There chosen a very attractive network position

 There are three major factors that apply to any business network which can determine how attractive their network position is. Their choice in network positioning is the primary factor as different positions within a network will possess different degrees of attractiveness for different things. Another factor is downstream management within a network which relates to the selling segment including marketing, sales and anything to do with getting the product to the customer. The final factor is upstream management which consists of anything to do with suppliers, raw materials, production and anything to do with the origins/creation of the product. Maximum efficiency is essential at all parts of the supply chain revolving around these three factors, one company that I believe effectively handles all parts of it’s supply chain resulting including effectively strong relationships with customers and suppliers is Zara which is why they are the biggest retailer company in the world making big profits every quarter.  Zara has chosen a very attractive network position within the retail industry, it positions itself as the designer-boutique alternative for the price conscious but trendy customer. Quoting their website, they aim to “give customers what they want, and get it to them faster than anyone else”. This strategy in retail is called Fast Fashion; where production processes are expedited in order to get new trends into the market as quickly and cheaply as possible. This results in an efficiently cheap and short supply chain as Zara focuses on speed and responsiveness more than cost. Zara is the world’s most successful clothing chain, contributing to 80% of the sales to Inditex and I believe this is due to their focus on cost leadership. There are generic strategies Michael E Porter has outlined which are cost leadership, differentiation and focus. Zara has more of a cost leadership strategy with a bit of attention on differentiation through a vertically integrated supply chain. This means they have total control over all business activities from upstream to downstream ranging from designing, manufacturing, sourcing and distribution. This type of strategy aids in short turnaround times and more flexible control ultimately aiding in reducing stock to the minimum and maximising the sales. There are two major internal transaction costs that allows Zara to operate in an attractive network position through cost leadership. Firstly, they use a strategy which revolves around in-house “just-in-time” manufacturing. Zara manage production and create designs internally which means they have power of the inventory ultimately meaning less demand for warehouses and it generates quick response to recognise what the consumers want efficiently. Unlike other retail brands which try to respond to runway fashions by creating reflected mass market products based on trends, 85% of the in-house manufacturing for Zara occurs after the season begins. Since they have a vertically integrated supply chain, they can adapt quickly to design and produce items that are performing well in the marketplace which reduces costs across the firm as they can focus on stock that they know will be popular or trending. Zara also use short life cycle strategies in which they release new designs around six times a year whilst the traditional competition would release them four times. Their vertically integrated design resources has increased design capabilities and IT infrastructure for the fast fashion approach using in-house design services. Their combination of design and their sophisticated IT network shortens time from design to market which is essential for their fast fashion approach. The effect of hierarchy costs are reduced because the design function is so important to Zara achieving short cycle times in line with market demands and trends. One negative I’ve realised about this approach is that there is less time to actually market the lines they release but this is counteracted by brand loyalty which I will discuss later. What makes Zara so successful in it’s position is that it holds competitive advantage over the industry is their vertically integrated control from sourcing all the way to the retail store. Compared to it’s competitors like H and Gap who typically establish external contractual relationships with outsourcing, manufacturing distribution and retail, Zara is the only competitor that maintains dominant forward and backward vertical integration through upstream and downstream management. They have an advanced IT infrastructure that connects cross-functional operations from upstream to downstream which helps communicate rapid market feedback for design teams resulting in a 1% failure rate on new products compared to 10% in competitors.

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