Professional Documents
Culture Documents
Global Business
Logistics 7103IBA
Assignment #2: Meeting the
Challenges of Global Logistics
Introduction
It is often taken for granted that appropriate products will be available to buy in
the shops. We expect our lettuces to be fresh, the new iPad to be available on
launch day and our clothes to be in good condition and ready to wear. With the
advent of e- and m-commerce we have come to demand complete availability
and delivery at times, and to places, of our choosing.
It is becoming clear that the changed conditions in the global marketplace
demand a much more agile response from organisations and their partners in the
supply change. Product and technology life cycles are likely to continue to
shorten, while demand will be increasingly difficult to forecast (Zhelyazkov, n.d.,
para. 1).
The apparel industry is one of the most globalised industries, with 23.6 million
workers in over 20 countries. The market characteristics in this industry are short
product lifecycles, high volatility, low predictability, and a high level of impulse
purchase, making such issues as quick response of paramount importance
(Carugati, A & Liao, R & Smith, P 2008, p. 1494).
Supply chain management (SCM) is the success factor in fast fashion business. It
deals with suppliers, with suppliers suppliers, and with customers. The output of
supply chain is not just a physical product, but a combination of time, place, form
and function of a product/service proposition (Zhelyazkov, n.d., para. 2).
In the fashion world, where companies are competing on time (time to market)
the need of new abilities are rising. Agility is such an ability that responds to
unpredictable changes in demand. Agile Supply Chain (ASC) is driven by
information such as market data and information-sharing between business in
the supply chain to make quicker response, describe shorter, more flexible,
demand driven supply chains (Zhelyazkov, n.d., para. 3).
This assignment will look at Zara one of the most successful agile retail supply
chains in the world. Created in 1975 in Spain by Amancio Ortega, Zara is a
clothing and accessories retailer with more than 2,000 stores operating in 88
countries. During the last two decades Zara has tripled its profits and nowadays
is ranked 3rd biggest retailer worldwide (Lu 2014, para. 3).
At Zara, speed and responsiveness are more important than cost.
The brand is renowned for its ability to deliver new clothes to stores quickly and
in small batches. Twice a week, at precise times, store managers order clothes,
and twice a week, on schedule, new garments arrive. The company produces
about 450 million items a year (Lu 2014, para. 4).
Operational Procurement
Goals:
1. Manage uninterrupted flow of
materials and services
2. Manage cost of operational
activities
3. Minimize inventory investment
and loss
Melnyk & Davis & Spekman & Sandor (2010, p. 33) sums up the supply chain of
tomorrow must deliver varying degrees of six outcomes depending on key
customers needs. These six outcomes are:
1.
2.
3.
4.
5.
6.
Cost
Responsiveness
Security
Sustainability
Resilience
Innovation
From this analysis of how logistics and supply chains interact, four key impacts
have emerged challenging supply chain managers currently and will continue to
do so in the future. These four impacts are around: Technology, Customer
Expectations, Globalisation and Environmental concerns and its these four
impacts that this assignment will look closer at with Zara.
The gathered raw data is analysed in Zaras headquarter, where design team,
fast prototyping team, market specialists and buyers set together in a tightly
coupled teams. (Zhelyazkov, n.d., para. 24-25).
Technology is also used to ensure that each Zara order arrives at destination
punctually, laser barcode scanners, which are able to pick and sort over 80,000
pieces of clothes with an error rate of less than 0.5%, was adopted in sorting the
finished products at Zara (Zhelyazkov, n.d., para. 11).
Zara also has implemented new technologies allowing a product price to change
couple of times a day, depending on supply and demand. The same technologies
allow monitoring that process (Zhelyazkov, n.d., para. 13).
Any new technology advances in the future for Zaras supply chain will only
propel Zara to improve efficiencies and customer satisfaction.
much of this as they are the largest generation with a lot of spending power and
carry a lot of influence. They prefer fast response and immediate gratification
and retailers like Zara need to cater to that (Deloitte 2015, p. 10).
Zara sticks to a deep, predictable and fast rhythm, based around order fulfilment
to stores. Each Zara outlet sends in two orders per week on specific days and
timing. Trucks leave at specific times and shipments arrive in stores at specific
times. Garments are already labelled and priced upon destination.
As a result of this clearly defined rhythm, every staff involved (from design to
procurement, production, distribution, and retail) knows the timeline and how
their activities pan out with respect to other functions. That certainly also
extends to Zara customers, who know when to visit stores for fresh new
garments (Lu 2014, para. 26-28)
The speed of innovation and the disruption globalisation caused wont cease, and
the demands of customers will continue to escalate. To thrive in this environment
retailers will respond quickly to threats and opportunities with innovations of
their own.
Zaras strong distribution network enables the company to deliver goods to its
European stores within 24 hours and to its American and Asian outlets in less
than 40 hours (Lu, 2014. Para. 30).
One future impact Zara will need to solve with their current supply chain is as
they continue to expand to far locations, as they own all the channels of supply
chain, is to reduce the expense to distribute such products or be willing to absorb
this high expense. The alternative may be a second warehouse however through
recent research this would not work in their tight, short, agile supply chain
model.
Sustainability
Zara is all about delivering fashionable and trendy numbers catering for different
tastes through a controlled and integrated process also known as just in time
production.
To safeguard their business, Zara keeps a significant amount of its production inhouse and makes sure that its own factories reserve 85 percent of their capacity
for in-season adjustments. In-house production allows the organization to be
flexible in the amount, frequency, and variety of new products to be launched.
The company also relies heavily on sophisticated fabric sourcing, cutting, and
sewing facilities nearer to its design headquarters in Spain (Lu 2014, para. 8-9)
to turn around product quickly.
Efficient communication between the company and suppliers is essential in order
to reduce production cost and quality maintenance. About 40% of Zara's
merchandise is internally manufactured, 66% of raw materials are imported from
Europe and North Africa, and only a small amount of basic items (items with the
broadest and least transient appeal) are outsourced from Asia. The global
sourced strategy provides a large range of possible selection of fashion fabrics
and reduces the dependence on any particular suppliers. More than half of the
material is purchased in grey colour and is dyed in one of Inditex's (Zaras parent
company) facilities. Only one week is required for this process to complete which
shows the benefit of proximity and domestic control (Zaras Supply Chain
Advantages and Disadvantages, n.d., para. 14).
If a certain style or design suddenly becomes the rage, Zara reacts quickly,
designs new styles, and gets them into stores while the trend is still peaking.
Zara also has extra capacity on hand to respond to demand as it develops and
changes. For example, it operates typically 4.5 days per week around the clock
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on full capacity, leaving some flexibility for extra shifts and temporary labour to
be added when needed (Lu 2014, para. 12,13,15).
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Conclusion
In summary, Zara would be one of the only few companies that fully understand
Global Logistics and has made the necessary steps to future proof the challenges
that may lay ahead for their supply chain. In fact most the impacts or challenges
in the immediate future will only assist and enhance Zaras supply chain.
At Zara, change doesnt disrupt the system; its part of the system.
Their brands success story shows the strength of its operations. Its crossfunctional operations strategy, coupled with its vertically integrated supply
chain, enables mass production under push control, leading to well-managed
inventories, lower markdowns, higher profitability, and value creation for
shareholders in the short and long term (Lu 2014, para. 32).
Over the last decades Zaras introduction of an agile supply chain (ASC) in the
fast fashion industry, helped them position themselves third in the world retailers
ranking. This came as a result of close communication between customers and
its designers and the ability to ship the desired items in a week catching the
sales moment. All these prove the ASC is an aspect enhancing competition
among organisations. Another lesson is that efficient production organization
with a good balance between in house and outsourcing task leads to minimum
lead times and increase in market share for Zara.
What could be concluded from Zaras success from the perspective of speed is
that several benefits such as improved customer satisfaction, increased market
opportunities, decreased overall risks, and reduced total costs can be
simultaneously achieved through being fast (Zhelyazkov, n.d., para. 38-39).
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