by: Autor: Borja Arrizabalaga
This report aims to study the SCM, Zara, to boost customer value. The concept of sustainability and competitive advantage is considered with other business models and compared with successful and unsuccessful company. The study is compared with the SCM and business strategies of Zara with Dell and Zara with Myers.
Zara was founded and established 1975 by Spanish born Amancio Ortega Gaona. The actual store dealt with the products of the manufacturing company Zara, was an outlet for cancelled orders of women’s night wears and lingerie. These have made a strong foundation for realizing the association between producer and retail trade (Ferdows et al, 2003). Major priority of Zara and its parent group Inditex, is customer and a demand centric supply management (O’Marah & Hofman, 2010). Though Zara is a global multi-national company, but it is a subsidiary of Inditex which is world’s biggest apparel retailer. The Inditex group owns more than 100 textile companies. Zara is the flagship brand of Inditex, captivating maximum sales (Gallaugher, 2008).
PESTEL Analysis of Zara
PESTEL analysis and Five Forces Model analysis made to determine internal and external environment and its competitive advantage. Detailed analysis has revealed tough competition with Zara and its main contenders are Gap, Benetton, and H&M battling for market stake. In 2008, Inditex paved its way to reach the top of success and became world’s biggest fashion retailer (Hall, 2008). But the global economic condition has changed. Nowadays products have shorter life span, with markets more unstable demanding so that no company rests on its glories (Christopher, 2005)
Zara’s speed of delivery, vertical integration, its deployment of JIT using technology Collaboration of chief tasks, strategic use of organizational resources and core competencies contribute to Zara’s competitive advantage.
This report entails a deep analysis of Zara’s strategy method, customer value and competitive advantage, comprehending the influence of supply chain in this. Theoretical frameworks related to study are, Porter’s generic strategies (1980), Just-in-Time manufacturing and supply chain patterns are studied and other related factors are organizational culture, modernization, education and knowledge management and disposition of core competence. Zara’s business strategy has been compared with Dell and Myers.
Comparison between Dell and Zara’s Logistics Management
Dell and Zara, both are prosperous corporations. One manufactures computers while the other one apparels.
Dell’s Supply Chain
It is very simple indeed consists of three main players: consumer, Dell and the supplier. The customer places the order, Dell procurer the supplier and parts, immediate assembly and supply to the customer.
Zara Supply Chain
Its supply chain is completely dissimilar from the other one. Designing, sourcing, manufacturing, distribution to outlets, are the main functions of supply chain.
Point of Difference
Type of supply chain of Dell
Dell follows horizontally integrated supply chain whereas Zara a vertically integrated supply chain. Dell is isolated from the production process, hires third party suppliers for the finished goods and delivery.
In contrast, Zara has full control over different phases of production of garments. The company is successful due its full control over the trade, from crafting, to manufacturing, and to delivery. Total control on the company enables them respond quickly to the changing fashion and customer preferences. This control permits Zara to issue new designs in a short duration of time. Another benefit of horizontal supply chain is that it is controlled easily since minimum responsibilities are there in the assembly line. On the other side, Dell have to coordinate a number of small procedures, control the whole thing and make necessary changes which is much easier. Both are correct for respective companies.
Zara follows vertically integrated supply chain so it exercises control over suppliers. Demand is easily met and manufacturing is easily achieved. Dells manage supply chain very well since 15 suppliers’ delivers 85% of their services. Although they have number of suppliers but speed and accuracy is the primary concern for Dell to their services of clients. Risks are involved like uncertainty, insecurity, shortage of goods and delay in delivery. But instead of lessening their stocks, Dell stresses on high speed of delivery productsThis is possible since 95% of suppliers are located close to the manufacturing unit.
- Production philosophy
Dell follows make-to-order strategy. Such a strategy is custom – made in a very short span of time for respective customer that is orders are made as per the requirement of the customer at reasonable prices. Sometimes the core competencies of partner firms or suppliers and information technology are leveraged, such as the Internet, to incorporate a value chain. Dell provides range of customized products on its website. They also design products which are easily customized.
Zara is keen in introducing new designs and launching new products very quickly. They believe more styles are equal to more choices. They launch products in a limited showroom in which stores receives few pieces of the new product. This strategy of making the product exclusive sold out the stock quickly also generates curiosity in customer about their next launch, making the next product exclusive and demanding. The strategy of lower quantity is equal to limited supply is equal to compulsion purchase. Zara does not advertise their products because they do want a brand image. Their target is product and customer’s expectation of their products. Since products are limited, customers frequently store to check new arrivals. Some clothes are highly demanding in some region while the other clothes in other region. For an instance, in India demand for summer clothes is very high for their tropical climate, whereas in Europe demand for woolen clothes is very high due to their cold climate all through the year. Europe being the fashion capital of the world can market their products in other region such as Asia. Such a production philosophy serves the customer’s tastes. Dell puts forward their philosophy of make-in-order products.
Dell has low inventory costs with no extra cost on warehouses. They have 7 hours of inventory instead of 10 days. Other costs like warehouse, direct delivery, supplier storage with transporter or retail storage with direct customer pickup helps them cut cost. Dell has no inventory policy. On the contrary Zara has number of warehouses to store their garments and circulate them efficiently.
Indirect Distribution Channel of Dell includes: retailers, suppliers, assimilator, distributors and the end customer. The B2B model followed by Dell allows 90 percent of suppliers to order online. Dell sells its laptops, PCs directly online as per the direct model. This way the in-between stages are removed that add more time and cost, and Dell is directly connected to its clienteles. This upshots transport costs of Dell.
Products of Zara are shipped from the manufacturing site in Spain through Corunna depot or Zara Logistica. The inventories are not stocked and are distributed to the Zara stores twice in a week. For overseas distributions, the inventories are carried to the Spain border, and the logistics carrier of the country takes it down to the stores. Stores order more stocks from offers, commercial manager takes the orders and passes on to the logistics who handles the stock. Stores are graded according to their sales and accuracy of orders, this rank governs their priority level for supplies of order. If any product is not selling in the market their production is immediately stopped. This means that no stocks will be piled up. If a product is not selling in certain stores, the company stops production of that product. This eliminates unnecessary stocking of unsold goods. This process adapts to consumer’s preferences quickly.
New collections and designs are updated weekly and released. Zara shop managers places order via La Corunna on sold and unsold products. This reports a product is to be kept or changed, and new designs are to be created or not. The designers depend on apparel sales, criticisms and remarks from customers. This communication system is cost efficient speed up their process. This is Dell’s weakness since they lack foresight about international styles. The customer orders are their only feedback.
Comparison of Myer with Zara
Myer has made no effort to segment their markets along demographic lines and psychographic lines of customers and their use of products, whereas Zara has segmented the market along demographic lines and lifestyle lines. Zara brands itself as the leader of fashion industry offering money value. Myer’s “My Store” concept is ambiguous. It has a general target of market. Zara’s target group is between 20 – 35 year old young fashion markets. Whereas, Myer positions itself as a departmental store with extensive collection of products, but unsatisfactory customer service. It uses discounting sales strategies to invite more customers. Instead, Zara is motivated on launching seasonal fashion products with tempting promotional demonstrations and adequate customer services.
Supply Chain Management Strategy
The companies are more focused on strategic supply chain management (SCM) of occupational improvement and achievement (O’Marah and Hofman, 2010). Strategic logistics management is a major source of customer satisfaction and competitive advantage.
As a new model (Skjott-Larsen et al, 2007) SCM is focused on handling physical product and information which involves both upstream suppliers and downstream customers to create value.
SCM is the organization of relationship with suppliers and customers to deliver best customer service at low cost. He further elucidates the definition that managing relationships is the key to supply chain management. It also highlights that suppliers and buyers are separate entities key point of distinction between supply chain management and logistics.
Logistics meets the demand of end-customer by supplying what and when is needed and at low cost. Maintaining logistics of physical goods and information and providing end customer value is the fundamental aspect of SCM.
The SCM strategy and competitive advantage has gained popularity recently (Romano, 2009). An explicitly defined, activity-oriented, well-reserved, well-organized, quantifiable strategic plan provides valued benchmark in the global financial setting. Strategy binds the organization to the peripheral world.
The SCM strategy is linked to the hierarchy of the organization. As Christopher (2005) supports that effective organizations operate with one-plan. Overall the strategy of SCM and logistics should concentrate on functions, processes and actions of supply chain management objectives.
Just – in – time policy
Just-in-Time (JiT) is a pioneer of Japanese technology, monitors inventory (Hill, 2009:p480). Ohno (1988) observed car manufacturer, Toyota, JiT eliminates wastes through minimizing inventory holding costs, production time and by reducing defects (Christopher and Towill, 2000). Nowadays JiT is utilized in almost all the manufacturing units (Hill, 2009) and lean thinking across supply chain and business operations (Harrison and Van Hoek, 2005).
Zara has reached its zenith to adapt with technology and principles of customer value and modernization. Market winners and qualifiers are main determinants of different approaches of lean and agile and services.
Zara’s competitive advantage
The World Retail Congress newly named Inditex as “International Retailer of the Year‟ for its best practice in global retailing. It also received maximum score in stock market index for social responsible investment, FTSE4Good, 2011. These accolades indicates Zara’s tendency for constant expansion. Its quest for invention is another cause of competitive advantage in today’s consumer -driven market. Zara’s new product development and innovation is accredited worldwide and its leadership in service. Modern-day business knows partnership, alliance and clarity in their supply chain which is Zara’s strength with suppliers (Romano, 2009).Persistent improvement, innovation and collaboration all contribute to the concept of learning organization. Learning organization is holistic, insolence and related to conviction. Zara’s customer- oriented approach, is subjective to establishing Zara and distinguishing the association between manufacturer and retailer, represents an exposed, receptive attitude.
Pedler et al (1997) provides a learning organization which provides assistance in collective and individual learning, participative learning, partnership, alliance and ecological scanning in conjunction to Top 25 supply chains. The training, sense of sympathy and cooperative ethos are the characteristic of Zara.
Dalton (2010) recognizes that learning and core competence are the sources of competitive advantage. Value chain analysis envisioned the core competence of Zara.
Finally, brand credit and fidelity holds less authority in today’s international market. Brand value is a source of competitive advantage. Value chain analysis illustrates the brand value Zara has accrued. One online source places Zara as number219 in the top global 500 brands. H&M is ranked highest at number 89, Gap at number 425 and Benetton fails to make any rating. Zara is positioned at par with Dove and M&S and moves in advance of Sanyo, Colgate and Hyundai. There are various methods of calculating brand value but the used one is a discounted cash flow (DCF) technique.
It can be concluded that a supply chain that works in favor of someone may be detrimental to others. Zara’s supply chain management analysis provides deeper understanding of internal value chain. Its customer-centric services, leading speed, customized technology, logistics vertical integration and economies of scale grasped from its parent company, Inditex, its are the key to its success. The inputs of its supply chain, collaboration and inventive capacity, information and knowledge management and a educative organization have also arose as significant cause of success. Zara’s mindset and strategy is customer-centric services. SCM believes that value addition to customer service is important to gain competitive advantage (Harrison and Van Hoek, 2005).