Notably, Zara has a unique approach to handle changing demand, which has allowed the company to become widely successful and a leading business organization in the fashion retail industry, in which many corporations struggle to deal with fast-changing environments, operations, and inventory costs. The arrival of new trends forces retailers to adapt their collections, causing what James (2011) calls the Forrester or bullwhip effect. Zara relies heavily on outsourced manufacturing, even though most operations and inventory decisions and strategies are still held, taken, and based out on their headquarters in Spain. Every time an order is placed, all items are shipped to Spain for final design adjustments and inventory stocking. With the use of technology and collaboration with its store managers, the company can produce only what is currently trending, which results in a significant reduction of unsold items caused by the rapidly changing tastes of consumers in this fast-changing industry (Berfield and Baigorri, 2013). Such a strategy allows Zara to maintain high standards of quality besides keeping inventory costs at low levels.
According to Berfield and Baigorri (2013), centralization is a source of competitive advantage for Zara. Despite expanding into new markets, Zara still maintains all operations in their headquarters in Spain. To maintain its leading position, Zara has to adapt continually and diversify its product lines to meet customer’s demands and tastes according to their geographical location. The result is that Zara’s operations costs tend to increase due to the increasing variability in their orders, which tend to result in higher associated inventory costs as well (Lu, 2011). For example, garments will have to be shipped to Spain for quality assessment before being shipped back to China to distribution stores, so Zara has to deal with an expensive endeavor across its supply chain. Undeniably, Zara’s expansion to China did not consider the reality of the absence of an automated underground monorail that connects China to Spain (O’Shea, 2012); therefore, the company will have considerable expenditures with logistics. On the other hand, the company would significantly increase costs through decentralization, making it difficult to successfully implement the just in time inventory management principles (Berfield and Baigorri, 2013).
That all being said, one of the biggest challenges that Zara will most likely face is the increased costs in its distribution chain associated with widening operations outside Spain (Berfield and Baigorri, 2013). The location of its facilities in China will have a significant impact on how quality will be assessed by the cube, and the subsequent shipping of goods to stores may require the distribution chain to be expanded. An expanded distribution channel will affect Zara's designers' ability to make quick changes to clothing designs due to the complex coordination between planners, designers, buyers, and marketers in both China and Spain (O’Shea, 2012). Other challenges are the increased costs for establishing new warehouses, acquisition of high-tech equipment, and labor costs for new facilities. It is worth to mention that cultural issues and language barriers may also be an issue since Zara relies on direct and continuous communication and collaboration with its store managers.
Although Zara is a global corporation in the fashion retail industry, much of the business still revolves around Spain and Europe (SCM Globe, 2015). The best strategy to address Zara’s most significant challenges would be to establish "centralized distribution centers" in other markets, according to their specific characteristics. For countries that are similar regarding customers’ tastes and preferences or that are close to each other, Zara could establish a manufacturing plant and a distribution center in their territory. Additionally, Zara could establish another Cube in China to address one of its most significant issues, which is the need to ship back and forth between Spain and China, taking advantage of the fact that expansion is an already budgeted strategy for the company. Because of that, the company will need to find alternatives to reduce its operational costs related to installing production facilities in China (Gallaugher, 2009). In simpler terms, Zara could duplicate its Spanish Cube to other parts of the globe.
An additional Cube in China would support customer demand and meet the unique needs not only of the Chinese but also the entire Asian market. China is a region of low labor costs so the company could take advantage of it to increase production and do it by producing cheaply to maintain low prices for its goods (O’Shea, 2012). Knowing that fashion’s changes and tastes characterize the garment industry, establishing a Cube in China would certainly allow the company to reduce the response time to the changing needs of their customers. Most importantly, the company should also invest in extra capacity to meet any sudden increases in production during peak periods in Asia, which is a continent far more populous than the traditional markets the company has been serving thus far.
References and Source Material
Berfield, S., & Baigorri, M. (2013). Zara’s fast-Fashion Edge. Retrieved Dec 09, 2018, from https://bambooinnovator.com/2013/11/20/zaras-fast-fashion-edge/#more-33581
Gallaugher, J. (2009). Information Systems: A Manager's Guide to Harnessing Technology: Zara: Fast Fashion from Savvy Systems. New York: Flat World Knowledge, L.L.C.
James, T. (2011). Operations Strategy. Bookboon.com.
Lu, D. (2011). Fundamentals of Supply Chain Management. Bookboon.com.
O’Shea, C. (2012). The Man from Zara: The Story of the Genius behind the Inditex Group. London: LID Publishing Inc.
Zara Clothing Company Supply Chain. SCM Global. Retrieved Dec 09, 2018, from http://blog.scmglobe.com/?page_id=1513
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