unsold inventory.  Also, the improved turnaround time allows for improvements in failed designs and the subsequent development of new designs after the current trends. The emphasis on lean inventory management is effective in ensuring that the company is up to date with the current trends and designs. This strategy eventually helps in the company producing only products that are in high demand thus improving its performance.

The company has also adopted a centralized system of logistic management making its supply chain management better than those of competitors. The centralization of logistics allows for fast and well-coordinated decision making to respond to the organizational needs (Berfield & Baigori, 2016). Further, the company is committed to a fast rhythm of production that is aimed at fulfilling the order requirements of the stores. As thus, decision making should be done in a fast manner to ensure that stores do not run out of stock in times of high demand or have too much stock in times of low demand. The coordination is so high that each store sends its order requests biweekly during specific days and times. Also, the trucks carrying the deliveries must leave the warehouse at specific times to ensure that the shipments are delivered to the stores at specified times. This strategy allows for efficient management and planning on the part of store managers.

Besides clearly defined timelines, the company has a policy of labeling the garments before they are shipped leaving the store to price the garments upon destination. The establishment of a clearly defined timeline allows for the efficient management of the process at all the different departments. Sheffi (2016) argues that the existence of a clearly defined rhythm further enlightens all staff on the different activities to be done within specified timelines.  Every staff member from the procurement to the retail department has ample knowledge of the requirements and how each situation should be addressed. By clearly defining procedures beforehand, the company allows for customers to plan in advance as they already know when new stock will arrive in different stores. Ultimately, the centralization of logistic management allows for predictability both to the customers and the staff allowing for better coordination of different points in the supply chain.

The business model is also important in ensuring an efficient supply chain resulting in a competitive advantage. Zara has agents specially placed in different locations to scout for new fashion trends. The agents then communicate new designs to the designers in Cube and the same is replicated in less than three weeks. The low production generates a sense of scarcity thus prompting customers to buy the products while the stocks last. Owing to its shrewd business model, the company attracts customers to its stores on an average of 17 times a year against the competitors’ three times a year (Crofton & Dopico, 2012). Moreover, the company does not apply e-commerce as it would provide a disadvantage to the company. Most of the clothes are uniquely designed and having them on the internet would undermine clarity. Customers are therefore encouraged to visit the available stores and sample the different designs before purchasing. In addition, the company has over twelve annual inventory turns against an industrial average of four inventory turns. This strategy provides a competitive edge for the company as customers rush to its stores to buy the new inventory. Lastly, the company prices its products based on the prevailing demand as opposed to its competitors that base the price on manufacturing costs (Mo, 2015, p. 127). As such, Zara rides on the increased demand to make huge returns while selling at lower prices when the demand is low.

• Strong Distribution Network

Zara has established a solid distribution network to meet its supply chain requirements efficiently. The distribution network sustains the shipments and deliveries of the company’s products to all its stores across the 88 countries that it has a presence. Delivery of goods to the stores within Europe is done within 24 hours using both trucks and shipments. On the other hand, deliveries made to other American and Asian outlets are accomplished within 40 hours branding it one of the most efficient distribution channels (Tokatli, 2008, p. 26). The efficiency in the distribution of its products ensures that stores restock their shelves regularly with newer as well as improved designs as per the demands of the customers. Consequently, the efficiency of the distribution network allows for deliveries to be made twice per week in all the stores across the world. It is estimated that the company can take a maximum of fifteen days in getting a product from the design stage to the store. In contrast, the industry standard for the entire process is approximated at anywhere around six months. This solid distribution network clearly gives the company a competitive advantage in the industry.

5. Recommendations

Despite the success of an agile and lean supply chain management, Zara has some weaknesses that require improvements in sustaining the competitive advantage it has. One of the areas in which the company is performing at below average is the use of e-commerce in doing business. Today, the world is largely inclined towards the use of internet in selling products and the company has been left behind in this respect. Although the current strategy is highly effective, future trends dictate that companies have a huge online presence. Zara must, therefore, devise an efficient e-commerce tool through which it can reach its customers in different regions (Cowe et al., 2011). Moreover, the use of internet in sales can increase its customer base to cover regions that are not physically covered by their stores. Consequently, the use of e-commerce would be highly efficient in maintaining the company’s philosophy of a lean inventory as products would be availed based on demand. The company should rely on the existing solid distribution network to increase its online presences by shipping products directly to customers.

Although the company has distanced itself with other industry players in terms of the approach taken, the future should be different. The company should strive to form strategic alliances with competitors in supply chain management. In fact, forming alliances for the company’s benefit is one of the ideals of co-opetition models of logistics. The idea is that Zara should form horizontal collaborations with other players and the extension of the concept of game theory (Christopher & Towill, 2000, p. 211). In so doing, the company would benefit from minimal supply chain disruptions as threats posed by increasing phenomena of terrorism is neutralized. However, the concept should not be adopted blindly but should include activities that are considered weak. Consequently, capital intensive components of the company’s operations must be kept in-house including those that would put it at a disadvantage. Moreover, activities that the company competes with other competitors should also be maintained in-house to reduce the risk of being undermined.

6. Conclusion

The study finds that the strength of Zara’s competitive advantage stems from its efficiency in supply chain management. The choice of a co-opetition strategy that revolves around establishing favorable collaboration with suppliers has helped in establishing a successful supply chain. It has been viable to enhance vertical integration and customer centered operations inorder to gain the upper hand against its competitors. Moreover, agility, lean thinking, strategic management as well as strong distribution networks ensure speed in delivery of products to customers. The uniqueness in its supply chain as evidenced through centralized logistic, collaboration and inventive capacity are proof of the benefits of a favorable co-opetition model. The high responsiveness with which the company handles customer feedback and integrates the same into its products provides an advantage over its rivals. Also, its strategy is customer centered and is based on the belief that competitive advantage is attained through value addition to the consumers.

References

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