Zara Case Studies

Logistics, Marketing Channel And Supply Chain Of An International Clothing Company

(2000 Words)

Company Background

In 1963, Amancio Ortega started a small company in Spain that manufactured women’s pajamas and lingerie products for garment wholesalers. In 1975, after a German customer cancelled a sizable order, the firm opened its forts Zara retail shop. The original intent was simply to have an outlet for cancelled orders but the experience taught the firm the importance of a marriage between manufacturing and retailing – a lesson that guided the evolution of the company ever since. The first Zara clothing store opened in 1975 in Spain as a small retailer selling men’s and women’s clothing. Since then Zara chains have grown into retailing giants with almost 1000 stores worldwide and an impressive sales record. The success of Zara is partly to do with the appeal of its men’s and women’s and children’s fashions and accessories that display unique style but at real world prices. But it is also partly as a result of their collaborative, digital networks that link Zara with its suppliers and customers. These advances have enabled Zara to deliver tailored products quickly and reliably, creating what the company terms a ‘value net’ for all the firms in the supply network. This value net is a key part of the operations strategy, allowing customer choices to be simultaneously transmitted to all supply partners who then deliver components as need by other partners.

Marketing Channel

A marketing channel is defined as an organized network of participants and companies that work together and perform activities that will enable the smooth flow of a product or service from the producers to the consumers (Bennet, 1988). Marketing channel is related to logistics management or the logistical arrangements for delivering value to the customer. More specifically, marketing channelsdeal with the issue of the arrangements the organization makes to physically deliver its products to the customer. A channel is a set of intermediary companies, people or agents who manage the movement of products and services from the manufacturer to the final user. All firms which take title to the product, or assist in transferring title as it moves from manufacturer to consumer form part of thedistribution channel. A marketing channel aims to provide a competitive advantage to the organization. It is related to supply chain management as both are involved in supplying a service or a product to the end users. Both are involved inpartnerships that are developed between organizations performing adjacent, linear steps in the chain. The supply chain or the marketing channel is viewed as a whole rather than a set of fragmented parts in order that activities, the basic units of competitive advantage, can be configured, confined and performed in different ways to rival chains(Bradley, 2003).

This paper will discuss the logistics, marketing channel and supply chain of an International clothing company – Zara. The company was chosen because of its unique and innovative distribution channel and supply chain management.

Marketing Channel Structure

The marketing channel may have different structures. There are manufacturers who have a direct or one-step channel structure. There are also market channel structures with 6 or more steps (McCalley, 1992).

What sets Zara apart from other companies is itswell-designed supply chain network. Zara started its operation in the 1970s. It was opened by Amancio Ortega in Spain. From then on, Zara continued to grow and how has nearly 900 stores around the world. One of the elements of Zara’s success as a fashion empire is its highly effective supply chain system that enables the company to control the entire marketing channel and its processes and steps from textile manufacturing to retail. Zara also has an extremely effective global network which is consist of buyers and trend-spotters. The responsibility of these people is to find inspiration by walking around the metro in different locations, navigate the world-wide web and to scannewspapers and magazines, and visit fashion shows in search for new trends for men, women, and children clothing. From the information and inspiration that they gather, they create clothing pieces that have the “catwalk look” but at the same time affordable. Zara’s clothing products are very attractive to people of all ages and all walks of life. The success of this fashion brand can be attributed to its marketing channel and supply chain management. Supply chain or value chain management is composed of the operational or tactical activities and can be defined as ‘managing the entire chain of raw material supply, manufacture, assembly and distribution to the end consumer (Jones 1989 cited in Lowson 20002). Christopher (1998) defines supply chain management as the management of upstream and downstreamrelationships with the suppliers and customers to deliversuperior consumers value at less cost to the supply chain as a whole.

Steps in Zara’s Marketing Channel

In order to make sure that the marketing channel is streamlined for success and that Zara is able to produce quality products in just a short period of time, themanagement organized every business process and activities from design to retailing.

1. Design and Order Administration

In order to support the strategy of the company to have a strategic supply chain management, changes and improvements were introduced in the design and order administration process. In order to ensure product quality, the company designs its own products. There are more than 300 people who work in the order and administrationdepartment. These people produce designs that the company will make into clothing items. In order to make the supply chain more effective, the order and administration team works on designs for the current season as well as the next season, making the process more efficient and enabling the company to update and develop the current designs very quickly.

2. Production

The company’s production process supports the company’s strategic supply chain management. Zara manufactures approximately 50 percent of its products in its own network of 22 Spanish factories but use subcontractors for all sewing operations. This enables Zara to focus on the processes that adds to organizational capabilities. Many of Zara’s suppliers are based in Spain and Portugal and Zara exploits this geographical proximity in order to ensure quick response to orders which is critical for fashion products.

3. Distribution

All products pass through Zara’s major distribution center in La Coruña. The 5-storey, 50,000 square meter distribution center employs some of the most sophisticated and up-to-date automated systems. With a workforce of 1200, the distribution center normally operates four days per week with the precise number of shifts depending on the volume of products that have to be distributed. Orders for each store are packed into separate boxes and racks (for hanging items) and are typically ready for shipment 8 hours after they have been received.

In 2001, the distribution center shipped 130 million pieces. 75 percent of these shipments were to stores in Europe. Fashion garments represent around 80 percent of Zara’s products and the rest are more basic items. Contractors using trucks bearing Zara’s name pick up the merchandize at La Coruña and deliver it directly to Zara’s stores in Europe. The trucks run to published schedules. Products shipped by air are flown from either airport in LaCoruña or the larger airport in Santiago. Typically, stores in Europe receive their orders in 24 hours, the United Sates in 48 hours and Japan in 48 to 72 hours. Compared to similar companies in the industry, shipments at Zara are almost flawless – 98.9 percent accurate with less than 0.5% shrinkage.

4. Retailing

Stores usually place their orders and receive shipments twice per week. Orders have to be placed at pre-designated times.

The store plays an important role in the Inditex business model that ranges from production up to end distribution. The overall experience of the customer in the store in considered. Apart form the fashion supply, the interior design of the store, coordination of collections, maximum care over window displays and customer care are some of the elements that guarantee this experience. The stores where Zara concentrates the majority of its investment are the essence of the group’s chains, for which reason the location in the main commercial areas of cities and care over interior design take on vital importance for the company. The store is Zara’s main image vehicle.

Apart from its location, its window designs and interior design, customer care is one of the elements that Inditex takes most care of: its relationship with consumers. Personnel receive specific c training on customer care as one of the main intangible values of the store. Inditex establishments are thought out so that the encounter between the customer and fashion can take place in a pleasant environment. Store personnel with supervisors as the main drivers of quality of service, encourage freedom and comfort of the visitor by taking an active role in the shopping process exclusively when the customer requests this (Inditex 2007).

Zara’s Supply Network

Zara earned world renown because of its ability to move from design to in-store availability in a matter of weeks. This capability is the result of the company’s marketing channel which is composed of a closely connected, highly synchronized arrangements with out-sourced suppliers. Zara relies on a local supply network, which it largely owns and controls. That network can design and replenish hot-selling fashion products in the stores within three weeks. Zara’s supply network entails a near-vertically integrated company the owns retail, products design, dyeing, and fabric cutting operations. Only sewing operations are outsourced (Korhonen and Hartiala 2006).

Zara uses flexible arrangements with a wide supply base. Zara has achieved high levels of customer responsiveness by working closely with specialist, often small, manufacturers. The strategy at Zara is that only those operations which enhance cost efficiency through economies of scale are conducted in-house (such as dyeing, cutting, labeling and packaging). All other manufacturing activities, including the labor intensive finishing stages, are completed by networks of more than 300 small subcontractors, each specializing in one particular part of the production process or garment type. These subcontractors work exclusively for Zara’s parent, Inditex. In return, they receive the necessary technological, financial and logistical support required to achieve stringent time and quality targets. The system is flexible enough to cope with sudden changes in demand (Christopher et al 2004).

Elements of Zara’s Marketing Channel

Below are the contributors to the success of Zara’s marketing channel.

1. People

According to Davenport (1999) human resources or human capital is the intangible resources of abilities, effort, and time that workers bring to invest in their work. The people at Zara are top contributors of strategic capability to the company. One of the advantages of Zara over its competitors is the quality of service that is rendered to the customers.

2. Information

The company manages information (especially those that are from the customers) very effectively. The store is important to the company’s business model because this is where informatio0n from the customers are received and collected. These information are sent to design centers and commercial departments in real-time. The response from the customer with new requests sets the process going. Zara stores receive new products twice a week, thereby giving a quick response to the customer. The customer feedbacks, requests and suggestions that are gathered from the customers in every store is passed to the design team. The design team also consult magazines, trade fairs, and fashion shows to know the latest in the fashion industry. The company ensures product quality by designing its own products. Zara employs around 300 people in its headquarters in Spain. The headquarters staff is composed of designers, specialists and buyers. Together they produce designs for approximately 40,000 items per year from which 10,000 are selected for production. Unlike their industry peers, these teams work both on next season’s designs and, simultaneously and continuously, also update the current season’s designs. Extensive feedback from the store network also forms an integral part of the design process. Women’s, men’s and children’s designers sit in different halls in a modern building attached to the Inditex headquarters.

3. Technology

Zara is able to produce fashion pieces in a very short time because of its ‘fast fashion’ concept. This concept relies on the constant exchange of information throughout Zara’s supply chain. Information and communications technology is at the heart of Zara’s business. Information of customer needs and demands flows daily and is fed into a database at head office. Designers check the database for these dispatches as well as daily sales numbers, using the information to create new lines and modify existing ones, thus designers have access to real-time information when deciding with the commercial team on the fabric, cut, and price points of a new garment. In order to make the product design and approval process, Zara warehouses the product information with common definitions allowing it to quickly and accurately prepare designs, with clear-cut manufacturing instructions. Zara’s state-of-the-art distribution facility functions with minimal human intervention. Approximately 200 kilometers of underground tracks move merchandise from Zara’s manufacturing plants to the 400+ chutes that ensure each order reaches its right destination. Optical reading devices sort out and distribute more than 60,000 items of clothing an hour. Zara’s merchandise does not waste time waiting for human sorting.