Vertical Intergration Zara
How is Zara organized with respect to its vertical integration and outsourcing decisions?
What governance structure does it appear to follow? Support your conclusions with reference to details of the Zara and the Ferdows reading.
Zara manufactures and distributes its products in small batches. Zara is vertically integrated as the company manages all design, warehousing, distribution and logistic functions. Zara outsources sewing of garments to an outside supplier. Zara controls the product it creates from inception to when it is sold to the final customer. Amancio Ortega, Zara’s founder is a strong believer that in order to be successful in the apparel industry retailing and manufacturing must be closely linked as consumer demand is difficult to forecast. Both Ortega and Castellano (Intidex CEO) both believe that Zara needs to be able to respond very quickly to the demands of target customers as their taste in clothes is hard to predict, difficult to influence and changes very rapidly.
Zara’s vertical integration allows the company to constantly introduce new items into the marketplace with very short lead times. The company can design, produce and deliver a new garment and put it on display in its stores with a 15 day turnaround. No other competitor has this capability. While Zara introduces over 11,000 new items in a given year its competitors introduce a mere 2,000 to 4,000. Vertical integration allows Zara the leverage to be super responsive to the eclectic tastes of its customers. Zara does an outstanding job of matching demand to supply. Its sells only 15-20% of its clothes during clearance sales at an average discount of 15% compared to the industry average of 30-40% at a discount of 30%.
Zara produces complicated products in house and outsources the simple ones. Men’s dress shirts for instance are outsourced because of the stable demand in these products. The dress shirts are outsourced to China with a four month lead time and to Turkey with
What governance structure does it appear to follow? Support your conclusions with reference to details of the Zara and the Ferdows reading.
Zara manufactures and distributes its products in small batches. Zara is vertically integrated as the company manages all design, warehousing, distribution and logistic functions. Zara outsources sewing of garments to an outside supplier. Zara controls the product it creates from inception to when it is sold to the final customer. Amancio Ortega, Zara’s founder is a strong believer that in order to be successful in the apparel industry retailing and manufacturing must be closely linked as consumer demand is difficult to forecast. Both Ortega and Castellano (Intidex CEO) both believe that Zara needs to be able to respond very quickly to the demands of target customers as their taste in clothes is hard to predict, difficult to influence and changes very rapidly.
Zara’s vertical integration allows the company to constantly introduce new items into the marketplace with very short lead times. The company can design, produce and deliver a new garment and put it on display in its stores with a 15 day turnaround. No other competitor has this capability. While Zara introduces over 11,000 new items in a given year its competitors introduce a mere 2,000 to 4,000. Vertical integration allows Zara the leverage to be super responsive to the eclectic tastes of its customers. Zara does an outstanding job of matching demand to supply. Its sells only 15-20% of its clothes during clearance sales at an average discount of 15% compared to the industry average of 30-40% at a discount of 30%.
Zara produces complicated products in house and outsources the simple ones. Men’s dress shirts for instance are outsourced because of the stable demand in these products. The dress shirts are outsourced to China with a four month lead time and to Turkey with