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Zara – supply chain case

Zara – vertical integration
1) How is Zara organized with respect to its vertical integration and outsourcing decisions? What governance structure does it appear to follow?
-It is divided by 60% in-house and 40% outsourced.The in-house represents the more complicated ,complex, trendy designs, while the outsourced remains with the labour intense activities (sewing) and basic designs such as men’s dress shirts and accessories.
– It follows a decentralized decision making process based on the fact that store managers are autonomous in the ordering and fulfillment method.
– The demand of the customer goes from bottom to top?Pull System due to the flow of communication established.

ZARA’S VERTICALLY INTEGRATED SC

Pull System

MANUFACTURING

IT INFRASTRUCTURE

STORES WORLDWIDE

2) How does Zara’s situation support, or not support, its supply chain strategy?
-There is a decentralized autonomous Pull System.
-Flexibility and Fast Response compare to competitors.Average Lead Time 15 days vs 4-6 weeks for the competitors.
-Because the company is in the Fast Fashion industry, the company spend less that 1% in advertising vs 4% from competitors.

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Their income is higher than competitors.

3) Is Zara organized properly with respect to vertically integration or outsourcing? What changes, if any, would you recommend?
-Their Supply Chain Strategy follows completely their Business Strategy.
-The recommendation will be to stat building a parallel IT System to be able to evolve into a more modern OS while continuing the existing system until the new one reaches full efficiency as the current.
-Choosing a geographical pilot will be ideal.
-Building additional DCs to further reduce their lead time and decrease transportation costs for the stores in remote regions.
-Establish a succession plan for the IT Department since currently is a one-man show.