Zara It Case Discussion - Vertical Integration Vs Outsourcing

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Is Zara organized properly with respect to vertical integration or outsourcing? What changes, if any, would you recommend? State the reasons for your recommendations.

I’d have to say that Zara is currently organized properly with respect to vertical integration or outsources. Zara currently manages all of its design, warehousing, distribution, and logistics functions. It has invested heavily in its own production facilities and purchases many of its raw materials from companies that are under the Inditex umbrella. Zara is an extremely successful company doing business the way they are. They have shown growth in an industry unequaled by any other company, and with a supply chain model unique to themselves.

As the company has grown into new markets, they have maintained the same supply chain principles. This process has been proven to work, and work well it does. I honestly need to be different than most on this and I think they don’t have to make any changes. If the company is satisfied with it’s level of success, and it continues to be successful, there is really no need to make any changes.

I understand that there has been a new market evolve (online market), but without knowing more about the following, I do not want to jump to the decision to make a change:

- What is the company’s strategy with regards to growth (both short term and long term)?

- Does the company intend on keeping its stores in the luxury shopping districts, catering to the upper class?

- If the company was to develop an online business, how would it handle the following:

- Software (develop in-house or purchase 3rd party). If it develops in house, does the company have the right people in place to do so. (This includes cyber security)

- How are the goods to be delivered to the customers? (Would they allow pickup in store, or only ship direct to customer? Would they limit where they will ship to?)

- How are returns handled? (Are returns to be handled by the retail outlets, or returned to the warehouse?)

I've worked for a company that has a large online business, yet it's stores function the same as they were before, and have nearly the same volume targets as before there was an online market. The online business, for lack of better words, has just become another store which has allowed them access to more customers that could not make it into a store.

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