CRN 14231 AUT 202110 Sourcing and Supplier Management Assignment Sample 2023
Introduction
The present report is significant and robust in highlighting the significance of an effective supply chain management and procurement strategy of a leading fashion retailer, Zara. The report includes supply chain analysis of the corporation as well as highlight its strategy of procurement. Furthermore, the report also proposes certain suggestions or recommendations to the company related to improvement of its operations or activities.
Company Background
Zara is highly established Spanish clothing retailer, based in Galicia, Spain. The corporation was initially founded in year 1975 by Amancio Ortega, and is flagship chain store of its parent company, Inditex Group (Aftab et. al. 2018). Zara is widely known and considered as the world’s largest international fashion retailer. The company operates through 2220 official stores as well as is present in over 88 nations across the globe. Not only this, Zara is globally recognised to constantly act as a pioneer in the concept of fast fashion, being based in a responsive supply chain. Additionally, Zara implements a unique and excellent business model, which primarily revolves around its customers and their satisfaction. The model comprises of designing, developing, producing, selling, and distributing the diverse product portfolio through the firm’s extensive retail network.
Supply chain analysis
Centralised, single, as well as production centre of a ZARA are directly associated with its parent company, Inditex. The chief executive of Inditex, Jose Maria Castelleno emphasises on undertaking business by reducing response time. Moreover, the corporation emphasises on keeping up with the latest fashion trends in order to build and maintain healthy relationship with its customers (Xuejie et. al. 2019). This aspect forms the principal or core element of the Zara business strategy.
Initially, Zara adopted a supply chain consisting of issues like imbalances, inconsistency, and market fullness for three of its store chains. Also, it highlighted in efficient establishment of fashion position which further highlighted complexities in joining or penetrating into the garments market in the United States. Also, the company suffered significant losses in the year 2001, as well as dramatic decrement concerning its share price in the market. Later, the supply chain underwent restructuring in the 1990s, which involved lowering the levels of inventory is as well as reduction of the number of suppliers involved (Song, 2021). Then, 50% of production system was shifted back into domestic production amenities in order to compress the cycle times, the seasonal collections were further cut down for allowing re-orders of the best-selling products.
Later, market-driven supply chain was implemented rather than the traditional one, which emphasised on designing in order to optimise the firm’s internal operations. Presently, the corporation utilises the business design of “value net” in order to facilitate the network operations, thereby, supporting customer connections with the corporation as well as its prominent suppliers. Zara’s concept of value method involves digital customer input offered by official stores of a Zara, sketchpads of the Zara designers concerning the required styles and patterns, globally sourced textiles, single distribution system, high-tech cutting plant, and the local assembling of fuelling workshops (Roederer and Mayrhofer, 2021). Furthermore, the value net concept initiated by Zara highlights a key issue associated with the management of customer value, as well as a payment of a regular group of customers.
The production and designing Centre of the three halls, including the men’s, women’s, and children’s section production planning, separate sales, as well as designing staff of the corporation responsibility for each clothing line. In addition to this, any official store of Zara Man received three various calls from the central headquarter in a week from market specialist and professional within each channel. However, it is highly expensive for the corporation to operate and maintain three different or distinct channels, yet information stream or flow from management towards each different channel is fast, direct, and eliminates any problems of any other channel (Berbiche et. al. 2020). This technique eventually contributes in making the entire supply chain highly responsive and effective. This sort of organisational as well as physical proximity within all the three separate channels further facilitates increased level of productivity, enhanced process quality, speed of designs desired by the customers, and the entire design/development procedure.
In addition to this, the system of fast fashion initiated by Zara primarily depends upon a consistent exchange of data or information throughout the entire supply chain. It ranges from the customers to the store managers, then to the market designers and specialist, and then to the production staff, to sub-contractors, to warehouse managers, and lastly, to the distributors. Zara emphasises on designing its procedures associated with organisation, operational procedures, as well as performance measures, in a very informative and easily transferable manner. Not only this, effective and successful communication is the key across the supply chain, which further contributes in reduction of production cost, as well as ensures superior quality maintenance (Luz et. al. 2021). On contrasting Zara with its one of the competitors, United Colours of Benetton, it has been observed that 40% of merchandise of Zara are manufactured internally, 66% of its raw materials are imported from north Africa and Europe. Also, only small number of basic items are outsourced by Zara, from Asia. Therefore, the strategy of globally sourced products offers a wide range of possible selection of the Fashion fabrics as well as contribute in the reduction of reliability on any specific supplier.
The suppliers of Zara offer immense flexibility to the company to postpone the dying or printing procedures in order to adapt to the product lines as per the emerging trends in the market. Moreover, cost involved in holding inventory is reduced as orders are not placed for an advance season, as well as are kept in the store rooms or warehouses prior to the arrival of periodic shipment (Jha and Veeramani, 2021). This further enables Zara to respond or react quickly to the emerging trends or changes concerning customer demand, thereby, further reducing risk factor when the final demand get augmented, as they are satisfied quickly by the transferring of the new and the latest designs into supply line.
Highly responsive and effective supply chain maintained by Zara offers significant advantages. It enables the corporation to react to all the emerging fashion trends as well as supply its customers with the latest outfits in minimum time frame. Other than this, the company never undertakes production in large quantities, this is because if style or the pattern does not sell as expected, company does not lose much as there is not high quantity of stock to be discounted (Seo and Suh, 2019). Furthermore, although the supply chain of Zara incurs high cost, yet it supports the advantage of higher profit margins and low inventory. However, the supply chain also highlights a major disadvantage which is related to the complexity or difficulties in expansion of the company to far off locations, as it is highly exclusive to sell and distribute such products.
Analysis of procurement/purchasing concepts
The giant fashion retailer, Zara, purchases large quantities of only certain types of fashion fabrics, which include four or five types, however, these can be changed from year to year. Later, Zara emphasises on designing the garments as well as undertakes related procedures of cutting and dyeing in-house (Bilovodsk et. al. 2018). This approach enables the fabric manufacturers to ensure fast and proper deliveries of bulk quantities of fashion fabrics directly to the Zara DC- the Cube. The key suppliers of the company are based in Spain, Italy, Greece, and Portugal. These suppliers focus on delivering the fabrics within 5 days of placing the orders. The inbound logistics from the suppliers are mostly taken by truck.
The factories owned by Zara can easily increase and decrease the rates/levels of production, which further ensures that there is less inventory within the supply chain, as well as less need to finance the required inventory level associated with the working capital. These factories undertake 50-60% of the manufacturing process in advance versus the rate of 80-90% of the competitors. The concerned fashion retailer doesn’t encounter the need for placing significant bets on annually fashion trends.
The parent company of Zara, Inditex, aims at sourcing the raw materials and products by following the most stringent environmental, health, safety, and social standards. The giant corporation works with suppliers in across 50 different markets in order to source or procure most of its products (PALMA, 2018). Although, the overall procedure of procurement is highly complex, yet, the corporation follows a well-defined and clear principle of always sourcing sustainably and responsibly. Not only this, Inditex am sad identifying the most sustainable as well as in environmentally responsible approaches to source or procure raw materials, as well as to apply cleaner, more efficient ways to transform these raw materials into the fashion garments wanted by its customers.
For an instance, Inditex, is highly committed and dedicated to support the production of more sustainable cotton. The corporation also avoids the procurement of wood-based fibres from highly ecological relevant or primary forest (Xiang, 2019). In addition to this, the corporation also closes the loop for creation of a life-cycle for its product in which the resources are efficiently utilised, and eliminates waste, thereby, moving closer to words the model of circular economy.
All the manufacturers as well as the suppliers associated with the parent company of Zara, Inditex are required to appropriately follow the defined code of conduct. This code of conduct is observed to apply the highest standards associated with the promotion of health and safety, international labour rights, protection of human rights, as well as environmental aspects. Not only this, the defined code applies to the suppliers as well as all their facilities, down to the last production system are you mad, through the traceability systems (Chowdhury et. al. 2019). These traceability systems provide information to the company about how its products are made as well as where they come from. Furthermore, the firm motivates and encourage its suppliers to make highly effective and sustainable choices through its awareness and training programmes. Critically, consistent training sessions related to sustainability aspects are provided to the purchasing teams in order to raise awareness about the social and environmental consequences of their decisions or choices.
Other than this, the procurement team of Zara works on the quantity of raw material required to manufacture the garments, rather than emphasising on the number of finished clothes. This procurement strategy has been observed to quotation to reduce or eliminate significant amount of waste (Zhiyu, 2020). This is because the corporation re-uses fabric, however cannot resale a single piece of clothes which fails to meet the expectations of the customer. Hence, it can be observed that a significant example associated with improvement of sustainability lies parallel to the concept of cost reduction. Other than this, the fashion retailer focuses on manufacturing its products in Galicia, instead of outsourcing its production system to eastern Europe or Asia. It significantly contributes in ensuring fast time to market, decreased cost of transportation, as well as low exposure towards politics and tariff. However, production in other regions may help the company to lower the cost of production. Local manufacturing has been a key contributor of a Zara to reduce overall risk associated with it supply, highlighting a narrow set of risk factors as compare to the ones posed by the more extended, international supply chains (Perry and Wood, 2018). Hence, it immensely supports the giant corporation to significantly reduce the overall measurement of carbon footprint by ensuring reduction in transportation.
Analysis of sustainability objectives and corporate strategy
Sustainability has now become the most important priority and the crucial aspects for the model corporations. The fashion retailers like Zara, H&M, and others are consistently working in order to improve their environmental policy as well as their commitment towards the planet. Zara is the world’s largest fashion company, and primarily emphasises on implementing sustainable techniques and approaches for undertaking its business operations and activities. The company has launched several initiatives which facilitate in putting sustainable labels on its diverse products (Ganguly et. al. 2018). Not only this, the corporation aims at eliminating the use of hazardous chemicals, train its employees in circularity, established donation boxes in all its stores, as well as cut down fibres which emerge from ancient or endanger forest.
In addition to this, the fashion retailer highlights its objective of eliminating the use of single use plastic as a packaging material for its products, by the year 2023. Also, it aims at ensuring that no waste will be sent to the landfills from the official facilities of Zara, before 2025.
Other than this, it has been observed that, Zara highlights its most important actions associated with sustainability, under the slogan of ‘Working towards sustainability’. These include integration of environmental and social sustainability, politically fuelled programmes, as well as the safety and health of its diverse products. The garments labelled as ‘Join Life’ are produced by the corporation is by using raw material and processes which significantly contribute in the reduction of environmental impact (Avittathur and Ghosh, 2020). In addition to this, Zara highlights its objectives that approximately 50% of its overall product will meet the standard of ‘Join Life’ by the year 2022.
Furthermore, it has been observed that the bags, boxes, alarms, recycle and reuse at the end of their useful life. The bags provided to the customers are made from 100% recycled paper, as well as by the year 2023, the corporation aims at eliminating all the single use plastics provided to its customers. In addition to this, the shops or stores of ZARA are renovated in order to prioritise efficient energy and water consumption, as well as the servers of zara.com use renewable energy sources (Sitaro, 2020). Other than this, the corporation highlight its goal of procuring 100% energy in its logistics centres, headquarters, and official stores, from renewable sources, by the year 2022.
The parent company of Zara, Inditex, focuses on the development of Waze in order to enhance its energy use as well as reduce the emissions of greenhouse gases. The corporation also highlights that 81% of its entire global energy consumption, in its stores, headquarters, and logistics, comes from the clean sources, which it has committed to 100% in the year 2022. Not only this, the company monitors each aspect within its value chain to identify the areas of improvement. These areas range from raw materials, and design to other states and manufacturing, from its offices and stores, to how its products are used, as well as what happens to them when they are no longer required.
The global energy strategy implemented by the corporation highlights its approach, which further contribute in overarching vision towards sustainability, running across all its business operations (Saher and Oleksiivna, 2019). The strategy primarily includes the following;
- Reduction of energy use level, as well as implementation of low carbon technologies within its own stores, logistic centres, as well as offices.
- To immensely support energy efficiency, as well as reduction in its supply chain with its different partners.
- To design and develop more sustainable and green products, while also considering the energy requirements of the items in manufacturing as well as in use.
- To encourage the customers towards using the products which are more efficient, by the technique of improved labelling.
- Also, to promote recycling and reusing the fibres, as well as the garments.
Hence, the strategy of the operation highlights its objective is to foster the efficient and rational use of energy sources throughout its entire value chain. In addition to this, the company is also committed to reduce the emission of greenhouse gases by a 90% rate in its Scope 1 and 2, as well as 20% in its Scope 3, (within the category of Purchased Goods), by the year 2030, as compared with 2018 (Cui and Fan, 2021). This highlights the goal of the company to accomplish net zero emissions in the year 2040.
Other than this, the parent company of Zara, Inditex, strives to optimise the emissions as well as conception of its stores across all the stages within the entire life-cycle. Moreover, 100 percent of its stores across the globe are eco-efficient since the year 2020, as well as 60% of the stores are connected to the central energy efficiency control system of Inditex. The company’s flagship eco-stores are considered as the best cons of the best practices across its business, as well as the most visible indicators to its customers confirming its commitment and dedication towards environmental sustainability (Nakano, 2019). Additionally, 40 of the flagship stores of the company are integrated with LEED Leadership in Energy and Environmental Design, or BREEAM certification, these to make the most respected benchmark considering the environmental standards associated with green buildings. The guidelines led by BREEAM and LEED significantly contribute in encompassing waste, water, energy, surroundings, materials, innovation, as well as other sustainability measures.
Not only this, the corporation has also introduced technologically innovative systems, which have significantly contributed in reducing the level of water and energy consumption in its eco- stores, without impacting the customer experience. It comprises of the following:
- Integration of automatic motion sensors in areas of low use dim lights, by 80%, when no individual is present.
- Utilisation of the most sophisticated systems of climate control available, appropriately zone thermostats, avoid peaks in use, as well as are automatically adjusted as per sunlight and occupancy (Sathkoralage, 2018). It also typically makes savings of approximately 40% higher, as compared to the standard systems in the stores.
- Control of electricity, and centralised monitoring, which further facilitates the reduction and optimisation of the levels of energy consumption in the stores.
- Also, the corporation integrate automatic electronic air curtains, at the store entrances to regulate temperature stability, which further contributes in energy savings of approximately 15%.
- Speed-controlling escalators which slowed down when not in use.
- Control and properly monitoring the rate of water flow and pressure in the bathroom facilities as well as installation of systems of grey water recovery, which further significantly contribute in reduction of water consumption levels.
Not only this, Inditex also prioritises the use of reused or recycled materials, lower energy materials, as well as locally sourced materials. Hence all these techniques or strategies are significant contributors in ensuring that Zara and its parent company, Inditex a sustainable corporation (Jermsittiparsert and Srisawat, 2019). It also enables the brand to build strong competitive advantages and maintains its dominating position within the global fashion retailing industry.
Recommendations
The giant fashion retailer, Zara, primarily focuses on beating intense and aggressive competition in the highly crowded industry (Singh and Nijhar, 2018). For this purpose, the corporation aims at the implementation of exceptional, excellent, and superior techniques. Below are certain recommendations for the corporation to enhance its procedures, associated with supply chain management, as well as sustainability aspects.
Supply chain recommendation: Zara has been observed to excessively focus on vertical integration system, which might further create a serious threat considering the effectiveness of international expansion of the retailer. Therefore, the corporation is highly recommended to develop or build different other innovative departments, which would effectively and appropriately control certain markets and regions. Appropriate reorganisation and departmentalisation will further contribute in increasing customer demands, as a particular department will specifically align towards a particular cultural or societal group (Perez-Franco and Phadnis, 2018). Also, the centres or departments can be appropriately coordinated by integrating EDI mechanisms as well as ERP systems, which further offer more control and contribute in increasing the production volume of the company worldwide. It will significantly help the corporation to build or enhance its competitive advantages in the industry.
Sustainability recommendation: Considering the sustainability aspect, Zara is suggested to reinforce its pledge towards being eco-friendly, by involving the customers in its process. It is important for the consumers to be aware of the brand that they are purchasing the products from. Playing a crucial role in the process, would highlight a greater positive impact on the consumers. Therefore, Zara must adopt and implement an upcycling programme, similar to H&M’s garment collecting, where the corporation trades with the customers of the unwanted clothes, for 15% off their next purchase (Myerson, 2018). This will eventually result in the customers returning the gently worn or unwanted Zara clothes, which could be further donated or used to different nations of need. This strategy will eventually result in promoting the concept of sustainability, thereby, enhancing the brand reputation of ZARA across the global fashion retail industry.
Conclusion
Hence, it can be articulated from the above report that procurement strategy as well as management of supply chain hold utmost importance for an organisation. The report included the case study of a leading fashion retailer, Zara. It reflected an analysis of the firms supply chain as well as its procurement strategy. Additionally, the report also highlighted the sustainability goals and initiatives undertaken by the giant fashion retailer. Lastly, the report proposes certain recommendations or suggestions to the company to enhance its operations and activities associated with supply chain and the concept of sustainability.
References
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Online:
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