One of the biggest challenges in SCMluxe is to keep production or "make" local to retain quality and brand value (refer post country of origin). In the fashion industry lead time is crucial...hemlines can change by the time it takes for a shipment to arrive from China. Hence to avoid overstocking (besides brand considerations)companies try to keep sourcing local but this has a huge impact on costs. Inditex (Zara's holding company) sources almost all its stocks from the local region in Spain, Portugal and Morocco. This means Zara's costs (and prices) are higher compared with competitors like H&M, Gap etc which source from China. But it also means that Zara follows a pull rather than push model of stocking. Instead of depending on forecasts (notoriously unreliable in the fashion industry) to decide on stocks, Zara actually analyses the actual orders or material flying off the shelves and adjusts its inbound stocks accordingly. This means lead times have to be very short to manage stock outs at stores - which again is possible through local sourcing. Competitors on the other hand need to predict demand (fickle at the very least in fashion) and place orders with suppliers in China to make up for the long lead times. Prices are naturally lower than at Zara but customers needing the latest fashion seem to prefer paying these prices rather than buying something that they don't want at that point of time (or not in fashion at the moment). Does Zara also benefit from lower costs due to overstocking to compensate for higher costs of sourcing?
However going local is not all rosy....it throws up a very important limitation. What do brands do when they need to cater to emerging markets far away from the country of origin? Zara sees a huge potential in Chinese customers willing to spend on its clothes which is deemed as a luxury purchase...but are they willing to wait for it to be shipped across from Europe? Thus lead times and local sourcing can become an impediment to growth. Inditex is now focusing on scaling up its designers in Shanghai (currently 12 as compared to 250 in Europe). Thus the creative process of the supply chain is being moved closer to the market....but will this impact the brand value for the Chinese customer?....will they see Zara as a luxury product or simply another local company with mid level prices? We'll have to wait and watch...
However going local is not all rosy....it throws up a very important limitation. What do brands do when they need to cater to emerging markets far away from the country of origin? Zara sees a huge potential in Chinese customers willing to spend on its clothes which is deemed as a luxury purchase...but are they willing to wait for it to be shipped across from Europe? Thus lead times and local sourcing can become an impediment to growth. Inditex is now focusing on scaling up its designers in Shanghai (currently 12 as compared to 250 in Europe). Thus the creative process of the supply chain is being moved closer to the market....but will this impact the brand value for the Chinese customer?....will they see Zara as a luxury product or simply another local company with mid level prices? We'll have to wait and watch...
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