Zara - Planning and Venturing into New Market and Decentralizing Decision-Making - Case Study Example

Business Report Student Name: Course Code: Institution: 18th April, 2017 Executive Summary The fashion industry is a very dynamic one that keeps changing every few months. There are various strategies that may keep a company afloat, some of which may favour the company when used in consideration of the core competencies that the company is known for. Zara, a market leader in the fashion industry, is known for using strategies like centralizing decision-making, especially on design issues, in its Spain offices where original designs are developed as taken from fashion cat walks. There are various challenges associated with such strategies, but Zara has weathered the storm to emerge a market leader. In addition to looking into the problems with Zara’s operation management and offering alternative solutions, this paper examines recommendations that may help Zara benefit further from the use of distribution strategies to capture a wider market for its products. Introduction Zara is a company that deals in designing and distributing - for sales - apparel and other clothing material meant for trendy folks from the all the social classes possible. While this may be apparent, it does not in any way structure its customers by age since it already has a self-defining demographic that identifies with its kind of products through trend. Currently, and going by sales figures, Zara qualifies as a large-scale dealer in clothing items for customers from all walks of life, seeing as it supplies its products from across continents and cultures. Located in Spain, much of its operations are run from factories in Europe and Asia. Even more appealing is the fact that outlets in the North American region are actively integrated into the supply chain. Despite having a formidable supply chain, there are some challenges that Zara faces in its operations to deliver quality at a low price to its esteemed customers. These are like the expenses involved in the supply chain are numerous because when Zara needs to offer products to far-flung areas where there is no distributor, then it has to use an elaborate and expensive channel by foreign distributors. Discussion Zara has a properly established channel of distribution, meaning that it handles a huge share of its customers on its own. However, there are issues that arise from the fact that there are areas where it has minimal reach. This means that it probably has to contract external companies or outsource services from other retailers and wholesalers, which is such an expensive endeavor, given that Zara already has an elaborate supply chain. Besides this, Zara benefits from a numerous channel of distribution that is backed-up by a consistent following of fashion trends from the cat walk, after that designs are copied and offered for production within a fortnight of being viewed. This means that every other week, stores have to keep up with a constant supply of products, thereby granting customers a chance to keep up with trends. Furthermore, the vertical integration in its supply chain means that Zara stands a very low chance of profiting from economies of scale since it cannot influence some aspect of production due to differing visions for the company with which it integrates vertically (Lopez & Fan, 2009). Zara’s competency is distributed among various departments that ensure there is a balance between demand from customers and supply by the store. In the formative stages, Zara is greatly involved in the designing of latest trends in fashion by adapting what is seen in fashion cat walks. Secondly, the company acquires supplies from suppliers who offer them the right amount of required material to produce high-quality apparel and other products. Caro and Gallien (2010) opine that, for a sophisticated inventory control or management system like Zara’s supply, more often than not, meets demand almost every other time. With Spain supplying approximately 50% of the product, the remaining outlets in Europe offering 26% and the Asian outlets with an output of the remaining 24%, Zara meets its demands sufficiently. Zara has a very smooth-running electronic resource planning system that ensures information is treated with the utmost care it deserves. Effectively, information is shared around all the important points in the supply chain so that there is a timely delivery of resources and products. Furthermore, the ERP is integrated with the customer relationship management practices so that technology is effectively used to manage interaction between the business and customers. This is very critical since the customers are an integral part of design formulation as they contribute to the general process of designing products. While this is very effective as a strategy to obtain information from customers, it also serves as a great way of marketing the product without having to struggle with various channels that are common in businesses that use the regular strategies to capture certain market segments. The biggest issue arising from the style of management in operations at Zara is that during expansion, the business is likely to experience a big strain in supply because its distribution is done from a central point. While this appears like a boon for Zara because it avails a constant supply to retail outlets on demand, it also creates a certain deficiency since outlets have to deal with the available material, and when this runs out, then they have no more products to offer customers. According to Shen et. al. (2016), Zara should offer a better supply chain management that enables operations to supply a consistent stream of products even when the stocks run out in specified locations. In comparison, other firms take longer from design to delivery since they do not have a centralized system of distribution. They operate by producing a sizeable number of products after a long period, usually between four and twelve months, which are then distributed to a wide network of smaller distributors. This creates a great possibility that some goods at some points may get stuck for some reason, causing a backlog of supply to some outlet. This means that customers may not have a steady supply of goods despite there being a supply of the same that is stuck somewhere, unlike the case of Zara where products are delivered promptly, but run out soon enough. This may be improved by adopting an approach that is similar to Zara’s, but with a much-decentralized operations management so that each region will have a point from which it can obtain supplies of products in each category. Forecasting and planning methods are very effective ways through which businesses can operate without having to project sales in a haphazard manner. For instance, a market study can indicate for how long a certain trend is likely to stay among a certain market segment, say, the youth. After gauging such a trend and how long it may stay, a business should only supply a certain quantity of products to the said market, after which it can then start planning on the next trend with the aim of maximizing the profits from it. Talk (2016) compares this with the use of stochastic processes in insurance where companies can predict trends and use the data favorably to maximize intake of customers or even minimize losses. Similarly, Zara can continuously gather data on trends within the fashion industry and use it to project figures of demand from customers appropriately, making it harder for stocks to run out within a short while. Decision-making at Zara is made based on the type of strategy and effect that is to be achieved. For short-term solutions, decisions may be made by members of staff. However, there are decisions that must be made by the top management teams that are responsible for strategy formulation. In this way, the company empowers staff by offering them a chance to make decisions with short-term effects. In addition to this, policy making at Zara is market-controlled since customers have a say in how they would like to have their products. This means that to some extent, customers have the motivation to formulate how their products will look. This market-driven policy making appears also to be the reason behind a lower cost of marketing for Zara since products embody ideas generated by the very customers who are going to use them. In place of Zara’s operation management and inventory control, there can be a complete overhaul of systems to include regional offices that can be very critical in continuously satisfying needs as they arise. This will mainly be geared towards dealing with the supplies that run out despite not having satiated the demand by certain quarters of consumers. A keen look into Zara’s centralized supply system shows that it has a very strict distribution method that highly uses the estimation of demand, and does not account for any excess demand that may arise in case a certain supply quantity does not meet the demand. A decentralized supply chain may seem more expensive to maintain. It is, but the sales figures that would arise from the reach created would compensate for all the costs of expansion to a bigger coverage. For instance, China as a market is quite ripe for a revolution in terms of fashion. Ye and Lau (2014) create the impression that a shift in economic fortunes for most Chinese citizens means that there is a growth in demand for trendy clothing and auxiliary products consumed alongside apparels. Effectively, China alone can cover for a big market, only if there is a change from a centralized distribution channel to a more decentralized one that can handle the demand from a big market like the one in Asia, especially China. Fashion markets are very diverse, and if divided into more homogenous segments, then Zara may stand to gain more over long periods. For instance, when taken out as a separate market and catered for specifically, youth as a market segment is a great way of investing on fashion conscious markets. Lastly, the key outcomes of these evaluations of alternatives are likely to be a higher or greater reach into the untapped market. Currently, Zara may not be effectively tapping into the Asian and African market (Mata, 2017). This means that with the implementation of the abovementioned alternative solutions, there is a high likelihood that Zara stands to benefit. Conclusion Zara is a retailer that deals in fashion apparels and accessories. It has distinguished itself as a unique business since its approach to supply chain management is seen as one of the most effective as it can produce high-quality products within a short while after design specifications are shared at the headquarters. The distribution channels are made so that Zara can distribute a lot of products to many customers within a short period, usually, between a fortnight and a month after a design is spotted at the fashion cat walk. While the supply chain management is recognized as unique, there are challenges associated with its operation management. These furnish in the manner of failure to provide a sufficient supply in cases where outlets run out of certain products. Furthermore, Zara may not be benefiting from some strategies like using vertical integration with other companies to help in some operations. It is common for firms to run out of ideas soon as they exhaust strategies to woo customers. Zara, however, has laid out consistent plans to satiate the demand for goods by using a pragmatic format of delivery. At times, this may fail since supply quantities may fall short. This is also a big disadvantage of the centralized distribution at Zara. Recommendations - Zara should plan and venture into markets like Africa, where there is a constantly growing middle class that may be in need of high quality but affordable and trendy apparel. - Zara can consider decentralizing decision-making so that the big decisions are made in regional offices. This would offer these regional offices to work with trends that are only sustainable within, but not very much out of the jurisdictions within the regions. For instance, there are trends in fashion that may only suffice in Africa or Asia but may fail in, say, Europe. Bibliography Caro, F. and Gallien, J., 2010. Inventory management of a fast-fashion retail network. Operations Research, 58(2), pp.257-273. Lopez, C. and Fan, Y., 2009. Internationalisation of the Spanish fashion brand Zara. Journal of Fashion Marketing and Management: An International Journal, 13(2), pp.279-296. Mata, M.P., 2017. A typology of fashion consumers based on motivations to interact with brands in social media: the ZARA case (Doctoral dissertation). Shen, B., Chan, H.L., Chow, P.S. and Thoney-Barletta, K.A., 2016. Inventory management research for the fashion industry. International Journal of Inventory Research, 3(4), pp.297-317. Talk, O.M., 2016. Operations management. Ye, N.Y. and Lau, K.H., 2014. Managing demand and supply networks of the Chinese fashion apparel industry under the complexity of the new economy transition. Innovative Methods in Logistics and Supply Chain Management, p.49. Read More