ZARA – Case Study Analysis Assignment Help
Succinctly describe the operating system of the organization.
Zara follows a just-in-time industrialized method (Crofton & Dopico, 2007) and all departments like supply chain, production, including sales sites all are remain in close connection with the corporate headquarter in Arteixo, outside La Coruña, including a 130,000-square-meter warehouse (Dess et al., 2009) in proximity of headquarter through a highly developed telecommunications arrangement.
The business structure of Zara (as shown in Figure 1) is significant in a way that the productions of its most fashion-insightful products take place internally, though other chains of Inditex do not follow any such strategy. The immense priority is given by Zara to the tracking system regarding preferences of customers and it is carried out incessantly and intensively by Zara’s designers before giving orders to internal and external suppliers. Throughout the year approximately 11,000 distinctive products (Lopez & Fan, 2009) are created including numerous hundred thousand SKUs in various dye, material, and volume in comparison to 2,000–4,000 products of main market rivals. The manufacturing of nearly all the time-sensitive products is done through vertical integration (Mihm, 2010) and the production process compromises of small batches. Zara’s central delivery center is the hub of all kinds of products either produced in-house or outside. From here, items are then sent off two times in a week straightaway to the well-situated and appealing stores which consequently reduced the inventories keeping and requirement of warehouses.
Figure 1: Zara’s Business System
The top hierarchy is mostly Spanish and the part of the top business managers is seen as a “strategic checker”, including establishment of the business plan and endorsing the corporate plans for the individual chains, plus performance controlling instead of an “operator” who is practically involves in operating the chains. Factories of Zara are greatly automatic with expertise in garment type, and serious concentration on the investment aspects of the manufacturing procedure, development of designing patterns and cutting plus great focus on ultimate finishing and assessment. Furthermore, the skill to manage local store functions of both business managers and country managers has been increased by the utilization of standardized reporting methods (Ghemawat & Nueno, 2006).
Significantly, Zara is capable to initiate a blueprint and in the case of completely novel patterns, it has completed merchandise in stock within period of 4 to 5 weeks and 2 weeks for alterations of offered products. On the contrary, about six months are required with the conventional industry model which implicates design cycles and 3 months period for production whereas Zara’s short time cycle decreased operational investment amount and assist in incessant production of latest goods, also throughout the biannual retailing seasons, plus allow Zara to consign the mass volume of its line of product quite well before the upcoming season in comparison to its main rivals (see Figure 2). Therefore, Zara commenced 35% of merchandise designing and acquisition of unprocessed material, buying of refined products from external providers is 40%–50%, and 85% of the internal manufacturing subsequently the beginning of the season which is in case of traditional vendors is only 0 to 20 percent (Ghemawat & Nueno, 2006).
Figure 2: Zara vs. Traditional Industry
Figure 3: Cycle Time Compression through Quick Response
Zara’s advanced step was to adopt the procedure of trends and differences in the markets operate during almost all the advertising period, and positioned much dependency on the information based on speedy rate. In this scenario, it is equally important to have discussions often with store supervisors as the data regarding sales encapsulated by IT system by Zara (Ghemawat & Nueno, 2006)
Zara produced new products at low volumes, display them in particular main stores and manufacture them at greater volume just in case if the customer responses are clearly encouraging. This results in just 1% failure rate on latest items in comparison to a standard of 10% for the segment (Ghemawat & Nueno, 2006).
What are the major (current, future or both) operations and process management related problems and challenges that this organization is facing?
Zara’s pioneering company model is strongly based on an incessant cycle which includes passing of up to date information based on market and customer preferences from the stores to Zara’s designers then on the basis of this information placements of orders from its designers. The cycle further follows by orders from suppliers to warehouses for deliverance of finished goods, and ultimately outbound shipments of goods from warehouses to stores, this last relationship is significantly important; it comprises the bloodstream of Zara’s goods to its distinctive sales means and straightforwardly influence Zara’s revenues worldwide (Caro et al., 2010).
Regardless of Zara’s past achievement in improving its distribution structure, observers speculated that the central logistics model might eventually be subject to diseconomies of scale—that what worked efficiently with one thousand stores might not work with two thousand stores (Ghemawat & Nueno 2006; Caro et al. 2010).
For the distribution of goods, Zara’s supply chain makes use of its two main storehouses in Spain. These warehouses from time to time get consignments for finished clothes from the suppliers and send stock to each Zara’s store globally two times in a week. The main problem related to manage the accurate figure for the units of all sizes of every item which is approximately equal to 3,000 that must be the part of every delivery to Zara’s more than 1,500 stores. The controlling difficulty is mainly complicated because many stores just exhibit goods for sale once there is enough availability of their sizes. The purpose behind this is to maintain stability between the stock shown for sales and the effect of sizes which are not available for sales. This is related to the negative mood that clients may experience once they come to know that the designs they selected after thorough searching and time are not available in required sizes. And, when this happens that there is a shortage in availability of size, the store staff shift all left over stock of that item to the backroom from the exhibit position and put a new item on display, efficiently taking away the unavailable item from clients’ view. On the contrary, if the same happens with a minor size no such action is taken. This is to be noted that the display policy of stores reflect great dependence of consignment over sizes. It is useless to send just few units of a particular size, plus this display removal policy is not mentioned but based on opinion of general store purchasing actions (Caro et al., 2010).
The decisions regarding delivery have to be taken within few hours once the relevant information like existing stock record and recent sales history is accessible. Any additional postponement in operating times of warehouse and shipping programs results in one full day delay response to the stores which is a major problem for Zara as its fast fashion business model is entirely based on quick response. That is why it is suggested that consignment should be sent directly to stores by air means or by truck (Caro et al., 2010).
Furthermore, the existing stock at warehouse is usually not enough (Fernie & Sparks, 2004), and, the life cycle of items at stores is usually based on just a small duration of a selling period that is just five to six weeks. Thus, the store collection turns over occurs very often as compared to the assortment of many traditional vendors (Caro et al., 2010).
Plus, every week up to more than a few million decisions related to consignment take place obsolete IT system cause the huge and unnecessary data of storehouse merchandize, store stock, and sales history for every product which is not easy to handle (Caro et al., 2010).
