Hey Hello Readers..!😇I'm Saradha Preethi from Amrita School of Business, Welcoming you back to my seventh week of the Supply Chain Blog.👇
In today's retail industry, fast fashion wins over the hearts and wallets of customers. Looking beyond the contentious aspects of fast fashion, such as unnecessary waste output and unregulated production standards, today's buyers have instead sided with the benefits of fast fashion, such as the rapid turnaround of style trends and budget-friendly items.
What do you think Zara's competitive advantage?
🠊 Yes, It's their Supply Chain! Ensuring that all this works smoothly is what Zara does best – managing more of its production and supply chain than any of its competitive counterparts.
Zara was founded in 1974 in Spain by Amancio Artega. In 2019, the company was ranked as the 46th most valuable brand in the world by Forbes. They target women in the age range of 24 - 35 years old. Short production runs build scarcity of designs and produce a sense of urgency and purpose to purchase while stocks last. As a result, Zara doesn't have a lot of surplus inventory, nor does it need to make a major mark-down on its clothing products.
⮞ Raw Materials - Zara buys fabric in only 4 different colors, designs, and cuts its fabric in-house.
⮞ Suppliers - They are all close to their factories so Zara can order on a need basis.
⮞ Manufacturers - Clothes are ironed in advanced and packed on hangers, with security and price tags affixed.
⮞ Distributors - Overnight trucks are used for delivering to European stores and air freight is used to shift to other countries.
Company's Manufacturing Operations
🠊 Zara competes on flexibility and agility instead of low cost and cheap labor. They employ about 3,000 workers in manufacturing operations in Spain at an average cost of 8.00 euros per hour compared to the average labor costs in Asia of about 0.40 euros per hour.
🠊 Zara factories in Spain use flexible manufacturing systems for quick change over operations.
🠊 50% of all items are manufactured in Spain
🠊 26% in the rest of Europe
🠊 24% in Asia and Africa
How does Zara approach their Supply Chain?
1. Procurement Methodology
The Zara Sourcing team does not work on the number of finished garments but works on the number of raw materials required to produce garments. This helps minimize waste, as you can re-use fabric, but don't resell a piece of clothing that didn't meet your standards. A perfect example of how sustainability can be improved in tandem with cost reduction.
2. Deep Collaboration
Suppliers are all near to the Zara factories and work closely together so that Zara can order on a regular basis.
3. Production feedback
Store managers provide feedback to consumers on a regular basis to industry experts, who then relay the information to development and design teams. This rapid feedback loop enables a fast and agile business response.
4. Local Manufacturing
Zara's strategy is significantly different from that of its rivals. Instead of exporting its output in Asia or Eastern Europe, it planned to produce its goods in Galicia. Although lower cost output may be done in other areas, faster time on the market, reduced shipping costs and a low level of exposure to changing tariffs and policies are more than just one factor. This lowers the overall supply risk, with a more narrow collection of risks than the wider global supply chains. It also helps to minimize the global carbon emissions by drastically lowering shipping costs.
5. Spare Capacity
Zara voluntarily leaves up to 85 percent of its plants idle in order to maximize the response to shifts in demand around the world. Another fascinating strategy, very different from the rivals who are seeking to optimize use.
6. Demand Forecasting
Zara reaps the benefits of very powerful inventory management models that help them assess the exact quantity of items required for each store. Twice a week, they ship very small batches. As a consequence, there is a sense of scarcity, very few products are not sold, and if the experiment fails, there is a lot of time to try new models. Eventually, this makes Zara find the right product almost every time.
The success story of Zara shows the strength of its operations. Its cross-functional operations approach, combined with its vertically integrated supply chain, enables mass production under pressure, leading to well-managed inventories, lower trade-offs, higher profitability, and value creation for shareholders in the short and long term.
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Happy Learning with Sara :)
