Supply Chain management Case Study

Case Study: Zara: Apparel Manufacturing and Retail

Zara is a chain of fashion stores owned by Inditex. Spain’s largest apparel manufacturer and retailer. In 2012, Inditex reported sales of about 16 billion euros from more than 6,000 retails outlets in about 86 countries. In an industry in which customer demand is fickle, Zara has grown rapidly with a strategy to be highly responsive to changing trends with affordable prices. Whereas design-to-sales cycle times in the apparel industry have traditionally averaged more than six months, Zara has achieved cycle times of four to six weeks. This speed allows Zara to introduce new designs every week and to change 75 percent of its merchandise display every three to four weeks. Thus, Zara’s products on display match customer preferences much more closely than so those of the competition. This result is that Zara sells most of its products at full price ad has about has about half the markdowns in its stores compared with the competition.

Zara manufactures its apparel using a combination of flexible and quick sources in Europe (mostly Portugal and Spain) and low-cost sources in Asia. This contrasts with most apparel manufacturers, who have moved most of their manufacturing to Asia. About 40 percent of the manufacturing capacity is owned by Inditex, with the rest outsourced. With highly uncertain demand are sourced out of Europe, whereas products that are more predictable are sources from its Asian locations. More than 40 percent of this finished-goods purchases and most of its in-house production occur after the sales season starts. This compares with less than 20 percent production after the start of a sales season for a typical retailer. This responsiveness, along with the postponement of decisions until after trends are known, allow Zara to reduce inventories and forecast error. Zara has also invested heavily in information technology to ensure that the latest sales data are available to drive replenishment and production decisions.

In 2012, Inditex distributed to stores all over the world from eight distribution centres located in Spain. The group claimed an average delivery time of 24 to 36 hours for European stores and up to a maximum of 48 hours for stores in America or Asia from the time the order we received in the distribution centre (DC) to the time it was delivered to the stores. Shipments from the DCs to stores were made several times a week. This allowed store inventory to closely match customer demand.

You are required to address the following areas, which have raised supply chain issues that are central to Zara’s strategy and success:
BAM6006 Supply Chain Management Assignment Hints
1. Critically assess the advantages Zara gain against the competition by having a very responsive supply chain?

• Define Supply chain management
• Provide examples from the case study of Zara’s supply chain
• Define a responsive supply chain and its importance to Zara.
• Define competitive advantage using Porters’ five forces model
• Identify some of Zara’s competitors in the retail industry
• Analyses the importance of competitive strategy
• Explain how a responsive supply chain supports Zara’s competitive advantage
• Identify Zara’s advantages over its competitors from the case study.

2. Provide a critically analysis of why Inditex has chosen to have both in-house manufacturing and outsourced manufacturing and why it has maintained manufacturing capacity in Europe even though manufacturing in Asia is much cheaper.

• Based on the case study provide a very brief introduction to Inditex
• Define and explain in-house manufacturing
• Analyse the importance of in-house manufacturing
• Define and explain outsource manufacturing
• Analyse the importance of outsource manufacturing
• Provide evidence from the case study explaining why the company chose to use both in-house and outsource manufacturing and whether this is a good idea.
• Provide evidence from the case explaining why the company maintained manufacturing capacity in Europe even though manufacturing in Asia is much cheaper. How does this decision affect the organisation?

3 Analyse why Zara source products with uncertain demand from local manufacturers and products with predictable demand from Asian manufacturers.

• Define and analyse uncertain demand addressing its impact on the supply chain
• Identify from the case study reasons why Zara sourced products with uncertain demand from local manufactures. Discuss if this is a good idea.
• Define and analyse predictable demand and its impact on the supply chain
• Identify from the case study reasons why Zara sourced products with predictable demand from its Asian manufacturers and discuss the reasoning behind this idea.

4 Critically analyse the advantage Zara gain from replenishing its stores multiple times a weeks compared with a less frequent schedule.

• Define and explain supply Chain strategy and flexible supply chain
• Provide examples of supply chain strategy used in organisations.
• Analyse why it is important for Zara to replenish its stores multiple times a week compared with less frequent schedule. Explain the difference between the two and link your answers to the company’s business strategy.
• Explain how technology supports Zara’s ability to use the multiple times replenishment strategy.
• Define and analyse supply chain management systems and their importance to the management of supply chains.
• Analyse the advantages Zara gained from the multiple times replenishment strategy.

5 Provide a critical analysis of whether or not you think Zara’s responsive replenishment infrastructure is better suited for online sales or retail sales.

• From the case study identify Zara’s responsive replenishment infrastructure
• Analyse the benefits of online sales to the retail industry and Zara.
• Link the responsive replenishment infrastructure to online sales
• Link the responsive replenishment infrastructure to retail sales
• Analyse whether or not you feel the responsive replenishment infrastructure is best suited for online sales, retails sales or both.

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