Question No1.Advantages of responsive supply chain of Zara? A responsive supply chain of Zara works collaboratively among the stakeholders to exchange information in a feedback loop in order to produce enough of a product to satisfy uncertain demand. Zara has greater visibility into the supply chain which makes it responsive to the current market. This allows Zara to sense and respond quickly to capitalize on new opportunities. The information systems are the heart of the business model which enables it to better adapt to and meet customer demands. Information transparency and real time business intelligence leads to shorter cash to cash cycle times.(The duration between purchase of the inventory and collection of accounts receivable from the sales of the inventory). It also enabled to reduce its inventory levels and increased inventory turnover across the entire retail chains. This will result in reduction in holding and carrying cost. Operational expenses are reduced with planning for procurement, manufacturing, and transportation. Better order, product and execution tracking has lead to improvements in performance and quality - and lower costs. Question 2.Why has Inditex chosen to have both in-house manufacturing and outsourced manufacturing? Why has Inditex maintained manufacturing capacity in Europe even though manufacturing in Asia is much cheaper? Almost 80 % of the Zara’s production is carried out in Europe and high proportion of this is carried out in a headquarters in Spain. Almost half of its production is in-house or closely controlled facilities. This gives the Zara a tremendous amount of flexibility and control Inditex has owned capital-intensive manufacturing in Spain and it have adopted vertical integrating strategies to acquire dying and processing ,cutting and garment finishing facilities. This allows the Zara to exploit the geographical proximity to enhance its quick response to order which is critical for fashion industry. Undyed fabric is sourced from Spain, Far East, India and Morocco. By retaining control over dyeing and processing areas Inditex has processing capacity which can be utilized on demand. Labor intensive processes like stitching is outsourced to sub-contractors in Spain and Portugal. Question no 3.Why does Zara source products with uncertain demand form the local manufacturers and products with predictable demand from Asian manufacturers?
In making decision regarding outsourcing the Zara main considerations are cost and quality. Zara outsources basic products which have generally have certain demands from Asian countries based on cost and quality advantage. While the other products of uncertain demand are outsourced from to different suppliers in Europe due because Zara created create and artificial demand by producing in less quantities and changing the designs very frequently
Question no 4.What advantage does Zara gain from replenishing its stores multiples times a week compared to a less frequent schedule? How does the frequency of replenishment affect the design of its distribution system? By replenishing the stores multiple times a week the Zara generates cash from merchandise much faster. It replaces its merchandise with new attractive designs in short period of times as compare to competitors who are struggling to catch a right fashion trend. This increases the customer’s visits to outlets and increases the possibility of customer liking the products. The basic principle of Zara is to buy on credit and sell for cash. The efficient management of working capital particularly inventory and receivables are important Zara profitability. For this the Zara has a centralized distribution center located with the state of art distribution facility function with minimal human intervention. Optical reading devices sort out and distribute items with no wastage of time in human handling. The efficient transport runs on a particular schedule just like a time table. The fleet movement is...
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