Logistic Management Strategies of Zara Company: Supply Chain Practices and Challenges

Zara's Success: Analyzing the Fashion Giant's Logistics Network and Supply Chain

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This study is based on the topic of "logistic management strategies of Zara Company". Zara Company has been one of the most successful fashion chains and fashion labels in the world retail company. The Zara Company has improved an effective network through the better manufacturing facilities and also developed the importance of operations. This company has been established in 1975 as a Spanish fashion accessories and clothing chain f store in that is mainly based in Arteixo, Galicia. It has been observed that it has been organized as the Inditex group joint venture as a new holding company. 

Logistics System & Practices of Zara Company

Zara Company was launched by "Ortega Gaona" and has introduced a dynamic outlook concept regarding clothes. The company becomes the effective leading brand towards the Inditex group in terms of marketing concepts and exclusive strategies. The company began to sell their clothes in their native place in 1975 and later the popularity of the brand has been increased in other cities and different neighbouring countries (Esbeih et al. 2021). The marketing strategy has been successful due to the causes of distributing democratized fashion among the people and the network chain has been spread in leading cities such as Paris, Rome, London, New York and many more.

The major scope of this company's supply chain management (SCM) is distributing g fashionable garments at an affordable or cheap price within 2 weeks. It has been observed that in order to meet this deadline, many garments or clothes have been produced by limited suppliers and also developed the concept of exclusivity (Nakano, 2019). However, it has been noticed that concepts of retail has been depend on the day to day creation and effective replenishment of little amounts of new garments, clothes and accessories. The managers of Zara Company have realized that operational procedures, office layouts, and performance measures have been carried out appropriately in case quick data transmission and information transparency are ensured.

Figure 1: Zara's brand value worldwide from 2016 to 2022

(Source: Statista.com, 2022)

The above statistic has presented the worldwide brand value of the company Zara from 2016 to 2022. The global brand value of the company in million USA dollars has been approximately 10,086 in 2016, 14,399 in 2017, 17,453 in 2018, 18,424 in 2019, 14,582 in 2020, 13,156 in 221 and 12,997 in 2022 (Statista.com, 2022). It has been observed that the global brand values of the company Zara have gradually decreased due to the cause of rapidly increasing numbers of competitors in the market. The supply management network concept is interlinked with the time-based competition that has been allowing to source products at the level of international. 

It has been observed that the company Zara's overreaching strategy has been obtaining growth through diversification with the different variety integration. The company has been adopting couture manufacturers, and designs, and distributing retail clothes with the original design first represented on catwalks. The company has produced the latest design and better quality clothes that attract customers easily and enhance the brand value in the market effectively (Fernie and Grant, 2019). The company has been owns its supply chain and also competes for its speed regarding the market literally exploring the idea of fast fashion that has been increasing the brand value of this company effectively in the market. 

Importance of supply chain management 

It has been observed that effective manufacturing and better supply chain operation has been making the company Zara unique in both local as well as international markets. The company buys the largest quantities of fabric and the clothes or garment design related to dyeing and cutting in-house. In this way, the manufacturing of fabric has been made quick deliveries of wide quantities of direct fabric to the company Zara (Aftab et al. 2018). The company has purchased different raw fabrics from different countries' suppliers such as Greece, Portugal, Spain and Italy. It has been observed that those suppliers have delivered the raw materials within 52 days of the order being placed.

Figure 2: Supply Chain Model of Zara Company

(Source: Aftab et al. 2018)

It has been noticed that inbound logistics from the different suppliers are mostly done by truck. The cube has been nearly 5 million square feet or 464,500 square meters and highly automated with the links of the underground monorail to 11 Zara-owned garments or clothing factories under the 10 mile or 16 KM radius of the Cube (Aftab et al. 2018). It has been observed that all raw materials have been passed through clothing factories Cube and all finished products have been passed through the stores (Xuejie et al. 2019). The company has been quickly decreed and increased its production rate hence, there is a low inventory regarding the supply chain and also less required to finance that including the inventory with the working capital. 

Figure 3: Net sales of the Inditex Group worldwide from 2013 to 2021

(Source: Statista.com, 2022)

The above statistic has been representing the sales of the worldwide Indites Group by brand from 2013 to 2021. There are many Indites Group around the globe such as Zara, Bershka, Oysho, Pull and Bear, Massimo Dutti, Zara Home, Stradivarius and Uterque (Statista.com, 2022). The company Zara has the highest net sales of the different Inditex groups globally in 2021. The total net sales of the company Zara in 2021 has almost 19,586 and in 2020 almost 14,129 billion Euros. The Bershka clothing retailer recorded the second-largest worldwide net sales in this group. the worldwide net sales of the company Zare has been rapidly growing in the market and competes with the Bershka, Oysho, Pull and Bear, Massimo Dutti, Stradivarius and Uterque in the market.

Figure 4: Inditex Group's sales worldwide from 2004 to 2021

(Source: Statista.com, 2022)

It has been observed that the Inditex Group is one of the biggest fashion retailers in the world and generated nearly “27.72 billion Euros in sales in 2021" and almost 7 million Euros rather to the last years (Statista.com, 2022). It has been noticed that the Inditex Group has been operating almost w eight brands in the world in 2021 such as "Zara, Bershka, Stradivarius, Oysho, Pull & Bear, Massimo Dutti, Uterqüe and Zara Home". It has been noticed that the largest sales brand in the world in 2021 is Zara and captured almost 70 per cent share of the overall sales of Inditex Group. The company has been operating almost 2500 retail locations globally with 1,200 stores located in Europe.

Labour-process transformations and digital value chain restructuring in the fast?fashion industry

It has been observed that the company has been developing its operational performance by using advanced technology and artificial intelligence. The company offers an effective operating model and maintains its supply chain activities it converts the logistic system that includes different processes such as new product design, outsourcing decisions, and integrated information system (Aftab et al. 2018). The company has started to improve a quick response to produce and supply smaller collections instead of the seasonal product planned. It has been observed that the company Zara has been achieving a competitive advantage through its effective supply chain and combinations of different operations including production, delivery, design and development.

The garments or clothing company has changed its design within two weeks. The company has a super-responsive supply chain that helps to minimize the 'bullwhip effect' and ensures lean inventory, and order-to-delivery has been led to the time to store (Harrison et al. 2019). Along with that, the company has a better level of responsiveness towards adopting and delivery of goods to stores with the effective or latest fashion trends. Besides that, the company has been provided with a great space for the customers to provide their feedback at a rapid speed that ultimately improves the brand value of the company in the market.

Figure 5: E-Commerce net sales of Zara Comapny from 2014 to 2022

(Source: Statista.com, 2022)

The above statistics have demonstrated the company Zara has been focused on developing the worldwide E-commerce net from 2014 to 2022 (Statista.com, 2022). The digital supply chain has been improving the brand values of the company and increasing the sales network of the company effectively. Labour-process transformations and digital value chain restructuring of the Zara Company have been focused on transparency, control, interaction, individualization, ambient embeddedness and automation. The company has been providing a better quality of products to their consumers that help to increase the sales values of the company (Su, 2020). It helps to motivate the employees as a deal with their customers in effective ways. It has been observed that the company Zara’s marketing and advertising strategy has been based on effective marketing concepts that have been helps to raise online stores and new technologies. The online store has been providing a great opportunity to generate new or existing consumers rapidly and improve the sales rate of the company.

Challenges faced by managing the logistics system 

It has been assumed that the company Zara has faced many challenges due to the causes of competition, e-commerce and sustainability to manage the better logistic system of the company. The concerned company's biggest competitors have Hennes & Mauritz, Nike, and Uniqlo and in the online stores' space, the company faced competition from different businesses (López et al. 2022). It has been observed that the fast-fashion giant Chines "Shein" is the biggest fashion retailer in the world with an attentive online presence. The company has faced other challenges due to the causes of impacts of covid that led to a drop in the sales rate of the company in 2020.

Due to the causes of the pandemic, the company limited the number of physical stores has been shifted to online stores which led to a massive drop in sales for the company. Inditex works with almost 1520 suppliers around 7108 factories and Inditex deserves credit for making a strict code of conduct, a huge gap exists during enforcing the code (Singh, 2020). It has been observed that the shipping and labour shortages, managing the complex system, scalability and flexibility are the major challenges that have been faced by the company in managing its logistic management system (Fernie and Sparks, 2018). Along with that, the company has been cost-efficient, improving customer satisfaction and handling customer expectations is the major problem that is faced by the company. 

Shipment of materials and transport processes within the region has undergone unforeseen complications in terms of natural disasters whether labor strife, political disturbances and terrorism. The transportation system, management system, excess focus on technologies and human resources inappropriate management has been creating major problems for the company managing the logistic and supply chain management (Winkelhaus and Grosse, 2020). The disconnection between the creative and centre department has significantly halted the data or information exchange under the network around the globe. It has been noticed that operation vulnerabilities is another major challenge that is connected to the financial problems of the company.

Impact of AI and advanced technology on managing the supply chain management system of Zara Company

It has been noticed that using algorithms and AI has provided high-quality data, information and analysis to provide a complete overview of regarding supply chain and warehouse. AI and ML have the effective ability to run effective scenarios that provide proper or accurate information about the level of optimal stock to meet the demands of the company
(Novais et al. 2020). The company has successfully implemented an effective response programme through the existing web-based system and process of supply chain management related to electronic data interchange (Oliveira-Dias et al. 2022). It has been observed that the effective response programme has been ensuring the better distributional production of products. However, overproduction and excess inventory have been generally incorporated with the customized retailing idea through effective vertically integrated channels.

 In order to analyze and monitor the all steps of the supply chain, effective web-based supply chains and better informational technologies have been introduced by the company. It has been observed that in terms of ensuring the quick and better information flow of the logistics management system of the company, "Electronic Data Interchange (EDI)" has been playing a significant role in the Quick Response program and become a fundament technology regarding processing the data received between the manufacturers and distributors (Camargo et al. 2020). However, it has been noticed that technology has been a crucial factor that enables advanced technology for efficient coordination and replenishment of the supply chain process.

The role of Social media on the supply chain management of ZARA

Digitalization has brought a huge opportunity for effective and sustainable management of the supply chain of Zara. It has been observed that the visibility of operations has been considered as a major concern for the management of the supply chain. Therefore, it can be stated that visibility over the supply chain of the concerned organization has been increased due to the effective use of social media such as Instagram and Facebook. In contrast to the scenario, an enhancement of confidence and trust has been noticed among the suppliers of the concerned company. 

It has been observed that improvement of communication has been considered one of the most significant tools of the supply chain. Therefore, it can be stated that social media play a critical role in terms of effective relationship management with multiple stakeholders (Nasrollahi, 2018). Thus, it has been observed that Zara has effectively maintained and built new relationships with its stakeholders through the social media platform (Singh, 2020). Besides that, a competitive advantage is also gained by the company with respect to the gaming insight of competition across different marketplaces. Hence, it can be stated that different operations of the concerned company have been effectively managed through social media platforms. 

On the other hand, it has been observed that those digital platforms might deliver a profound and reasonable opportunity in terms of recognizing new innovations with respect to the supply chain. It has been observed that during 2017, a follower with nearly 26.4 million of was retained by Zara across the Facebook platform (Chowdhury et al. 2019). This has brought a major role in terms of effective monitoring of supply chain and measuring the competitive environment across multiple regions. Hence, it can be stated that social media have a critical role in terms of concise and smart management of supply chain. 

Conclusions and recommendations

The overall research study concludes that the logistics management strategies of Zara Company have been effective as the worldwide operation brings revenue through the effective distribution centres. Along with that, the importance of supply chain management deals with store management, clothing factories handling, fashion product designs, and supply of raw material process. Based on the activities of the digital value chain it restructures the labour process for fast-growing organisations. As per the analysis of challenges faced in the logistic system the impact of AI has to improve the process through applying advanced technology. Using social media has effective for a better marketing strategy. It has been observed that utilizing advanced technology such as Ai has been helping to improve the demands of the forecasting that is necessary for the better management of the supply chain in the market. Machine learning models and algorithms models have been providing quick and effective informational data regarding logistic system management and enhancing the quality of management of the supply chain. Thus, the overall logistic management strategy adopted by the company has effectively managed the international demand for the products. The recommendation based on improving the logisti9cf management and effective supply chain involves the following activities

• Adaptation of RFID technology for better customer service strategy
• Dealing with interactive fitting rooms and self-checkout process
• Promote e-commerce business for accessing a wide range of customers
• Categorized the products into activewear to focus on health and wellness consumers
• Managing Stores For Fast Fashion solutions for better market share
• Target a wide range of customers by providing reasonable pricing products in wide range of availability

References

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