Table of Contents
- Description of Zara’s Supply Chain
- Disadvantages of Zara’s Fast-Fashion Distributions System
- Illustration of How the Advantages Offset the Demerits
- Vertical Integration
- Horizontal Integration
- Illustration of How These Activities Allow Zara to Gain a Competitive Advantage
- Related Management essays
Running a business is a complex practice that demands the effective application of management efforts in all areas to be successful (Geetanjali 2010). In the retail industry, corporations have developed various strategies that aid them to build and maintain a competitive advantage over their rivals. Zara is an example of global clothing retailer that has managed to stay ahead of its competitors by developing the state-of-the-art distribution network as well as an effective inventory management and turnover methodology. This essay is the discussion of Zara’s supply chain from raw materials to customer purchase, the demerits of its fast-fashion distribution system and whether they are offset by its merits. The essay also discusses how vertical and horizontal integration activities have allowed Zara to gain a competitive edge against its rivals.
Description of Zara’s Supply Chain
A supply chain is the network of complex processes that involve the flow of goods and services from production through distribution and finally to its target customers (Chopra & Meindl, 2007). Zara maintains the unique supply chain that is distinct from the conservative methods employed by most of its competitors. Most of its fashionably designed clothes are produced domestically in Spain and after that distributed to its stores globally. Also, about forty percent of the fabrics used as raw material for production are manufactured in-house rather than being sourced from the international suppliers. This enables the company to complete its production and manufacturing processes within the shortest time possible.
The designs for their clothing line are done by a team of innovative specialists at the company’s headquarters. The company cuts the fabrics according to designs and after that sent for needlework at a local co-operative. The use of these local co-operatives serves to minimize the time spent on distributing raw materials. The final touches are done back at the Zara factories where the sewn items are finalized by an assembly line of workers. These workers perform special tasks to make sure brand clothes are ready for sale. The merchandise is then packed and conveyed to their large automated warehouses.
When preparing the stock for distribution, Zara uses minimal human labour, which guarantees a high level of efficiency and also ensures that the completed products reach various Zara stores on time (Emarald Group 2005, p. 30). The company uses highly computerized automated systems for this process. These systems possess the capability of processing up to 80,000 items per hour. They pack, label and sort the goods preparing them for transportation. They are then transported to the various Zara stores where customers can access them for purchase. This is done by both trucks as well as cargo jets depending on the distance and location of the warehouses.
Disadvantages of Zara’s Fast-Fashion Distributions System
As a contemporary strategy in the fashion world, fast-fashion is a business model that has been adopted by numerous corporations. It suggests that such companies can spot, design and manufacture products that reflect the current trends in the market and make them available in their stores on a quick regular basis. Zara’s success in adopting this norm is evident as the company can have their new trendy products on their shelves in a record two weeks, which is much faster compared to any of its competitors. However, this strategy holds certain drawbacks that may potentially attract losses.
For instance, their high frequency and rate of stock turnover mean that the company inevitably assumes the risk that certain products may not do well in the market. In the long run, the company may end up making losses when the products currently in the store do not mirror the current trends. To avoid this, retail companies such as Zara may be forced to create demand for these products by cutting down their price to lure customers. This may lead the company to make substantial losses due to the disparity between the cost of production and the benefits from sales as a result of the reduced price.
Illustration of How the Advantages Offset the Demerits
The advantages enjoyed by Zara through the use of the fast-fashion business model outweighs its potential losses. The fact that the company is capable to supply all their stores with new clothing designs in two weeks guarantees that their products will be sold out before new trends hit the market. Employing this technique means that stores are restocked with newer designs when the stock is sold out. Customers are, therefore, led to visit the stores more often and in turn leading to increased sales. Through this strategy, the company avoids making down activities as a means of attracting customers.
Vertical integration is a business strategy whereby companies expand their operations into areas that are at different stages of the same productions path. This means that the corporations within the same industry but laying in different stages of the production path merge to become a single entity (Proctor 2000). Many companies use this strategy as a means of maximizing efficiency while reducing costs at the same time. In the retail industry, companies may do this by gaining control of all or some stages involved in the process of creating a product. Through this, they can own their supply chain thereby increasing their competitive edge.
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Horizontal integration is a merger that occurs between firms that fall within the same stage of production and operate in the same industry. It is a strategy that is achieved by acquiring additional business activities that lay at the same level of the value chain (Shimizu 2012). It serves to facilitate effective sharing of resources at this levels. Numerous corporations also adopt this strategy to increase the production at the same point of the supply chain. Also, this approach aids in creating a more efficient distribution channel for these companies so as to increase the marketability of their products (Simchi-Levi et al., 2004).
Illustration of How These Activities Allow Zara to Gain a Competitive Advantage
Both vertical and horizontal integration strategies have the potential to increase the competitive edge for companies that adopt them (Chase et al., 2004). For Zara, these policies have allowed them to dominate in the industry due to the large profits they gain from their sales. The domination springs from their efforts in maintaining control from the point the product is designed to the point of purchase. This philosophy was started by the Amancio Ortega who opened the first Zara store in Spain.
The vertical integration activities employed by Zara has allowed them to maximize efficiency and cut costs in their chain of supply thereby increasing their margin of profits. The fact that Zara creates about forty percent of the fabrics and designs the products in-house, offers them a significant time advantage over its competitors in the fashion industry. Also, keeping the wholesalers as well as retailers in-house have aided the company in minimizing the period of delivery of new trendy products into all their stores globally. In this highly competitive fashion industry, these activities keep them ahead of their competitors who adopt the conventional ways in the process of creating their products.
Also, vertical and horizontal integration has reshaped the way the company keeps up with the current trends in the fashion market. The company makes use of its supply chain to acquire up-to-date information from the market. Primarily, they rely on their store managers who submit reports to the headquarters regarding the new popular trends in the market on a daily basis. The store managers, through their personal digital assistants obtain real-time information since they are in touch with the actual customers (Breward, 2003).
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In conclusion, Zara is one of the fastest growing global retailers in the fashion industry. The company makes use of a unique supply chain that sets them apart from their competitors. It also employs the fast-fashion business model that allows them to meet regularly and quickly the prevailing market demands regarding fashion trends. Also, the company’s use of vertical and horizontal integration techniques aids them to increase their competitive advantages. These factors make it the perfect example of a global retail corporation that effectively manages its marketing channels thereby making it successful.
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