International Supply Chain Management

2
Group Assignment

Authors: Miles Bekker, Sylvana Mahrous, Sevgi Demirkiran & Christina Yonjan Lama
Class: IB2H1
Studentnumber: 50082700 (Miles), 500850045 (Sevgi), 500853571 (Sylvana), 500829247 (Christina)
Date of writing: September 22
Lecturer: Ghasemi, A.
September 2021
 How can Zara change their supply chain to be a more
sustainable brand?

Author: Bekker, M. Mahrous, S. Demirkiran, S. Yonjan Lama, C.

IB1H2 50082700 (Miles), 500850045 (Sevgi), 500853571(Sylvana),
500829247(Christina)
Netherlands, Amsterdam
Amsterdam University of Applied Science
International Business

Lecturer: Ghasemi, A.
September 2021
TABLE OF CONTENT

CHAPTER 1: INTRODUCTION 4
1.1 Background 4
1.2 Company Description 4
1.3 Problem Analysis 4
1.4 Research Questionnaires 5
1.5 Organization of Report 5

Chapter 2: THE CURRENT ISCM PLAN 6

2.1 Inventory decision and demand forecast. 6
2.2 Sales and operations planning (S&OP) 6

CHAPTER 3: THE ISCM PLAN & THE ISCM STRATEGY 7

3.1 Views on Supply Chain 7
3.2 The Drivers of Supply Chain 7
3.3 Inventory Strategies 8
3.4 Lean and Agile Methods 8
3.5 Postponement strategy 9

Chapter 4: THE ISCM STRATEGY 9

4.1 Added value 9
4.2 The supply chain impact on income statement 9
4.3 ROCE model 10
4.4 The six supply chain performance levers 10
4.5 Sustainable Supply Chains 12

CHAPTER 5: OUTSOURCING & THE ISCM STRATEGY 12

5.1 Outsourcing 12
5.2 The tendering process of outsourcing 13
5.3 The third party logistics 13

CHAPTER 6: ENTERING A NEW MARKET 13

6.1 Market Entry Strategy 13
6.2 Financial policy 14
6.3 Logistics and customs policy considerations 14
6.4 Ethical and Environmental Dilemmas 14
6.5 Adjustments in the international supply chain plan 15

CHAPTER 7: THE CONCLUSION 15

7.1 The solution for the problem and recommendations for implementing the solution 15
7.2 Suggestions for further recommended research 16

CHAPTER 8: REFERENCE LIST 16

CHAPTER 1: INTRODUCTION

1.1 Background
This report is written for the course International Supply Chain Management 2 at Amsterdam
University of Applied sciences. This is written by a group of four students studying International
Business. The objective of this research is to search: How can Zara change their supply chain to be a
more sustainable brand?

1.2 Company Description

Zara is a spanish fashion brand and part of the spanish mode gigant inditex. They sell world wide
clothes, shoes, jackets, jeans and all of other clothes and accessories items. The fashion brand
started in 1975 with the opening of their first store in the Spanish coastal city of A Coruña (Inditex,
2008). Zara has stood for over the years for beauty, clarity, functionality and sustainability. They have
started off first with a small store in Spain that later expanded into one of the largest retailers in the
world which led to the founder of Zara, Amancio Ortega, becoming the richest man in the world in
2015 (Lginzy, 2017). It all began when Ortega established a dress-making factory, Inditex, in 1963. Ten
years later, he started off a small store that was named as Zorba in La Coruna, Spain with a budget of
a meagre 30 Euros. He then changed the name to Zara with no particular intention. Zara slowly
expanded its empire from the town in Spain to the rest of the country and then later to Portugal (Ltd,
2021). By the 1990’s, the store had expanded into the United States, France and most of Europe.
Now, Zara has close to 6500 stores across 96 countries around the world. (Published by Statista
Research Department & 4, 2021). On the sustainable side, Zara currently reached 50% for
environmental sustainability. They have also announced a list of environmental commitments. These
goals span the next five years and include everything from saving water to reducing waste in landfills.
They are working hard to ban some harmful chemicals in production(LilyLily, 2021).

1.3 Problem Analysis

In 2019 Zara itself addressed the lack of sustainability within its own brand fast fashion model. ¨Fast
fashion can be defined as cheap, trendy clothing that samples ideas from the catwalk or celebrity
culture and turns them into garments in high street stores at breakneck speed to meet consumer
demand.¨ (Rautunier, 2021). Zara set itself a lot of targets to become more and more sustainable, like
minimizing textile waste and reducing their CO2 emissions in their supply chain. However Zara never
released evidence that it is meeting its targets. Also their labour conditions score is “not good
enough” on the Good on You Eco website (Dockrill, 2020). Despite growing rapidly Zara still hasn't
taken any steps on payment of living wage in its supply chain (Dockrill, 2020).

As a matter of course it's nearly impossible for a company to be 100% sustainable in the whole
supply chain. A company like Zara can afford to minimize their waste in production and have a very
low amount of gas emissions generated from its supply chain. Also a company like Zara can pay their
workers the right amount of their huge profit margin (Dockrill, 2020).
The problem with all these big million/billion dollar companies is that there is a lot of pressure to
reach financial goals, like sales targets or profits (Wyatt, 2019). In order to fulfill those goals a lot of
people throw away the idea of harming the climate and are just focused on reaching that target
(Wyatt, 2019).

1.4 Research Questionnaires

Zara is a fast fashion brand known for their trendy driven business model. However, this business
model is giving high costs to both the environment and society (Bowman, 2019). According to their
annual sustainability report, the transport from the factories to the stores is responsible for causing
more than half of the carbon emission (Faysal, 2021). This is creating a huge harm to the
environment and the surrounding. The environment is already going through a lot of changes like
Global warming and climate change. As climate change is leaving our planet with less oxygen and
more carbon dioxide, Zara has to consider such problems and create more sustainable ways in the
manufacturing of products and transporting them from the factories to the stores.

The research question we will try to answer in this report is:

How can Zara change their supply chain to be a more sustainable brand?

According to NJEMP, sustainability can reduce company costs and improve efficiency. It can be seen
as a long term investment. Embedded sustainability efforts clearly result in a positive impact on
business performance. Sustainable businesses are redefining the corporate ecosystem by designing
models that create value for all stakeholders, including employees, shareholders, supply chains, civil
society, and the planet. (Whelan.T, Fink.C, 2016). In context to Zara, the company can generate
economic value by identifying and addressing social and environmental problems that intersect with
their business. In this way the company can adapt to sustainability. A company with a sustainability
agenda is better positioned to anticipate and react to economic, social, environmental, and
regulatory changes as they arise. (Whelan.T, Fink.C, 2016). Bringing sustainability changes can
increase customer loyalty, productivity and improve HR statistics related to recruitment, retention
and morale.

1.5 Organization of Report

The following pages summarize the research of how Zara could be more sustainable.
Chapter 2, presents the analysis of the planning of the company’s supply chain management. We will
discuss which type of inventory the company uses, and how the company manages its inventory level
and describe how the company plans demand and supply by forecasting the demand and by
supplying products. Also determine how and to what extent the S&OP process has been applied to
the company. In chapter 3, there will be discussed how supply chain planning fits in an international
supply chain strategy. Further In chapter 4, described how the supply chain management can add
value and improve corporate financial performance. In chapter 5 considers how the company made
use of outsourcing and to what extent has the company made use of the tendering process of
outsourcing. In chapter 6, it will be explained what market entry strategy the company in the
allotted region choses and what financial policy considerations should the company make when
exporting to the allotted region. This chapter will also explain what logistics and customs policy
considerations the company should make when exporting to the allotted region and also what ethical
and environmental dilemmas related to international supply chain management should the company
consider when exporting to the allotted region. Finally, in chapter 7 the conclusion will be answered
in the main question and at the end of the report in chapter 8 there will be a bibliography.
Chapter 2: THE CURRENT ISCM PLAN

2.1 Inventory decision and demand forecast.

According to the information given in the Zara case, Zara is using the “Cycle Stock” type of inventory.
All the stores worldwide place orders and receive shipments twice per week (Ferdows, S; Machuca, J;
Lewis, M , 2014). Zara keeps the volume of clothes low at the beginning of the season and reacts to
the trends at the time. Looking at the comparable stores, Zara manages the pre-season inventory at a
lower rate, having the rate from 15%-40% whereas the other stores have their rate at 80-100%
(Ferdows, S. & Machuca, J. & Lewis, M, 2014). This is all due the policy Zara has by waiting until the
season started before making any non-refundable commitments. This gives Zara less liability since
the information they use when ordering the items during the season comes from reliable market
information (Ferdows, S. & Machuca, J. & Lewis, M , 2014).

The headquarters in La Coruna make all the decisions and keep track of the inventory at every store.
However, the store manager could influence the process by providing better forecasts and
information about the demand at their stores by capturing the preferences of their customers
(Ferdows, S. & Machuca, J. & Lewis, M , 2014).

2.2 Sales and operations planning (S&OP)

As said in section A of chapter 2, the headquarters in La Coruna make all the decisions. The demand
planning of Zara is looking at the information they receive from the other industries. But also
gathering the information they receive from the store itself (Scott, C. & Lundgren, H. & Thompson, P.
2018).

The strategic planning of Zara is seen in the La Coruna area, where they have the flexibility of having
the factories close by their supply base, this gives them extremely short lead-times to market
compared to their industry peers (Scott, C. & Lundgren, H. & Thompson, P. 2018).

The capacity plans of Zara are made by the required needs. Looking at the current trend and
responding to it. Having a lower rate in inventory, as mentioned earlier (Scott, C. & Lundgren, H. &
Thompson, P. 2018).

The short-term daily operations of Zara are the orders that are made by the stores, and receiving
them in 24 hours (For Europe, Asia and USA are within 48 hours (Hugos,2021)).

This responsive supply chain enables Zara to work on a short sales and operations planning (S&OP)
cycle (Hugos,2021). Applying these inventory strategies allows Zara to have less waste by looking at
the trends and waiting with producing clothes until it is clear what the customers exactly want.
CHAPTER 3: THE ISCM PLAN & THE ISCM STRATEGY

3.1 Views on Supply Chain

Zara uses a pull model in their supply chain (Supplychain247, 2014). In a pull-based supply chain,
procurement, production, and distribution are demand-driven rather than based on predictions (Koo,
2020). As a corporate strategy Zara focuses on technology for the managing and tracking of their
inventory, hereby the clothing brand saves cost (Pen My Paper, 2018). It also helps with foreseeing
trends and for example which colour is popular at that particular moment (PenMyPaper, 2018). As a
competitive strategy Zara uses competitive pricing strategy (Pratap, 2019). Competitive pricing
strategy is where the final prices on their products or services have been analysed, modified and
evaluated against the prices of their competitors (Retail Technology Review., 2019).

Zara´s corporate strategy and competitive strategy contribute to an effective international supply
chain strategy. By focusing on technology to manage their inventory, Zara can quickly distribute
goods and services around the globe when these are needed. By using this strategy Zara is
maximizing its profits and minimizing its waste. By using competitive pricing, study shows that the
whole supply chain gains more profit from manufacturing to retailers to the whole supply chain
(Khojasteh, Amin-Naseri & Zegordi, 2013). By creating a more healthier supply chain Zara achieves
strategic alignment between their supply chain strategy and their supply chain plans.

3.2 The Drivers of Supply Chain

The four main drivers of supply chain include Inventory decisions, Information, Facilities and lastly
Transportation ( Scott, C., Lundgren, H., & Thompson, P. 2018). Zara´s inventory decisions are based
on technology, whenever a certain product is more popular the program notices that and starts
giving signals (Pen My Paper, 2018), this causes a way more effective supply chain. The strength of
running your inventory using technology is that A data collection system is used to create needed
forecasting and strategic planning reports (Leonard, 2019). One of the biggest weaknesses with any
computerized system is the potential for a system crash (Leonard, 2019). Zara uses information
systems for customer profiling, to analyze the purchase patterns and direct targeting (A Data Analyst,
2019). A strength of using this kind of information system is that Zara can quickly respond to
fluctuating customer demands in fashion trends (A Data Analyst, 2019). By playing on these trends
the customers can get the products and services they want as soon as possible. A disadvantage of
using customer profiling is that some customers worry about their privacy and personal information
(Leads Touch Markets, 2020). Zara uses a strategy where they place their facilities in the most central
laying location, for example most of Zara´s fabrics and logistic locations are placed in Spain (Dowsett,
2020). By using central laying facilities the time the supply chain takes is shorter and the supply chain
becomes more effective. A weakness of using central laying facilities is what Zara is experiencing now
with the current external effects and the lockdowns in Spain (Dowsett, 2019). Zara transports its
products and goods mostly with the truck or plane within their supply chain, this is the safest way of
transportation and at this moment also the fastest (SCM Globe, 2021). A big weakness of this way of
transportation is that it costs a lot of fossil fuels and it is not a sustainable way of transportation (US
EPA, 2021).
Source: SCM GLOBE Zara Clothing Company Supply Chain: Zara Global Distribution center “The Cube”

3.3 Inventory Strategies

There are five possible inventory strategies driven by customer orders that pull products through the
supply chain. There is manufacturing to stock, manufacturing to order, assembling to order,
manufacturing to order and purchasing and manufacturing to order (Scott et al., 2018). In the case of
Zara, manufacturing and delivery to stock applies. (Mhugos, 2021) When a customer places an order
with Zara, the order is fulfilled as long as it is in stock. There Zara takes out the product and sends it
to the customer.Zara has stock all over the world. The main stock is in Spain, but the rest is
distributed among the stores (Commerce. Q, 2018). So when a Dutch person orders a t-shirt online,
the shirt is taken from the stock of a nearby store. This is positive because delivery times are short. A
weakness of this strategy is that it focuses more on the present than the future. This can lead to Zara
not being sufficiently prepared for uncertainties.

3.4 Lean and Agile Methods

ZARA is known for using both the agile and lean methods in its supply chain (Christopher, 2000). The
company benefits because the items it produces are innovative. Twice a week, Zara's store managers
order new items at specific times and also receive deliveries twice a week. New items can arrive in
stores within two weeks because Zara responds quickly to the latest fashion trends and customer
demand (Vitzthum, 2001). Zara can deliver in small quantities because the manufacturer is located
near Zara's distribution center in Spain (Inditex, 2018). At the end of a season, Zara does not have to
get rid of large amounts of unsold inventory. Since there is no safety stock, this is beneficial if they
have unwanted items. This approach helps to reduce waste and costs (News, 1970). Another strategy
that works is the value-based pricing strategy (Nebahat Tokatli, 2015). Zara uses feedback from its
customers to create new designs that satisfy customers. As can be seen, Zara builds a strong
customer relationship as customer feedback is always taken into consideration. Unlike Zara's
competitors, the company does not advertise. The lack of advertising results in minimal costs and is
therefore 'cost effective'. However, the profit will increase if they focus more on marketing and sales.
Furthermore, Zara owns everything in its supply chain. This makes it difficult to expand into foreign
regions as it is very expensive to distribute goods there.

3.5 Postponement strategy

Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zara's
success is it’s postponement strategy. “Postponement is a deliberate action to delay final
manufacturing or distribution of a product until receipt of a customer order. This reduces the
incidence of wrong manufacturing or incorrect inventory deployment. Postponement strategies and
practices serve to reduce the anticipatory risk in a supply chain. It can be fine-tuned or staged so that
only the generic parts shared by a firm’s various end products are warehoused, used only once
orders come in for whichever products are selling, and will reduce inventory pressures throughout
the firm”. (Cheng, T.C.E, Wang, S.et al. 2010).

According to the postponement and the speculation matrix, the “full speculation” strategy relies fully
on forecasting, where all the manufacturing operations are performed knowing customer demand.
Applying the matrix into Zara, the company uses the full postponement strategy, where the
manufacturing and logistics operations are initiated after the knowledge on customer demand.
Hence, Zara is able to react to customer demand by delaying decisions until the last minute. Zara
commits to only 50 to 60 percent of production in advance in the selling season, compared to 80
percent for most clothing retailers. (Chaudhary 2010).

By applying a postponement strategy in the supply chain of Zara, the company has been successful in
quickly reacting to the constant changes in the fashion industry and achieving competitive
advantages over other companies.

Chapter 4: THE ISCM STRATEGY

4.1 Added value

Zara´s highly responsive Supply Chain Management is one of the backbones of the fashion giant's
success (Mhugos, 2021). The company aligns itself with the goal of adding value to their products.
This is done by the company's quick logistics in the form of the so-called ¨the cube¨, this is the center
of Zara's supply chain (Mhugos, 2021). Before Covid-19 Zara generated Revenue really easily from
2013 to 2019 zara´s revenue grew from 10 Billion to 19 Billion (Statista, 2019). The so-called logistics
center of the company ¨The Cube¨ is a big factor of this growth (Mhugos, 2021). This is why besides
Zara adding value to its product, The Cube also Improves Zara´s corporate financial performance. By
looking at the charts given by Investing we can see that the demand for the Zara Stock also has
skyrocketed (Invest, 2021).

4.2 The supply chain impact on income statement

According to scm globe, Zara’s supply chain gives the company an ability to open more shops. Zara’s
factories can quickly increase and decrease production rates, so there is less inventory in the supply
chain and less need to finance that inventory with working capital. They do only 50 – 60 percent of
their manufacturing in advance versus the 80 – 90 percent done by competitor

When taking a look at the balance sheet of Zara from 2017 to 2019 the first aspect that catches the
eye is the increase in the total equity and liabilities. This can be explained with the growth of stores
in the year 2018. Zara grew from having 2.131 stores in 2018 to 2.259 stores in 2019, meaning a rise
of 128 stores.
In addition, the cash flows from operating activities, such as payments relating to investments in
property,plant and equipment, has also increased. An explanation for this could be the fact that
more equipment was bought.
Inditex annual report from 2017-2019

Balance Sheet: Income Statement: Cash Flow:

(in million euros) (in million euros) (in million euros)
Total equity and Net profit Cash flows from
liabilities operating activities

2017 20,231 3,372 3,961

2018 21,684 3,448 4,029

2019 28,391 3,647 6,900

4.3 ROCE model

The ROCE model stands for Return on Capital Employed (ROCE). It refers to the profitability of a
company's investments. Businesses strive for a high return on capital employed since it indicates that
their overall costs are lower and their profits are larger (Du Toit, 2002).

When applying the ROCE model to calculate Zara's capital employed, the element that has been
chosen is that leased equipment is not included. Zara rents stores rather than buying them, which
gives them greater flexibility (Graafland,2018). As a result, the stores will not be included in the
capital employed, providing value to the firm as a whole. Zara is a fast growing firm, and that
expansions cost money but also generate revenue. The company wants as high a proportion of ROCE
as feasible to deal with the expansions. If Zara succeeds in doing this, it will be able to continue
expanding.

4.4 The six supply chain performance levers

It is important for supply chain managers to quickly focus on areas in the business that can influence
financial performance positively. There are six factors that reoccur in companies with supply chains.
They behave like levers, i.e. when pulled they improve supply chain financial performance. The six
supply chain performance levers can be used as a checklist when auditing supply chains. Used wisely,
they can impact positively on the lower levels of the hierarchy of ratios.
The six supply chain performance levers are Demand, Supply, Lead times, Information, Physical
quality and Throughput efficiency.

Demand
Demand starts the supply chain, therefore being the first lever and is oftentimes utilized as a
forecasting mechanism (Scott, Lundgren, & Thompson, 2018). Zara’s customers listen carefully to
what the customers want, meaning the store managers will then be able to give the processes
valuable information (Mollard, 2020). Zara has also managed to satisfy customer needs, not only by
keeping store design and location fresh and convenient, but also by becoming more knowledgeable
about their customers’ preferences and overall demand, which has managed to let Zara’s designers
design the latest fashion trends (Roll, 2020). It is highly recommended that Zara builds a storehouse
in order to collect their customer data with permanence, enhancing their smart building technology,
and use more mobile communications to focus data at one particular point of customer demand
(Kohan, 2020), which will improve demand forecast and increase sales.

Sales
Demand is followed by the supply chain performance lever supply, which is crucial to satisfy demand.
In addition to having roughly 2,500 stores located in 96 countries worldwide, and still counting,
(Sabanoglu, 2020), Zara also opened their online stores in 49 markets in 2010 (Caesar, 2010).
According to Zara (2020), customers are able to have their items delivered at home or a drop point
without an additional fee within 2-3 working days, pick up their order at stores for free within 3-5
days, or they can pay an additional fee and pick them up within 1-2 days. This is achieved through
maintaining a low inventory by transporting small batches to their stores worldwide twice a week.

Lead times
Zara’s lead time is incredibly effective as it is just two weeks, including the design, sourcing,
production, distribution, and selling of their products, which is a great advantage in comparison to
other corporations: the company’s supply chain flexibility allows them to respond rapidly to
movements in the fashion industry, and is thus able to adjust themselves to customer expectations
(Lee, 2019). If Zara manages to improve their lead times, they will ameliorate their demand
forecasting, meaning their safety stocks will decrease even more.

Information
The next supply chain performance lever is information and is essential for the delivery of the
product. The information that is mainly shared is the lead time to ensure that products are shipped
to the correct place. Zara’s buyers, designers, and managers exchange information continually and
this information helps provide Zara with the initial building blocks to make decisions (Hinchman,
2017), meaning that flows of information prompt Zara’s understanding of how much needs to be
produced, which reduces waste in labor, different fabrics, and overall raw materials.

Physical Quality
Physical quality is the fifth supply chain performance level and is paramount in order to evaluate
products’ condition after which companies proceed to record them (Stir, 2018). Zara wants to
guarantee their products’ physical quality because it will positively affect their sales progress and
sales, prominently because they will acquire more customers and investors (Dvorak, 2020).
Throughput Efficiency
Lastly, the final supply chain performance lever is throughput efficiency and measures the amount of
working capital and its efficiency (Scott, Lundgren, & Thompson, 2018). If Zara wants to reduce lead
time and their waste, they should try and find more ways to enhance throughput efficiency.

4.5 Sustainable Supply Chains

Zara does business in the fast fashion industry, which accounts for 10% of worldwide carbon
emissions alone, pollution, and 85% of all clothes dumped into oceans and drying up water sources
(McFall-Johnsen, 2020), in addition to being the second largest polluter worldwide (Qutab, 2020).
The industry is also known for exploiting their workers, including child laborers, to inhumane working
conditions regarding working hours, wages, and safety (Deutsche Welle, 2018). Although Zara is
trying to be as transparent as possible when it comes to their sustainability policies, the company
scored just below 50% (Marvin, 2020). Zara has communicated that their future policies will consist
of the principles of eliminating single-use plastic, using sustainable cottons, recycling polyester, and
filling zero landfills from facilities by 2025 (Holgate, 2019). Zara has a policy in which they state to
ban the use of fur and testing on animals (Inditex, 2020). Zara is still unsustainable today, primarily
because of their waste and ability to provide customers with the latest trends in fashion within 13
days, which is incredibly polluting (Cotton, 2018). Although sustainability costs both time and money,
it can definitely increase sales because Zara will financially benefit astronomically if more people
were to buy their products when they are ethical and sustainable and doing so will increase their
profits (Reints, 2019). Therefore, Zara could introduce the implementation of a triple bottom line
strategy, which is a company’s commitment to creating a balance between people, planet, and profit
(Kraaijenbrink, 2019).

CHAPTER 5: OUTSOURCING & THE ISCM STRATEGY

5.1 Outsourcing
In recent years outsourcing has gained massive momentum by companies all over the globe (Relton,
20
21). Outsourcing is the business practice of hiring a party outside a company to perform services or
create goods that were traditionally performed in-house by the company's own employees and staff.
Outsourcing is a practice usually undertaken by companies as a cost-cutting measure (Twin, 2021).

Zara tries to take as much control of its production and distribution of its products (ToughNickel,
2021). The company tries to manage its own design, production, shipment, display, promotion, sales,
and feedback itself as much as possible, relying only a small bit on outsourcing (ToughNickel, 2021).
However Zara still uses a small bit of outsourcing. The company produces the more fashionable and
riskier items in Spain, and outsources production of more standard designs with more predictable
demand to Morocco, Turkey and Asia (Roll, 2021). The reason for Zara to outsource these more
standard products which are more predictable when to sell, is to reduce cost (Roll, 2021). By
outsourcing its these items Zara loses control of the production and it risks that errors will be made
(Devessy, 2018)
5.2 The tendering process of outsourcing
In a tender, you approach a third-party company or express interest in a company that can help you
complete tasks (Smith, 2020). The company is looking for another viable company that can assist
them if needed. Zara should do this because the company is global and should be able to deliver
products to almost any location (Martin Roll,2021)
Without the help of a third party company, this would be more difficult to achieve. The company is
looking for logistics companies and proposes a partnership where the logistics company delivers the
goods to Zara and gets paid. Zara currently relies on third party delivery from warehouses to stores,
mainly by air and truck. Zara also has third party providers for home deliveries in different countries.

5.3 The third party logistics

Zara manages to design over 15.000 products every year (Ferdows, S. & Machuca, J. & Lewis, M,
2014). This number is manageable by having a strong relationship between these three parties; the
designers, the buyers (those who deal with sourcing and production) and the country managers
(those who deal with merchandising at the stores).

The three parties manage to have a strong relationship by having good communications at their own
party. The designers, organized by products (e.g., dresses, t-shirts and denim, accessories) occupied
the perimeter areas of the room and country managers and buyers sat around a long table in the
middle area The layout of the hall was designed to encourage impromptu meetings with an air of
informality and openness. This improved the relationship between these parties which led to
managing the remarkable number of designs in one year (Ferdows, S. & Machuca, J. & Lewis, M,
2014).

CHAPTER 6: ENTERING A NEW MARKET

6.1 Market Entry Strategy

The allotted region chosen for this chapter is Germany. By choosing the right entry strategy for
Germany we have to look into the 4 Internal Factors:
1. The size of Zara
2. The nature of Zara
3. The experience of Zara
4. The nature of the product of Zara (Veldman, 2010. P. 179).
And the 4 External Factors:
1. Socio-cultural aspects
2. Market size and growth
3. The situation in the foreign market
4. The market objective (Veldman, 2010. P. 180).
By keeping these 8 factors in mind the researchers of this report have chosen to use Direct Exporting
as an entry strategy. Besides that we think it is necessary to make use of an agent who is familiar
with the market in Germany. This strategy is chosen because Zara is a big company which has a lot of
experience on running their distribution themself (Veldman, 2010. P. 179). Working with an agent
makes it easier to enter a German market because the agent is familiar with the German market, the
agent is aware of the competition in the market and he has good contacts in the allocated country
(Veldman, 2010. P. 184). This will make it easier for Zara to enter the market using Direct Exporting as
an entry strategy. Also the German market is very big so by following the theory of the se chapter 5
of Veldman et al (2010) it is also better to control the production and sales self (Veldman, 2010. P.
181).

6.2 Financial policy

Zara should determine their import or export duties. By doing this they could affect the number of
goods imported or exported. Therefore the price would be higher if there were a toll or tax. Zara's
management needs to have a budget for growth in Germany and based on that budget, look for a
facility that they can rent in a convenient location. Zara prefers to lease buildings rather than own
them because it gives her more freedom, which she values (Palladino, 2010). Zara ships most of its
goods by truck, with some exceptions by air. Since all products are shipped around the world from
warehouses in Spain, Zara should think about the most efficient route to Germany; the longer a truck
travels, the more it costs (Mhugos, 2021). It is also important to consider what to do if the sales of
the newly opened store are lower than planned. It is likely that Zara's management will continue to
support the company financially so that it does not have to go bankrupt, for example since the
company's revenue is above the average high, the management team can help with financial support
if something goes wrong.

6.3 Logistics and customs policy considerations

When Zara exports their goods to Germany, it should take government legalisation into account.
However, the European Union has free trade agreements. Meaning that members of EFTA (The
European Free Trade Association) can trade freely to and from each other, which promotes economic
integration as well between the members (EFTA, 2021).
Thus, both countries can import and export goods from each other. Therefore, Zara can expand in
Germany and only has to follow the rules that are implemented by the EU, according to the
European laws on VAT. Usually, the company registers in the EU country the company wants to sell
and deliver the goods and charge VAT at the rate that the country arranged. For instance, the
(standard) VAT in Germany is 19 per cent, but due to the global pandemic, the VAT reduction is 16
per cent now. An invoice is required if a business supplies several goods to a non-taxable individual.
The VAT already calculated in the price of the product, excluding delivery costs. In Zara's case,
customers pay VAT in the country they buy their items (European Union, 2020).
Likewise, Zara should consider the factors that affect the cost-effective transportation between
centres.

6.4 Ethical and Environmental Dilemmas

Zara should take some ethical and environmental factors into consideration when entering
Germany’s market. Sustainability is one of the biggest issues that businesses are facing today.
According to Grant (2020), sustainability implies focusing on “meeting the needs of the present
without compromising the ability of future generations to meet their needs”.

It is recommended that Zara should focus on implementing the triple bottom line, which is when
people, profit, and planet meet each other, meaning the triple bottom line is the point whereby
sustainability can be realized. One of the topics that comes to light is climate change, specifically
through the excessive emission of gas that has left a huge carbon footprint on planet Earth.
Moreover, ensuring that Zara does not utilize forced labor and provides proper and hygienic working
conditions by not succumbing to the temptation of hiring cheap laborers will shift the factor ‘people’
in the triple bottom line to the right side. Additionally, their design, source, make, deliver, and return
processes have to be diligently reviewed. Inditex has been trying to tackle these problems by
ensuring as little waste as possible by recycling and reducing landfills filled with waste as well.
However, improving the aforementioned points will align the triple bottom line even more after
which Zara will be able to combat ethical and environmental dilemmas in Germany. This can be done
by implementing the three Rs, otherwise known as reduce, reuse, and recycle to export and work
more sustainably in general. This will lead to more profitability, as the strategy will be shifted to
focusing on Zara’s economic and environmental activity, meaning fewer resources will be used.

6.5 Adjustments in the international supply chain plan

Zara has to take many things into consideration when starting to export to Germany. Zara could start
considering using renewable energy sources and focus on improving their implementation of the
triple bottom line, which will reduce the amount of resources used, thus increasing Zara’s financial
position. Additionally, Zara could start facilitating Germany or neighboring countries with more
factories as this will inexpensively improve Zara’s transportation of certain materials, which will
reduce transportation costs and make Zara more profitable since it enhances their efficiency. Several
legal obligations should be first fulfilled before starting to export to Germany and everything must be
checked properly. This includes legal requirements concerning product safety, the use of chemicals
(REACH), quality and labelling.

CHAPTER 7: THE CONCLUSION

7.1 The solution for the problem and recommendations for implementing the solution
In 2019 Zara itself addressed the lack of sustainability within its own brand fast fashion model. ¨Fast
fashion can be defined as cheap, trendy clothing that samples ideas from the catwalk or celebrity
culture and turns them into garments in high street stores at breakneck speed to meet consumer
demand.¨ (Rautunier, 2021). Therefore, the question for this research was:How can Zara change their
supply chain to be a more sustainable brand?

By looking deeper into the supply chain of the clothing giant, the researchers of this report have
analyzed and stated in this report that Zara already has a very smart supply chain. They have built
tunnels as part of their transportation and wait while producing clothes, which leads to less
overproduction. However by doing research on their labour condition we have found out that their
labour condition scores a ¨not good enough¨ on the Fashion Transparency Index.

So in conclusion the answer to the research question: how can Zara make their supply chain more
sustainable? is to improve their labour conditions, this can be done by fixing the following abuses:
forced labour, gender equality and freedom of association. Another big problem of Zara´s labour
condition is the low pay their workers receive. Zara has made no progress on payment of a living
wage across its supply chain.
7.2 Suggestions for further recommended research
This report has done a lot of research into Zara’s supply chain, especially into the transportation of
the goods. However, for further research, we recommend looking further into the production cycle of
Zara. This is due to the answer of our question, which concludes that the production part of Zara’s
supply chain has the most issues when talking about sustainability.

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