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Semester Spring 2017
Graded Discussion Board
Supply Chain Management (MGMT614)
Due date: May 17, 2017
Topic: In-house and outsourced manufacturing
Word Limit: 100 words
Objective of the activity
To let the students identify different reasons behind the use of in-house and outsourced manufacturing.
Students would stand clearer about the topic, analyze and solve practical scenarios. They will be able to differentiate between the situations where and why to use in-house and outsourced manufacturing in the supply chain.
Zara is a chain of fashion stores owned by Inditex, Spain's largest apparel manufacturer and retailer. In 2004, Inditex reported sales of 13 billion euros from more than 2,200 retail outlets in 56 countries. The company opened a new store for each day in 2004. In an industry in which customer demand is fickle, Zara has grown rapidly with a strategy to be highly responsive to changing trends with affordable prices. Whereas design-to-sales cycle times in the apparel industry have traditionally averaged more than six months, Zara has achieved cycle times of five to six weeks. This speed allows Zara to introduce new designs every week and to change 75 percent of its merchandise display every three to four weeks. Thus, Zara's products on display match customer preferences much more closely than the competition. The result is that Zara sells most of its products at full price and has about half the markdowns in its stores compared to the competition.
Zara manufactures its apparel using a combination of flexible and quick sources in Europe (mostly Portugal and Spain) and low-cost sources in Asia. This contrasts with most apparel manufacturers, who have moved most of their manufacturing to Asia. About 40 percent of the manufacturing capacity is owned by Inditex, with the rest outsourced. Products with highly uncertain demand are sourced out of Europe, whereas products that are more predictable are sourced from its Asian locations. More than 40 percent of its finished-goods purchases and most of its in-house production occur after the sales season starts. This compares with less than 20 percent production after the start of a sales season for a typical retailer. This responsiveness and the postponement of decisions until after trends are known allow Zara to reduce inventories and forecast error. Zara has also invested heavily in information technology to ensure that the latest sales data are available to drive replenishment and production decisions.
Until 2002, Zara centralized all its European distribution and some of its global distribution through a single distribution center (DC) in Spain. It also had some smaller satellite DCs in Latin American countries. Shipments from the DCs to stores were made twice a week. This allowed store inventory to closely match customer demand. As Zara has grown, it has built another distribution center in Spain.
Point of Discussion
Why has Zara chosen to have both in-house manufacturing in Europe and outsourced manufacturing – even though manufacturing in Asia is much cheaper? Discuss with firm arguments.
For acquiring the relevant knowledge, do not rely only on handouts but watch the course video lectures and read additional material available online or in any other mode.
Note related to load shedding: Please be proactive
As you know that Pre Mid-Term semester activities have been started and load shedding problem is also prevailing in our country now a days. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments, quizzes or GDBs.
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