The Strategic Significance of Logistics in a Globalized Business World

Categories: Business Economy Fashion Inventory Outsourcing

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The globalization of business and the pressures from competition have led organizations to the growing but strategic importance of the logistics function within the organization (Kumar, Vrat & Shankar, 2006). Zara business is dynamic and innovative in leveraging the benefits of globalization, outsourcing and physical distribution in its supply chain with an absolute but enviable business model for her fashion business. According to Berfield & Baigorri (2013), Zara was identified as a debut company that introduced the idea of fast fashion some twenty years ago, with a highly developed and centralized office called the Cube - assumed to be the brain behind its product innovation and its unconventional idea.

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Zara's model according the authors is "often studied but rarely duplicated design, manufacturing, and distribution system." The Zara company supply chain, operations and fast distribution networks has been evaluated following questions below.

Based on Zara's outsourcing strategy and physical distribution scheme described in the article, what do you think are challenges that the company will face to sustain its growth?

Remarkably, Zara company has proved its place in the clothing industry with its unique approach to handling its changing demand, in which its competitors find difficult to deal with especially with responding rapidly to the unstable consumer taste, complex operation decisions, and lowering inventory costs.

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We observe that the arrival of new trends usually forces retailers to adapt their collections to demand and this is in concord with the Forrester effect (James, 2011). Following this, Zara depends severely on outsourced manufacturing, even though most operations and inventory decisions and strategies are still subject for final approval in Spain.

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Zara uses state-of-the-art technology and teamwork of its employees to produce only what is currently trending, which significantly reduces unsold items and inventory that may arise due to the fast-changing consumer tastes (Berfield & Baigorri, 2013). Zara constantly adapts and diversifies its product lines and services to meet the dynamic consumer demands peculiar to each of its markets to maintain its position while centralizing its key operations in Spain. For Zara, centralization is a key factor for its competitive advantage despite expanding into new markets in Asia and Africa (Berfield & Baigorri, 2013).

More so, Zara may have challenges following the variability in orders, Zara's operations will certainly increase its running cost which may impact inventory costs too. From the article, we see that garments will always be shipped to Spain for quality assessment before being shipped back to distribution stores, so Zara has to deal with transport expense across its supply chain. More so, Zara's expansion to China did not consider the reality of the absence of an automatic underground monorail that connects China to Spain (O'Shea, 2012); causing the company logistics to have substantial expenses. On the other hand, if the company moves into more distant markets, its ability to meet the twice-weekly deliveries and the 48-hour turn-around time may seem impossible. In addition, with the increasing empowerment that the internet brings to consumers, Zara will have to embrace new technologies even more than her competitors. If not, many customers will do their research and place orders, because they are now empowered and equipped like never before, to employ the same techniques as Zara does and receive the goods delivered on time. Again, cultural and climatic factors may also be a significant challenge for Zara. Analyzing its expansion into Indian market, Yusuf (2013), says that India does not experience the seasonal changes that many markets do. Meaning, the change of seasons may not increase fashion purchasing decisions. Places where most people wear traditional clothing due to culture, may show a decline in demand since there is no desire to upgrade one's wardrobe. Lastly, Zara's location of its facilities in China will impact significantly how quality will be assessed by the cube, and the subsequent shipping of goods to stores may require the distribution chain to be expanded. And an expanded distribution channel will affect Zara's designers' ability to make quick changes to clothing designs due to the complex coordination between planners, designers, marketers and consumers in both Spain, China and other markets (O'Shea, 2012).

Briefly Describe a Strategy to Address the Most Compelling Challenge Facing the Organization.

Strategy is the process where managers establish organizations long-term direction and set specific performance goals in the light of all the relevant internal and external circumstances, and undertake to execute the chosen plans (Akintayo, 2003). Zara can address the most compelling challenge by

Centralizing distribution offices in other markets, according to their specific characteristics. For markets that are parallel regarding consumers' tastes and preferences or that share geographical proximity. Zara can build a manufacturing plant and a distribution office in those regions.
Another Cube in China can be created to address one of its most significant issues, to eliminate the expenses of logistics, taking advantage of the fact that expansion is already budgeted in the company's strategy. It is expedient that the company will need to find alternatives to reduce its operational costs related to installing production facilities in China (Gallaugher, 2009). More so, since fashion changes and consumer tastes depict the fabric industry, building a Cube in China will increase speedy delivery and meet the dynamic needs of the consumers in time.
Recruitment of new employees as well as training both new and old employees is key in human capital development and the general growth of Zara.

In conclusion, if Zara tackles the above impending challenges with the solutions suggested among other factors the company can leverage the expertise of logistic service providers while concentrating on their core competencies (Mitra, 2009), especially if the sufficiency of logistics outsourcing is impeccable in a physical distribution system.