KXO325 Business Logistics
Due date: Monday 7 April 2014 at 11:55PM
This is the specification for Assignment 1 for KXO325 Business Logistics. The assignment introduces a case study and raises five (5) questions based on it. The answers to the questions are to be compiled in a short report. The report should be submitted to MyLo in the MS-Word document format, by Monday 7 April 2014 at 11:55PM. The assignment is worth 20% of the internal mark for this unit.
Case Study: Zara – Apparel Manufacturing and Retail1
Zara is a chain of fashion stores owned by Inditex, Spain’s largest apparel manufacturer and retailer, and a pioneer amongst fast fashion companies (usually companies which imitate the latest fashions with cheaper in-store versions). In 2007, Inditex reported sales of about 9.5 billion Euros from more than 3,600 retail outlets in 68 countries. As of 2013, it had in excess of 6,000 stores worldwide (1800 of which were Zara outlets) and revenues in excess of 13 billion Euros. In an industry in which customer demand can quickly change, Zara has grown rapidly with a strategy to be highly responsive to changing trends with affordable prices. Whereas design-to-sales cycle times in the apparel industry have traditionally averaged more than six months, Zara has achieved cycle times four to six weeks. This speed allows Zara to introduce new designs every week and to change about 75 percent of its merchandise display every three to four weeks. Thus, Zara’s products on display match customer preferences much more closely than the competition. The result is that Zara sells most of its products at full price and has about half the markdowns in its stores compared to the competition. Zara manufactures its apparel using a combination of flexible and quick sources in Europe (mostly in Portugal and Spain) and low-cost sources in Asia. This contrasts with most apparel manufacturers, who have moved most of their manufacturing to Asia. More than 40 percent of the manufacturing capacity is owned by Inditex, with the rest outsourced. Products with highly uncertain demand are soured out to Europe, whereas products that are more predictable are sourced from its Asian locations. More than 40 percent of its finished-goods purchases and most of its in-house production occur after the sales season starts. This compares with less than 20 percent production after the start of a sales season for a typical retailer. This responsiveness and the postponement of decisions until after trends are known to allow Zara to reduce inventories and forecast error. Zara has also invested heavily in information technology to ensure that the latest sales data are available to drive forecasting, replenishment and production decisions. Nowadays, Inditex distributes to stores all over the world from eight distribution centres located in Spain. The group claimed an average daily delivery time of 24 hours for European stores and up to a maximum of 40 hours for stores in America or Asia from the time the order was received in the Distribution Centre (DC) to the time it was delivered to the stores. Shipments from the DC’s to stores were made several times a week. This allowed store inventory to closely match customer demand. In 2013 Inditex distributed 840 million garments in globally.
Optional further reading:
The following questions raise supply chain issues that are central to Zara’s strategy and success. The answers to the questions are to be submitted to MyLo, contained in an MS-Word document, by Monday 7 April 2014 at 11:55PM.
1. What advantages does Zara gain against the competition by strongly focusing on logistics at the strategic, tactical and...
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