CASE $1$: ZARA

Source: Based on: Zara: Taking the Lead in Fast$-$Fashion, Rachel Tiplady, BusinessweekOnline, April $4,2006.$

Zara is the flagship brand of the Spanish retail group, Inditex, one of the superstars in the

fashion retail industry in recent years. In $2005,$ Inditex reported $21$ percent sales growth to

$$8\mathrm{.}51$ billion. That puts Inditex ahead of H&M$,$ the world$-$leading purveyor of cheap$-$chic

apparel, which posted $$7\mathrm{.}87$ billion in sales. Zara has more than $1,000$ stores in $31$ countries.

The fashion industry is a special industry. The products they deal with are highly perishable,

and they are susceptible to seasons$$gross margin is meaningless if the product does not sell

as planned. For many retailers, $3540$ percent of the total merchandise being sold at hefty

discount is quite the norm.

Zara contributes around $80$ percent of group sales by concentrating on three winning

formulas on which to base its fresh fashions: short lead time, lower quantities, and more

styles. With an in$-$house design team based in La Coruna, Spain, and a tightly controlled

factory and distribution network, the company says it can take a design from drawing board

to store shelf in just two weeks. That lets Zara introduce new items every week, which

keeps customers coming back again and again to check out the latest styles. With new

styles being developed and introduced frequently, each style would provide only around

$$200,000$$$300,000$ of retail sales, a far lower figure than those other retailers or brands,

and certainly not $$cost$-$efficient$$ in terms of design and product development cost.

Moreover, Zara$$s success is all the more surprising because at least half of its factories are

in Europe, where wages are many times higher than those in Asia and Africa. To maintain

its quick inventory turnover, however, the company must reduce shipping time to a

minimum. The fast$-$fashion approach also helps Zara reduce its exposure to fashion faux

pas. The company produces batches of clothing in such small quantities that even if it

brings out a design that no one will buy, which happened during an unseasonably warm

autumn in $2003,$ it can cut its losses quickly and move on to another trend. This higher cost

of product development, however, is obviously more than adequately compensated by

higher realized margins. The result is that Zara discounts only about $18$ percent of its product,

which is roughly half the level of competitors.

Information and communications technology is at the heart of Zara$$s business supply

chain. Zara$$s quick response to the market and its high speed from design table to store

shelf are enabled through four critical information$-$related areas.

The first is constant collection of information on customer needs. Trend information flows daily and is in turn fed into the database at the company$$s head office. Zara

outfits its store clerks with handheld computers to record sales and customer comments

and then integrates the collected data with design, manufacturing, and distribution functions. Designers check the database for these dispatches as well as daily sales numbers,

using the information to create new lines and modify existing ones. Thus, designers

have access to real$-$time information when deciding with the commercial team on the fabric, cut, and price points of a new garment. As a result, the company can spot trends

early on$$a rather critical quantity in fashion retailing$$and adjust stock accordingly

within days.

The second area is standardization of product information. Different or incomplete

specifications and varying product information availability normally add several weeks to a

typical retailer$$s product design and approval process. Zara, however, stored the product information with common definitions, allowing it to prepare designs quickly and accurately,

with clear$-$cut manufacturing instructions.

The third area is product and inventory management. Its inventory management

system is able to manage thousands of fabric and trim specifications, design specifications,

and physical inventory, which gives Zara$$s team the capability to design a garment with

available stocks, rather than having to order material and wait for it to arrive.

Zara$$s distribution management approach is its final advantage. Its state$-$of$-$the$-$art

distribution facility functions with minimal human intervention. Approximately

$200$ kilometers of underground tracks move merchandise from Zara$$s manufacturing plants

to the $400-$plus chutes that ensure that each order reaches its right destination. Optical

reading devices sort out and distribute more than $60,000$ items of clothing in an hour. Zara$$s

merchandise does not waste time waiting for human sorting.

$1.$ Discuss the role of SCM in retail industry. Give examples from the two cases.

$2.$ Is Zara$$s competitive strategy aligned with supply chain strategy? Explain.

$3,$ Also, discuss supply chain problems we are having, from cars to homes, who is to blame

$($give a new answer other than what is posted $)$