Operations & Supply Chain ManagementCASE STUDY CONCEPT:The Zara supply chain drives its successful business model.Zara changes its clothing designs every two weeks on average, while competitorschange their designs every two or three months. It carries about 11,000 distinct itemsper year in thousands of stores worldwide compared to competitors that carry 2,000 to4,000 items per year in their stores. Zara’s highly responsive supply chain is central toits business success. The heart of the Zara supply chain is a huge, highly automateddistribution center (DC) called “The Cube”.The company was founded in Spain in 1974 by Amancio Ortega and his wife RosalíaMera. It is the flagship business unit of a holding company called Inditex Corporationwith headquarters in Arteixo, Galicia, a city in northwestern Spain near where Mr.Ortega was born. In 2019 Zara was ranked as the 46th most valuable brand in the worldby Forbes.Company Business ModelAgents for the company are always scouting out new fashion trends at clubs and socialgatherings. When they see inspiring examples, they quickly send design sketches to thegarment designers at the Cube. New items can be designed and out to the stores in 4 –6 weeks, and existing items can be modified in 2 weeks.The company’s core market is women 24 – 35 years old. They reach this market bylocating their stores in town centers and places with high concentrations of women inthis age range. Short production runs create scarcity of given designs and thatgenerates a sense of urgency and reason to buy while supplies last. As a consequence,Zara does not have lots of excess inventory, nor does it need to do big mark-downs onits clothing items.Zara has 12 inventory turns per year compared to 3 – 4 per year for competitors. Storesplace orders twice a week and this drives factory scheduling. Such short-term focusedorder cycles make forecasts very accurate, much more accurate than competitors whomay order every two weeks or every month.Clothing items are priced based on market demand, not on cost of manufacture. Theshort lead times for delivery of unique fashion items combined with short productionruns enable Zara to offer customers more styles and choices, and yet still create asense of urgency to buy because items often sell out quickly. And that particular item orstyle may not be available again after it sells out. Zara sells 85 percent of its items at fullprice compared to the industry average of selling only 60 percent of items at full price.Annually there is 10 percent of inventory unsold compared to industry averages of 17 –20 percent.In Spain customers visit Zara stores 17 times per year on average compared to 3 timesper year for competitors. Because their clothing designs change often, it is harder forpeople to see them clearly on the Internet and thus they are encouraged to come intothe stores instead and try on the unique fashions that Zara offers.Manufacturing and Supply Chain Operations Make Zara UniqueZara buys large quantities of only a few types of fabric (just four or five types, but theycan change from year to year), and does the garment design and related cutting anddyeing in-house. This way fabric manufacturers can make quick deliveries of bulkquantities of fabric directly to the Zara DC – the Cube. The company purchases rawfabric from suppliers in Italy, Spain, Portugal and Greece. And those suppliers deliverwithin 5 days of orders being placed. Inbound logistics from suppliers are mostly bytruck.The Cube is 464,500 square meters (5 million square feet), and highly automated withunderground monorail links to 11 Zara-owned clothing factories within a 16 km (10 mile) radius of the Cube. All raw materials pass through the Cube on their way to theclothing factories, and all finished goods also pass through on their way out to thestores. The diagram below illustrates Zara’s supply chain model.Zara’s factories can quickly increase and decrease production rates, so there is lessinventory in the supply chain and less need to finance that inventory with workingcapital. They do only 50 – 60 percent of their manufacturing in advance versus the 80 –90 percent done by competitors. Zara does not need to place big bets on yearly fashiontrends. They can make many smaller bets on short term trends that are easier to callcorrectly.The Zara factories are connected to the Cube by underground tunnels with high-speedmonorails (about 200 kilometers or 124 miles of rails) to move cut fabric to thesefactories for dyeing and assembly into clothing items. The monorail system then returnsfinished products to the Cube for shipment to stores. Here are some facts about thecompany’s manufacturing operations:• Zara competes on flexibility and agility instead of low cost and cheap labor. Theyemploy about 3,000 workers in manufacturing operations in Spain at an averagecost of 8.00 euros per hour compared to average labor cost in Asia of about 0.40euros per hour.• Zara factories in Spain use flexible manufacturing systems for quick change overoperations.• 50% of all items are manufactured in Spain• 26% in the rest of Europe• 24% in Asia and AfricaDirection:In 4-6 pages in MS Word, conduct research and case analysis, and respond to thefollowing questions: Using the information from the business cases.1. What is flexible manufacturing? And how it can help Zara improve quality?2. Describe some of the methods that Zara might use to control inventory3. What strategies that Zara might implement in Its CHM to avoid the Bullwhipeffect?4. What operational techniques Zara must use to become effectively Lean? Explainbased on effective distribution system.You are required to cite at least three internal or external sources in your postings,formatted to APA standards. Avoid citing sources from Wikis, Wikipedia,Dictionary.com, private company websites, and other non-academic references.Review APA standards: https://owl.english.purdue.edu/owl/ (Links to an externalsite.)Links to an external site. (Links to an external site.)
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