Scmp: Module 1 Session 3 Exercise 2: Vertical Integration Vs. Outsourcing

688 words - 3 pages

Module 1 Session 3 Exercise 2: Vertical Integration vs. OutsourcingPrepared by Prashant WadkarPart AHow is Zara organized with respect to its vertical integration and outsourcing decisions? What governance structure does it appear to follow? Support your conclusions with reference to details of the Zara case and the Ferdows reading.AnswerI believe Zara has very intentionally integrated itself vertically to a high degree. It seems this is an outcome of the sudden and bitter order cancellation experience Amancio Ortega encountered in 1975 from a German wholesaler. The company always wants to control what happens to their product until the customer buys it. This includes complete control over design, production, delivery to retail outlets and finally to the customer. No dependency on an external agency enables Zara to start right from the concept and to deliver the product to the customer in just 3 weeks + 2 days at the maximum. This business structure emphasizes on "fast fashion" and the entire business process is tuned to ensure the maximum 3 weeks + 2 days concept to delivery time which sounds like fantasy to the ears of the competition. For accomplishing this goal a greater goal of overall efficiency is adopted and optimization in individual processes is deliberately ignored. Conceptualizing new designs, utilizing smaller but more frequent batches of production, generously sparing factory capacities to rapidly scale-up when required, shipping the garments on the hangers/racks and with price tickets on, deploying user friendly and reliable POS equipment PDA ordering method are just a few accelerators to their speed of delivery. Part BHow does Zara's situation support, or not support, its supply chain strategy? Refer to specific details of Zara's operations, and concepts developed in Hayes et al (see session notes for summary of Hayes).AnswerZara's situation definitely supports their supply chain strategy. No or minimal outsourcing, i.e. vertical integration brings in their overall efficiency to deliver faster ever than anyone else and this is such a key in the volatile fashion business. Zara owns...

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