Zara’s Core Competencies

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Supply risk

Without doubt, Asia has to face several natural disasters every year. It will lead to the delays or disruptions in providing goods of Asian suppliers to Zara. Besides that, theft of intellectual property is quite a big problem, especially in fashion. The reason is each country is different from the others in the level of protection the intellectual property. In some case Zara sent the designs to third party suppliers for them to prepare sample, Zara has to be careful to investigate about that level of security in the countries that they want to offshore. Additionally, the exchange rate or unpredictable price increase, the safety of materials purchased, and some unplanned events that can harm the company’s image are also difficult for Zara to handle those issues, take the control, and react quickly to any negative thing occurring due to the long distance between Zara and suppliers.

Total cost of ownership (TCO)

We all agree that low wage cost in the Asian countries can help Zara reduce costs and add more into its margins. However, Zara cannot base on the purchase price only to make decision; moreover the costs for purchasing overseas are not simple with just the labor cost. The total cost of ownership (TCO) is needed to be thought about, because it is the cost that incur before, during, and after the purchase of goods or services. Overall, it includes all the costs that are related to purchasing activity like sourcing costs, purchase price, transportation, handling, inspection, quality, rework, maintenance, and disposal. The reason is purchasing or outsourcing is not a sole activity, it is related to other activities in term of the whole process of transaction. Especially, the after costs are usually forgotten, while those costs are relevant in increasing or cutting cost for a business. The costs are accounted for costs of inventory, supply risk, production downtime, and defects in finished goods, safety recalls, replacement, repairs, lost sales, and damaged reputation.

In the situation they outsource to Asia, it is more risky in quality control that can lead to the unexpected consequences for them (câu topic để đầu). As we have studied in class about the rule of ten for the defects; and it is extremely cheaper when doing correctly at the first time than finding and fixing the errors. Zara already has their standards for buying decisions and it has worked very well. Therefore, they cannot just think about the low wage cost to make decision, with the other factors if they cannot manage them well, they will be harmed seriously, and they will have to suffer the even higher cost than before expanding.

Sustainability

Before determining offshore in Asia, Zara should consider suppliers based on their reputations, their quality, and social corporate responsibility. As the suppliers develop sustainably, the number of materials which are provided to Zara will be guaranteed. For instance, the suppliers force the workers to work overtime while these workers are not provided the good healthcare and salary. As a result, they will strive or abandon the job lead to the insufficient materials for Zara. In addition, these suppliers will create scandals which can affect to Zara’s reputation. On another aspect, Zara needs to notice financial responsibility of suppliers whether they give Zara the accurate report. For example, although suppliers have good financial health, they calculate and write report inaccurately to increase price for Zara. Furthermore, origin of materials should be checked clearly from Zara to make sure the quality of Zara’s products later. In general, Zara should mention about triple bottom line in the contract with suppliers whilst the company ought to notice history news of the suppliers.

- Conclusion:

Zara is running its business successfully with the position as a leader in the fashion industry. With the new strategy for outsourcing overseas to Asia, this is really an important milestone in Zara’s development. We have tried to figure out some extinct and potential issues that Zara should consider before making any decisions. We hope this paper is useful for the reality.