Zara Case Study

MKTG 310

February 10, 2012 Page 1

Zara Case Study

A. As completely as possible, explain the supply chain for Zara from raw materials to consumer purchase.

If you search definition of supply chain the meaning would be "the network of retailers, distributors, transporters, storage facilities and suppliers that participate in the sale, delivery and production of a particular product" (http://www.investorwords.com) All of those steps take time and cause delays getting products to the customer. Zara fast acting chain is giving them great success in the fashion industry. They are able to take their idea all the way to the consumers sometimes in just two weeks whereas other retailers can take months (Kotler, 366). Zara's manufacturing facilities enables them to cut out the middleman to save time. The majority of retailers outsource all their work to factories all over the world. Zara has 80% of its production done close to their headquarters, close to half of the production is "in owned or closely-controlled facilities. This allows both flexibility and control. They can dye and process the fabric, cut and do garment finishing on site. It does not do the sewing but has control of subcontractors in Spain and Portugal (http://www.thirdeyesight).

There are 200 people responsible for design and product development; each person designs 1-2 items per week totally a 1000 designs a year (http://www.thirdeyesight). After designing the product is cut and then sent to a subcontractor for sewing and sent back to Zara where it is ironed and the finishing touches are added. The items are wrapped in plastic and placed of conveyors to the state of the art warehouse where machines to the majority of the work; they "sort, pack, labels, and allocates clothing for every one of Zara's 1,495 store" (Kotler, 367). If the store is within a 24 hour drive trucks will deliver the merchandise and the rest is shipped by cargo jet. The customers do not have to wait for the latest styles; Zara sees it, designs it, manufactures it, ships and sells it in record time all at affordable prices.

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B. Discuss the concepts of horizontal and vertical conflict as they relate to Zara.

Horizontal conflict is "the effect of increased competition among business, typical retailers, operating within the same market space. Horizontal conflict often leads to

reduced profit margins and crowding out smaller retailers which can ultimately drive down the supply of products" (http://www.businessdictionary.com)"

Vertical conflict is "organizational disagreements between individuals or groups at different hierarchical levels" (http://business.yourdictionary.com). The horizontal conflict could occur in the franchises especially if Zara expands without adding more distribution and production facilities eventually they might not meet the demands of all their stores leading to conflict.

Stores might not get the desired or "hot" items before they are discontinued also. Horizontal conflict can occur especially with Inditex; the constant changes lead to extra costs and what should be done to absorb them, where to expand, the research and design people might have conflicts with fashion choices, there might be conflict within the subcontractors and the amount of work or the type of work they are getting; there is a possibility of conflict happening everywhere. With Zara controlling a majority of the components I think that would lessen the conflicts by not having to deal with "outsiders".

C. Which types of vertical marketing system does Zara employ? List all the benefits that Zara receives by adopting this system.

Zara uses corporate and contractual vertical marketing systems. The benefits of the corporate side include their control of their own manufacturing and distribution (Kotler, 344). Zara