Case 2: Rapid Fire Fulfilment
What were the key lessons Ortega took away from his early scare?
Control over the entire supply chain – He learned being too reliant on external factors and suppliers could be detrimental. Control over the product, from factory to the customer, ensures Zara can make quick decisions and respond to changing customer demands with agility.
Closing the communication loop – He understood the importance of fast and direct communication between all stakeholders in the supply chain. This real-time information exchange allows Zara the ability to respond rapidly to market trends, customer preferences, and emerging fashion trends.
Sticking to a rhythm – He recognized a predictable and efficient rhythm in the supply chain is crucial for maintaining responsiveness. This rhythm ensures each step of the supply chain aligns with the others, preventing bottlenecks/delays.
Leveraging your assets – He invested heavily in production and distribution assets. This leverage enables the company to respond rapidly to changing demands and market trends. What are some of the things Zara can do because of the super-responsive supply chain it has built? It empowers the company
to introduce new designs rapidly, maintain high sales margins, reduce inventory levels, operate efficiently with negative working capital, expand its global market presence, and control the entire supply chain.
How is Zara’s supply chain different from most other supply chains in their industry? Zara’s supply chain is characterized by
its speed, vertical integration, frequent product refresh, high full-price sales margins, reduced inventory levels, efficient use of working capital, rapid global distribution, and overall control over the entire supply chain. What are the three principles Zara lives by? Know what these principles mean and how they are carried out. 1.
Close the communication loop – Zara’s supply chain is organized to ensure the rapid transfer of both hard data and anecdotal information from shoppers to designers and production staff. The goal is to close the information loop between end-users and upstream operations, such as design, procurement, production, and distribution, as quickly and directly as possible. 2.
Stick to a rhythm across the entire chain – Zara adheres to a strict and predictable rhythm throughout its supply chain. Store managers place orders on specific days and times, which are strictly enforced. Order fulfillment and shipment preparations follow set schedules and deadlines. This rhythm, akin to Toyota’s “Takt time” and Dell’s “inventory velocity,” ensures the entire supply chain moves at a consistent and efficient pace, preventing delays or rushes in individual steps. 3.
Leverage your capital to increase supply chain flexibility – Zara makes substantial capital investments in its production and distribution facilities. The company uses these assets to enhance the supply chain’s responsiveness to changing and fluctuating demands. Zara maintains ownership of its factories and manufacturing operations, particularly for more complex and seasonal products. By doing so, the company can quickly address production volumes and schedules to meet customer needs.
Describe Zara’s Design and Production center in La Coruna. It is a highly collaborative and open workspace that brings together design, market feedback, and production planning teams in a physical proximity that fosters quick and direct communication. This arrangement enables the company to create and produce new garments rapidly in response to market trends and customer preferences. The center's design and organizational features align with Zara’s principles of closing the communication loop and sticking to a rhythm, ensuring that information and decision-making flow smoothly throughout the supply chain.
How does Zara control the bullwhip effect? By fostering frequent communication and information sharing, enabling flexible order adjustment, maintaining a strict rhythm and scheduling, and employing short product life cycles. These strategies ensure that information and product flow through the supply chain align with actual customer demand, minimizing disruptions, reducing inventory fluctuations, and preventing overproduction. Zara’s approach focuses on responsiveness and adaptability, allowing the company to efficiently meet customer preferences while avoiding common supply chain inefficiencies.
What are some positive customer behaviors Zara sees because of its operational plan? Zara sees more frequent store visits, a sense of exclusivity, reduced reliance on advertising, higher full price sales margins, and efficient inventory turnover.
Why does Zara prefer to own production assets? Based on the advantages of increased control, responsiveness, flexibility, and vertical integration. These benefits enable Zara to meet customer demands adjust to mid-season changes, and reduce lead times in its supply chain, all of which contribute to the company's super responsive and efficient operations.
What types of products does Zara produce themselves? Which items do they outsource? Zara produces more complex and customized garments as well as products with a short product life cycle in its own factories to leverage control, responsiveness, and flexibility. Folding and packaging, simpler, and labor-intensive products are outsourced to suppliers in various regions, allowing Zara to streamline its operations and adapt to changing customer demands while maintaining the quality and speed of its supply chain.
