Technoques and Systems Used Within Zara

Introduction

The essay is based on a case study which is related to the study of Zara. Within this essay it evaluates the production and logistics techniques utilised by Zara. The essay outlines the quick response (QR) and how it impacts the inventory levels and customer service. Hence the essay outlines systems used and how these help to utilise the competitive advantage within the clothing market.

Zara uses a vast number of production and logistics techniques which help utilise the competitive operations. These are flexibility, inventory, procurement, replenishment, integration and coordination. Zara is more flexible compared to its rivals. The use of "vertical integration becomes a distinctive feature of Zara's business model" (Anon 1, 2006). Thus Zara makes 40 percent of its own fabrics and produces 60 percent of its stock in-house. Along side QR Zara is able to respond promptly to ever changing fashion trends. Flexibility for Zara has become a competitive weapon i.e. "ability to produce a wide variety of products, to introduce new products quickly and to respond to the customer needs". (Russell. S. R, Taylor. W. B, 2004)

The integrated programme of market orientation and supply chain management gives Zara better visibility to carry out its activities. Nevertheless this helps to deliver a "rapid and flexible response to the actual and latent needs of marketplace". (Fernie. J, Sparks. L, 2004) Communication plays a crucial part of Zara's system reflecting the production and techniques. The level of communication which exists in Zara is affective i.e. "Zara operational procedure performance measures, and even its office layouts are designed to make information transfer easy". (Anon 2, 2006) In order for Zara to carry this out Zara enables systems in place that allow the communication of data flow easily, example of this is Electronic Data Interchange (EDI). Another communication system that Zara uses is the Electronic Point of Sale (EPOS), this is done by Zara for the "teams knowledge of fashion trends is supplemented further by regular inflows of EPOS data and other information from all of the company's stores and sites around the world". (Fernie. J, Sparks. L, 2004)

Hence the process of communication is carried out by the use of customised handheld PDA's, which support the connection between the retail stores and Inditex head quarters in LA Coruna ( parent of Zara company). It is becoming increasingly common for retailers to operate to the QR "with the reaction time less than 24 hours from receipt of orders to shop delivery". (Anon 3, 2006) Zara's manufacturing systems are similar is some ways to Benetton which is company formed in northern Italy. Nevertheless Zara refined by "refined by using ideas developed in conjunction with Toyota". (Fernie. J, Sparks. L, 2004) Example of this the operations enhanced on the cost efficiency through economic of scale conducted in-house where activities include of dying, cutting, labelling and packaging. Other activities such as manufacturing include the labour intensive finishing stages which are "completed by more than 300 small subcontractors". (Fernie. J, Sparks. L, 2004) thus inventory costs are kept to a minimum because Zara pays for only completed garments.

Vertical integration has been adopted by Zara. Vertical integration consists of activities which are the processes up stream (towards the suppliers) and down stream (towards their wholesale customers) in the supply chain. By adopting this approach Zara have maintained their competitive advantage within the market by reducing the lead-times. The whole production cycle takes only three or four weeks. "Zara has reduced its lead-time gap for more than half of the garments it sells" (Anon 2, 2006) leaving it unmatched by its rivals.

By the use of centralised inventory system Zara individualises it clothing lines into three channels, which consist of separate channel for men, women and children. Zara makes parallel but operationally distinct product families, accordingly by separating the design, sales, procurement and production. Zara carries this out by the use of three channels to operate, thus makes it more expensive. Nevertheless it allows Zara's "information flow for each product to be efficient and untroubled by its problems, making the supply chain more responsive". (Anon 4, 2006)

Another way Zara controls its inventory is through "the constant flow of updated migrates the so called bullwhip effect". (Anon 1, 2006) The bullwhip affect is a technique used where the surge in the demand up supply chain and the inventory locations adjusts to the demand increase. However, traditionally retailers change orders by 20 percent once the season has started, whereas Zara lets the distributors adjust 40 to 50 percent helping it avoid the costly overproduction. Traditionally companies invest vast amount of capital into forecasting, but not Zara. The store managers at Zara are able to reflect and notice the trends which are put into a PDA that are linked to the head quarters of Zara. Alongside the QR and the use of technology Zara are able to motion the products within 15 days and delivering them to the stores.

From this Zara have taken the route of just-in-time (JIT) were the JIT "eliminates all activities that neither add value to the final product nor allow for the continuous flow of material" (Rushton. A, 2000) With the vertical integrated business modal, spanning design, JIT production, marketing and sales are all taken into consideration, thus Zara produces more than half its own clothes in factory located in Spain. Where the procurement is concerned Zara achieves this by holding fabrics in stock and then cutting, dying on the last minute. This reduces the overall lead time, so if the lead time was 4-6 weeks then it would be reduced down to 2 weeks. Zara uses a pull system whereby the production is linked to the demand pull rather than schedule push control systems. "thus throughout the production the production and supply process only the precise material requirements are drawn, serving to eliminate the need for inventory" (Rushton. A, 2000)

Procurement is a key link with any organisation, with this Zara reduces some of its cost by own manufacturing. Zara deliver small amount of new products, by this Zara need not to worry as new stock with new designs and styles are replaced by the use of Continuous Replenishment so therefore customers won't go elsewhere and are given variety of products to choose from. Zara stores "receive small amounts of shipments and carry little inventory, hence the risks are small unsold items take account