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GRIFFITH UNIVERSITY

Global Business
Logistics 7103IBA
Assignment #2: Meeting the
Challenges of Global Logistics

Major Retailer: Zara

Drawing on the information provided in Assignment 1 and using the same


medium time frame, analyse and describe how you believe that the logistics
changes will impact on an enterprise (such as a major retailer) of your choice.
The chosen enterprise can be one of which you are personally familiar, or one
from an appropriate textbook (such as IKEA, Amazon, Coles, Woolworths,
Australia Post, etc).
As before, in the context of
this assignment, Logistics; should be taken as reflecting the sub-set of supply
chain management that relates to the transport and warehousing function (and
associated information management).
A key factor is assessing the students work will be the use of appropriate
academic frameworks to identify and analyse the impact logistic changes and
developments.

Introduction
It is often taken for granted that appropriate products will be available to buy in
the shops. We expect our lettuces to be fresh, the new iPad to be available on
launch day and our clothes to be in good condition and ready to wear. With the
advent of e- and m-commerce we have come to demand complete availability
and delivery at times, and to places, of our choosing.
It is becoming clear that the changed conditions in the global marketplace
demand a much more agile response from organisations and their partners in the
supply change. Product and technology life cycles are likely to continue to
shorten, while demand will be increasingly difficult to forecast (Zhelyazkov, n.d.,
para. 1).
The apparel industry is one of the most globalised industries, with 23.6 million
workers in over 20 countries. The market characteristics in this industry are short
product lifecycles, high volatility, low predictability, and a high level of impulse
purchase, making such issues as quick response of paramount importance
(Carugati, A & Liao, R & Smith, P 2008, p. 1494).
Supply chain management (SCM) is the success factor in fast fashion business. It
deals with suppliers, with suppliers suppliers, and with customers. The output of
supply chain is not just a physical product, but a combination of time, place, form
and function of a product/service proposition (Zhelyazkov, n.d., para. 2).
In the fashion world, where companies are competing on time (time to market)
the need of new abilities are rising. Agility is such an ability that responds to
unpredictable changes in demand. Agile Supply Chain (ASC) is driven by
information such as market data and information-sharing between business in
the supply chain to make quicker response, describe shorter, more flexible,
demand driven supply chains (Zhelyazkov, n.d., para. 3).
This assignment will look at Zara one of the most successful agile retail supply
chains in the world. Created in 1975 in Spain by Amancio Ortega, Zara is a
clothing and accessories retailer with more than 2,000 stores operating in 88
countries. During the last two decades Zara has tripled its profits and nowadays
is ranked 3rd biggest retailer worldwide (Lu 2014, para. 3).
At Zara, speed and responsiveness are more important than cost.

The brand is renowned for its ability to deliver new clothes to stores quickly and
in small batches. Twice a week, at precise times, store managers order clothes,
and twice a week, on schedule, new garments arrive. The company produces
about 450 million items a year (Lu 2014, para. 4).

Highlights of this remarkable company include:

1 week to develop a new product compared to 6 month industry average


Launches over 12,000 new designs each year
Garment hit stores within 3 weeks
New stock arrives twice per week in each store
Nothing remains in warehouses after 72 hours
Lack of advertising
Controls most steps on the supply-chain designing, manufacturing and
distributing products

For Zara, its supply chain is its competitive advantage.

Global logistic changes impact on Zara


One of the primary factors in SCM in determining the competitiveness of
organisations falls around logistics, getting: the right product, in the right way, in
the right quantity and right quality; in the right place at the right time; and for
the right customer at the right cost (Mangan 2012, p. 9). In fast fashion,
purchasing activities play a critical role through supplier selection and product
decision-making, and indeed, buying is arguably changing from purely
operational to more strategic which is how Zaras procurement operates
(Zhelyazkov, n.d., para. 17).
Strategic Procurement (Zara)
Goals:
1. Right Place
2. Right Quantity
3. Right Quality
4. Right Time
5. Right Price
6. Right Supply

Operational Procurement
Goals:
1. Manage uninterrupted flow of
materials and services
2. Manage cost of operational
activities
3. Minimize inventory investment
and loss

Melnyk & Davis & Spekman & Sandor (2010, p. 33) sums up the supply chain of
tomorrow must deliver varying degrees of six outcomes depending on key
customers needs. These six outcomes are:
1.
2.
3.
4.
5.
6.

Cost
Responsiveness
Security
Sustainability
Resilience
Innovation

From this analysis of how logistics and supply chains interact, four key impacts
have emerged challenging supply chain managers currently and will continue to
do so in the future. These four impacts are around: Technology, Customer
Expectations, Globalisation and Environmental concerns and its these four
impacts that this assignment will look closer at with Zara.

Logistics Change Impact #1 Technology


The use of technology is prevalent and maximised throughout all parts of the
supply chain & business at Zara.
Zara takes on the mandate inventory = death and avoids piling up inventory in
any part of its supply chain from raw materials to finished products.
They do this by implementing technology around inventory optimization models
to assist the company to determine the quantity that should be delivered to
every single one of its retail stores via shipments that go out twice every week.
The stock delivered is strictly limited, ensuring that each store only receives just
want they need. This also assists the brand image of being exclusive while
avoiding the build-up of unpopular stock.
Thanks to technology this quick in-season turnaround, from production facilities
located close to Zaras distribution headquarters in Spain, allows Zara to ship
more often and in smaller batches. If the design Zara hastily creates in an
attempt to chase the latest trend does not in fact sell well, little harm is done
due to the batch being so small, so theres not a ton of unsold inventory to get
rid of. And because the failed experiment is over in a jiffy, theres still time to try
a different style, and then a different one after that (Lu 2014, para. 10).
Zaras secret to their success has been around centralization. Zara's networked
business designs enable the frequent digital communication from stores to
designers, and centralised distribution allow the within-15-day deliveries to
ensure the satisfaction of consumers. (Zaras Supply Chain Advantages and
Disadvantages, n.d., para. 6).
This "fast fashion" system depends on a constant exchange of information
throughout every part of Zara's supply chain - from customers to store
managers, from store managers to market specialists and designers, from
designers to production staff, from buyers to subcontractors, from warehouse
managers to distributors. We can see that Zara's organisation, performance
measures, operational procedures are designed to make information transfer
easy. (Zaras Supply Chain Advantages and Disadvantages, n.d., para. 13).
Zaras designers gather data on sales and inventory from each of its stores on a
daily basis and use this to inform their view of the situation. The raw data comes
from quantitative and qualitative approaches. Sales and replenishment reports
are examined hourly by the Zaras store managers. On the other hand store
managers order items themselves instead of relying on what has being sent from
the headquarters. The accuracy of their forecasting affects their compensation,
which makes them more responsible. Part of the qualitative data gathering is
direct customer feedback given to shop assistants daily. Another one is after the
shop closes, the store manager and assistants turn to a recovery team and try to
recall what happed during this day, as well as sort out tried, but unsold items in
fitting rooms and try to find a pattern, which can be fed to the design team.
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The gathered raw data is analysed in Zaras headquarter, where design team,
fast prototyping team, market specialists and buyers set together in a tightly
coupled teams. (Zhelyazkov, n.d., para. 24-25).
Technology is also used to ensure that each Zara order arrives at destination
punctually, laser barcode scanners, which are able to pick and sort over 80,000
pieces of clothes with an error rate of less than 0.5%, was adopted in sorting the
finished products at Zara (Zhelyazkov, n.d., para. 11).
Zara also has implemented new technologies allowing a product price to change
couple of times a day, depending on supply and demand. The same technologies
allow monitoring that process (Zhelyazkov, n.d., para. 13).
Any new technology advances in the future for Zaras supply chain will only
propel Zara to improve efficiencies and customer satisfaction.

Logistics Change Impact #2 Customer Expectations


Customer expectations continually challenge supply chain. Consumer beliefs and
needs have altered. How consumers behave and what we demand has changed.
Our willingness to wait to be satisfied or served has reduced and we expect
instant product availability and gratification. It should be obvious from this that a
supply or logistics system that gets products from production through retailing to
consumption has also had to be transformed. Physical distribution and materials
management have been replaced by logistics management and a subsequent
concern for the whole supply chain. This consideration for the supply chain as a
whole has involved the development of integrated supply chain management
(Sparks et al. 2014, p. 1).
Based on the "value net", customer value management is a key issue to obtain a
regular group of buyers. Opportunities from current and potential customers can
be created by understanding the customers' hobbies, purchase frequency,
behaviours and needs. Further actions hence can be taken including contacts of
multi-channel customers and campaigns promotional targeting, offers designed
to attract and serve different customers according on their potential and existing
values. The current shoppers are frequent and loyal customers who visit 17 times
on average to a Zara store per year. Their interest is retained by regularly
updating and varying of stocks on shelves (Zaras Supply Chain Advantages and
Disadvantages, n.d., para. 12).
Zara has a successful supply chain management which focuses on customers'
preferences and the customer satisfaction and it is based on the performance of
supply chain. Efficient collaboration with suppliers and customers has
strengthened the long-term relationship and has helped to achieve tangible and
intangible benefits among them due to the transparency of data of individuals,
which allows Zara's manufacturing capacity to be more adaptive to the
customers' requests and on the other hand, buyers are more awarded of the
manufacturing procedures (Zaras Supply Chain Advantages and Disadvantages,
n.d., para. 2.).
Customer relationship between Zara and shoppers is strengthened by showing a
sense of scarcity by displaying unfilled shelves, limited offer notes on certain
items and deliberately undersupply impression to encourage customers to run to
the counter ( Zaras Supply Chain Advantages and Disadvantages, n.d., para. 4.).
One of the biggest advantages of Zara's supply chain strategy is being able to
react quickly to all fashion trends and supply customers latest fashion outfits as
soon as in few weeks' time which delivers on customer expectations on many
levels (Zaras Supply Chain Advantages and Disadvantages, n.d., para. 16).
Increasing product variety in style, size, package, function etc., can result in
improved customer satisfaction, higher market share and enhanced
competitiveness. Product variety also affects consumer purchase behaviour and
welfare. The needs and desires of heterogeneously distributed consumers are
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better satisfied by higher product variety. Raw materials costs, work-in-process,


finished goods and post-sales service inventories and logistics costs are some
examples of costs arising from increased variety (Mehrjoo & Pasek, 2014, p.
297).
Zara is an expert in "fast fashion" chain supply which is quick reaction to
consumers' needs and quick response to changes in supply. When product meets
the current needs of the consumer, consumer buys the product, and this is how
Zara maintains existing customers and attracts new ones (Zaras Supply Chain
Advantages and Disadvantages, n.d., para. 20).
Delivery times also influences the company image. Lack of companys product
on the shelf, turns the customer to competitors products and around 20% never
come back. In other words, short delivery times can increase market share
(Zhelyazkov, n.d., para. 18). This is one part of the supply chain Zara has
perfected. Enough stock to satisfy demands, but not too much that a shopper
feels they can come back and purchase next week and quick replenishment.
The need of decreasing lead times and being flexible in fast fashion introduced
involvement of suppliers in the process as bring crucial to their ability to attain
high levels of customer satisfaction. However, in order to react on the rapid
change in consumer demand, Zara has developed an efficient agile supply chain,
with all designers, buyer experts and management in one place and product
facilities close to them, assuring full flexibility and agility (Zhelyazkov, n.d., para.
30,32).

Logistics Change Impact #3 Globalisation


The global economy appears to be decelerating as several large economies face
increasing trouble. The main ones of concern are China and the Eurozone as well
as a few emerging markets such as Brazil and Russia (Deloitte 2015, p. 14).
Spain is the only economy in the Eurozone experiencing a significant rebound in
growth following productivity gains and wage restraints, both of which have
buttressed export competitiveness. Although unemployment remains ruinously
high (Deloitte 2015, p. 15). Zaras headquarters is in Spain and is thriving in its
economy.
As mentioned above Chinas economy has slowed down which has led to sharp
drop in global commodity prices and has hurt counties such as Australia, Brazil
and Indonesia.
Zara has avoided outsourcing to China, and thats a huge reason its been so
successful. While there are some that would argue that there is not much
difference between domestic and international logistics, there are some
substantial differences which are often characterized as the four Ds demand,
distance, documentation, and diversity. The demand is greater, the distances are
longer, the documentation is more extensive, and there is substantial diversity in
requirements and cultures (Closs n.d., para. 2). Other fashion firms have their
clothes made in China. This is cheap, but managing a long supply chain is hard.
By the time a boat has sailed halfway round the world, hemlines may have risen
an inch and its cargo will be as popular as geriatric haddock.
Zara, by contrast, sources just over half of its products from Spain, Portugal and
Morocco. This costs more. But because its supply chain is short, Zara can react
quickly to new trends. Instead of betting on tomorrows hot look, Zara can wait to
see what customers are actually buyingand make that. While others companies
are stuck with unwanted stock, Zara sells at full prices (Groth 2012, para. 2-3).
Zara has resisted the trend of outsourcing to reduce cost to control more of the
supply chain and keeping a short supply chain to over deliver on customer
expectations which has resulted in strong growth and revenue.
With major global players continuing to enter the market in Australia and a
weakening of the Australian dollar, retailers across all segments will need the
ability to innovate, drive improved processes and to contact with the consumer
will be crucial in order to remain competitive in both the existing and future
Australian retail market (Deloitte 2015, p. 4). Zara on entry into the Australian
market sold 80% of its items in the first 3 minutes of opening.
Globalisation has also given Australian consumers access to a far wider range of
goods and services, often at lower prices, than would be available from domestic
producers alone. A global retail trend for 2015 in Australia is Faster Retailing.
Speed has been an important trend in retail for over a decade. In 2015, expect
retailing to get even faster to meet consumers desires. Millennials will be driving
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much of this as they are the largest generation with a lot of spending power and
carry a lot of influence. They prefer fast response and immediate gratification
and retailers like Zara need to cater to that (Deloitte 2015, p. 10).
Zara sticks to a deep, predictable and fast rhythm, based around order fulfilment
to stores. Each Zara outlet sends in two orders per week on specific days and
timing. Trucks leave at specific times and shipments arrive in stores at specific
times. Garments are already labelled and priced upon destination.
As a result of this clearly defined rhythm, every staff involved (from design to
procurement, production, distribution, and retail) knows the timeline and how
their activities pan out with respect to other functions. That certainly also
extends to Zara customers, who know when to visit stores for fresh new
garments (Lu 2014, para. 26-28)
The speed of innovation and the disruption globalisation caused wont cease, and
the demands of customers will continue to escalate. To thrive in this environment
retailers will respond quickly to threats and opportunities with innovations of
their own.
Zaras strong distribution network enables the company to deliver goods to its
European stores within 24 hours and to its American and Asian outlets in less
than 40 hours (Lu, 2014. Para. 30).
One future impact Zara will need to solve with their current supply chain is as
they continue to expand to far locations, as they own all the channels of supply
chain, is to reduce the expense to distribute such products or be willing to absorb
this high expense. The alternative may be a second warehouse however through
recent research this would not work in their tight, short, agile supply chain
model.

Logistics Change Impact #4 Environmental


Concerns/Sustainability
Zaras very efficient agile supply chain has quite an impact on the environment
including the below 3 key areas:
1. The fast fashion industry results in 2.9 million tons of waste per year (CO2
accounts for 2.1 million and H2O accounts for 70 million) (Business of Fast
Fashion,2013).
2. Fast Fashion purchases end up in the trash within 1 to 1.5 years due to low
quality putting a strain on landfill (Business of Fast Fashion,2013).
3. Transportation By just focusing on deliveries 2 times per week per store
using a variety of transport methods has a huge impact on natural
resources and the environment.
Should the environment become a huge emphasis within Zaras target audience
Millennials, this would impact heavily on Zaras supply chain.

Sustainability
Zara is all about delivering fashionable and trendy numbers catering for different
tastes through a controlled and integrated process also known as just in time
production.
To safeguard their business, Zara keeps a significant amount of its production inhouse and makes sure that its own factories reserve 85 percent of their capacity
for in-season adjustments. In-house production allows the organization to be
flexible in the amount, frequency, and variety of new products to be launched.
The company also relies heavily on sophisticated fabric sourcing, cutting, and
sewing facilities nearer to its design headquarters in Spain (Lu 2014, para. 8-9)
to turn around product quickly.
Efficient communication between the company and suppliers is essential in order
to reduce production cost and quality maintenance. About 40% of Zara's
merchandise is internally manufactured, 66% of raw materials are imported from
Europe and North Africa, and only a small amount of basic items (items with the
broadest and least transient appeal) are outsourced from Asia. The global
sourced strategy provides a large range of possible selection of fashion fabrics
and reduces the dependence on any particular suppliers. More than half of the
material is purchased in grey colour and is dyed in one of Inditex's (Zaras parent
company) facilities. Only one week is required for this process to complete which
shows the benefit of proximity and domestic control (Zaras Supply Chain
Advantages and Disadvantages, n.d., para. 14).
If a certain style or design suddenly becomes the rage, Zara reacts quickly,
designs new styles, and gets them into stores while the trend is still peaking.
Zara also has extra capacity on hand to respond to demand as it develops and
changes. For example, it operates typically 4.5 days per week around the clock
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on full capacity, leaving some flexibility for extra shifts and temporary labour to
be added when needed (Lu 2014, para. 12,13,15).

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Conclusion
In summary, Zara would be one of the only few companies that fully understand
Global Logistics and has made the necessary steps to future proof the challenges
that may lay ahead for their supply chain. In fact most the impacts or challenges
in the immediate future will only assist and enhance Zaras supply chain.
At Zara, change doesnt disrupt the system; its part of the system.
Their brands success story shows the strength of its operations. Its crossfunctional operations strategy, coupled with its vertically integrated supply
chain, enables mass production under push control, leading to well-managed
inventories, lower markdowns, higher profitability, and value creation for
shareholders in the short and long term (Lu 2014, para. 32).
Over the last decades Zaras introduction of an agile supply chain (ASC) in the
fast fashion industry, helped them position themselves third in the world retailers
ranking. This came as a result of close communication between customers and
its designers and the ability to ship the desired items in a week catching the
sales moment. All these prove the ASC is an aspect enhancing competition
among organisations. Another lesson is that efficient production organization
with a good balance between in house and outsourcing task leads to minimum
lead times and increase in market share for Zara.
What could be concluded from Zaras success from the perspective of speed is
that several benefits such as improved customer satisfaction, increased market
opportunities, decreased overall risks, and reduced total costs can be
simultaneously achieved through being fast (Zhelyazkov, n.d., para. 38-39).

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