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MGMT614 Supply Chain Management GDB Solution & Discussion Due Date: Thursday, November 24, 2016
MGMT614 - Supply Chain Management GDB No. 1 Solution Fall 2016 Due Date: Thursday, November 24, 2016
|Starting Date||Friday, November 18, 2016|
|Closing Date||Thursday, November 24, 2016|
|Question Title||GDB 1|
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.
What do you think Zara’s responsive replenishment infrastructure is better suited for online sales or for retail sales? Discuss with appropriate rationale for your stance.
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I particularly like the discussion of Zara, the fast expanding, fashion-right, company headquartered in the remote northwest corner of Spain in La Coruna. The founder – Amancio Ortega founded Zara in 1975 in order to better understand world markets for his fashion merchandise. A decade later he formed Inditex as a parent company for Zara, as well as several other retail concepts and suppliers that he had built. Other, smaller, divisions include Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterque.Zara has focused teams of designers and product managers. They oversee the design, sourcing and production of a specific classification such as dresses or women’s sportswear. They are responsible for both the initial collection and in-season response. Importantly to its success, Zara produces where it sells. This achieves short lead times for new fashion ideas.
Today, Zara can replenish existing items in as little as two weeks. The company spends almost nothing on advertising and uses the savings to support higher cost of producing in Spain. This enables the company to produce what the customers want. The tight integration of design, planning, merchandising and production in La Coruna enables the company to be flexible and therefore able to respond quickly to any market need.
While its speedy dissemination framework permits Zara to react to patterns rapidly its absence of decentralized appropriation implies that it is more qualified to retail as online deals have a tendency to have increasingly a various item request and clients expect faster conveyance times. Organizations, for example, amazon can react snappier to online deals because of the way that they have appropriation bases all on the world and can offer same day conveyance. Zara's 24 hour conveyance times from Spain to outlets all around the globe may not be as productive with online deals as it is with retail deals. Zara, the world's largest fashion retailer, has an innovative solution to both the style problem and the marketing problem. Zara’s business success with its flexible approach is demonstrated in its stock market success as well. The strength of Zara, and demonstrates that accurate forecasting creates the most effective supply chain. Zara’s success proves the theory that if a retailer can forecast demand accurately, far enough in advance, it can enable mass production under push control and lead to well managed inventories, lower markdowns, higher profitability (gross margins), and value creation for shareholders in the short- and long- term.