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Production Operation Management: Zara Case Study Solutions

Zara has been very successful through its vertically integrated supply chain model. This allows it to bring new designs from concept to stores in just 2 weeks, much faster than competitors. Key aspects of Zara's supply chain include in-house textile production, centralized distribution centers, and twice-weekly store deliveries. However, vertical integration also has drawbacks like higher costs and less economies of scale. As Zara expands globally, it will need modifications like decentralizing supply chains, outsourcing some operations, and improving transportation and packaging to cut costs. While most focus on cost cutting, Zara's revenue-focused supply chain has been very effective. Moving forward, Zara should continue this approach in core markets but also pursue

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53 views4 pages

Production Operation Management: Zara Case Study Solutions

Zara has been very successful through its vertically integrated supply chain model. This allows it to bring new designs from concept to stores in just 2 weeks, much faster than competitors. Key aspects of Zara's supply chain include in-house textile production, centralized distribution centers, and twice-weekly store deliveries. However, vertical integration also has drawbacks like higher costs and less economies of scale. As Zara expands globally, it will need modifications like decentralizing supply chains, outsourcing some operations, and improving transportation and packaging to cut costs. While most focus on cost cutting, Zara's revenue-focused supply chain has been very effective. Moving forward, Zara should continue this approach in core markets but also pursue

Uploaded by

moqim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Production Operation Management ∏

Zara Case Study Solutions

Prepared by:
Mohammad Farid
1941
F.Y.BBA
Case’s Questions and Solutions

Question 1:
According to Richard Hyman, Vertical integration has gone out of fashion in the consumer
economy. Zara is a spectacular exception to the rule. Explain how Zara used its vertically
integrated supply chain to its advantage. What are the drawbacks of having a highly vertically
integrated supply chain for a fashion retailing company? Explain

Answer 1:
Zara has the competitive advantage of vertical integration to be sustainable.
Zara’s success is based on its vertically integrated supply chain system that
achieves a speed of response to market demand in the fast moving fashion
clothing sector.
Zara’s cycles of design, production, and distribution are substantially faster
than any of its main competitors. (6months-3weeks)
The strength of Zara lies in having the new design product on the retail
counter within 2 weeks time. This is due to its very closely integrated supply
network.
For its own production, 40% of fabric requirements are supplied by Comidex
a wholly owned subsidiary of Inditex.
Finished products are ironed, labelled, bagged in boxes or on hangers ready for
retail display, and then transferred by monorail to the Spain distribution center.
Each retail store submits its orders twice a week and receives shipments twice a
week. Orders are dispatched within eight hours of receipt and are delivered
within few days.
Zara's compressed product cycles have induced changes in customers retail
buying behavior (more frequent visits/faster purchase decisions)
Zara's vertical integration works for Zara because it fits with other aspects of its
strategy: mid-market pricing, high-fashion orientation, and constantly changing
product range.
Zara is playing both roles of the manufacturer and the retailer and hence is
capable of making more profits than any of its close competitors.

Disadvantages:

Drawbacks of having a highly vertically integrated supply chain for a fashion


retailing company.
Economies of scale: Vertical integration has made Zara successfully develop a strong
merchandising strategy. Vertical integration often leads to the inability to acquire
economies of scale. Zara cannot gain the advantages of producing large quantities of
goods for a discounted rate. These higher costs are then incurred for the Inditex
Corporation. (scarcity climate)
Increased costs: Zara's speedy and recurrent introductions of new products incur
increased costs as well. They have higher research and development costs. (constant
changeover of production techniques/employees training to use new manufacturing
techniques)
Increased R&D costs: In the manufacturing environment, Zara's product development
teams are responsible for attending high-fashion fairs and exhibitions to translate the
latest trends of the season into their designs. Also throughout the season, Zara's product
development teams are constantly researching the market by traveling to universities and
clubs around the world to track customer preferences.

Question 2:
In the light of Zara’s global expansion in far-off locations like Asia and America, what
modifications according to you, the company has to bring in its supply chain and why?

Answer 2:
o Decentralization of its supply chain.
o Having multiple vertical integrations
o Outsource some of its operations to other countries which helps in cost
cutting.
o Come up with advertisements to create awareness of the brand when
expanding in other countries.
o Use cheaper means of transport and also make air cargo agreements in
bulk to minimize the transportation costs and speed delivery.
o Efficient packaging of inventory.

Question 3:
Most of the supply chain management efforts by organizations now-a-days are aimed at
minimizing costs rather than on maximizing revenues. However Zara's supply chain management
practices are an exception. Do you think Zara should continue with these practices or should aim
at reducing costs so as to maximize profits? Take a stand and justify.

Answer 3:
 Today Zara is moving ahead and is progressing to attaining a larger global market by
expanding to both the American continent as well as the Asian region. In this aspect and
looking at the future of the growth of Zara it is suggested that Zara should continue with
its vertically integrated supply chain management but at the same time should resort to
outsourcing and utilization of the multiple vertical integrated supply chain.
 The fewer the number of firms, the greater are the transaction costs and bigger the
advantages of Vertical Integration.
 The greater are information asymmetries, the more likely is opportunistic behavior and
the greater the advantages of Vertical Integration. This will be effective in the European
Markets.

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