The just-in-time strategy

The just-in-time strategy and high number of products does not work well in many retail or fashion sectors. These sectors rely on economies of scale, standardized products, and predictable shipments to reduce costs. There is generally a large amount of outsourcing, both in logistics and production/manufacturing. Most established companies would not be able to change their processes or supply chain to this type of system. Retailers and the fashion sector tend to have lots of partners, whereas Zara manages most of the supply chain internally. The logistics of most company’s supply chains would not work using Zara’s strategy. There are usually longer lead times and schedules of shipments that are used in these sectors. Many 3PLs and 4PLs would not be able to handle the variability that Zara’s strategy requires.

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Most companies can no longer be vertically integrated in today’s competitive market. Globalization has led to companies sourcing from various locations across the globe, as well as using 3PLs and 4PLs to manage functions that are not core competencies. Usually when companies start competing at the global level, they divest themselves of anything that is outside their competencies. They also try to minimize risk by deducing their investments in capital and reducing their risks of taking ownership of too much inventory (through the use of 3PLs). Zara is really a success story in their use of supply chain management since how they manage their company is counter-intuitive to conventional wisdom and to the theories of supply chain management. Zara’s strategy would work for industries where the product life cycle is very short. However, the fashion industry is generally focused on longer life cycles where products are designed well in advance and are marketed for an entire season. Zara reacts to the current market trends and uses a quick response system to produce new styles within three weeks.

Most retailers and fashion companies buy on the basis of brand and use economies of scale. They may source from as many as 900 or 1000 different companies to stock their stores. This is not conducive to having a reactionary supply chain; these companies need to forecast demand and plan to bring in their inventories due to the longer lead times required when dealing with this number of companies. Companies are also moving more to the “China price” where they source from wherever is the cheapest. This might be all the way on the other side of the world, increasing the lead time and making it difficult to react quickly.

Culture can also pose a barrier to this type of system. It requires rapid turnaround, employees who can follow orders and react quickly to changes in demand and work load, and corporate buy-in from everyone in the company. When you are working with people in other countries, culture, customs and tradition can sometimes stand in the way of a system like this. Inditex operates in 45 countries, second only to Benetton who operates in 120 countries. If Inditex/Zara had to deal with their retailers in all these countries, plus work with their suppliers and distributors in numerous other countries, then the system would become so complex that it would be impossible to operate using this business model. Cultural differences would start popping up and further complicate the system.

What sets Zara apart from the rest of its competitors is that it reacts rather than trying to predict customer demand. Their supply chain and rapid production system allow them to use POS information and within a month, have a new product in their stores to satisfy customer demand. They have developed their business around reacting swiftly rather than putting lots of money into forecasting. Typically retailers can take up to a year to move from a concept stage to having the goods produced and delivered to the retail store.

This is due to the long lead times required by sourcing from multiple countries and suppliers, and outsourcing the manufacturing and logistics. It would almost be impossible for an existing company to mimic or reproduce Zara’s supply chain, thus giving Zara a competitive advantage in the fashion industry. Most retail companies would also face too many problems over inventory management, logistics and marketing to be able to successfully use the Zara strategy.