Zara Case Study Georgi Katermov
Zara Case Study
Main Problems of the Company:
Although it seems that the highly centralized distribution system that Inditex uses when it comes to Zara’s operations proves to be profitable and sustainable, in the long run in may lead to an impasse in several different directions for the clothing manufacturer.
Sustainability of the Global Expansion: Although the centralized decision making reduces the whiplash effect on the overall supply chain, this strategy is not entirely without its drawbacks. One potential problem that the centralized distribution system would create for Zara for its future global expansion sustainability (particularly in China) is the few manufacturing facilities unable the company to take advantage of economies of scale in order to produce an amount of apparel accordingly to the rising demand and for a relatively cheap unit price. Lead times to these far-reaching stores will be longer and Zara would not be as effective in reacting to consumer’s tastes and demands, an essentiality for the integrity of their business. In addition, since products need to travel more than 5000 miles to reach the Asian market, transportation costs will also become higher.
Inventory allocation: With the global expansion of Zara, inventory management problems will occur. Even though Zara tackled such problems in 2005, expansion outside Europe would mean a permanent surge of merchandise within the distribution centre which would bring inventory allocation and management rationing problems to managers. The excess volume may exceed the working capacity of the capital within the distribution centre, and hindering its capability of handling the new as well as old order demand. Such internal disruptions would be risky to Zara’s production integrity.
Environmental and CSR issues: As environmental and CSR regulations are becoming more stringent, a challenge would be posed in front of Zara and Inditex. A challenge that would test the company’s and its flagship chain store
Main Problems of the Company:
Although it seems that the highly centralized distribution system that Inditex uses when it comes to Zara’s operations proves to be profitable and sustainable, in the long run in may lead to an impasse in several different directions for the clothing manufacturer.
Sustainability of the Global Expansion: Although the centralized decision making reduces the whiplash effect on the overall supply chain, this strategy is not entirely without its drawbacks. One potential problem that the centralized distribution system would create for Zara for its future global expansion sustainability (particularly in China) is the few manufacturing facilities unable the company to take advantage of economies of scale in order to produce an amount of apparel accordingly to the rising demand and for a relatively cheap unit price. Lead times to these far-reaching stores will be longer and Zara would not be as effective in reacting to consumer’s tastes and demands, an essentiality for the integrity of their business. In addition, since products need to travel more than 5000 miles to reach the Asian market, transportation costs will also become higher.
Inventory allocation: With the global expansion of Zara, inventory management problems will occur. Even though Zara tackled such problems in 2005, expansion outside Europe would mean a permanent surge of merchandise within the distribution centre which would bring inventory allocation and management rationing problems to managers. The excess volume may exceed the working capacity of the capital within the distribution centre, and hindering its capability of handling the new as well as old order demand. Such internal disruptions would be risky to Zara’s production integrity.
Environmental and CSR issues: As environmental and CSR regulations are becoming more stringent, a challenge would be posed in front of Zara and Inditex. A challenge that would test the company’s and its flagship chain store