MGT1000 Logistics and Supply Chain Management

In 2007 the journal Supply. Chain Management Review republished its most requested article in the preceding 10 years since the journal's first edition appeared in 1997. That article, 'The SeVen Principles of Supply Chain Management's outlined seven key actions for successful SCSI:

Zara is the most successful retailer in the world, which is using effective strategies for its supply chain and logistics management system. The company was established in the year 1975 by Amancio Ortega Gaona. It manufactures clothes and accessories by using the different fabric products. The company is going ahead with the growing trends and fashion and offering highest quality products to the customers. According to the given case, Zara is implementing effective logistics and supply chain strategy, which is assisting the organization to become successful. In this report, there is the discussion about the logistics management strategies of Zara and fundamental reasons behind its success. These reasons and strategies of Zara are compared and contrasted with two successful companies, i.e. Dell and Myer. In addition to this, these are compared to the United Technologies Corporation. Furthermore, it includes the strategy that is used by the Zara for maintaining its competitive advantages in the textile and apparel industry. At the end, the report describes the similarities between Zara, Dell and Myer’s formula for success.

Logistics Management Strategies of Zara and Fundamental Reasons for its success 

As a biggest fashion retailer, Zara is implementing effective logistics and supply chain management strategies, which are the major reasons behind the success of company in competitive business environment. Under its logistics and supply chain, the organization is vertically coordinated, which includes different levels of inventory supply. The company has its own manufacturing, warehouses and retail outlets. This type of centralized decision making decreases the bullwhip effect on the supply chain process (Ferdows, 2003). The centralization is the major reasons behind the success of Zara. The company is making decisions in a coordinated way.

Zara is using different strategies for managing its logistics and supply chain, which are stated below;

Vertical Integration

Zara is using vertical integration for managing its supply chain and logistics operations. It designs and manufactures a bulk of apparel, which customers purchase from its stores. Vertical integration is the major key to quick introduction of new products. Most of the manufacturing operations are centered within the primary manufacturing premises in Spain. It has its own manufacturing facilities and retailers, which are integrated vertically (Gallaughar, 2008).

Quick New Product Launch Capacity 

Zara has managed its processes and systems that it can introduce a new product from sketch to its retail stores in four to six weeks, means it has short lead times. The operations at Zara are very fast and it needs a level of agility to give response to new fashion and trends. The quickness of the whole supply chain process is central to aiding the core strategy of Zara.

Inventory Management & Strong Distribution Network 

The company holds low inventory at a time, as it is harmful for the fast fashion and trends as products, which are demanded one day can be out of fashion next day. So, company believes that storing large inventory can direct the organization to heavy discounts or wastage.

Zara’s products are delivered from the manufacturing facility in Spain via Zara Logistica or Corunna depot. The inventory is not stocked and distributed to its retail stores two times in a week. It has a strong distribution network that allows the Zara to ship the goods and items to its European stores within the duration of 24 hours and to the Asian and American stores in less than 40 hours (Gorrepati, 2016).

In this way, it can be said regarding Zara that it is using Just-in-Time strategy, which is the major reason behind the success of its supply chain and logistics management system.

Comparison of Zara’s Logistics Management with Dell (Fundamental Reasons for success)

There are so many differences between logistics and supply chain management systems of Zara and Dell organizations. Dell is using a horizontally integrated supply chain, whereas Zara is implementing vertically integrated supply chain. Dell is manufacturing the computers and laptops and it recruits the suppliers from third party for supplying its products to the users. Zara produces the cloths and accessories in different locations worldwide. The fundamental reasons for success of this company are like; just-in-time production, crafting, trade and ability to deliver the products on time. The supply chain system that is used by Zara is beneficial as it can be monitored and controlled very easily because it has fewer responsibilities to handle. But, Dell has to handle, monitor and manage various processes and activities in its logistics and supply chain operations (Mihm, 2010). There are some points, which can assist in comparing the logistics and supply chain system of Dell and Zara. These points are stated below;

Production Philosophy

Dell is implementing a make-to-order strategy that is custom made in short time duration for the customers according to their requirements. It provides a variety of customized products on the website of the company. It also manufactures the computers, laptops and other accessories, which can be customized easily. On the other hand, Zara is very strong in launching new products and designs quickly. It introduces its products in limited stores and they get few prices of new items (Chen, 2009).

Storage

Dell has lower costs of inventory with no additional costs of warehouses. It just has the 7 hours of inventory in place of 10 days. Some activities, like; supplier storage, direct delivery and retail storage with the customer pick up assists the company in cutting the extra costs. In contrast, Zara owns various warehouses to stock the cloths and fabrics and circulate them effectively.

Communication

Zara is using an effective communication strategy for interacting with its customers. New designs and collections are released and updated weekly (Christopher and Russell, 2008). The store managers of the company order via its manufacturing facilities. The designers of the company are totally dependent on the sales of apparel and feedback of customers. This is the weakness of Dell that it is not aware about the international styles and the number of orders from customers is the only feedback for Dell.

Distribution

The distribution channel of Dell is indirect that includes different parties, like; suppliers, retailers, distributors, assimilator and final customers. It is following a Business-to-Business model that enables 90% of the suppliers to order the products online. Dell offers its computers, laptops through its online website according to the model. The company is directly connected with its customers that have eliminated the additional costs and time (Christopher, 2016). In the case of Zara, the products are delivered from manufacturing premise in Spain via its facilities. It does not stock its inventory and products are distributed to the Zara’s stores twice in a week. It considers the expectations and preferences of the customers and then manufactures the products accordingly. If it sees that the products are not selling in the stores, it stops the manufacturing of that specific product. It removes the unnecessary storage of unsold products.

Thus, there are some differences between logistic and supply chain system of Dell and Zara, but both the companies have managed the system and strategies properly and effectively.

Comparison of Zara’s Logistics Management with Myer (Fundamental Reasons for success)

Myer did not make efforts towards market segmentations as per the types and characteristics of customers. It did not target the market by considering psychographic and demographic characteristics of customers, while Zara has categorized the market according to their demographic characteristics and lifestyle. Myer is able to communicate its business processes and activities by using the direct model of supply chain (Flynn, Huo, and Zhao, 2010). Under this model, the products can be shipped from the manufacturing facilities to the destinations, from where customers can get them. On the other hand, Zara has various intermediaries, like; wholesalers and retailers etc. Like Zara, Myer is also successful in providing its products on predetermined time. Myer has positioned its products as one of the biggest retailers by providing a huge collection of departmental and grocery products and Zara has established its brand image as the biggest fashion retailer. Like Dell, Myer is also able to manage its inventory and stock effectively. It conducts a market research and offers the products and services accordingly. Zara is successful in managing its distribution channels effectively, whereas United Technologies has failed in establishing a strong logistics management under its supply chain. The production flow of this company is very slow at Myer, so there is need of in-time production. Zara has low inventory and implemented Just-in-Time strategy (Li, 2014).

Comparison of Zara with an Unsuccessful Organization (United Technologies Corporation) 

United Technologies Corporation is one of the companies, which is not successful in the area of supply chain and logistics management. The organization is very popular for its innovative and brilliant ideas. On the other hand, despite of poor supply chain, the company is able to manage its inventory level properly. The distribution system of Zara is very strong, but United Technologies Corporation has experienced weak distribution system that has contributed to the organization in poor delivery of the products and services to its potential customers (Muysinaliyev, and Aktamov, 2014). Thus, there are so many differences between supply chain and logistics system of Zara and United Technologies Corporations. Due to this, it is unable to manage its supply chain and logistics management effectively.

Competitive Advantage of Zara 

It is the biggest challenge for most of the businesses to attain competitive advantage and maintain sustainable competitive advantage in the industry. The sources of competitive advantage are the central points, where the companies should place their competitive advantage sustainability from. However, the managers must implement the strategies, which will ensure that organizational sources of competitive advantages are sustainable both in long and short run. For this, Zara is aware about this though and developed processes and strategies for sustaining the competitive advantage (Rushton, Croucher, and Baker, 2014). There are two aspects, on which Zara bases its sustainable competitive advantage. These aspects are stated below;

Strategic Position 

Strategic positioning includes performing different processes of competitors in similar or different ways. To take the advantages from strategic positioning strategies, Zara has implemented the use of advanced technology. For instance, the target market of Zara is wide, because it has defined its target market in a different manner. It has targeted the people, who are educated and from the young generation, because it considers that these are the people who understand the new fashion trends. By using technology and internet, the company is expanding its operations and spreading its new fashion trends across the world. It is assisting the company in gaining sustainable competitive advantage against its competitors (Stadtler, 2015).

 Operational Effectiveness 

Many of the organizations face issues in making efforts to perform better than competitors. These companies are failed in understanding the fact that each and every organization in industry is implementing same strategies and techniques. Therefore, Zara organization executed very different and unique strategy for enhancing its operational effectiveness that assisted the organization in gaining sustainable competitive advantage (Cuc, and Tripa, 2007). The demand and supply chain of the company is built on the basis of vertical integration, while its competitors are dependent on hiring the cheap labor from other countries, like; China, Mexico etc. In addition, the company has executed a business model that is created to continuously offer new and trending fashion products to its customers (Cowe, 2011).

For maintaining sustainable competitive advantage, the company is using exclusive business model that is different from other textile retailers. It is creating the value for its customers by offering them new fashion and trends on affordable prices. The use of advanced technology and online strategy has assisted Zara in dominating the world textile market (Li, Ragu-Nathan and Subba, 2006). Thus, by using the above strategies and techniques, it is able to maintain the competitive advantage with sustainability.

Similarities between Zara, Dell and Myer’s success formula 

There are various similarities between the success factors of all the three companies, i.e. Zara, Dell and Myer. Logistics and supply chain management is the major reason behind the success of all the organizations. The organizations are not dependent on the distributors to deliver the products to the marketplace, as they sell their products to customers directly. Zara produces the cloths and provides them to customers via their retail stores. Same as Zara, Dell manufactures laptops and computers and sells them to customers via its website and Myer also provides its retail services directly to its end customers.

All the three companies have adopted the success formula that can be copied by other companies. The companies are able to decrease the expensive and complex processes, which end manufacturing the products too costly for the end customer to buy them (Jacobs and Chase, 2013). All three Dell, Zara and Myer are manufacturing the products on the basis of clients only. By using effective strategies, the companies are able to get success in their industries. The success formula of these three companies, i.e. Dell, Myer and Zara can be suitable for other companies also (Ray, 2010). These organizations are using effective logistics and supply chain system, which is the major reason behind their success. This is very common and significant that each and every organization need to implement effective supply chain system. By enhancing their supply chain and logistics operations, other companies can also improve their performance and position in the market (Donald, and Stephen, 2014).  

Conclusion

From the above analysis, it can be concluded that success of Zara is attributable to vertical integration model. By using effective strategies, the company is able to hold top position in the textile industry. Dell and Myer are also using effective systems, which is compared with the Zara’s logistics and supply chain. The report shows that there are some differences and similarities among all the three companies. After the above analysis, it can be recommended that Zara should focus on expanding its business operations to different areas of the world, so that it can gain more market share in global textile industry. In addition to supply chain, it should emphasize on its marketing process and activities, so that it can enhance its brand image and presence among huge population.

 References 

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Mihm, 2010, Fast Fashion in a Flat World: Global Sourcing Strategies. International Business & Economics Research Journal, 9 (6) pp 55-63.

Muysinaliyev, A. and Aktamov, S., 2014. Supply chain management concepts: literature review, Journal of Business and Management.

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Rushton, A., Croucher, P. and Baker, P., 2014. The handbook of logistics and distribution management: Understanding the supply chain. Kogan Page Publishers.

Stadtler, H., 2015, Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28), Springer Berlin Heidelberg.