The biggest challenge that Zara currently faces is how to manage its exponential growth, while stilling maintaining its world-class supply chain system. Founded in Spain in 1974, they are a global fashion powerhouse and are valued as having the 46th most valuable brand in the entire world by Forbes Magazine (Mhugos, 2015). Their central distribution center, affectionately known as “The Cube” creates and distributes clothing on a scale and at a rate that competitors simply cannot match. They can turnover designs in 2 weeks, versus 3-4 months for industry average and they have 11,000 fashion offerings per year, versus 2,000 – 4,000 for the industry average (Mhugos, 2015). Simply remarkable. China is on the horizon with it now having the second largest number of stores at 142 (Berfield & Baigorri, 2013). With all of the new wealth being created in China and with the numbers of affluent new consumers expanding each day, the opportunities that this market offers are simply incredible.
But herein lies the challenge. How do you maintain supply chain superiority in a massively growing Asian market, when your manufacturing and distribution hub is located halfway around the world in Spain? To date, they have been able to manage things in Asia from the Iberia Peninsula, but this is going to change at some point. Can they sell their clothing for the same prices in Asia? If not, what do you do then? Lower production and distribution costs? This would involve establishing a second hub or nerve center in Asia. Could they duplicate the success of their European center? China is very different from Europe in many business respects; government, business laws, labor forces, culture, infrastructure, etc. If Zara were to expand their supply chain on a more global level, they run the risk of having different elements operating in “silos” (Lu, 2011). This means that different locations and groups might not communicate well with each other and decisions made by one group could adversely affect others.
As well, the current supply chain system of Zara, while working incredibly well, is a system that requires constant monitoring and maintenance (Berfield & Baigorri, 2013). To set up a second hub in Asia would require a complete design and construction from the ground up. Where possible, Zara could duplicate its system in Spain, but it would have to be very careful not to over-rely on this, at the cost of overlooking unique aspects of the Asian market. Could they maintain the same level of quality, supply chain flow and reliable deliveries halfway across the world?
If Zara is to truly take advantage of the burgeoning Asian market, they will have to establish a second hub there. The number of consumers compared to the European and North American markets is so much bigger, so trying to run everything from Spain would eventually become too much. What this approach requires is a focus collaboration (shared resources), risk sharing, innovation, and supply chain integration (suppliers, manufacturers, customers) (Lu, 2011). They have the advantage of a world-class structure in Spain, so they must leverage this to reach the same level of success in the Asian market. I would propose bringing much key staff over from Spain (at least in the beginning) to establish and ensure initial smooth operations. An aggressive recruiting campaign would draw some of the best and brightest from Asian business schools and corporations. While Spain would remain the center of Zara’s operations, over time, the Asian hub would be allowed more and more autonomy.
With multinational supply chains proliferating, the key is to break down borders, be cyber-connected, remove trade barriers (where possible) and operate in a socially responsible manner. By establishing key contacts between Asian and Europe, Zara could establish and fine-tune these elements.
The real challenge here is for the Asian hub to eventually operate at the same breakneck design and inventory turnover rate of its European counterpart (Mhugos, 2015). Just as they have raw material shipped to the European hub from Italy, Spain, Portugal, and Greece, they would have to establish secure and reliable supplies from countries such as Thailand, Vietnam, Cambodia, the Philippines, and China. I would probably establish the hub somewhere in mainland China. The key here is to maintain the same level of quality as the European counterpart so that they can maintain their 85% margin rate on sales. This would allow them to pay more to their workforce and establish the same rapid transportation and delivery system. Finished material could travel by high-speed train from the Chinese hub to the coast, where it would be transported to the rest of Asia and Pacific by air or by sea. It would take time to establish this level of dependability and efficiency in the new hub, but with executives and specialists from Spain on sight managing and monitoring all aspects of operations, the transition can definitely happen.
Such a venture has a tremendous upside for Zara, but it involves stepping out of the amazing comfort zone that they have established. The key is to remember the primary purpose of Operations Planning and Control, which consists of matching supply with demand (James, 2011). Planning is required to ensure smooth operations in advance, while control exists to address the inevitable and sometimes unpredictable changes that can occur (James, 2011). If Zara can maintain its impeccable brand, high quality of clothing and reliable manufacturing and logistics system, they stand a great chance of becoming an even more remarkable company. Such a huge undertaking, however, will require the utmost in managerial attention, persistence, and ingenuity.
References
Berfield, S. & Baigorri, M. (2013, November 20). Zara's Fashion Edge. Retrieved from: https://bambooinnovator.com/2013/11/20/zaras-fast-fashion-edge/#more-33581
James, T. (2011). Operations Strategy. Bookboon.
Lu, D. (2011). Fundamentals of Supply Chain Management. Bookboon.
Mhugos. (2015, January 26). Zara Clothing Company Supply Chain. SCM Global. Retrieved from: http://blog.scmglobe.com/?page_id=1513
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