Question 1

Why did Zara concentrate its production in Spain?

Accepted Answer

In order to lower production costs, many apparel companies in developed countries have offshored their manufacturing functions. Zara is one of the few exceptions that has kept production at home. The primary reason for offshoring is to lower costs as foreign locations provide low-cost labor, raw materials, or product components. However, offshoring may hurt market responsiveness and require considerable cross-border coordination. As a fast fashion company, Zara values speed to market. Unlike the traditional designer-led model of the industry, in which star designers create designs long before the season and subcontractors manufacture products months earlier, Zara tries to understand what consumers like first and then design and produce accordingly. Since Zara offers products that are currently trending, it needs to speed up its process to catch up with the latest trends. Therefore, Zara keeps most functions in house and at home. It has vertically integrated design, production, distribution, and retail sales. Most design, production, and distribution operations are closely located in Spain. Such arrangements allow Zara to effectively control its process and quickly react to market trends. To remedy labor cost disadvantage, Zara has adopted state-of-the-art equipment and supply chain technology. It has also outsourced minor labor-intensive processes and the production of standard merchandise. Thus, the labor cost disadvantage is largely offset by greater flexibility and faster turnover.

Question 2

How did Zara integrate its various operations around the world?

Accepted Answer

Zara has vertically integrated design, production, distribution, and retail sales. It has a large, anonymous design team in its headquarters in Spain. Zara believes in democratized fashion, which is largely driven by customers. Zara's store staff and managers identify popular styles and send information to the design team frequently. Zara's manufacturing facilities are mostly located in Spain. Owning plants and equipment allows Zara to directly control the manufacturing process. It only buys fabric from nearby suppliers to ensure on-demand supply. Zara's own facilities mainly perform high-cost and high-skill tasks, and minor labor-intensive processes in nearby workshops. Thus, Zara is able to produce the trendiest clothes within two to three weeks. Zara also has a state-of-the-art distribution system. Its main distribution center is connected to nearby factories with tunnels and ceiling rails. Advanced devices and systems are used to make its global distribution fast and flexible. In terms of sales, Zara's main approach to attract shoppers by opening up stores in prominent locations, constantly updating store designs, and supplying stores with differentiated new designs. To link these functions, Zara has developed sophisticated information systems, such as microprocessor-based tagging and real-time store information. The company also has a horizontal and flexible organizational structure that encourages employees to participate in identifying fashion trends and customer needs. Conversation and collaboration are stressed to facilitate bottom-up and crossfunction communications.

Question 3

Given the trend of globalization, should Zara move more production to low-cost countries?

Accepted Answer

This is a debatable question. Most students would argue that, given Zara's successful and fast fashion model, the company does not need to offshore or outsource to low-cost countries. Nonetheless, Zara's basic T-shirts and sweaters are ordered about six months in advance from suppliers in low-labor-cost countries like China, Bangladesh, and Vietnam. This suggests that Zara's in-house production is driven by its strategic focus on speed and flexibility. If the company adjusts the strategy, it may change its attitude toward outsourcing. Some students may point out H&M and Uniqlo, two other fast fashion companies who outsource production from hundreds of contractors in low-cost countries. Uniqlo stress quality and value rather than quick responses to changing styles. It aims to identify styles that last a long time and create differentiation within these styles. H&M somewhat combines the Uniqlo and Zara models. It carries styles with longevity while staying responsive to fashion trends. Generally, the items with very short lead times are manufactured by contractors in Europe, and those with longer lead times are manufactured by suppliers in Asia.

Question 4

What factors drive the R&D outsourcing of pharmaceutical companies?

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Question 5

What locations are more likely to attract outsourced R&D services?

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Question 6

How can pharmaceutical companies effectively manage their outsourcing relationships?

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Question 7

What are the reasons why New Balance has kept manufacturing in the U.S.?

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Question 8

Given the development of the global footwear industry, can New Balance sustain its current production model? And why?

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Question 9

How would you define "Made in USA"? Do you agree with the FTC standard?

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Question 10

What are the benefits and drawbacks of global sourcing?

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Question 11

Is it appropriate for a company like Boeing to use global sourcing?

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Question 12

How can the company improve the management of its global supply chain?

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Question 13

What factors are driving the trend of reshoring?

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Question 14

What kind of companies are more likely to bring production back home?

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Question 15

Will the trend of reshoring become stronger in the future? Why?

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Question 16

What factors drive a company to allocate its business operations in foreign countries? Are there any potential drawbacks?

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Question 17

Under what conditions should international companies outsource their business operations, have in-house operations, or form strategic alliances?

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Question 18

What is the impact of global R&D on international firms? What factors drive the location of R&D activities?

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Question 19

What key factors should international firms consider when deciding on the location and management of global production?

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Question 20

Why has the global supply chain become increasingly important for international firms?

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Quiz 11: Managing Operations