Background of the Case
Supply chain management can be regarded as a fundamental function of any organization in today’s globalized environment. Cost can be saved and profitability can be improved by focusing on the supply chain of any organization. Moreover, supply chain management can also provide competitive advantage to firms. That is why, organizations focus on continuous optimization of the supply chain.Adebanjo & Laosirihongthong (2016) emphasized that the supply chain management system should be an open system in which contribution can be made by various stakeholders. However, authors highlighted the challenges of implementing the theory of open systems, still because of the supply chain advantages, open system approach is worthy.
For instance, new changes in the environment of the organization and changes affecting the economic, social or cultural nature are better adopted by organizations implementing and using open system (Tatoglu & Bayraktar, 2016). This paper aims at discussing the case study of Zara Inc. Supply chain management issues would be discussed in the case and based on the issues some of the solutions will also be discussed in the paper for Zara Inc. A brief background of the case and the organization can be discussed as:
Zara is a multinational organization in accessories and clothing industry.The headquarter of the company is in Spain. After Zara’s establishment in the year 1974 it has expanded across the globe. All over the world the company has established more than 2000 stores. Zara has its presence in developed as well as developing countries such as USA, Australia, and India. Zara is recognized for its agile supply chain (Lengnick-Hall & Lengnick-Hall, 2013). The case study discusses the portion that the key to success for Zara is the optimized and flexible supply chain. The company has been recognized in the market for introducing the clothes with latest fashion and trend. Because of the low shelf life of Zara’s products whenever the consumers visit Zara they would normally get access to latest accessories and clothes.
The company has also performed integration of its supply chain management with Information System (Cantwell, 2014). This integration has led to minimization lead-time in case of order, fulfillment and management of inventory etc. The case study highlights the spare capacity of own trucks and warehouses with Zara. It makes sure that in the current supply chain of Zara the wastage is minimal. Whenever needed the company has the power to speed-up the responsiveness of its supply chain. The case study highlights the integrated supply chain management as its greatest strength. The analysis of this case proposes that the existing supply chain of Zara does not have many issues (Surie & Reuter, 2015). However, further optimization can always be done. The current supply chain issues of Zara can be discussed as:
Issues with Zara’s Existing Supply Chain
The ability to maintain a lean supply chain is a good thing about Zara. If we talk about the two biggest strengths of Zara, then they would be the agility in the supply chain and its lean nature (Sridharan & Simatupang, 2013). Nevertheless, few of the problems for Zara can be discussed as:
The case study highlights the use of hand held devices by store managers and the executives. However, the limited use of ERP systems is one of the problems in the current supply chain. Zara has not utilized the benefits of ERP systems completely. There is no ERP implementation in place in the company (Chidlow & Ghauri, 2015). However, further optimization of the ERP system is needed. The current ERP system is primarily utilized for order fulfillment and inventory management. However, the company does not make much use of modules like CRM (Customer Relationship Management) system. In order to span over various organizational functions there is a need of an integrated ERP system in place at Zara. It would make sure that Zara’s supply chain which is already spread over number of countries is extended and optimized.
The organization does not have ways in place in order to reduce wastage in the system and does have a lean supply chain. However, Zara still does not stress much on supply chain optimization methods like sig sigma. If Zara focuses on six-sigma, it can optimize its supply chain network further. Further wastage in the system can be minimized by the use of six-sigma and lean methodology. There will be a need for the company to make some initial investment towards six-sigma and lean. Nevertheless, if we look at the long term benefits then it would help Zara to have a fully optimized supply chain (Kocaoglu & Gulsun, 2013).
A scope of improvement is still there in spite of having a strong existing supply chain of warehousing business. The existing supply chain flow has one of the scopes of optimization in the use of Information Systems such as ERP systems. Businesses need to interact with numerous partners and suppliers, when it comes to Supply Chain Management (SCM), so as to obtain the resources and raw materials required to get finished goods to market. In combating inefficiency, ERP plays a critical role; to ensure that workers are in a better position to direct their efforts and reduce waste (Tatoglu & Bayraktar, 2016).
Logistics Management Strategies for Zara
It is beyond any doubt that Zara has set up a strong supply chain network in place. However, some repercussions of Zara’s supply chain network are there in terms of environmental impact. The company is relies fossil fuels for transportation. Zara needs to reduce the environmental impact of its supply chain. It is important that, firms should look for sustainable development in this era of globalization (Zsidisin, 2012). The first step for sustainable development would be reducing the impact on environment. In order to elaborate and optimize its supply chain it is important that Zara must use green mechanism. In order to learn industry best practices about logistics management and supply chain management the company can integrate with other players and vendors in the industry.
Zara has established tie ups across the globe, with number of suppliers. There is a supplier criterion in place in the company. However, Zara is at increased risk due to its over dependency on its suppliers’. Zara cannot afford to lose its credibility due to dependency on suppliers as it is a very large retailer of the world. However, in order to get quality raw material, Zara has the dependency on suppliers. Hence, maintaining a good relationship with its suppliers is important for Zara. Zara is not able to check the quality of material from all the suppliers; this is an existing issue with its suppliers. The organization does make inspection of supplies as part of the system of quality audit, at random. However, to increase the quality check of material procured from suppliers, this system must be improved. It would also help Zara to get its operations streamlined and save the cost.
It would not be wrong to say that the backbone of Zara is its logistics management. Therefore, there should be steps taken in order to improve the logistics management (Santacreu-Vasut & Shenkar, 2014). The key strategies to overcome the logistics management and supply chain issues for Zara can be discussed as:
Heavy dependency on suppliers is one of the chokepoints for Zara. Zara has established tie ups with number of suppliers all over the globe. There is a supplier criterion in place in the company. However, Zara is at a risky place due to the over dependency on its suppliers’. Zara should use weighted method to select suppliers as the recommended supplier selection strategy. Various parameters should be there for the company to select the supplier (Brannen & Piekkari, 2014). Suppliers would be rated on a scale of 1 to 10 by the company and a weighted index is calculated based on all the parameters. The three steps needed in the selection method for supplier can be discussed as:
Supplier Selection Methodology
Step 1: Supplier matrix
A sample matrix to select the supplier can be shown as:
|
Parameter |
Supplier 1 |
Supplier 2 |
Supplier 3 |
Supplier n |
|
Quality of Products |
4.1 |
4.1 |
6.1 |
4.1 |
|
Reliability of Services |
3.1 |
4.1 |
4.1 |
4.1 |
|
Market Reputation of Zara |
3.1 |
3.1 |
3.1 |
3.1 |
|
Relationship with other stakeholders |
6.1 |
7.1 |
4.1 |
4.1 |
|
Cost of Operations |
1.1 |
2.1 |
3.1 |
7.1 |
|
Credibility |
7.1 |
8.1 |
4.1 |
3.1 |
|
On Time delivery |
5.1 |
6.1 |
7.1 |
2.1 |
|
Finances |
6.1 |
5.1 |
3.1 |
3.1 |
|
Parameter |
Supplier 1 |
Supplier 2 |
Supplier 3 |
Supplier n |
Weight |
|
Quality of Products |
4.1 |
4.1 |
6.1 |
4.1 |
0.2 |
|
Reliability of Services |
3.1 |
4.1 |
4.1 |
4.1 |
0.1 |
|
Market Reputation of Zara |
3.1 |
3.1 |
3.1 |
3.1 |
0.1 |
|
Relationship with other stakeholders |
6.1 |
7.1 |
4.1 |
4.1 |
0.05 |
|
Cost of Operations |
1.1 |
2.1 |
3.1 |
7.1 |
0.2 |
|
Credibility |
7.1 |
8.1 |
4.1 |
3.1 |
0.1 |
|
On Time delivery |
5.1 |
6.1 |
7.1 |
2.1 |
0.2 |
|
Finances |
6.1 |
5.1 |
3.1 |
3.1 |
0.05 |
The table with the weighted average and final score of suppliers can be shown as:
|
Parameter |
Supplier 1 |
Supplier 2 |
Supplier 3 |
Supplier n |
Weight |
|
Quality of Products |
4.1 |
4.1 |
6.1 |
4.1 |
0.2 |
|
Reliability of Services |
3.1 |
4.1 |
4.1 |
4.1 |
0.1 |
|
Market Reputation of Zara |
3.1 |
3.1 |
3.1 |
3.1 |
0.1 |
|
Relationship with other stakeholders |
6.1 |
7.1 |
4.1 |
4.1 |
0.05 |
|
Cost of Operations |
1.1 |
2.1 |
3.1 |
7.1 |
0.2 |
|
Credibility |
7.1 |
8.1 |
4.1 |
3.1 |
0.1 |
|
On Time delivery |
5.1 |
6.1 |
7.1 |
2.1 |
0.2 |
|
Finances |
6.1 |
5.1 |
3.1 |
3.0 |
0.05 |
|
Net Score |
3.8 |
4.6 |
4.7 |
3.9 |
1 |
The above table show that preferred supplier for Zara is the supplier number 3. Actually, a pool of supplier should be selected based on this procedure and by repeating this procedure for number of suppliers.
The recommended or new supply chain management revolves around the integration of supply chain management of the company with the ERP system. It would not be wrong to say that the information systems like ERP system and the technology can really add to the agility and strength of existing supply chain of Zara (Leuschner & Rogers, 2013). In general, distribution and manufacturing businesses get the ability to gain greater visibility into all operations with the integration of Supply chain management and ERP while increasing efficiency, speed and overall customer satisfaction (Fawcett & Ellram, 2014). The integrated supply chain has a proposed structure in which ERP is focused on three drivers or pillars. These drivers can be defined as:
- Driving efficiency and reducing waste in the system
- Saving the Cost
- Improved customer feedback and Employee satisfaction
The one on the lines of above drivers is the proposed ERP implementation. The suggestion is that Zara should get the ERP implemented from an external vendor who can manage the ERP implementation and all the challenges that rise with its implementation (Stadtler, 2015). There might be some unique challenges posed due to integration of both systems (ERP and Supply Chain Management Systems) for Zara. It is in the company’s best interest to make sure that within the SCM process the staff and the leaders fully understand the role of ERP. It is crucial that before integrating its ERP system and SCM system the company must understand the benefits and risk (Qrunfleh & Tarafdar, 2015). The proposed or targeted high-level view of the systems at Zara can be shown as:
Certain changes would surely be brought at Zara due to the integration of above recommendations. Leaders who can get hold of creative ways to view the real challenges of their company and present them can then have the ability to change those issues that others are overlooking. It would not be wrong to say that the vision of a leader would be an excellent benefit to any organization in order to expand the function of a manager. Leaders are always looking for ways to improve what they make and how they make it (Kolk, 2015). Managers administer the direction and the goals of their boss. They focus on obtaining personal goals and controlling costs (Kolk, 2015). A manager would serve as a dual role of leader/manager if he has the ability to make decisions after looking at the future on how to keep production relevant to the current and future market, fresh and flourish to new openings in addition to maintaining the daily administrative duties as well.
Integrated ERP System
In order to measure the ROI of supply chain it is suggested that Zara should have key metrics. Areas within the business are illuminated by metrics in the supply chain management field so that how to make the supply chain better, make the organization better and make individuals better can be approached by the leaders properly. This assists employees to be more open to change, less resistant and contributing to the goals and task of the organization. Leaders also foster innovation in groups (Caprar & Devinney, 2015). This allows organizations and followers to achieve the strategic vision.
It is important that in order to manage internal and external environment, Zara should use control policies. Using benchmarking is one of the core control policies for Zara. The company would be able to use the control mechanism with the use of benchmarking, 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 suits the external policies by being quick enough to change its organizational culture.
With respect to the supply chain of warehousing another key control policy for Zara would be to establish the SMART objectives. The company will be able to have short term and long-term objectives in place by the use of SMART objectives. For example, to reduce its IT support cost by 5% in next year the company can have the SMART goal (Zander & McDougall-Covin, 2015). With this objective in place, the company can address this objective by having specific control mechanism
4.0 Conclusion
The above report highlights the case study of Zara Inc. The report discusses some of the logistics management strategies for Zara in order to cater to the key issues in the existing supply chain of Zara. It can be said, based on above discussion, that the way forward for Zara is the effective use of technology. The assessment would be an immediate thing for Zara to do, wherein its supply chain would be analyzed from a technology point of view. Help of some external consultants can be taken by Zara to complete this assessment task as required skills and competencies may not be there with the internal resources of Zara in order to perform this assessment. It is also important that while doing the assessment Zara must include key stakeholders together. The assessment about the strengths and weakness of the current supply chain management would enable the company to develop effective future strategy about supply chain management, logistics management and operations management.
Lean Methodology and Six-Sigma
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