Question

Zara is a chain of fashion stores owned by Inditex, Spain’s largest apparel manufacturer and retailer. In 2009, Inditex reported sales of about 11 billion euros from more than 4,700 retail outlets in about 76 countries. In an industry in which customer demand is fickle, Zara must always adapt to the right strategies to ensure high returns from a volatile market. Zara’s products exemplify two groups; its most fashionable items that have the least predictable demand are made in European facilities and clothes that are more predictable and can sell for longer periods, such as basic T-shirts, are sourced from many cheaper Asian facilities. Hence, its production facilities in Asia focus on low cost and primarily produce standardized, low value products that sell in large amounts. The European facilities focus primarily on producing high-value, cutting-edge designs whose demand is unpredictable and seasonal short-term. Fashionable items exhibit high value-to-weight ratio compared to the standardized, low value products.

1. Which logistics strategies are most suitable for Zara? Explain your answer.
2. Describe how your selected strategies could be applied by the company to attain its targets?

Answer 1

Zara is a retail chain owned by Inditex which caters to different categories of customers and markets. It has more than 4700 retail outlets in 76 countries which is a large spread and a huge number. Zara offers products which are of low value and are high in volume and on the other hand customized or designer dresses which are highly priced but lesser in volume. Here, both the products are pretty opposite to each other. The demand for lower priced products will be higher as a major population would be preferring to purchase them for their daily use, whereas, the higher end offerings would be for special occasions and would be lesser in number comparitively.

The lower end offerings will have higher number of transactions and hence the movement of these products will be higher.Since the production of these lower end offerings are in the Asian countries, the logistical strategy of a hub and spoke model should be followed. The Hub and Spoke model of logistics is a very succesful model used by many organisations dealing in high volume of product movements. The Hub and Spoke model as the name suggests is a model where the required material for a certain country or area is brought to a delivery hub and is bifurcated to different spoke locations from there on. In the case of Zara operating in 76 countries will be their hubs and the 4700 retail outlets will be their spokes. The reason for choosing this model and the advantages that it brings are:

a. Consistant flow of material - As there are regular transactions carried out for lower end offerings, there should be a regular flow of material inward and outward. This model helps in maintaining enough inventory even though there is a constant flow of material.

b. Optimise the bifurcations as required - Another major advantage is that since the complete material would be accumulated in a particular hub that is a place within a country where Zara operates, it can bifurcate the material to be shipped to different stroes as per the current demand in that particular store. Since trends keep changing in the garment industry, this model gives Zara the flexibility to ship different model materials to different stores having varied audiences. This also helps in creating good demand for the store thereby increasing footfalls.

When it comes to the other variety, which is the higher end offering, Zara needs to be more careful as the value of these shipments would be higher in value and the volume less. They need to be careful in selecting the optimum model which would reduce their cost further and thereby make additional revenues.

The major challenge in this product offering would be stock maintainance. Since the trend would be ever changing in the garment industry, the stock maintainance of a particular model would be challenging for a retailer to decide. Having said that,minimal stock maintainance should be the riht strategy as it would minimise the risk. The same can be modified once there is an increased demand for a particular model. Therefore, to order based on demand would be correct logistic strategy. The major role here to decide on the logistic strategy depends heavily on the marketing and sales teams, as they are the ones who would interact with end customers and they would be able to understand the taste and preference of their customers.