Zara case study
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Humber College *
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Course
5004
Subject
Industrial Engineering
Date
Dec 6, 2023
Type
docx
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3
Uploaded by GeneralMusic11259
How does an individual firm like Zara manage a supply chain? How does it get
new products from design to store so quickly?
Zara manages its supply chain by using a fast and efficient process that allows them to
bring new fashion products from design to stores quickly. Here's how it works in simple
terms:
Listening to Customers:
Zara's store managers stay connected to the company's
headquarters in Spain using handheld devices. They share information about what
customers are buying and what they want but can't find in the stores.
Designing and Producing:
When Zara gets feedback from customers, its designers in
Spain quickly create new designs or modify existing ones. The company's factories,
located close to the headquarters, start producing the clothes using automated
equipment and skilled assemblers.
Fast Delivery
: Once the clothes are ready, they are shipped directly to Zara stores in
Europe by truck and to stores in other parts of the world by air. Zara makes deliveries to
its stores every few days, ensuring that new fashionable items are always available for
customers.
Flexibility and Control
: Zara's advantage lies in having complete control over its supply
chain. It can modify operations to make processes faster and more efficient. For
example, merchandise can be directly placed on the sales floor from delivery, reducing
the time it takes for customers to see and buy the latest styles.
Limited Stock and Scarcity:
Zara produces clothes in smaller quantities, creating a
sense of scarcity among customers. If they don't buy the item now, it might not be
available later, encouraging quicker purchases.
Adapting to Demand:
Zara uses data and mathematical models to predict customer
demand and stock levels. This helps them avoid stockouts and manage inventory
effectively, reducing waste and costs.
Constant Improvement
: Zara constantly looks for ways to optimize its operations, even
when business is going well. They believe in being proactive and always seeking to
improve their supply chain processes.
In summary, Zara's success in managing its supply chain comes from listening to
customers, designing and producing clothes quickly, efficient delivery, and maintaining
flexibility and control over the entire process. By staying responsive to customer
demands and continuously improving their approach, Zara has become a leading name
in the fast fashion industry.
What are some of the ways that Zara’s supply chain management
system has helped create value for its customers? With examples
Zara's supply chain management system has played a significant role in creating value
for its customers in several ways:
Faster delivery of new fashion
: Zara's supply chain allows it to respond quickly to
changing fashion trends. When a store manager notices that customers are asking for a
specific item or color that is not currently available, they can communicate this
information directly to the designers in Spain. The designers then work with nearby
factories to produce the requested item, which can be in stores within just a few weeks.
This fast delivery ensures that customers can get the latest fashion looks without having
to wait for months.
Example: If a customer sees a pink shirt in the store but wants it in purple, the store
manager can inform the designers, and within a short time, Zara will have the purple
version available in stores.
Reduced stockouts and greater availability
: Zara's supply chain efficiency helps
minimize the chances of stores running out of popular items. With frequent deliveries to
stores, the inventory is regularly replenished, and customers can find the items they
want when they visit a Zara store.
Example: Instead of shipping new products a few times a season like other retailers,
Zara makes deliveries to all of its stores every few days. This means if a popular item
sells out quickly, a new batch of the same item will be available shortly.
Limited edition and scarcity effect:
Zara's strategy of producing and shipping in small
quantities creates a sense of scarcity among customers. When they see a product they
like, they are encouraged to buy it immediately, fearing it may not be available in the
next visit. This motivates impulse purchases and helps Zara sell more products at full
price.
Example: Zara intentionally limits the stock in stores, making customers feel a sense of
urgency to buy the item they like before it sells out.
Reduced need for discounts
: Zara's efficient supply chain means they rarely have to
discount merchandise that is not selling well. By producing only what is in demand and
avoiding excess inventory, Zara can sell its products at full price, leading to higher
profitability.
Example: Zara's practice of producing limited quantities of new designs reduces the risk
of having large amounts of unsold inventory that may require heavy markdowns to sell.
Customer-centric approach
: Zara's supply chain relies on real-time feedback from
store managers and customers. This customer-centric approach ensures that Zara is
constantly aware of what customers want and can quickly adapt to meet their demands.
Example: By using handheld devices linked to the corporate office, store managers can
provide immediate feedback on what customers are buying and what they want but can't
find, allowing Zara to respond quickly to customer preferences.
Overall, Zara's supply chain management system allows the company to stay ahead in
the fast-paced fashion industry, providing its customers with trendy and fashionable
products in a timely manner.
What challenges did Zara’s focus on supply chain efficiency create?
Are all such systems destined to suffer such “growing pains”?
Zara's focus on supply chain efficiency created some challenges for the company.
One of the challenges was the risk of stockouts. Because Zara aims to quickly respond
to customer demand and introduce new fashion items frequently, there was a constant
need to replace inventory. However, sometimes the number of items received by stores
was less than what they had ordered, resulting in stockouts. This meant that some
stores didn't have enough stock to meet customer demand, which led to disappointed
customers and lost sales opportunities.
Another challenge was excess inventory at certain locations. Since fashion trends
change rapidly, Zara needed to regularly update its merchandise on the shop floors.
However, if a particular item didn't sell well at one store, the inventory for that item would
sit unused and incur storage costs, while another store might need the same item to
meet its customers' demand. This imbalance in inventory distribution created
inefficiencies and added costs to the supply chain.
It's important to note that not all supply chain systems are destined to suffer from these
growing pains. Zara's challenges were specific to its fast fashion business model, which
focuses on frequent updates and responsiveness to customer demands. Other supply
chain systems in different industries may face different challenges depending on their
specific characteristics and requirements. Each supply chain needs to be designed and
managed based on the unique needs of the business it serves.
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