Zara’s Supply Chain
Introduction
Inditex Group specializes in textile design, manufacturing and distribution of different textile patterns to customers. Its innovation and flexibility has made it one of the largest fashion houses in the world. The first Zara Shop was opened by Inditex Group in 1975 and its stores can now be found in over 400 cities across the world. As one of the largest fashion distributors, Zara has a speedy response within its supply chain that ensures that fashion designs are shipped to all local branches of Zara in a matter of two weeks. Zara operates through a vertical supply chain strategy that ensures it has total control of all the business units in charge of designing, manufacturing, sourcing and final distribution to retail outlets (Fraiman & Singh, 2005).
Elements/ Stages of Zara’s Supply Chain
- Processes within the supply chain include material supply, designing, cutting, dyeing, fitting, sewing, distribution, retail outlets’ sales and purchase by the end customers
- The mechanism of the supply chain is summarized as follows: Store Managers provide feedback on customers’ preferences and sales records to Market specialists. The market specialists in turn, communicate with the Designers who take this feedback and send the designs to the production staff to make more of the preferred designs; New patterns are sent to laser cutting machines and the fabrics are assembled accordingly; The Designs are sewn with the fabrics, packaged and shipped off to distribution centres where logistics staff take over the distribution to Zara outlets (Anderson & Lovejoy, 2007).
How Supply Chains are Managed
- There’s a constant flow of information at every level within the supply chain which comprises customers, store managers, market specialists, designers, production staff, buyers, subcontractors, warehouse managers and distributors. This ensures that the relationship between staff members and suppliers is reinforced
- Supply chain response has been cut down from the typical 20 to 30 weeks turnaround time to 15 days (Anderson & Lovejoy, 2007).
- Retail outlets act as a platform for evaluating customers’ needs. This in turn determines which products/materials will be delivered by other suppliers within the supply chain (Anderson & Lovejoy, 2007).
- Zara manages the bulk of its supply chain by retaining the management of critical business activities in-house. It owns a dye and finishing plant and staff are in charge of cutting materials themselves; sewing is outsourced. 60% of its manufacturing processes are however outsourced to areas close to Spain (Anderson & Lovejoy, 2007).
- Designs are produced from available fabrics; this eliminates the possibility of delays within the supply chain (Anderson & Lovejoy, 2007).
British Energy’s Supply Chain
British Energy relies on the supply chain as a fundamental section of its business. Through the supply chain, the company incorporates suppliers and companies to provide safe and reliable electricity and gas service to customers. The objectives of the supply chain are to measure supplier performance, ensure the availability of plant systems, implement long-term fleet deals and achieve customer focus and communication. The company adopts a category management approach that binds key suppliers to the business strategy. British Energy has over 8 nuclear stations and a coal-based power station in the UK (British Energy, 2009).
Elements/ Stages of BE’s Supply Chain
The Gas supply chain comprises four sections: the generation, wholesale market, transmission and distribution of gas and electricity. The supply chain within the oil and gas industry comprises contractors, subcontractors and suppliers who are all involved in ensuring that oil is discovered, extracted, tested, refined, and distributed to the end users. During the development of oil and gas fields, procurement is rampant. Procurement is usually viewed as a project execution task which could range from millions to billions of pounds (Anderson, 2003).
How the Supply Chain is Managed
According to Anderson (2003), the supply chain in the oil and gas industry has two basic divisions. One is Refining and the other is distribution. The refining supply chain consists of crude procurement, Crude Training and Risk Management, Refining, Logistics, Blending and Product Dispatch. The Distribution segment on the other hand, comprises demand forecasting, optimization of the distribution network, replenishment, planning and scheduling, and POS Processes. This paper however, focuses on the distribution section.
Procurement of necessary equipment and expertise is done during the operation of fields. The development activity involves structured project tasks which may cost huge amounts of money. The supply chain thus comprises complex interactions amongst contractors, vendors and even Government. Forces that govern the supply chain may be both internal and external. At the top end of the supply chain, are companies that have greater purchasing power (British Energy, 2009).
British Gas uses e-collaboration in procurement which comprises internet-based solutions that the company uses to connect the different vendors. This provides a single platform for project execution, procurement administration and general execution of projects. One of the biggest trends in the oil and gas industry is the merging of companies to form bigger entities. British Energy is able to meet the needs of the people by procuring materials from different suppliers and part of the organization’s vision is to bring together a partnering approach that will ensure more effectiveness in its Supply Chain (British Energy, 2009). British Energy was recently acquired by EDF Energy in a bid to expand its supply chain.
Compare and contrast each organization’s approach to capacity planning and control
Zara: Capacity Planning & Control
Capacity planning and control is one of the most important activities in any organization. It ensures the effectiveness of operations and that the demand placed on any product of the organization can be met by existing facilities and resources. Therefore, Capacity Planning and Control can be said to revolve around having the required number and volume of resources needed to meet customers’ demands and expectations (Coronel & Rob, 2007).
Zara is able to engage in effective capacity planning due to the number of stores it has scattered across the world. Designers copy styles from Paris, Milan and New York and produce these based on daily reports from Store Managers who report on what’s selling and what’s not selling. As soon as the demand for a particular style increases, Store Managers inform the designers to send in more of the item into the store. This way, supply can keep up with demand on the desired items. This also ensures that Zara does not produce more of an item that is not selling, thus maximizing the use of resources, effort and time (Fraiman & Singh, 2005).
Zara also plans for its capacity building by investing in fast fashion and updating its design lines as quickly as possible. This way, Zara can keep customers expectant and satisfied. The fact that the company is involved in the design, manufacture and distribution of clothes also implies that Management will be able to make predictive plans for meeting future demands through the use of sales prediction and estimation models (Dutta, 2002).
Since Zara does not produce clothes without forecasting customers’ needs and receiving feedback from sales outlets, its capacity is usually fully utilized and controlled by ensuring that the right clothes are produced for the right customers within a particular region. Zara also does not focus on advertising; organizational capacities are targeted at product design and the quality of products. By regaining control of all its business units, Zara has total control and can thus respond to market needs quickly and effectively. If a particular product is not popular, Zara stops piling such products to prevent the stock from over piling. In this way, Zara manages its capacity and control processes (Fraiman & Singh, 2005).
In summary, Zara achieves capacity Planning by:
- Regular and minimal shipments of new clothes. This ensures that customers’ requirements are incorporated into new designs and guarantees customer satisfaction and fulfillment (Anderson & Lovejoy, 2007)
- The production of non-preferred designs is terminated (Anderson & Lovejoy, 2007)
- Procurement and production staffs make predictions of manufacturing budgets and present capacity before resources are committed for full production (Ferdows, Lewis & Machuca, 2005)
- Zara’s capacity planning strength is also based on its direct and indirect ownership of its processing and production outlets. This provides Zara with the foresight to respond quickly to market demands. Zara also stores most of its materials in Greige form, giving the allowance to print in the required colour and pattern when needed (Dutta, 2002)
British Energy: Capacity Planning & Control
In order to meet the needs of the expanding British Population, British Energy owns and operates 8 nuclear power stations that have a collective capacity of about 9,000 megawatts. The organization also operates two major types of nuclear reactors. These include the AGR, an acronym for the advanced gas cooled reactor and a PWR, the pressurized water reactor. British Energy is involved in a project called the nuclear new build. This is a low-carbon technology that is designed to be environment-friendly and currently provides approximately 20% of UK’s electricity requirements (British Energy, 2009).
The other nuclear power stations are reliable, effective and have been operational for over two decades. In order to fulfil the new capacity that government has predicted will be needed in the near future, British Energy has drawn up extensive plans to achieve this. The company has procured land close to its nuclear power stations in seven different locations within Britain. British Energy also has one coal-fired plant which can help to generate more capacity, and can be adjusted to meet increasing demand.
EDF energy, an integrated energy company in the UK has operations centered on the generation of electricity, distribution and sale of gas and electricity to homes in the UK. EDF Energy took over British Energy this year and this has made EDF Energy, one of UK’s largest electricity generator. This move has definitely served to increase the capacity of British Energy/EDF Collaboration and would help to meet customers’ needs more effectively, as opposed to the 20% coverage that was originally generated by British Energy. The combined business between EDF Energy and British Energy forms one of the largest energy companies in the UK and the current installed capacity is approximately 16.5 GW. A quarter of UK’s electricity is generated from the nuclear, gas and coal power stations in combination with heat plants, power plants and wind farms (Pagnamenta, 2008).
In terms of managerial decision making, capacity planning and control is achieved by:
- The use of data to analyse demand, identify issues and trends
- Organizational restructuring, which also led to the formation of Transco
- Use of an automated system that allows staff to capture real time information over Transco’s wide Area Network (Metron, 2009).
- Capacity planning team produces monthly reports to aid managerial decison-making centered on resource allocation (Metron, 2009)
- Use of Athene as a monitoring tool for modelling, and forecasting demands (Metron, 2009)
British Energy and Zara Fashions are clearly in two different business worlds and, as such, their approaches to meeting the needs of their customers are quite varied. While British Energy provides a service, Zara Fashions provides products. Also, the capital base and equipment needed to set up and maintain a fashion store is minimal compared to that needed to set up and maintain a Nuclear power plant. Consequently, in terms of the capital needed for capacity planning and control, British Energy would spend a lot more money, require more skills’ acquisition and time in planning for capacity management and control compared with Zara Fashions.
Another major point of difference is the market in which they operate. British Energy functions within an Oligopolistic market. An Oligopoly market is one in which the market is dominated by a few sellers. British Energy may not need to contend with as many competitors as Zara and customers do not have as many options as they would in a more competitive market. Zara on the other hand, is faced with a mounting level of competition on a daily basis. This is because the company deals in fashion materials in a market which is easy to enter and is quite imitable. Capacity Planning and Control in Zara would have to take into consideration factors such as customers’ needs, preferences, personalized tastes, and other indicators that can generate an increase in demand. While British Energy’s strategy for Capacity Planning and Control would also be centred on providing a service, it would strive to maintain a uniform service provision and quality across all the regions in which it operates.
References
Anderson, E. 2003. Supply Chain Strategy in the Oil and Gas Sector. Exploration & Production: The Oil & Gas Review
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British Energy. (2009). About British Energy. Retrieved November 29, 2009, from British Energy: http://www.british-energy.com/pagetemplate.php?pid=77
Coronel, C., & Rob, P. (2007). Database Systems: Design, Implementation, and Management, Eighth Edition (8 ed.). Cambridge: Course Technology.
Dutta, Devangshu (2002) Retail @ the speed of fashion. Part II. Third Eyesight website. 4p. Third Eyesight. http://www.3isite.com/articles/ImagesFashion_Zara_Part_II.pdf
Ferdows, K, Lewis, M.A, & Machuca. J.A.D. 2005. Zara’s Secret for Fast Fashion. Retrieved February 3, 2010 from Harvard Business School: http://hbswk.hbs.edu/archive/4652.html
Fraiman, N., & Singh, M. (2005). High Speed Fashion Retailing. International Conference on Industrial Logistics (p. 46). Uruguay: Columbia Business School.
Metron. 2009. Capacity Planning at Transco – Automation is the key. Retrieved February 3, 2010 from http://www.metron.co.uk/reference/case_studies/case10.html
Pagnamenta, R. (2008, December 3). EDF may sell capacity to win British Energy deal. Retrieved November 29, 2009, from The Times: http://business.timesonline.co.uk/tol/business/industry_sectors/utilities/article5276494.ece
TME. (2009, August 3). Case Study: Zara’s Vertical Supply Chain. Retrieved November 28, 2009, from Thinking Made Easy (TME): http://ivythesis.typepad.com/term_paper_topics/2009/08/case-study-zaras-vertical-supply-chain.html