Retail clothes outsourcing in Zara: profit maximization or fair trade?
I Provisional Title
The working title of the research is initially drafted as – Retail clothes outsourcing in Zara: profit maximization or fair trade? The study aims to explore what aspects of the clothing industry is commonly outsourced and whether outsourcing is a strategy which purports on maximizing profitability as well as economies of scope and scale and competitive advantage of is it a tactic to promote corporate social responsibility thereby sustainability not just of the organization but of the marginalized producers and workers.
Owned by Amancio Ortega, Zara, on the other hand, is a clothing company originated in Spain. Inditex Group, the parent company, claims that Zara needed just a couple of weeks to go through the development of a new product and get it to the stores, compared to that of six months which is the industry average. Zara also launches products amounting 10, 000 new designs annually. Though Zara is a vertically integrated company, Zara controls most of the processes in the supply chain whereby 50% of the products are manufactured in Spain, 26% in the rest of Europe and 24% in Asian countries. Gemawat and Nuevo (2006) contend that Zara outsourced the production of high labor intensive processes but maintained in-house other capital intensive processes, protecting knowledge and know how. The quick-response capability of Zara is made possible by the three main stages that define the competitive edge of the company: design, manufacturing and distribution.
Zara embraces the strategy to focus on operations which can enhance cost efficiency thereby conducting most of the processes in-house. While, the rest of the manufacturing activities including finishing stages are completed through a network of 300 small contractors which specializes in one particular part of the production process or garment type. These contractors work exclusively for Inditex, and are not given more than 4% control of the production services so that if there will be a problem with a single contractor, there will 299 to back them. Cohen and Roussel (2004) maintain that although its manufacturing costs are 15 to 20% higher than competition, Zara more than makes up for the cost differential through its supply chain to ensure that merchandise in the stores matches what customers want (p. 23).
The question now is: Why does Zara converge in the concept of outsourcing if it can do most of the work in-house? Tracogna states that Zara is one among the global companies which are able to balance vertical integration and outsourcing. So, how outsourcing contributes to the success of Zara? What is rationale behind Zara’s decision to outsource some of the production process? Is it to lower manufacturing costs while also generating jobs for people living in developing countries? These and many other questions will be encountered though the research. The rationale behind the study is to establish whether retail clothes outsourcing is mainly for profit maximization or fair trade. The study is significant to the field of retailing and outsourcing research and business management in general as it may unravel useful strategies for companies that belong in the clothing/apparel industry.
II Brief Review of Literature
Sabath (1995) claims that traditional supply chains can be problematic, stating that “…each step back in the supply chain, volatility of demand increases and forecast accuracy decreases”. Because, traditional supply chain relies on at three inventory buffers to smooth the flow of goods through production and provide a reliable response to volatile consumer demand. It also reacts very slowly with the demand trends and also treat all items very much the same whereas in the integrated approach, the supply chain in linked organizationally and coordinately with information flows from raw materials to on-time delivery of finished products to customers.
Sabath also assert that integrated, coordinated supply chain are extremely responsive and reacts quickly to support the company’s rapid growth. OSD Comptroller iCenter (2006) outlines the advantages of integrated supply chain which includes quicker customer response and fulfillment rates; greater productivity and lower costs; reduced inventory throughout the chain; improved forecasting precision; fewer suppliers and shorter planning cycles; improved quality and products that are more technologically advanced; enhanced inter-operational communications and cooperation; shortened repair times and enhanced equipment readiness; and more reliable financial information.
Tracogna relates that outsourcing is a term coined to describe the practice chosen by several companies of contracting out to other companies some activities of the value chain that used to be carried out in-house. Companies have varying reasons for outsourcing. First is the search for flexibility wherein firms outsource production when there is high demand. When demands subside, outsourcing stops. Second is to lower costs, benefiting from suppliers’ economies of scale and specialization. In the former, the supplier could integrate demand from a large number of clients and in the latter, the supplier could specialize in a single activity while also reaching a world class level of excellence.
In outsourcing business processes, the contract manufacturer is responsible for managing the complete business on behalf of the client company. As a result, contract manufacturing is more often connected to provision of logistics services and management of orders. Supply chain management is regarded as the coordination of information, manufacturing and logistics flow. Gong back, outsourcing necessitates every company to face two opposing objectives. One is to exploit opportunities offered by existing markets for resources and the other is to limit strategic vulnerability in the event of the break-up of relationship with suppliers or the overall market failure.
Fashion and clothing or apparel markets are synonymous with rapid change and, as a result, commercial success or failure is largely determined by the organisation’s flexibility and responsiveness. A study conducted by Christopher, Lowson and Peck (2004) disclose that responsiveness is characterised by short time-to-market, the ability to scale up (or down) quickly and the rapid incorporation of consumer preferences into the design process. They assert that conventional organisational structures and forecast-driven supply chains are not adequate to meet the challenges of volatile and turbulent demand which typify the clothing industry. Instead, the requirement is for the creation of an agile organisation embedded within an agile supply chain. Shelton and Wachter (2005), moreover, trade agreements have influenced the production, manufacturing and sourcing of textile and apparel products whereby small- and large-scale restructuring of the industries of the world are required in response to the changes in trade of textiles and apparel.
Strategic Direction (2003) states that in the last 30 years, fashion has changed from an elite accessory of the super-rich to a mass-market product, and Zara is one of the key players. Since the mid-nineties the department stores that traditionally dominated this broader market have started to lose ground to specialist clothing chains offering the latest designs at competitive prices. Mazaira, Gonzalez and Avendaño (2003) discovered that organisational culture and market orientation in particular have effects on the behaviour and results of managerial organisations such as Zara. The development of market orientation inside the company is treated as a basis for the company’s performance and competitive advantages. Strategic Direction (2005) maintains that the success of Zara in the retail business depends heavily on its ability to meet demands and respond quickly to fluctuations and change.
III Aims and Objectives
The main aim of this research is to explore whether Zara engages in retail outsourcing as efforts to maximize operational or financial performance or to empower marginalized producers, manufacturers, suppliers and workers. In lieu with this, the research seeks to accomplish the following research objectives:
§ To establish the role of outsourcing in global companies like Zara
§ To examine the processes that Zara outsourced and determine how it contributes to product optimization
§ To analyse Zara’s objectives in outsourcing 50% of the manufacturing processes and understand why they have to do it
§ To evaluate the company’s commitment in outsourcing as a strategy that could boost competitive advantage
In accomplishing these objectives, the following research questions will be given answer to:
1) Is outsourcing perceived as a strategy to acquire competitive edge or is it a strategy for enhancing the corporate image?
2) How does outsourcing strategically fit to Zara’s value chain? in Zara’s business model?
3) To what extent does outsourcing contribute in responsive capability of the company?
4) Under what circumstances outsourcing become a value-adding activity for Zara?
5) Is outsourcing a must for Zara? Why?
IV Statement of the Design and Methodology
The research will operate within the cross-sectional design, as I will be collecting data using questionnaires, semi-structured interviews, structured observation, and document analysis. The benefit of this would be that Ì would be able to focus on the breath of the research. Moreover, by exploring the breath of the topic, I am increasing my validity and the truthfulness of my research, and thereby minimize the confounding variables. Further, the research strategy that will be employed is case study. According to Robson (2002), a case study is a “strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence.”
Interpretivism is the necessary research philosophy for this study because it allows searching the ‘details of the situation to understand the reality or perhaps a reality working behind them’ (Remenyi et al, 1998). The research strategy to be used is exploratory research because it aims to know more about the phenomenon of outsourcing as applied in the clothing industry. Exploratory research will enable the study to look at the problem in both descriptive and exploratory manner. This approach is a preferred mean of finding out “what is happening to seek new insights” or “to ask questions or to assess phenomena in a new light” (Saunders et al, 2003; Robson, 2002). This study will use the principal ways of conducting an exploratory research, which include: literature search; talking to experts about the subject; participative observation and conducting survey and interview.
V Sources and Acquisition
The research will utilise both primary and secondary research. In primary research, the study will survey and interview representatives from Zara. A semi-structured questionnaire will be used as the survey tool for the study. Accordingly, semi-structured interview questions will be developed to provide the researcher the opportunity to ‘probe’ answers, which can be done in instances where there is a need or want for the interviewees to explain further or build on their responses. It is planned that the questionnaire will have open-ended, probing, hypothetical and reflective questions aside from the 5-point Likert scale ranking questions. A secondary research will also be conducted in the study. Sources in secondary research will include previous research reports, newspaper, magazine and journal content. Existing findings on journals and existing knowledge on books will be used as secondary research. The interpretation will be conducted which can account as qualitative in nature.
The company’s data will be collected. However, I will respect the commercial confidentiality of any information obtained. The respondents of the questionnaires will be able to choose whether to identify them or stay anonymous. I will establish with the data providers the use of my data and will ask their permission in case of publishing data. Before sending out the questionnaires and doing interviews, I will check them with my supervisor. Participation consent forms and interview consent forms will be also accomplished. And before getting interviews recorded, I will ensure if it is acceptable by person interviewed. I will ensure that the data will be kept confidentially. All the data collected by the researcher will be computed and saved into Thumb drive for future retrieval, which is accessible only to the researcher involved in this study.
VI Method of Data Analysis
Data gathered using these instruments will be collated for analysis. Data analysis will primarily be characterized by comparative and statistical approach. Initially, after gathering empirical data, contextual or thematic content analysis of the literatures will be adopted. Contextual analysis refers to the method of analysing the contents of literature and research and identifies how the themes relate to the study. Qualitative data analysis will be used to collect relevant themes from the interview responses and categorize them accordingly. From those themes, the study will develop insights regarding the subject. The following statistical formula will be used in thematic content analysis.
1. Percentage – to determine the magnitude of the responses to the questionnaire.
n
% = ——– x 100 ; n – number of responses
N N – total number of respondents
2. Weighted Mean
f1x1 + f2x2 + f3x3 + f4x4 + f5x5
x= ——————————————— ;
xt
where: f – weight given to each response
x – number of responses
xt – total number of responses
VII Form of Presentation
The dissertation shall be divided into five chapters in order to provide clarity and coherence on the discussion of the nature and dynamics of retail clothes outsourcing, and as applied to a global company which is Zara. The first part of the dissertation will be discussing the problem uncovered by the researcher and provide ample background of the topic. The chapter shall constitute an introduction to the whole dissertation, and the statement of the problem in order to present the basis of the study. Moreover, the chapter shall also have a discussion on the scope of its study as well as the significance of the study to society in general.
The second chapter shall be discussing the relevance of the study in the existing literature. It shall provide studies on commonly outsourced aspects of clothes retailing, clothes retailing, the clothing industry, profit maximization and fair trade. After the presentation of the existing related literature, the researcher shall provide a synthesis of the whole chapter in relation to the study.
The third part of the study shall be discussing the methods and procedures used in the study. The chapter shall comprise of the presentation of the utilized techniques for data collection and research methodology. Similarly, it shall also contain a discussion on the used techniques in data analysis as well as the tools used to acquire the said data.
The fourth chapter shall be an analysis on the tabulated data. After the said tabulation, the data are statistically treated in order to uncover the relationship of the variable involved in the study. With the said data, the chapter seeks to address the statement of the problem noted in the first chapter.
The last chapter shall comprise of three sections, the summary of the findings, the conclusions of the study, and the recommendations. With the three portions, the chapter shall be able to address the problem stated in the initial chapters of the study.
The thesis will be presented in written form with the addition of data charts which will present the project’s results. Pie charts and network charts will be needed to illustrate some of the analyzed data. This cannot be confirmed, however, until the research data have been analyzed.
VIII Timetable
TASK
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
11th
12th
Read Literature
Finalize Objectives
Draft Literature Review
Devise Research Approach
Review Secondary Data
Organize Interviews
Develop Interview questions
Conduct Interviews
Analyze secondary & primary data
Evaluate data
Draft Findings Chapter
Complete remaining chapters
Submit to tutor and await feedback
Revise draft and format for submission
Print, Bind
Submit
IX References
Christopher, Mm Lowson, R and Peck, H 2004, Creating agile supply chains in the fashion industry, International Journal of Retail and Distribution Management, vol. 32, no. 8, pp. 367-376.
Cohen, S and Roussel, J 2004, Strategic Supply Chain Management: The Five Disciplines for Top Performance, McGraw-Hill Professional.
How Zara fashion its supply chain: Home is where the heart is 2005, Strategic Direction, vol. 21, no. 10, pp. 28-31.
Gemawat, P and Nuevo, J L 2006, HBS Case ZARA: Fast Fashion, Harvard Business School.
Mazaira, A, Gonzalez, E and Avendaño, R 2003, The role of market orientation on company performance through the development of sustainable competitive advantage: the Inditex-Zara case.
OSD Comptroller iCenter 2006, Integrated Supply Chain Management, retrieved on 17 October 2008, from http://www.dod.mil/comptroller/icenter/learn/iscmconcept.pdf.
Remenyi, D, Williams, B and Swartz, E 1998, Doing Research in Business Management: An Introduction to Process and Method. Sage, London.
Robson, C 2002, Real World Research, 2nd ed., Blackwell, Oxford.
Sabath, R 1995, Volatile demand calls for quick response: the integrated supply chain.
Saunders, M, Lewis, P and Thornhill, A 2003, Research Methods for Business Students, 3rd ed, Prentice Hall Financial Times, London.
Shelton, R K and Wachter, K 2005, Effects of global sourcing on textiles and apparel, Journal of Fashion Marketing and Management, vol. 9, mo. 3, pp. 318-329.
Tracogna, A n.d., Introduction to Business Management. University of Trieste. Retrieved on 17 October 2008, from http://www2.units.it/~logmaster/EN/doc/PROF..%20presentation.ppt#289,1,Introduction to Business Management
Zara creates a ready to wear business: Leading fashion label designs its whole operation to fit the customer 2003 Strategic Direction, vol. 19, no. 11, pp. 24-26.
Credit:ivythesis.typepad.com
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