Global Business Sourcing Strategies of Zara - Case Study Example

Zara Zara Introduction The dynamic business environment have led to the need for business and organizations to incorporateoutsourcing and offshoring techniques as measures to reduce costs and augment productivity, sales, revenues, and market share. These actions bring forth benefits to the company as well as host country and home country. America has recently been a host destination for Chinese companies both multinational corporations and global corporations owing to different factors including reduced tariffs and the need for the products to be made in America. America stands to benefit from these through creation of job opportunities to Americans, for example building a wind turbine n Nevada will create 1000 jobs for Americans while the Tianjin Pipe plant in Corpus Christi expects to employ 600 Texans, revenue generation as exemplified by $ 2.7 billion generated from the Tianjin projects increases the economic potential of the country. Other benefits include resuscitation of companies that had previously been making losses and improvement in relation between United States and China in terms of trade policies and tariffs. It is from this understanding of the benefits of offshoring and outsourcing that this paper aims at analyzing the products, operations, type of company, and nearsourcing in relation to Zara. The choice of Zara for exposition in this assignment is the need to focus on nearsourcing, which is the new wave for international, multinational, and global corporations. History of Zara Zara is a Spanish company based in Artixo, Galicia operating the clothing and accessories business founded in 1975 by Rosalia Mera and Amancio Ortega. Zara is part of the Inditex Group, which is the world’s biggest apparel retailer. The start of Zara was at La Coruna, Galicia, Spain in 1975 and was named Zorba but the name resembled a bar two blocks away leading to the rearrangement of the name to give Zara and the distinguishing feature of the store was the stocking of low priced products resembling popular high-end clothing. The success of the store led to the increased expansion of the company through opening new stores in Spain and an improvement of manufacturing, distribution, and design based on information technology and with efforts from groups of designers allowing the company to react to design changes faster and reduce lead times (Mihm, 2010, p. 60). The main reason for the success of Zara in the retail business is an understanding and incorporation of consumer feedback in their issue of new products that are restocked within a very short time generating a now or never attitude among the consumers. Setting shops near the best brands including Prada and Gucci is the other strategy employed by Zara for success. These strategies have resulted in a fifty percent increase in sales to $ 17.5 billion and employees increased from 80,000 to 110,000 in five years. Zara’s mission statement is to contribute to sustainable development of the society and the environment in which I interacts with a commitment on the environmental conservation. Zara’s products Process innovation has allowed Zara to reduce lead time, lower prices, and employment of fewer workers in its stores allowing for the generation of many products within a very short time. Products each week are delivered to the 1670 stores run by the company with 10,000 designs developed each year in response to changes in consumer tastes, preferences, and trends (Mihm, 2010, p. 56). Zara has a wide range of products that come in very many designs due to the different tastes of consumers in the countries of operations and are constantly changing. Products at Zara are segmented according to the target population they are being aimed to as well as the type of the product. In regards t the target market, woman comprises products tailored for women and range from trousers, jeans, accessories, handbags, shoes, accessories, T-shirts, dresses, shirts, outerwear, coats, knitwear, through to skirts. Man comprises of products tailored to meet the needs of the male population in the customers they serve including jackets, knitwear, shirts, Bermudas, shoes, bags, wear to wear, accessories, swimwear, sweatshirts & hoodies, jeans, blazers, trousers, and suits. Zara offers products tailored for kid and further segmented in respect to their ages with products for kids between 3-14 years girls and boys differently, babies between 3 months to three years boys and girls. Categorization on product types includes shoes, bags, mini, and TRF with these categories further divided in respect to gender and age to suit a specific consumer segment. It is this wide range of product offering and ability to deliver new designs in a limited time that has made Zara a global leader in the retail business. Markets and Customers Zara serves a large market in Europe, Asia Pacific, Africa, and Americas with 1827 stores with most of the stores being located in the host country, Spain. The markets are segmented depending on the age groups, gender, and product type with emphasis on quality, customer tends, tastes, and preferences and access to new market areas. The main customers for the company are low and middle income earners who cannot afford high-end products, that the Zara products bores high resemblance. This is aimed at ensuring the low and middle income earners get access to products they view on fashion shows but at a much lower price. Type of company Zara is a multinational company through having its headquarters in Spain and using consumer information and feedback to tailor the products to the tastes and preferences within a very short time. Products offered in Europe, Asia, America, and West Africa are tailored to the needs of the consumers and are delivered within two weeks of ordering for the high satisfaction of the consumers. However, Inditex, the parent company of Zara is a global organization through having operations in more sixty countries but maintaining research and development and operations management of the group of companies it owns in Spain. This has allowed Inditex to venture into manufacturing and marketing of footwear and textiles in a global scale through the management of and application of policies and strategies from a centralized location. Nearsourcing operations at Zara Nearsourcing/offshoring/nearshoring is the process where a company shifts part of an existing manufacturing process to a host country with the aim of reducing production costs but keeping the quality high. This is different from outsourcing where the company contracts a business process previously performed by the company to another business or organization in another country and purchasing the process as a service. The difference between outsourcing and offshoring is that the operations in outsourcing are done by different companies while in offshoring the company still controls the operations and covers the costs of running the operations despite being in a different country with production advantages. Zara has benefited from offshoring with the main benefits being the ability to generate traffic to their stores through altering and bringing new designs to their stores in a very short period, sometimes in just two weeks and not seasonally as most retailers as is the custom in the clothing and apparel business. Nearsourcing is well demonstrated by Zara through 14 highly automated factories in Spain in a just in time inventory system for the development of unfinished goods. These unfinished goods are then taken to 300 partner shops in Galicia and Portugal tasked with finishing the work translating them to suits and dresses. Zara owns most of the production facilities in Spain but has near outsourced 60% of productions functions to Turkey, Portugal, and Morocco (Choi, 2013, p. 17). This has enabled the company to react to consumer trend changes due to flexibility, be in control of operations due to the nearness of these facilities, and incorporate slow principles through sourcing production grounds nearer to selling areas (Choi, 2013, p. 17). Good relations are maintained between Zara and the contractors and suppliers to ensure success of the operations and delivery of the supplies when required in the production. Vertical integration sourcing is the method that is used by Zara in its sourcing process where most of the production centers are owned by the company both in Spain and in the near countries facilitating nearsourcing and ensuring control of the design, manufacturing, and distribution processes of the supply chain. High investment in information technology at Zara has allowed the company to turn a design in the Milan and Paris fashion show into a Zara product within a matter of days. The Information technology system at Zara has the ability of capturing trends, distribute production, shipment, and distribution data, and facilitate real-time communication between members in the supply chain. This allows communication to reach near outsourcing factories, designers, and the management within a very short time to enable the company makes changes and decisions based on the information for the development and supply of a quality product. Technology has also allowed Zara to incorporate computed aided design (CAD) in its production process both in the near outsourced firms and in local factories in Spain for better designs within a short time. From the analysis, the realization is that Zara controls all parts of the supply chain using 300 designers trained and employed by Zara with high reliance on store managers who provide client feedback for incorporation in new designs. This information includes the most selling brands as well as the brands not available in the sores. A high percentage of products are made in Europe at stores owned by Zara to ensure this control of the supply chain is possible. The production process at Zara is in small batches to ensure the replenishment is made every week and gauge the demand for easy withdrawal on nonperforming products from the stores without affecting the revenues of the company. Outsourcing operations at Zara Despite the high use of offshoring as the main area for competitive advantage, Zara has outsourced some of the activities for the production of products that have long lead times and require the business to outsource operations. T-shirts and other clothes that have a long shelf life are outsourced to companies in Turkey and Asia by Zara to take advantage of low labor costs leading to low production costs. The products offered at Zara are stated to have been assembled in either P0rtugal or Turkey depending on the location of the sourcing firm but with products from Spain showing the concepts of nearsourcing in the production process of Zara. Zara is publicly traded since 2001 and the documents required for filling for trading are periodic reports and registration statements. Material events that could impact the performance of the company and the documents on the restriction of sale of stocks are also filed with the SEC. Forms detailing ownership by directors and company officers and large position of shareholders are also files to show the shareholders who own more than 5% of the shares in the company. In conclusion, Zara has managed to take advantage of supply chain improvements to increase its net revenues and productivity. The measures for the improvement of supply chain are outsourcing and offshoring or nearsourcing with nearsourcing being the best strategy implemented at Zara. The main nearsourcing areas for the manufacture of the products sold by Zara are Turkey, Morroco, and Portuga, Nearsourcing has allowed Zara to gain competitive advantage in terms of low lead time, low production costs, increased client responsiveness, and change of designs, and stores inventory every two weeks. This has been reflected in the results through the overtaking of Gap as the largest specialty clothing retailer in the world in 2009 and success in racking in high revenues and sales for the parent company, Inditex. References MIHM, B. Fast Fashion In A Flat World: Global Sourcing Strategies. June 2010. International Business & Economics Research Journal, Vol.9 (6), 55-64. CHOI, T.-M. (2013). Fast Fashion Systems Theories and Applications. Hoboken, Taylor and Francis. Read More