Introduction
A company’s management has the role of managing operations and Supplies to ensure adequate supply of materials in the company at the right time at an appropriate competitive cost. Supplies takes the form of having the raw material required for production at the right time to make the process effective and in the case of outsourced manufacturing services, the timely supply of the finished products (Cousins, Lamming, Lawson and Squire,2008).
As many Europeans companies are shifting their operation (manufacturing) base to China, African Nations and Asia, to enjoy the cheaper labor markets there; however, some companies like Zara International Fashions have opted to procure their products in Europe. The main question is why has Zara International ignored the perceived benefit from outsourced manufacturing? This paper seeks to answer the above question; it will discuss the answer from a supply-chain management angle.
What is Supply Chain Management?
A business process is a well-coordinated sequential task, undertaken to fulfill certain set objectives. Every stage is managed as it contributes to attainment of the set goals and objectives. Generally, three sets of business processes they are, managerial processes, operational processes and supporting processes.
Supply chain management aims at providing goods necessary for production in a business. It starts from identifying the materials required for various processes in the company and ends with the supply of those goods. It has a period; an efficient process must be completed within a set period. A supply chain management is an internal operation whose results the internal and final consumer feels. It has the following objectives:
- To ensure that there are quality and quantity supply of goods and services
- To ensure that there is a Just in time delivery of goods and services
- Control the supply system and attain highest efficiency possible
- Reduction of transportation cost, lead time and warehouse costs
- Enhance customer service through provision of high quality goods.
When a company has an adequate supply of materials, it is able to produce goods in the right time at an affordable and competitive price.
When sourcing products from another country, the approach of supply chain management moves a notch higher, companies in Europe has to contend with other logistics though in the supply chain network that companies like Zara procuring locally are not entitle to, they include:
- International logistic issues
To have adequate supply, the prevailing conditions must be optimal and no external influence; when a company is procuring from abroad, it is affected by economic, political and social changes in the procuring country; this makes the business miss the confidence that they can supply when wanted. This reason makes Zara opt for local produced goods.
- Complication of international procurements
When getting goods abroad, companies are seen to operate two stage complicated supply chain, they must ensure that either the foreign country gets the materials, those sent from the buying country or it has procured in the local market; to manage such a process is complicated and time consuming. Zara has opted to have a simple local manufacturing that it can manage effectively (Zara International, 2011).
The make-buy decision
When in business, the management must make the decisions whether they will use their own manufactured goods or they will buy already made goods; the decision is rather personal to a business and considers many options. When a company decides to make products, it ensures that it has the right expertise materials are available as well labor. The main factor of consideration is whether making ones products will lead to a reduced cost of production or alternatively it will lead to higher quality that will lead to increased sales.
The reason why other European countries have decided to get their products made from Asian and Chinese countries is the labor costs, this makes the goods cheap in the end; however managing the process for quality is complicated; again it is a shaky deal where a company has to worry about any change in the country of procurements stability. Zara International has opted to buy more form the market because of a variety of factors; they include:
When buying locally, it will not be given the margin to buy to be sold at an appropriate cost; this is different than when manufacturing, the manufacturer has to make some products to break even which may lead to over production.
When buying locally, the company will have the option of comparing the many varieties in the market and procure form those companies that have the products in demand. This makes the company have the best products at an affordable cost (Zara International, 2011).
Sourcing strategies and supply chain configurations
When manufacturing goods from a country different form the country of sales, the European companies depending on other companies have to undertake some suppliers/abroad manufactures. Configuration of supply chain is a procedural way that ensures that goods are delivered their place of need when they are needed to be.
Logistic management involves processes undertaken by a company to ensure that it has goods and services it requires for its day-to-day activities when they are needed. Some governmental procedures or companies processes may shape it. In an international procurement, there are customs logistics that must be adhered to ensure that commodity is delivered at the right time. It involves procuring, handling, warehousing, verifying and control of goods imported. Customs laws must be adhered.
It is a lengthy process and thus an importing company must ensure that it has enough time for a just in time delivery. Logistics management team is given the mandate to ensure that delivery is done at the right time, right cost and the right place (Harrison and Hoek, 2008)
When Zara procures locally, then it avoids all the above logistics and it can be sure that it will get what the market is offering; in the case the above logistics are hampered by something may be special to a procuring country or applying across the board, the procuring company will have to suffer the loss of business.
However, the case is different when a company is procuring from the local scenes. Zara always has the option of selling what is available in the market thus at any one point is it on toes with the market, a move that offers it competitive advantage.
Strategic supplier selection
A company should develop a good business relationship with its suppliers, as this will assist in making sure that there is reliability in the supply of materials. When in the international arena, a company should ensure that it has good relations will all the people in the line of business all the way from the sourcing of materials to the last person who will bring the goods into the company; this is not an easy task.
When there is a good relation, it is easier to get goods at a better price and market data from suppliers whom the company has established good business relations. Maintaining the good relation with people of different personalities and companies with varying philosophies is not an easy job, sometimes it fails the manufacturing companies (Mangan, Lalwani and Butcher, 2008).
The decision of Zara International to procure locally can be attributed to avoidance of the above hassle the management is better concentrate on looking for the best commodities in the local market and ensuring that the internal businesses processes are up to date and competitive. As other businesses are looking for relationship building approaches, the company is busy developing business processes and enacting them for a competitive business.
Aligning supply with corporate strategy
Companies are guided by corporate strategies; they should align their processes, including supply management processes to the company’s corporate strategy. A Company’s procurement and supplies department ensures that production materials and equipments required for an effective production are available, in the right quality and at an appropriate price, this will meet the company’s main goal of being profitable.
With globalization, companies can procure goods and services that meet their requirements from different countries; the wide availability of materials and their markets has facilitated industrialization; however the policies and the ideologies in the international business has sometimes contradicted the procuring company corporate structure (Lysons and Gillingham, 2003).
For example, many European companies have sustainable development agendas as one of their corporate strategies; however, they may procure from countries that have relaxed environmental laws, thus the procurement ends up violating the company’s corporate goal. Another area is in labor and its costs, different countries have different labor cost, Europeans companies have corporate goal of ensuring they have the best cared for human capital, but when they procure abroad, the standards set in those countries may be different thus the company ends up violating its own corporate goal indirectly (Christopher, 2005).
Zara International is keen on maintaining and respecting its corporate goals and objectives; when the company buys from local scenes, it is able to make sure that all areas have been looked into before making a move. For example, it will be able to make sure that it buys from companies that respect their employee’s rights and those that protect the environment. With such moves, it will be satisfying its corporate goals and objectives (Zara International, 2011)
Conclusion
Having an effective supply chain management offers a competitive advantage to an organization; supply chain management has the main objective to ensuring that at any one time there are adequate supplies to a business, at an appropriate cost and place.
To buy locally available goods or manufacture goods for sale is a decision that management has to make; Zara has opted to purchase over 80% of its goods locally, instead of having international manufacturing joints that have cheaper labor. The main reason for the decision is to offer management a chance to concentrate on other business processes that will offer a competitive advantage to the company; it is also a risk management approach.
References
Christopher, M. ,2005. Logistics and Supply Chain Management; creating value-adding networks. Harlow: Prentice Hall
Cousins, P., Lamming, R., Lawson, B. and Squire, B. ,2008. Strategic Supply Management: principles, theories and practice. Harlow: Prentice Hall.
Harrison, A. and Hoek, R. ,2008. Logistics Management and Strategy. Harlow: Prentice Hall
Lysons, K. and Gillingham, M. ,2003. Purchasing and Supply Chain Management. Harlow: Prentice Hall/ Financial Times.
Mangan, J., Lalwani, C. and Butcher, T. ,2008. Global Logistics and Supply Chain Management. Chichester: John Wiley & Sons Ltd.
Zara International., 2011. Zara. Web.