Supply Chain Management Issues In The Case Of Zara Inc.

Organizational background/ Case background

What Is the Supply Chain Management Issues in the Case?

In this era of globalization, supply chain management can be considered as a key organizational function. The focus on supply chain helps the organizations to save cost and improve profitability. In fact, the large organizations have realized that supply chain management could also be a source of competitive advantage for firms. This is one of the reasons that organizations have a single objective of supply chain optimization as a continuous process within the organization. Adebanjo & Laosirihongthong (2016) highlighted that the supply chain management system should be established as an open system in which different stakeholders can contribute. Authors further extended that implementing the Open Systems Theory can be a challenge, however, the adoption of an Open System is a worthy approach due to the advantages this approach provides to supply chain management. For example, an organization that implements and uses an open system is better suited to adopt new changes in the organizational environment and changes that can affect the social, economic, or cultural nature (Tatoglu & Bayraktar, 2016). The objective of this paper is to discuss the case study of Zara Inc. The paper would discuss the supply chain management issues in the case and based on the problems the paper would also discuss some of the solutions for Zara Inc. A brief organizational background and the background of the case can be discussed as:

Zara is a multinational company in clothing and accessories industry. The company is headquartered in Spain. Zara was founded in the year 1974 and since then it has expanded across the globe. The company has more than 2000 stores in different parts of the world. Zara has its presence in developed nations like USA, Australia, etc. and the company is also present in the developing countries like India. Zara is known for its agile supply chain (Lengnick-Hall & Lengnick-Hall, 2013). The case study highlights the part that the flexible and optimized supply chain is the key to success for Zara. The company is known to introduce the clothes with latest trends and fashion in the market. The shelf life of products of Zara is low and the consumers usually get access to latest clothes and accessories whenever they visit Zara. The company has also integrated its supply chain management with Information System (Cantwell, 2014). It helps the internal stakeholders of the company to minimize the lead-time in ordering, order fulfillment, inventory management etc. The case study mentions that Zara has its own spare capacity of warehouses, trucks, etc. It ensures that the wastage is minimal in the existing supply chain of Zara. The company has the ability to fasten the responsiveness of its supply chain, whenever needs. The case study mentions that its integrated supply chain management is its biggest strength. The analysis of Zara case suggests that there are not much of the issues in the existing supply chain of Zara (Surie & Reuter, 2015). However, there is a scope of further optimization. The existing issues in the supply chain of Zara can be discussed as:

Issues in the existing solutions

The good thing about Zara is that it is able to maintain a lean supply chain. The lean supply chain and the agility in the supply chain are two biggest strengths of Zara (Sridharan & Simatupang, 2013). However, some of the issues for Zara can be discussed as:

The case study mentions the use of hand held devices by the executives and store managers. However, one of the issues in the existing supply chain is the limited use of ERP systems. Zara is not able to completely utilize the benefits of ERP systems. The company does have an ERP implementation in place (Chidlow & Ghauri, 2015). However, there is a need to further optimize the ERP system. The existing ERP system is used primarily for inventory management and order fulfillment. However, the modules like CRM (Customer Relationship Management) system are not used much by the company. There is a need of an integrated ERP system in place that spans over various organizational functions at Zara. It would ensure that Zara is further able to extend and optimize its supply chain that is already spread over number of nations.

The organization does have a lean supply chain and the company does not have processes in place to minimize the wastage in the system. However, Zara still does not focus much on the six-sigma methods of supply chain optimization. With the focus on six-sigma, Zara would be able to further optimize its supply chain network. The use of six-sigma and lean methodology would enable Zara to further reduce the wastage in the system. The company may be required to make some initial investment towards lean and six-sigma. However, in long term, the benefits would help Zara to keep and optimized supply chain (Kocaoglu & Gulsun, 2013).

The existing supply chain of warehousing business of Zara is strong; however, there exist a scope of improvement. One of the scopes of optimization in the existing supply chain flow is the use of Information Systems like ERP systems. When it comes to Supply Chain Management (SCM), businesses need to interact with numerous suppliers and partners in order to obtain the raw materials and resources needed to bring finished goods to market. ERP plays a vital role in combating inefficiency; reducing waste and ensuring that workers are better able direct their efforts (Tatoglu & Bayraktar, 2016).

There is no doubt that Zara has a strong supply chain network in place. However, there exist environmental repercussions of Zara’s supply chain network. The company is dependent on fossil fuels for transportation. There is a need for Zara to reduce its environmental impact. It is important that in this era of globalization, organizations should look for sustainable development (Zsidisin, 2012). The step towards the environment would be a first step for sustainable development. It is important that Zara must use green mechanism to optimize and elaborate its supply chain. The company can integrate with other vendors and players in the industry to learn industry best practices about supply chain management and logistics management.

Limited use of ERP system in supply chain management

Zara has tied up with number of suppliers across the globe. The company does have a supplier criteria in place. However, the over dependency of Zara on its suppliers’ place Zara at risk. Zara is a very large retailer in world and it cannot afford to lose its credibility due to dependency on suppliers. However, in the end Zara is depend on suppliers to get quality raw materials. Therefore, it is important that Zara must have good relationship with its suppliers. The existing issues with suppliers is that Zara is not able to check the quality of material from all the suppliers. The organization does have the system of quality audit, wherein it would, at random, make inspection of supplies. However, this system must be improved to increase the quality check of material procured from suppliers. It would also help Zara to streamline its operations and save the cost.

It would be correct to say that logistics management is the backbone of Zara. Therefore, steps should be taken to improve the logistics management (Santacreu-Vasut & Shenkar, 2014). The key strategies for Zara to overcome the supply chain and logistics management issues can be discussed as:

One of the bottleneck for Zara is heavy dependency on suppliers. Zara has tied up with number of suppliers across the globe. The company does have a supplier criteria in place. However, the over dependency of Zara on its suppliers’ place Zara at risk. The recommended supplier selection strategy for Zara would be to use weighted method to select suppliers. The company should have various parameters that it uses to select the supplier (Brannen & Piekkari, 2014). The company would rate the suppliers (on a scale of 1 to 10) and based on all the parameters, a weighted index is calculated. The three steps involved in the supplier selection method can be discussed as:

A sample matrix to select the supplier can be shown as:

The table with the weighted average and final score of suppliers can be shown as:

The above table show that supplier # 3 is the preferred supplier for Zara. Actually, this procedure should be repeated for number of suppliers and based on the procedure, a pool of supplier should be selected.

The new or recommended supply chain management focuses on the integration of supply chain management with the ERP system of the company. It would be correct to say that the technology and information systems like ERP system can really add to the strength and agility of existing supply chain of Zara (Leuschner & Rogers, 2013). In general, the integration of Supply chain management and ERP allows manufacturing and distribution businesses the ability to gain greater visibility into all operations while increasing speed, efficiency and overall customer satisfaction (Fawcett & Ellram, 2014). The proposed structure of integrated supply chain with ERP is focused on three pillars or three drivers. These drivers can be highlighted as:

1. Reducing waste in the system and driving efficiency
2. Cost savings

• Employee satisfaction and improved customer feedback

Lack of focus on six-sigma

The proposed ERP implementation is one on the lines of above drivers. It is suggested that Zara should get the ERP implemented from an external vendor that can manage the challenges that rise from ERP implementation (Stadtler, 2015). The integration of both systems (ERP and Supply Chain Management Systems) may pose some unique challenges for Zara. It is in the company’s best interest to ensure that the leaders and your staff fully understand the role of ERP within the SCM process. It is important that the company must understand the risk and benefits before integrating its ERP system and SCM system (Qrunfleh & Tarafdar, 2015). The targeted or the proposed high-level view of the systems at Zara can be shown as:

The integration of above recommendations would certainly bring certain changes at Zara. Leaders who can come up with creative ways to view the real challenges of their organizations and present them can then have the power to change those issues that others are overlooking. It would be correct to say that the vision of a leader to expand the function of a manager would be an excellent benefit to any organization. Leaders are always looking for ways to improve what they make and how they make it (Kolk, 2015).  Managers administer the goals and direction of their boss. They focus on controlling costs and obtaining personal goals
(Kolk, 2015). Having a manager that has the ability to look to the future and made decisions on how to keep production fresh, relevant to the current and future market and expand to new possibilities and maintain the daily administrative duties as well would serve as a dual role of leader/manager.

It is suggested that Zara should have key metrics in place to measure the ROI of supply chain. Metrics in the supply chain management field helps illuminate areas within the business so that leaders can properly approach how to make the supply chain better, make individuals better and make the organization better. This helps employees to be less resistant and more open to change or contributing to the task and goals of the organization.  Leaders also foster innovation in groups (Caprar & Devinney, 2015).  This allows followers and organizations to achieve the strategic vision.

It is important that Zara should use control policies to manage both its internal and external environment. One of the core control policies for Zara is to use benchmarking. With the use of benchmarking, the company would be able to use the control mechanism as compared to the industry best players (Wisner & Tan, 2015). The company can benchmark its operations against the established players. At the same time, it is critical that the company should be quick enough to change its organizational culture to suit the external policies.

Scope of Optimization in warehousing management

Another key control policy for Zara would be to establish the SMART objectives with respect to the supply chain of warehousing. The use of SMART objectives would enable the company to have short term and long-term objectives in place. For example, the company can have the SMART goal to reduce its IT support cost by 5% in next year (Zander & McDougall-Covin, 2015). With this objective in place, the company can have specific control mechanism to address this objective.

Conclusion

The above report discusses the case study of Zara Inc. The report discusses the key issues in the existing supply chain of Zara and based on these issues, the report discusses some of the logistics management strategies for Zara. Based on above discussion, it can be said that, that the way forward for Zara is the effective use of technology. The immediate thing for Zara would be to do an assessment, wherein it would analyze its supply chain from a technology point of view. Zara can take the help of some external consultants to complete this assessment task as the internal resources of Zara may not have the required skills and competencies to perform this assessment. It is also important that Zara must include key stakeholders together while doing the assessment. The assessment about the current supply chain management strengths and weakness would enable the company to develop effective future strategy about supply chain management, operations management and logistics management.

References

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Tatoglu, E., Bayraktar, E., Golgeci, I., Koh, S. L., Demirbag, M., & Zaim, S. (2016). How do supply chain management and information systems practices influence operational performance? Evidence from emerging country SMEs. International Journal of Logistics Research and Applications, 19(3), 181-199.

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Zsidisin, G. A. (2012). Managing commodity price risk: a supply chain perspective. Business Expert Press.

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