Strategic Management

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Discussion Question 6
For its Zara brand, Inditex manufactures the majority of the garments sells and undertakes all of its own distribution from manufacturing plants to its directly managed retail outlets. Benetton outsources most of its production and most of its retail outlets are owned and operated by franchisees. Which is a superior system? Even though one might believe that the system used by Benetton and such other collections such as GAP is superior due to the lower labor costs by the outsourcing to other countries and other reasons, in reality the process used by Inditex, the worlds third largest clothing retailer, to produce the Zara brand is much better because even with higher labor costs, transportation and shipping involve in the manufacturing process and shipping finished product to stores, costs are still lower and the product is in one place for production. Thus Inditex has greater responsiveness and flexibility. Inditex uses a network of several smaller manufacturing companies that provide needed materials and provide more flexibility. In addition, Inditex owns all its own shops and is not operated in retail franchises that are owned by third parties. This extra “hands on” approach allows Inditex to have a lot more control over both production and sell of product and allows them to have more direct consumer contact to improve their product or know what the consumer wants. By combining high fashion, rapid response to sales feedback, and low costs—giving the consumer low pricing, Inditex definitely has the superior system.
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