Integrated Supply Chain Management: Benefits & Challenges - Essay Sample

Introduction

In recent years, many firms have embraced an integrative approach to the management of their raw materials supply, production, and distribution. This process is referred to as supply chain management. In today's business world, the strength of the supply chain link can decree the usefulness and efficiency of the supply chain partnership and its success. Supply chain collaborations among many firms mostly provide benefits than working in separation. Nevertheless, the lack of awareness of the existing constraints associated with the supply chain prevents the benefits of partnership from being fully attained. The use of the theory of constraints (TOC) by firms helps with noteworthy business results (Simatupang, Wright, & Sridharan, 2004). The theory of constraints is the simplest supply chain concept with the basic idea that every process is limited by some constraint. TOC focuses on initiating and implementing improvement by focusing on a constraint that prevents the system from accomplishing great levels of performance (Simatupang, Wright, & Sridharan, 2004). This paper will focus on Zara, a fashion retail giant based in the UK, discuss how it responds to predictable variability, and integrates aggregate planning into the supply chain and describe how supply is managed at Zara. It will also describe how demand is determined at Zara, explain how its sales and operations plan affects its supply chain performance and improve the company's profitability and assess the effect of risk management processes on supply chain constraints. Further, the paper will evaluate strategies that Zara can employ to improve its supply chain performance and overcome probable constraints.

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Aggregate Planning Into Supply Chain

Zara has, in the past, registered a significant competitive advantage in the fashion retail market due to its best-laid supply chain. The company maintains its supply chain and competes on its market speed, thus embodying the idea of "fast fashion." Zara has mastered the fact that planning and creating an effective supply chain that advances market demand and smart production models are very imperative.

It is worth realizing that the company has adopted a vertical integration supply chain (Yau, 2019). It means Zara enjoys better control over its value chain without the external factors, reduced distribution costs, and better alignment of pace to cater for the ever-changing fashion trends. By incorporating a vertical integration supply chain, Zara can respond almost instantly to the ever-changing customer's demands and tastes. Here, the company correctly analyze customer demand and then respond faster by use of a fast-cycle manufacturing process.

Zara has created an agile supply chain through its practices, such as inventory optimization, just-in production, and lean inventory management. Zara determines 20% of its season's line six months and enters the new season with 50% committed inventory ("TradeGecko," 2018). It then adopts just-in-time production for the remaining 50% to respond to any trends and customer tastes while becoming agile when it comes to frequency, quantity, and new merchandise varieties.

Zara has also focused on demand forecasting ("TradeGecko," 2018). Managers of Zara outlets communicate customer's feedback. Store managers communicate customer feedback on client's likes, dislikes, and taste. The data instantly channeled back to Zara's designers, who start sketching. It helps the company to keep up with customers' demands and tastes and respond immediately.

The Determinant of Demand at Zara

The supply chain is implored with different customer demands, and therefore Zara has come up with strategies in the supply chain to cater to these demands. To operate in line with the demand, Zara has adopted quick fashion to transition from production-driven to a market-driven approach that focuses more on-demand. The principle idea is to organize the supply chain according to the need, market, and product type.

Zara has created an environment of shortage and opportunity. It has an extra capacity set to respond to demand when it develops or changes. The company operates 4.5 days a week around the clock on a full size ("TradeGecko," 2018). It leaves some flexibility for extra shifts and labor to be added when required hence leading to higher numbers of customer visits and shipments.

To enhance demand, Zara has adopted unique strategies like low pricing strategy and fast-paced fashion response ("TradeGecko," 2018). It has ensured customer demands and tastes are catered for in the fastest way possible. In this regard, the company has improved its customer's portfolio, and that means demand and supply increase automatically.

Supply Management at Zara

Zara has adopted a unique procurement methodology to ensure that its supply to all outlets and customers is managed and sustained. To achieve this, the procurement team at Zara ensures they do not work on the number of finished clothes but instead work on the number of raw materials. With the right amount of raw materials, the company can address demands when they arise and make the process of supply easier, faster, and convenient.

Zara possesses a centralized logistics and distribution. The company stores place orders twice per week, and the supply of finished goods goes hand in hand with the store's demands. If the store's market goes down, then the production is automatically reduced. In short, the company's output varies with flexible production facilities.

How Sales and Operations Plans affect Zara's Profitability

Zara's operations strategy helps the company to sell its apparel at full price. It is because of the scarcity and sense of exclusiveness Zara radiate ("TradeGecko," 2018). As a result, the company's total cost is minimized since the merchandise that is marked down is automatically reduced compared to that of competitors such as H&M.

The company uses instrumental and up to date information systems ("TradeGecko," 2018). The operations at Zara are technology-enabled hence has a faster response communication. It speeds up complex tasks, error, and lower cycle time. Additionally, it helps Zara make apparel that customers want and ensure they get to the market faster. Therefore, it has, in a big way, increased the company sales hence enhancing its profitability.

Effect of Risk Management on Supply Chain Constraints

As part of risk management strategies, Zara has adopted a centralized logistics and distribution system ("TradeGecko," 2018). The company stores place orders twice per week, and the supply of finished goods goes hand in hand with the store's demands. If the store's market goes down, then the production is automatically reduced. In short, the company's output varies with flexible production facilities. It has profoundly helped the company to avoid problems of dead stock and thus keep selling apparel trending at that time. Additionally, it has helped build the company's brand image.

Zara ensures it has managed the risk of running out of stock and not meeting customer needs. Its very responsive supply chain helps the company counter excess customer demand while still matching customer demands and tastes. As a result, the company increase their sales and reach their profit margins.

Risk management on supply change has helped Zara to remain dominant in the fashion retail market while its competitors are crashing due to a lack of proper risk management on supply chain constraints. Zara has specialized in supplying customers with apparel that meets their taste and quality hence improving its customer base every day.

Strategy Recommendation

To improve its supply chain and counter supply chain constraints, Zara should minimize dependence in the European market. Most of its stores and production factories are in the UK hence making the company vulnerable to disruptions such as terrorism, natural disaster, and political instability that may arise. In case these happen, then the supply chain of Zara will be direly affected.

The company should capitalize on attaining economies of scale. Doing this will help the company carry out production in high quantities, which will, in return, lead to the low cost of production at a discounted rate.

Conclusion

Every ultimate business goal is to make as many returns as possible. It is possible through an effective and efficient supply chain. In this fast-paced environment, a supply chain that is highly responsive to customer needs, and that is conscious of all the risks is worth investing in. Zara has managed to stay dominant in the fashion retail market for the longest because it has applied the theory of constraints in its supply chain hence making it easier to avoid and counter all the risks in the supply chain.

References

Simatupang, T. M., Wright, A. C., & Sridharan, R. (2004). Applying Theory of Constraints to Supply Chain Collaboration. Supply chain Management: an international journal.

TradeGecko. (2018). Zara Supply Chain Analysis - the Secret Behind Zara's Retail Success. Retrieved from https://www.tradegecko.com/blog/supply-chain-management/zara-supply-chain-its-secret-to-retail-success

Yau, C. (2019). Supply Chain Management: How does Zara do it? Retrieved from https://edited.com/resources/supply-chain-management/