Zara
Introduction and Background
The case of Zara, a famous fashion clothing manufacturer, has been considered with the focus on inventory management and lean operations. The major aim of lean manufacturing (Just-In-Time) is to reduce the cost through having control over inventory and reducing waste. Zara is a fast fashion retailer and fashion changes rapidly. Therefore, it is difficult to estimate the demand for products. Hence, Zara procures the material in bulk and cut the clothes into pieces. However, when fashion changes and demand for any specific design rise, the retailer prepares the dresses on demand (Just-In-Time). In this way, Zara prevents itself from waste that reduces the cost and affects the prices of stock. Another rational of using the lean manufacturing operations is that the company is able to produce most current fashion clothes. In short, Zara uses lean manufacturing for cost reduction; shorten the life cycle of delivering and manufacturing current fashion clothes and for waste reduction. However, it has been realized that due to the lean manufacturing (Just-In-Time) approach, Zara is facing the shortage of supply at all stores. Therefore, it is recommended to use the forecasting method, the rationale of using the forecasting method is that it will enhance the efficiency of JIT approach and enable the company to maintain the right balance between the demand and supply at all stores.
Application of lean operations framework for inventory management
Zara, a fast fashion retailer, demonstrates a clear advantage over its rivals because of its fast fashion items. Zara utilizes full potential for making sure that the latest stock is available in its stores, and different colors and sizes are available for customers. The fast fashion retailer uses efficient procedures, gather relevant information, update, and monitor that information on the constant basis for smooth functioning. Through the procedures, Zara makes sure that the alignment between the supply at its headquarters and demand at its stores level is optimal. Therefore, the retailer can maintain appropriate inventory control, can make the replenishment of its items more efficient and can place its orders in minimum time. The partial success of the Zara is dependent upon the collaboration of the store managers to the customers, retailing sector to the designing section, and production section to the distribution channels. Most people refer the Zara’s fast fashion provision as a lean operation. The company uses lean operations for maintaining its competitive advantage and it is successful in this way. The most common lean technique that is used by Zara is the pull-model also recognized as Kanban system. According to the system, the retailer prepares a queue of resources that is prepared to be dragged, as the demand will occur. For example, with the aim of avoiding over ordering and overproduction, the retailer maintains a specific stock of design base on the current trends and sales of the store and then replace the designed after monitoring the spending of customers on particular design(Robinson, 2015). These are the best techniques used by Zara for quick replenishment of inventories at stores (Petro, 2012).
However, despite the overall lean operations and good progress, Zara is not free from issues. It has been determined that the retailer due to its legacy model, facing significant challenges in inventory management as for offering its new products and making changes in designs the retailer used to focus on or wait for the actual response of the customers. Due to this model, Zara faced several challenges including limited inventory at all stores and distribution issues. The retailer uses just in time approach for the distribution of its clothes; the company recognized that fast fashion demand is uncertain. Therefore, the retailer procures the capability of fabric but does not finalize the design and color schemes until do not get an actual response from customers. This just in time (JIT) strategy backfire the Zara in the result of enhanced fuel prices. Because, due to the delivery of items based on JIT, the company used to deliver the items to store rapidly that means limited inventory and increased transportation cost (Min, 2015; Needles, Powers & Crosson, 2013).
It has been determined that the store has to go through several challenges as fast fashion retailing is about the rapid changes that have to take place fast. Replenishment of inventory in a short time is a challenge for Zara, and the assortment of stuff poses a significant impact on sales (Caro & Gillien, 2010). Fast fashion retailers have to maintain the right stock of different sizes and maintaining the right balance of different sizes has become an issue at Zara. It has been determined that the Zara is on a particular model for maintaining the right level of inventory in its stores.
Above is the existing model of Zara; according to the existing, process the retailer or headquarter rather taking feedback from store managers, give them the statement of items that are available for making a request at the warehouse. However, managers are not told that how much stock is available of each item in the warehouse. When managers receive the weekly statement of items, they make request the required items after determined the level of inventory at their stores; then the store manager sends the requested shipment quantities back to the headquarter with the specification of the size and amount of each item. After receiving the request, the warehouse team then further reconciles the received request and then sends the overall quantity to specific stores for maintaining feasibility. However, during the process, it has been determined that most often store managers over the place their orders because of the fear that the items will not be at the warehouse or will be short. The absence of the information that how much items are available at warehouse creates vulnerability at the side of the store manager. This vulnerability creates waste, and the aim of lean operations is to eliminate the waste from the supply chain. Therefore, for making just in time (JIT) operations more efficient, it is essential that Zara adapt new approach (Min, 2015).
However, the retailer can adapt just in time (JIT) approach more efficient by redesigning its processes. For example, the company rather a giving a statement of items to the store manager should take input from them, and their assortment decision should be based on the forecasts supported by past sales and the store manager feedback. After forecasting the demand, warehouse inventory and store inventory including demand forecasts should be used to make optimization decision rather reconciling the requested shipment quantities. JIT itself is not perfect it requires the support of diverse systems, through making the system more predictable and simpler, the just in time process can be improved. The forecasting model is better than the direct model as it will allow the retailer to forecast the future needs in term of a size that will not allow Zara to be out of stock and face limited inventory issues further. The disadvantage of the current model of the company is that it is not able to respond the rapid swings in the demand that are resulting in the shortage of certain sizes and therefore, loss of sale (Schienderjans & Cao, 2002).
Summary and Recommendations
It has been determined that the major issue that is being faced by Zara is the shortage of inventory in all its stores. Despite the adaptation of JIT approach, the store is not able to maintain an appropriate level of inventory this is because the most direct method is used by the company that does not allow forecasting the future demand. Therefore, it is recommended to the company to adapt forecasting model that will allow the company to have an idea regarding the future demand and will enable the company to overcome the issue of limited inventory at all store. This technique will save the company from losing its sales. The application of lean operation concept helped in analyzing the company issues as the JIT approach is specifically is used to maintain lower inventory level, but for fast fashion companies, it is also essential to maintain the right balance. JIT itself is not efficient approach it required systems to be efficient. Therefore, it is pivotal to adapt forecasting or optimization approaches that can help the store in maintaining not lower, but the right level of inventory.
References
Caro, F., & Gillien, J. (2010). Inventory Management of a Fast-Fashion Retail Network. Operation Research, Vol. 58, no. 2, pp. 257-273.
Min, H. (2015). Zara’s Rapid Rise as a Cool Supply Chain Icon. Financial Times, Available from http://www.ftpress.com/articles/article.aspx?p=2359420&seqNum=12[Accessed on 7th April 2016]
Needles, B. E., Powers, M., & Crosson, S. V. (2013). Principles of Accounting. USA: Cengage Learning.
Petro, G. (2012). The Future Of Fashion Retailing: The Zara Approach (Part 2 of 3). Forbes, Available from:http://www.forbes.com/sites/gregpetro/2012/10/25/the-future-of-fashion-retailing-the-zara-approach-part-2-of-3/#109dca2239a0[Accessed on 7th April 2016]
Robinson, N. (2015). How Zara used Lean to become the largest fashion retailer. The Leadership Network, Available from https://theleadershipnetwork.com/article/lean-manufacturing/zara-lean [Accessed on 7th April 2016]
Schienderjans, M. J., & Cao, Q. (2002). E-Commerce Operations Management. Singapore: World Scientific.
