Exercise 2 Zara - Vertical Integration vs Outsourcing

Exercise 2: Vertical Integration vs Outsourcing

Student: John Doe

Question 1

I think Zara is highly vertically integrated as they control and own so many parts of their supply chain across many different functions, especially considering barely any of the competition manufactures any of their products in-house. Inditex is involved or owns the supply chain from all aspects from design, production, distribution to selling the products. A lot of other companies are only in the business of selling products to the end consumer, and have other companies in charge of all other parts of the supply chain.

A company, especially in the clothing industry producing almost half of its production in house and spread out over a large number of production and distribution facilities demonstrates the highly vertical integration involved. Also, they decide to keep all the complicated production processes in-house, and only outsource the simple processes.

This also attributes to their super-fast response times. It is clear that the way they are setup is not the most efficient system if you are to listen to other industries or text books about supply chain. But being able to listen to what the customer wants, seeing what the current trends are, and respond by having new clothing line on the shelves in 15 days is highly extra-ordinary. Their mentality of having “five fingers touching the factory and five touching the customer” is genius.

I am impressed with their governance structure being setup in a way that all stores have so much control over what they sell and order. I am convinced every geographical area has their own preferences and local trends making it hard for head offices to dictate what is best for what markets. I think it is important for each manager and geographical area is in charge of deciding, for the most part, what type and quantities of inventory they order. It is hard to have one small group of people deciding what is best for what branches, and what type...