Logistic Management Strategies Behind Zara’s Success

Logistic management strategies: Fundamental reasons for success

Zara is known for its fastest growing business model in fashion apparel industry. The company has achieved its success based on its logistics management strategy and world-class supply chain community. Consequently, it is able to restrict the chances of ‘product obsolescence’, one of the major issues faced by premium apparel brands. Most of the apparel businesses face the difficulty of managing products in stocks which are not on demand and on the other hand, they have to deal with the increased inventory cost simultaneously. There is a strategic approach behind their successful logistics management. This report is going to identify issues within the organisation and identify strategies behind its successful operation by comparing it with a successful and an unsuccessful example from fashion industry. Besides, the concept of sustainability will be introduced with example of Zara’s policy of achieving competitive advantage in recent times.

It has been observed and approved by business experts as well that Zara’s logistics management and supply chain management strategies are the key component behind the company’s success. However, as per the study of Choi, Chiu and Chan (2016), the entire supply chain and logistics management have not developed in a day without struggling with risk. Fashion industry is highly uncertain. It is not easy to predict the market trend and nature of customer preferences is dynamic too. Traditionally, designers and stores are the one who push a design or style to market. On the contrary, contemporary styles are mostly influenced from movies and television series characters’ costumers. Celebrity wardrobe has been influencing public demand dominantly since a long time. Therefore, strategy of pushing the market to buy something they have designed is difficult. That is why Zara has always been aligned their design on customers’ demand. The goal is to reach the consumers with adequate flow of desired products faster than competitors but with more efficiency.

Along with logistics management strategies there are various reasons behind consumers’ acceptability of the brand. It has maintained a leading position by following few managerial guidelines.

As per instructions, production units produce in small quantities initially. It gives them chance to collect feedback and work on that particular fashion line. Therefore, it can be considered as an effective way to understand a design’s acceptance in market. The findings of Kohtala (2015) suggest, as a result the organisation does not have to think about increased inventory cost due to large production of clothes which have been rejected by the targeted customer base.  Zara has been experiencing fast turnover rates since the day of beginning following this strategy. Business experts argue that it has a bad effect on budget to invest on multiple designs yet they have been amazed by the fact as well that the company uses same material and opt for different designs to remain cost effective in this term as well.

Zara allows their marketing team to perform detail research on market demand as mentioned before. Based on that implies a pull model on their inventory and supply chain management (Ülgen and Forslund 2015). They give platform to no less than 1000 designers every year and train them as per the pattern of store sales and contemporary fashion trend. Their response has become quick and consumers never come with complain of not able to order the desired items. The distribution of the production has been maintained keeping the headquarters in central. It is the Spain store which evaluates and distributes products to different countries keeping the different requirements in mind.

Produced designs are limited and one of a kind

Besides, IT system is improved enough to maintain centralised distribution successfully. Traditionally it is an issue of fashion industry that from the distribution centre and warehouse it takes almost 10 months to come to stores. However, as described in McNeill, and Moore (2015), with the help of fast transportation and following QR (quick response) strategy executives manage the operations in an advanced way. Strategies are to maintain a partnership between retailers and local distributers for sharing information distinctly and secondly, installation of relevant technologies and software for uninterrupted flow of supply.

When the company has been saturated by implementing QR strategy, like Zara has thought of differentiating their strategic orientation by implementing ‘in-time manufacturing’ concept into system when they confronted with such saturation. Zara, as discussed in Orcao and Pérez (2014), in order to maintain a balance between demand and supply try to stick on in house production only. As continuous communication between hired merchandise and central unit takes more time than usual to understand requirements and implement accordingly. Zara feels it would be great to centralise the manufacturing, designing and distribution unit to avoid extra hazards. It will help them to keep a balance with the market demand at a considerable speed.

The organisation has become so successful in its motive that it was considered for academic research and according to findings, there are certain rules to accomplish organisation goals as far as fashion industry is concerned. The following aspects have been acknowledged by the researchers as supply chain principals of fashion industry which have been obtained by the brand for ensuring successful implementation of logistics management and managing such a vast supply chain network.

• The organisation prefers to segment the customersaccording to geographical boundary as requirement of service changes from one location to another. After performing the segmentation, supply chain policies are adjusted by different segment requirement to ensure profitability.
• In order to sustain the flow of profit Zara communicate with logistics networkregularly to make the system customize for the segmented market.
• Observation of the marketis important to understand consumers’ tendency. Zara, therefore, plan according to beforehand market research and revise the resource capacity accordingly across the supply chain network. Further, every product development unit has their separate designers, marketing and sales planner. It is helpful in terms of maintaining internal communication (Wieland and Marcus Wallenburg 2013). Less confusion regarding information and instruction makes the business operation more efficient.
• Supply chain networks are motivated to deliver the production as speedily as possible keeping the different demands in mind. They have started to rely on automotive production to speed up production efficiently. Store managers are required to place orders twice in a week. Shipments are prepared for delivery within one day. This helps to manage increased traffic at Zara stores as consumers can have desired product on time.
• Zara has been managing supply of products strategically to keep the inventory cost within budget. Producing garments and shoes in small lot is an exceptional characteristics of Zara that has been mentioned before. Not only it helps to address trend and feedback, but also it creates a sense of exclusive collection. According to Chiuet al. (2014), it is kind of psychological pressure on customers whether to take a particular product or waiting can leads to ‘out of stock’ status.  Following this shoppers’ visit stores and it enhances revenue and profitability.
• The organisation has developed their IT infrastructureto maintain seamless communication to build support system at multiple levels of network. This infrastructure has been made to make everyone informed about various product range, service and important decisions.
• In addition to that, Zara has been following all the political and legal normsto operate business. They do not believe in cost effective outsourcing as they have established in house production units to speed up delivery and keep the balance between demand and supply.

Companies have the authority to control behaviour of supply chain network. As supported by Meixell and Luoma (2015), changing customer preferences can push the suppliers to align with right standards of regulation and improve internal policies regarding sustainability. Managers can develop such practice not only by implementing various policies but also by offering incentives, digital aids and support of training. Zara knows well how success of supply chain management can bring sustainability. Online fashion brands like Misguided, Boohoo and ASOS are examples of successful logistics and supply chain management. As per Wu et al. (2013), speeding up the manufacturing process maintaining the key preferences of targeted customer base, it takes only two weeks to bring a product from concept to display.  The advantages of having online facility is that, products do not have to be delivered to the store all the time to reach the customers. It has been observed that their two week policy is beating Zara’s fast fashion strategy not only in terms of faster production and distribution but also transformed nature of shoppers.  

Unlike Zara, there are several examples of unsuccessful supply change management in fashion industry. An example can be given from food industry. Hershey’s failure was the timing when they tried to launch new method of receiving major orders during festive season. However, their supply chain were not prepared for the excessive traffic in stores and online too. As a result, they could not fulfil huge Halloween orders and lost a huge amount of monetary resources as well as reputation in this due course. The same is true for any service sector. Without revising the capability of supply chain network and without allocating resources in a proper manner no business can be successful in balancing market demand and supply. Therefore, in order to learn the facts which are not going to help to grow as a business that are, it needs to operate organisation with visionary outlook in every of managing supply chains.

‘Fast fashion’ strategy

There must be many strategies behind increased profitability yet there are things beyond efficient supply chain management which have assisted Zara to gain a sustainable competitive edge in market. According to Boons et al. (2013), innovation and diversification is important as far as marinating a sustainable business is concerned.

There was a time when retailers used to consider products’ quality as the unique selling point. However, the contemporary market is wide and customers have immense experience of shopping and idea about varied products.  Hence, apart from offering quality product Zara arrange loyalty programme for customers so that they wish to visit stores repeatedly. The ‘fast fashion’ concept has become successful in terms of making the customers convinced for visiting their stores in search of ‘limited collection’. The term limited collection is a strategic and result of producing garments in small lot to check its acceptability first.

Customers used to focus on discounts, sales and trendy designs at cheap price. However, current shopping behaviour reveals different theory. Customers’ have started to believe in brand loyalty and ready to pay deserved amount for quality products. According to Song and Parola (2015), Zara has detailed understanding of adding value for as per consumers’ preferences. Customers who do not hesitate to value quality, tend to be extremely brand loyal. Not even at the cheapest price, Zara has always been trying to deliver branded quality at a price which appeals customers highly (Wook Chae and Chang Lee 2013).

With the progression of time, Zara has evolved a lot as far as advanced data and IT infrastructure is concerned. Therefore, the brand managers are now able to keep an eye on social networking sites to follow the consumers’ analysis on those media platforms. This data are important for creating a brand image and engage the customers more with the marketing procedure. Moreover, they consider customers’ opinion as well in terms of improvement regarding offered product and services. As discussed in Grabara (2013), customer oriented service has made them align their service, logistic management and product line closer to market demand. Hence, it has become feasible for them to gain competitive advantage.

Zara has improved its promotional techniques and has started to raise campaign everywhere, even if there is minimum possibility of gaining exposure. That means, Zara has posted their campaign in every possible place wherever they have found audiences. Starting for traditional campaign procedures to contemporary social media strategy Zara has advertised through every mode for gaining publicity. Using social media as a tool for addressing feedbacks and faults Zara has designed their marketing strategies that way too for remaining extremely  competitive.

An organisation which comes with competitive nature, is able to perform well in terms of business and it gives them strength to sustain in market for longer period.

As mentioned before, Zara has been operating successfully in market mainly because of its efficient supply chain management. The case study has confirmed that Zara’s designers prefers to conduct a close market research before designing any new clothing line as it helps them to align their products with current market trend. Zara follows a business model, called ‘fast fashions’, where consumers can be well updated with latest fashion trends and styles. According to the contemporary shopping behaviour of young generation mostly, they are relying more on online shopping than visiting a store (Wu et al. 2013). During various research it has been observed that following this way consumers are able to save their time and simultaneously they find online fashion apparels are trendy and pocket friendly too. However, as per the study of Preibusch,  Kübler and Beresford (2013), online purchase requires more personal information than a store visit. Many consumers with traditional viewpoint trust and commitment do not shop from online sites yet the number is comparatively low.

Balance between supply and demand

Taking leverage of social media, competitors are advertising their offering which help online brands to keep their brand top of the trends. As described in Fernie and Sparks (2014), issues occur when online brands are speeding up their production close to the market demand which has enable them to capture market value. Hence, all of the competitors are beating Zara in terms of being ‘Fast Fashion’. In order to attain competitive advantage Zara must come up with new strategies as their unique logistics management strategy which has led them towards success. Zara’s well-structured supply chain management is not a secret anymore. Therefore, it has become easy for competitors to imitate those strategies and implement to gain accomplishment.

In order to reduce the competition with online brands who are offering trendy designs in affordable prices, Zara can opt for opposite pricing strategy. They can follow high pricing strategy for premium quality apparels and for student friendly clothing line they can though for product diversity and different pricing strategy. It will help them to combat the competition as well as assist to sustain for longer period in turbulent business environment. Logistics strategies must be operated in a manner which would be non-imitable for competitors. By maintaining brand loyalty, Zara can reach its sustainability goals.

References

Boons, F., Montalvo, C., Quist, J. and Wagner, M., 2013. Sustainable innovation, business models and economic performance: an overview. Journal of Cleaner Production, 45, pp.1-8.

Chiu, C.M., Wang, E.T., Fang, Y.H. and Huang, H.Y., 2014. Understanding customers’ repeat purchase intentions in B2C e?commerce: the roles of utilitarian value, hedonic value and perceived risk. Information Systems Journal, 24(1), pp.85-114.

Choi, T.M., Chiu, C.H. and Chan, H.K., 2016. Risk management of logistics systems.

Fernie, J. and Sparks, L., 2014. Logistics and retail management: emerging issues and new challenges in the retail supply chain. Kogan page publishers.

Grabara, J., 2013. Sustainable Logistics Management. Editura Universitatii „Lucian Blaga” din Sibiu, Sibiu.

Kohtala, C., 2015. Addressing sustainability in research on distributed production: an integrated literature review. Journal of Cleaner Production, 106, pp.654-668.

McNeill, L. and Moore, R., 2015. Sustainable fashion consumption and the fast fashion conundrum: fashionable consumers and attitudes to sustainability in clothing choice. International Journal of Consumer Studies, 39(3), pp.212-222.

Meixell, M.J. and Luoma, P., 2015. Stakeholder pressure in sustainable supply chain management: a systematic review. International Journal of Physical Distribution & Logistics Management, 45(1/2), pp.69-89.

Orcao, A.I.E. and Pérez, D.R., 2014. Global production chains in the fast fashion sector, transports and logistics: the case of the Spanish retailer Inditex. Investigaciones Geográficas, Boletín del Instituto de Geografía, 2014(85), pp.113-127.

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Ülgen, V.S. and Forslund, H., 2015. Logistics performance management in textiles supply chains: best-practice and barriers. International journal of productivity and performance management, 64(1), pp.52-75.

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Wook Chae, S. and Chang Lee, K., 2013. Exploring the effect of the human brand on consumers’ decision quality in online shopping: An eye-tracking approach. Online Information Review, 37(1), pp.83-100.

Wu, W.Y., Lee, C.L., Fu, C.S. and Wang, H.C., 2013. How can online store layout design and atmosphere influence consumer shopping intention on a website?. International Journal of Retail & Distribution Management, 42(1), pp.4-24.