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Customer service

Customer service is a big part of supply chain management. This is customer service provided to the final customer, as well as to the retail stores. The end customers know that stock changes rapidly at Zara, so they know to come to the stores more often than going to competitors to see the new styles. They also know to buy what they like when they see it rather than waiting since the product might not be there when they come back. Customer service is not a high priority for Zara, and they even take the approach that their clothes are meant to be worn 10 times and then replaced. This is communicated to the customers so there are fewer issues regarding complaints about quality and with customers trying to order in specific items.

There are less post-transaction issues with complain handling and returns/reverse logistics (Zara only has around a 1% return rate at its stores). As for customer service to the retail chains, they are a part of Zara so it is internal customer service. These are transactional in nature and have to do with stock-outs, cycle time, convenience, accuracy and information. Being part of Zara, they know that stock-outs are

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normal, cycle time for the various flows will be short, and the system provides for convenience, accuracy and constant flow of information. However, being that Zara does not place much importance on customer service, it can not really be considered a strength of the supply chain, other than the fact that they do not have to spend much time or resources on this function.

The strength in Zara’s supply chain lies in the management of logistics. When logistics is outsourced to 3PLs, companies risk losing control over the flow of products and materials, risk losing providers due to business failure, and can lead to conflicting objectives within the shipper’s organization. Zara avoids all these problems by keeping the logistics in-house. They still have to worry about inbound logistics of purchasing and obtaining undyed fabric from the external market, and of coordinating shipments from their textile fabrication facilities, but this is minor. With the majority of the logistics being in-house, they do not have to worry about impacting any other supply chains but their own. Their competition would need to be very careful making any changes to their supply chain due to the impacts it would have on their suppliers, sources, 3PLs and 4PLs.

The outbound logistics are also kept in-house, so Zara has control over its shipments and DCs. This increases their flexibility in determining how much to ship by truck and by air, as well as the frequency of those shipments. They are not tied into a specific delivery schedule and can adjust the quantity being shipped very quickly to ensure the right products are getting to the places where they are needed the most. The garments flowed through the supply chain quickly, moving from the factories to the DCs to the stories without stopping. This implies that they probably make some use of cross-docking and break-bulking at the DCs to take the shipments from the factories and prepare them for shipment to their various retail stores.

When looking at logistics, we need to look at price, products, promotion and place. Zara is not as concerned with the price aspect of the transportation and inventory costs. They have set modes of transportation (by truck and by air), and adjust shipment quantities based on demand. There are very little inventory costs since they do not need to warehouse the products. For the product, this is the packaging of the product which would impact the storage, handling and transportation of the products. The products are put on hangers and boxed at the DCs for easy transport to the stores. Since the products already have price tags and hangers, it is relatively quick and easy to display the products when they arrive at the stores.

Marketing and logistics normally need to be synchronized in order to determine the impact marketing plans and promotions will have on inventory and production. Zara only spends 0.3% of revenue on marketing activities versus the typical 3%-4% spent by competitors. Very little marketing is done due to their business strategy, so marketing has little impact on logistics. Place refers to the distribution system and strategy and as to how to configure the system. Zara located their main DCs close to their factories, and planned their system to react to smaller but many orders.

Zara also uses more of a make-to-order strategy rather than a make-to-stock system. Most of their production is determined by the orders and customer demand, rather than producing large quantities to maintain stock levels. The exception to this is for their basic items, which are basically made to stock. Due to these factors, there is not must use for postponement. The factories only produce what is ordered, inventories are almost nonexistent and there are not many intermediaries between the plants and the stores. Therefore, postponement is not really viable for Zara.

The business aims of supply chain management are to reduce inventory and production costs, have a responsive and efficient supply chain, provide better customer service, and earn higher rates of return. Zara is able to accomplish all of these goals, which indicates that they have a strong supply chain and are able to manage the critical supply chain elements efficiently and effectively. They were able to optimize the strategic, tactical and operations functions of the supply chain to work with their business strategy. Is the Zara strategy applicable to most of the retail and fashion sector? Why or why not?

The Zara strategy would not applicable to most of the retail and fashion sector. Most retailers spend a large amount of capital on inventory management and forecasting. Retailers and the fashion sector tend to have very long lead times and forecast demand well in advance of the upcoming season. They tend to use a push strategy, choosing their products for the upcoming season, producing large quantities of them, and pushing them out to the stores.

Traditional retailers will change their stock by around 20 percent once the season has started, and use replenishment to keep the stores stocked. The result is higher inventory and warehousing costs, but customers can expect that the inventories will not change much of the season. They are almost guaranteed that if they like a certain style that it will either be in stock or be restocked in the near future.

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