Dissertation on Retail clothes outsourcing in Zara: profit maximization or fair trade?

CHAPTER 1

PROBLEM STATEMENT AND ITS BACKGROUND

 

1.0 Introduction

            Nowadays businesses are cutting back on operations to focus on the core business, reorganizing their business norms through downsizing, restructuring or reengineering, as well as contracting out various functions and tasks. Commonly known as outsourcing, this particular business trend had started in the retail business in the early 1980s, mainly as a means of cutting back staff and savings on wages.

Krajewski and Ritzman (2002) define outsourcing as the allotment of work to suppliers and distributors to provide needed services and materials to perform those processes that the organizations do not perform themselves. To put it simply, outsourcing means going outside your organization to get a job done. While such a definition is easy to comprehend, knowing when and how to outsource is much more complex. Outsourcing probably is one of the most influential phenomenons of the millennium. Its impact worldwide has been tremendous, and perhaps, maybe even contagious.

Companies from all over have integrated outsourcing into various business operations. Indeed, many studies and published documents have noted significant aspects on the real meaning of outsourcing, how companies can apply it and why they should apply it. Alternatively, many critics have pointed out the downsides of outsourcing. Due to opposing points it is difficult to gauge how efficient outsourcing is. An in depth discussion of the matter perhaps will help in determining whether companies are better or better off with outsourcing. To make the discussion more interesting, an actual view and application of outsourcing may make the comprehension of the topic easier (Greco, 1997).            One of the companies that use outsourcing is the Zara Company. Primarily the main goal of this dissertation study is to determine whether retail clothe outsourcing in Zara maximize their profits or it is just a fair trade. 

 

1.1 Background of the Study

1.1.1     Overview of the Company

ZARA is one of the Inditex Group’s flagship brand that offers women’s, men’s and children’s fashion. The first ZARA shop was opened in 1975 in Spain after its Initial Public Offering in May 2001. Within 12 months, its stock price increased by nearly 50% and sales revenue has been increasing rapidly since then. In 2006, there are over 2,900 ZARA outlets and become a well-known brand all over the world. Throughout the years, Zara focus their business model through in-house production unlike other retail industries that outsource their products. It is said that the company took a different strategy to turning out fast-paced fashions, choosing for vertical integration. Herein, instead of relying on outsources, Zara owns their factories, stores as well as their distribution network. The company managers their own production since they believe that they can minimize time to market by coordinating meticulously the entire production operations.

The company believed that such ability to quickly respond to the demand of the target market is more efficient as well as profitable than outsourcing to low-cost contract manufacturers. Through their approach, it enables the company to react faster than their rival industries to percolate fashion trends (Just-Style, 2006). Although Zara has their own production, the company also outsource some of the products from other suppliers.  

As ZARA is a global apparel chain shop, it competes with the other strong international brand too, such as The Gap (U.S.), Hennes & Mauritz (Sweden), and Benetton (Italy). However, all three had relatively narrower vertical scope than ZARA, which owned much of its production and most of its stores. Being in fashionable and creative offering clothing lines at low prices enabled ZARA to take full advantage in the international fashion industry to sustain its competitive edge in the market. In this regard, an in-depth case study investigating the business operations of ZARA will provide data and information on competitive and strategic business management as a benchmark of company success in the international fashion industry.

There is much literature that shows how the in-house production of Zara helps them in maximizing their profit, but there are limited literatures that study the outsourcing approach of the company and its impact on whether it enables them to maximize profit or just fair trade.  The study then aim on analyzing the impact of retail clothes outsourcing in Zara.

 

 

1.1.2     Outsourcing

            There are many reasons for outsourcing in a company or an organization. The decision of businesses to outsource is mainly based on cost, set-up time and the availability of the expertise. The most common reasons for outsourcing are the needs for expertise, that is due to lack of learning curve and re-creating; manpower, for having not enough staff; time requirements, because of the limited time available to accomplish the job; needed for economics, owing an overall cost savings; shifting of responsibility as for deniability; and removing of stumbling blocks in keeping the work for flowing.

According to (Ryan, 1996) in his review of the current literature, outsourcing is a trend that will continue. There are many benefits to outsourcing, including freeing up management resources, sharing costs, creating integrated networks, building new organization structures, training staff, and interfacing with other information systems. Outsourcing offers a company functional specialization and flexibility (Economist, 1994, p. 79). On the downside, some of the negatives include difficulties in maintaining confidentiality, retaining control, and confronting transition problems.

White (1996, p. xiv) provides a definition of outsourcing as a “contractual relationship between an external vendor and an enterprise in which the vendor assumes responsibility for one or more business functions of an enterprise”.

Outsourcing has expanded through most every industry since the early 1980s (Bernstein, 1995). The primary reason is to conserve staff in all areas of business. While lower wages may not be the prime motive to outsource, they are sometimes the result. Moreover, as the administration of employee benefit plans becomes more complex, companies are looking to outsourcing as a way to meet this challenge (Burzawa, 1995).

Outsourcing and out-tasking involve the transfer of a valuable amount of management control over the supplier. A relative term for this process is out-tasking: which means turning over a narrowly-defined segment of an industry o-operation to another industry which is usually held annually with agreement or contract or just few months. This typically includes direct or indirect management as well as decision-making by the client of the out-tasking business. Purchasing products from another industry is not considered as t outsourcing or out-tasking, because it is only noted as vendor relationship. On one hand, availing the services from a specific provider does not necessarily constitute outsourcing or out-tasking. The process of outsourcing always includes considerable level of two-way communication and information exchange, co-ordination between two parties, and most especially trust. Industries which deliver services feel may consider that outsourcing needs the turning over of their management obligations for running a segment of business. In theoretical aspects, such business segment must not be mission-critical, but practice often dictates otherwise. Outsourcing business is characterized by expertise not inherent to the core of the client organization.

It is essential not to confuse outsourcing with an opportunity to terminate current staff. Greco (1997, p. 51) noted that outsourcing “may mean eliminating or reassigning employees, but outsourcing is no longer a euphemism for downsizing.” By identifying core competencies, managers may find the need to increase staff investments in those areas. The primary purpose of outsourcing is not to rid an operation of undesirable elements, but to achieve optimum results

 

1.3   Dissertation Objectives

This dissertation aims on analyzing whether retail outsourcing in Zara maximize profit or fair trade. Specifically, this paper aims to achieve the following objectives

      Identify the context of retail clothing outsourcing.

      Identify the perception of Zara employees about outsourcing as a business strategy?

      Determine the advantages and disadvantages in Zara.

      Know whether retail clothe outsourcing maximize profit or fair trade.

      identify alternative measures to improve outsourcing

 

1.4   Dissertation Question

            Outsourcing has been the choice of most businesses in trading their goods and services because of three primary reasons: cost reduction, liquidity of resources and unburdening of corporate infrastructure pressure.

            This paper seeks to answer the following questions:

1.    What are the fundamentals and the principles of retail clothes outsourcing and how is it connected to the world market?

2.    What is your perception about outsourcing as part of your business strategy?

3.    What are the advantages and disadvantages of Outsourcing in Zara?

4.    Does retail clothing outsourcing maximize the profit and/or the fair trade?

5.    What specific alternatives or measures can be implemented to help improve the outsourcing performance of zara?

 

1.5   Significance of the Study

Multi-business organizations and firms are constantly facing pressures brought about the varying unpredictable factors that hinder efficient and effective business operations. This results to graver responsibilities faced by the business executives as board of directors; capital markets and shareholders push for effective and powerful corporate strategies. The competitive business environment within particular industries intensifies the need of business organizations to diversify the operation systems of the company recognizing the importance of the conglomeration of assets, skills, and capabilities of the available resources that the company has in order to be successful. Since the business environments are fast becoming more and more complex added to the fact that it changes rapidly and dynamically, businesses need to concentrate on a few key elements that are most important to their organizations survival. Thus, it is not surprising that company tends to use specific business models like outsourcing.

In this light, the success of the business organization like Zara entails detailed understanding on its retail outsourcing activities that influence the growth and continuous operations of the company. Studying the important consideration relevant to the organization to serve the purpose and objectives of the company will determine its success.

 Hence, this dissertation study was designed to serve as a benchmark study to succeeding students and practitioners in the business environment providing data and information that will yield productive principles and ideas for the benefit of the outsourcing in retail fashion industry and other existing business industries. 

 

1.6   Scope and Limitation

This paper will only cover the discussion on the operation on Outsourcing on the field of retail clothing like Zara. The conclusions derived from this study are limited to the retail industries and how it can increase its profitability by factors that will be outlined. Review of Related Literature will be limited to scholarly works written in terms of outsourcing, retail stores,                                                                                            clothing, and fashion. However, sources on the theoretical framework will be exempted. Data will be primarily contained on Zara.

 

 

 

CHAPTER 2

REVIEW OF RELEVANT LITERATURE

2.0 Introduction

            This part of the paper will discuss literature and documents relevant to the topic of the dissertation. In order to achieve the objective of this paper, context of outsourcing, retail clothing outsourcing and SWOT analysis and strategy of Zara will be discussed.

           

2.1 Context of Outsourcing

The changes in the environment had been sharply perceived different industries such as the Zara as it operates within and beyond its national boundaries.  In order to make sense of the growing complexity of the environment that clothing manufacturers are operating within, it is necessary to examine in greater detail the dynamics of the clothing chain of production and understand the strategic options available to local manufacturers. These options must be placed in the context of two further structural developments over the past decade: the progressive vertical disarticulation of the clothing supply chain and the growing concentration of power within certain nodes of the supply chain. It is important that the knows, how to handle its business properly since it is undeniable that there are many people who want to have a long lasting career in terms of business. The influence of these aspects of management with respect to the Strategic Competitive Advantage may well prove significant in both application and effectiveness.

Basically, Hammer (1992) looks at ‘Outsourcing and the value Chain’. He states:

“One method of reducing costs is to outsource non-core activities. Outsourcing can bring a number of benefits.”

Actually, the topic of outsourcing may help to understand the competitive advantage of the organization.

Outsourcing simply means going outside your organization to get a job done. There are many reasons for outsourcing in a company or an organization. The most common reasons for outsourcing are the needs for expertise, that is due to lack of learning curve and re-creating; manpower, for having not enough staff; time requirements, because of the limited time available to accomplish the job; needed for economics, owing an overall cost savings; shifting of responsibility as for deniability; and removing of stumbling blocks in keeping the work for flowing.

Normally, there are two types of outsourced services, technology and business process. Each can be inert partial to the subsequent areas. The first type of outsourcing is the technology services. This type covers the electronic commerce (e-commerce), infrastructure (networks), software (applications), telecommunications and website development and hosting. The second type of outsourcing is the business process outsourcing. Under this type of outsourcing are customer contacts (customer relations management), equipment, finance / accounting, human resources, logistics, procurement/supply chain management and security (Quinn, 1996).

Information technology (IT) outsourcing is defined as the process of contracting vendors outside the company to perform different IT functions like data entry, application maintenance and development, data center operations, network management and operations as well as disaster recovery. Outside vendors may either be individual information technology professionals, employee leasing companies, consulting firms, CPA firms and full service providers (Antonucci, 1998). As companies and firms depend more on IT to operate businesses, getting into large market dissertation files to locate new customers and using the Internet as a storefront information technology development and maintenance costs have exploded. Due to this trend, it is no wonder why companies and firms have applied transfer systems of IT assets, leases and staff to outside vendors or third party members.

As a result, outsourcing strategies have been widely accepted in order to reduce expenses, improve productivity, operations management, and delivery, and concentrate on upgrading the company’s technological expertise. Outsourcing retail is one of vital business and supply chain strategies which are one way companies are revolutionizing business operations to deliver better products faster at lowest cost possible (Domberger, 1998). It is a kind of supply chain collaboration model and strategic alliance approach, which allows the OEMs to concentrate on product development, sales and marketing (Bounfour, 2003). It eventually helps business organizations to gain competitive advantage of increased product availability, reduced inventory; minimized total logistics cost and rapidly introduce their product to market without a significant investment in plans for capital equipment (Arnold, 2000).

There are many reasons for outsourcing in a company or an organization. The most common reasons for outsourcing are the needs for expertise, that is due to lack of learning curve and re-creating; manpower, for having not enough staff; time requirements, because of the limited time available to accomplish the job; needed for economics, owing an overall cost savings; shifting of responsibility as for deniability; and removing of stumbling blocks in keeping the work for flowing.

Lee et al (2002) stated that there have three major outsourcing drivers: (a) economic - expense reductions, cost control and containment; (b) strategic - sharing risks, gaining access to new resources, achieving quicker time to market, as well as exploiting internet opportunities; and (c) technical - access to new technology; access to special expertise, coping with increasingly sophisticated risks and keeping up with the increasing complexity and speed of technology changes. Moreover, Ryan (1996), in his review of the current literature, found that outsourcing is a trend that will continue. There are many benefits to outsourcing, including freeing up management resources, sharing costs, creating integrated networks, building new organization structures, training staff, and interfacing with other information systems. Outsourcing offers a company functional specialization and flexibility (Economist, 1994).

Williamson’s (1975) theory of transaction cost analysis can be the conceptual basis for outsourcing. It combines economic theory with management theory to determine the best type of relationship a firm should develop in the marketplace (Williamson, 1975). This basically strengthens the purchasing discipline that uses an analysis of the factors which determine the internal and external boundaries of the firm. The principle of Williamson’s (1975) TCA is that the properties of a transaction determine what constitute the efficient governance structure - market, hierarchy or alliance.  Williamson (1975) stated that factors that produce transactional difficulties include: bounded rationality; opportunism; small numbers bargaining; and information impactedness. This is the reason why companies ought to protect their operations even if it means monitoring the third party proving IT through micro management as stated earlier.

Aside from the main factors, the issue of costs also plays a relevant importance as both parties tend to have the same objective of gaining advantages instead of losing it. Williamson (1985) further stated that the previously mentioned transaction difficulties increase along with associated costs when transactions are characterized by factors such as: asset specificity, which are transactions that require high investments which are specific to the requirements of a particular exchange relationship; uncertainty, or in other terms, ambiguity as to transaction definition and performance; and Infrequency, which means transactions which are seldom undertaken. All in all, the central theme of transaction costs theory is that the properties of the transaction determine the governance structure. Williamson (1985) argues that the decision will always be made in relation to the scope for cost reduction and the importance of asset specificity. Therefore, the company should outsource activities if to carry them out internally would require excessive investment to get the lowest unit cost. The whole point of submitting into the outsourcing process then, is to save costs and not to increase it through unnecessary allocation of funds such as that in retailing staff which can be already provided by the third party retailing companies.

Certain dissertation findings conclude that the vital strategic aspects which influence business’ decision to outsource the retail function and business facilities centers around cost, technological innovation and knowledge enhancement considerations (Chalos, 1994; Teng et al., 1995). Furthermore, Quinn (1999) stated that the company should purchase goods/services from providers who have best-in-world skills, in order achieve competitive edge. In addition, Williamson (1988), Chalos et al (1998), and Holmstrom et al (1991) argued that managerial incentive intensity becomes the primary motivation for outsourcing, as managerial efforts are focused on core competency maximization when undistracted by non-essential tasks. Again, this view conflicts with the situation presented earlier in the study. The goal is trust the third party to apply its own management system to the business service or products they provide, and let the business staff of the company handle other areas in the company where management is needed. Or furthermore, downsizing could be appropriate as the former business staff from pre-outsourcing has nothing more to do. Retention then, as stated, would just provide additional unnecessary cost for the company. Whatever the reasons for strategic sourcing, a prime purpose should still remain reduction of costs.

According to Juma’h and Wood (1999), there are a number of concepts in outsourcing. First, specific activities such as information technology require specific assets and skilled staff and are essential for companies operations. In the first place, one of the reasons why outsourcing companies engage into an agreement with outsource contractors is because of their lack of tools and skilled staff. Thus, retaining the previous staff would still require training for the new technologies or services that they will handle. While outsource contractors would allow such management take over in their operation, conflicts could arise as the errors of micro management could come to place, which would be discussed later. Furthermore, the familiarization stage of the retained Employees or human resources to the new technologies brought by the outsourced contractors could consume too much time and thus taking away profit from the company in the short run. On the other hand, in the long run, such approach would cost the company unnecessarily as retention of the staff could eat up to 7% of the company’s contract value.

The second key concept in IT outsourcing is that the significance of outsourcing contract and agreement is fixed over a period of time and the terms are noted to be less comprehensive than for non-outsource contracts (Juma’h and Wood, 1999). In this period, it is one of the aims of the outsource contractors to understand the customer’s operations to be able to carry out their own operations effectively to immediately reduce the cost of information technology use of the clients and other business activities.  Thus, it is inappropriate for the clients to look over closely the operations of the outsource contractors. The third concept on the other hand is that other internal functions may depend on the outsourced function. Juma’h and Woods (1999) explained that managing the alliance between the outsourced function and remaining functions is important to overall company operations. This may be mistaken of what should be managed, but Juma’h and Wood (1999) stated that what should be managed is the alliance and not the specific operations of the outsource contractors which the former employees or human resources have no exact business. Furthermore, in terms of social relations and professionalism, this might produce uneasiness in the part of the outsourcing providers, which as mentioned, could make their work limited and would restrain innovative ideas.

Aside from the three mentioned, Juma’h and Wood (2002) also mentioned other key concepts in outsourcing. One additional concept is that transaction costs are high for non-standard activities subject to outsource. Another is that outsourcing may involve the permanent disposal of the related assets at other than arm's length process. Furthermore, the outsource agreement is generally based on confidence rather than on open market or competitive process. Then finally, contingent liabilities and uncertainty are inherent in outsource contracts (Juma’h and Wood, 2002). These concepts also suggest the inappropriateness of retaining Employees or human resources of the outsourcing company.

 

 

2.1 Advantages of Outsourcing

The main business purpose for outsourcing is to enhance the value of an organization’s offerings to its customers. Earl (1996) calls this “smart” outsourcing, which indicates a careful selection of functions to be outsourced based on strategic decisions.

According to Irwin (1995) outsourcing strategies may come in many advantages. The advantages that can be gained in outsourcing are that activity can be performed better or more cheaply by outside specialist.  Moreover, achieving the competitive advantage is not crucial in the activity. The risk of the firms in the exposure to the changing technology can be reduced. Furthermore, the cycle can be cut, the decision-making have sped –up and the coordination costs can be reduced. Finally, because of these outsourcing strategies, the firms can concentrate on its focal point in business.

According to Antonucci (1998), in general, the following are considered the positive impact of business outsourcing to business sectors:

            Access to state-of-the-art technology. Due to the volatility of information technology, IT skills tend to become obsolete quickly. Software for instance, is updated and replaced rather quickly, that by the time the company applies a particular program, the software may not be state of the art anymore. Through the outsourcing specialists, their skills become valuable for maintaining the up to date resources and facilities.

            Cost savings and quality. Because of the intense competition in the business world, most management are left with no other choice but to lay off employees so as to reduce costs. Even the most established companies find ways on how to compete along with new entrants while reducing company expenditures. In outsourcing, companies are enabled to save costs primarily through the outside vendors. This is become third party members have a much tighter regulation of fringe benefits as well as able to run leaner overhead structures. They are also more aggressive in using low-cost labor pools and can move data centers to areas of low cost through the help of modern telecommunications. Furthermore, outside vendors are able to apply world class standards to the firm’s available Employees or human resources, in which all of whom have to re-qualify for appointment at outsourcing time. Third parties can also reduce costs as they can utilize more effective bulk leasing and purchasing arrangements for all software and hardware and have more control over licenses of software as they often are better informed negotiators. Also, outside vendors encounter certain contractual pressures; hence, they are obligated to meet deadlines.

Flexibility. Through the use of business functions from outsourcing, businesses must be able to adapt well in the constantly changing business environment so as to quickly respond to changing trends and demands. Thus, flexibility is essential to the business. The outside vendors are able to tap a wide array of skills, resources, and capacities, while the internal information technology staff has limited abilities.

            Job security for regular employees. Through outsourcing, companies are able to hire staff knowing that they will be hired for a limited period. Hence, they can easily drop or add employees into the workforce without putting the reputation of the company as a stable employer in danger. Further, outsourced employees buffers regular workers from changes in demand as well as enable the firm to create a more established relationship with its regular employees than would otherwise be plausible.

 

2.2 Disadvantages of Outsourcing

            Antonucci (1998) noted that while Business outsourcing has its positive effects on business operations, it is not a general matter. Thus, the application of Business outsourcing in the organization does not always necessarily lead to success. In reality, outsourcing is not for every client or company. This then gives rise to the issues questioning Business outsourcing regarding its credibility and efficacy. In the article of Antonucci (1998), the following are considered the possible negative outcomes brought about by Business outsourcing:

Media hype and outsourcing benefits.

Oftentimes, managers of most companies report success stories related to outsourcing during its debut to the business operation. During this time, both the company and the selected vendor have high hopes on the outsourcing effort. However, in some cases, only the projected savings that will be derived from outsourcing will make it into the headlines. The enormous fees caused by contract amendments however, are left out of publicity as there are only a number of companies who wish to advertise their failures.

            IT is not easily outsourced. IT is different from other resources; it is not like the other resources that some companies have successfully outsourced in the past. IT is not the same as legal services, logistics, security advertising and the purchase of other raw materials of the company.

            Information technology evolves rapidly. Due to the fast evolution of IT, prediction beyond three years may no longer be true or applicable by that time. Thus, settling on long term Business outsourcing contracts is particularly risky.

Mercurial economics. Price-performance improvements take place in every industry. However, only a few can do the underlying economics shifts as efficiently as they can on IT. For instance, mainframe that cost $1 million in 1965 costs less than $30,000 today and probably will cost 20% to 30% less next year. This makes it difficult for decision makers to evaluate costs of outsourcing bids.

The cost of switching is high. Shakeout is often a problem in outsourcing, which occurs among IT vendors, with takeovers and mergers becoming commonplace. In the future, it is likely that only a few suppliers will survive; hence, difficulty will most likely be encountered in shopping for the right price.

Lost of Control. There are some critics who noted that the services provided by in-house function is often unmatched by those provided by third parties, in terms of service levels and responsiveness. This is because outsourced employees are not under the same management regulation and direction as the internal workers. Moreover, there is a strong concern among third parties with regards to data confidentiality, provisions and strategic applications for disaster recovery.

Bad for employee morale. Lay offs or the transfer of available employees to the outside vendor are often the resulting outcome of outsourcing. This transition is likely to cause a significant negative impact on the employees’ morale. Regular employees may fear for the security of their employment, thereby affecting their daily work output.

Less flexibility. The specification of the business services is in the contract provided by the outsourcing vendor. In this provision, the outsourcing vendor utilizes the technological platform that is appropriate. Due to this contract, the company may lose a certain degree of flexibility, particularly in shifting to a new computer platform.

Being held hostage. There were professionals who argued that outsourcing permits the user to become bound to the vendor, becoming its “hostage”. Outsourcing may lead to the company’s loss of technical staff as well as be locked to the outside vendor’s proprietary hardware and software. While initially, the company may have the upper hand in a long term contract during negotiations, in the long run, the outside vendor has the most advantage when the outsourcing is already in operation.

Expenses. Several managers presume that outsourcing vendors are intrinsically more competent because of economies of scale. (The economies-of-scale theory says large companies can achieve lower average costs than small companies due to mass production and labor specialization efficiencies.) Within the outsourcing arena, nonetheless, this model may not always be applicable. For instance, small companies may have lower costs than large companies by employing older technology, offering below-market wages and maintaining tight controls and procedures. When vendors submit bids that indicate savings, CPAs should always consider whether they can achieve similar results themselves. If the vendor is not essentially more capable, probably the company can reduce its own IT expenses through data center consolidation and resource optimization.

Subcontractors. It is not unusual for companies to find out that their outsourcing project is working not for the company, but for someone else. There are some outside vendors, particularly those who are looking for hard to find technical skills, who will subcontract a part of their computer systems to small and unknown companies. These actions are done without the knowledge of their own clients. Problems such as acquisition of viruses from subcontractors, high costs, poor communications and poor quality service may arise due to subcontracts.

In general, the impact of outsourcing worldwide is divided into two, and that is either outsourcing is a success or a failure. While these effects are based on various factors within the outsourcing parties involved.

 

 2.3 Retail clothing or Zara   

            Businesses especially to those involve are in retailing of products needed to assess their coordination towards their supplier.  Basically, business organizations today operate in a turbulent and dynamic business environment. The contemporary business environment is undergoing a metamorphosis as rapid technological innovations, competitive markets, diverse customer preferences, and extensive global operations prevail in it. To ensure continuous operation and survival in today’s rigid business environment, a business firm has to be open to change and improvement. Business processes, services, products, and operations should be consistently subject to evaluation and refinement. The norm is to deliver quality products and services while maintaining flexible and effective operations.

The retail clothing or Zara is a business sector comprised of companies producing and distributing clothing merchandise. The market of the clothing industry is mainly influenced by economic issues; in particular, as consumers are into more prosperous economic conditions, the demand for more luxurious clothing increases. While this industry is affected by common business issues such as economic factors and competition, this industry is also greatly affected by consumer trends, such as seasonality and fashion. With these affective factors, the retail clothing or Zara typically encounters problems such as demand uncertainty; this problem on the other hand, is addressed by apparel companies through product variety. 

Due to the growing intensity of competition in both local and global business sectors, several companies and service providers have realized the need to develop more strategic approaches for managing supply chains. These affective factors and realization then led to the development of tradition SCM systems up to the advanced systems companies apply at present. The evolution of supply chain management occurred during the 1990s; at this time, collaboration between manufacturers and suppliers had been established in order to enhance traditional approaches in supply management functions. At the same time, retailers as well as wholesalers had integrated their logistics operations as well so as to achieve greater competitive advantages (Tan, 2002).

In the process, both of these concepts were joined and became a strategic approach to what is now known as supply chain management (SCM). In this chapter, the relation of the retail clothing or Zara to SCM is explained. Models, implementation needs as well as the dilemma on the application of SCM systems are also discussed through the citation of various related literatures and studies.

            The retail clothing or Zara goes through a number of business challenges. Due to certain trends like fashion and consumer preferences, companies operating in the industry often encounter the issue on demand uncertainty. In order to address this, apparel businesses utilize the concept of product variety. This technique however, would require certain activities such as production systems, forecasting and inventory management. This then emphasizes the need for the retail clothing or Zara to employ innovative systems to manage and handle its supply chains. Traditionally, the supply chain approach of apparel establishments is made up of the formation of inventories for raw materials, work processes, and finished products. Sabath (1998) stated that with the traditional supply chain approach, apparel companies tend to react slowly to changing consumer trends as they establish similar inventory levels for both volatile and non-volatile goods. However, the development of SCM systems through innovative and more advanced tools allowed apparel companies to acquire useful benefits.

            Through supply chain management, the information between business partners are optimized and collaborated; most importantly, SCM systems help in reducing inventories, which in turn can lessen operational costs, compress order cycle time, enhance asset productivity as well as increase the companies’ responsiveness to the market (Palevich, 1997). Aside from these benefits, the retail clothing or Zara  is able to achieve quick response (QR) through efficient SCM practices (Rabon, 1998). Quick response is a concept pertaining to the collaboration and sharing or information among manufacturers, suppliers and distributors, allowing them to respond more rapidly to the needs of the customers. Previous studies have noted that QR concept brought about by supply chain management is advantageous to the retail clothing or Zara as well as to fashion-oriented businesses (Askelson, 1995; Ko and Kincade, 1998).

            The relevance of supply chain management to the retail clothing or Zara is high as various SCM-related activities and factors are observed in clothing companies. One of which is the involvement of raw material suppliers in an apparel business’ supply chain. Manufacturers of clothing merchandise order and buy various yarns, fabrics and other textile mill products from suppliers so as to make their finish products. As most manufacturers would have to deal with multiple suppliers for their highly-diversified product lines, a system to manage the suppliers is an important strategy. Moreover, the SCM technique is essential for apparel manufacturers to keep track of suppliers who specialize in multiple types of raw materials (Jarnow and Dickerson, 1997).

A supply chain management system is also relevant to the apparel companies as this helps in keeping track of the suppliers, in terms of the quality of their services and supplies. This aspect is particularly important since suppliers have the tendency to the supply chain off balance. By means of analyzing suppliers and assessing their performance, the uncertainty on the supplies of raw materials will lessen; in addition, the inventory performance of the apparel companies will also be improved (Davis, 1993). By efficient information exchange and communication brought about by SCM, apparel companies can deal with supplier that suit their needs. Data on the suppliers’ product stocks, costs, speed and reliability can be obtained through SCM; in turn better inventory performance and strong company-supplier relations can be established (Doney and Cannon, 1997).

Another factor that relates the retail clothing or Zara to SCM is the companies’ connection with the retailers. While some apparel companies distribute their products directly to consumers, most manufacturers utilize the services of the retailers. The application of an SCM system on the other hand helps in strengthening the relationship between both parties as well as in achieving positive business outcomes.  Considering that the apparel sector encounters the problem of demand uncertainty, SCM allows the companies to communicate with their retailers; this feature of the SCM enables them to forecast product demand jointly. The participation of the retailers with the SCM system of the company helps the apparel companies to obtain valuable consumer data such as end-customer demand levels; this will then help in reducing the manufacturers’ errors in determining raw material and production volume.

           

2.4 Supply Chain and Outsourcing

Due to several changes in business as well as in technology, outsourcing at present is no longer an alternative strategy but a priority. Several businesses are trying to apply outsourcing their different internal operations in the attempt of establishing stronger business focus on primary competencies. The basic motivating factor for this decision is mainly concentrated on organizational restructuring and reduction of costs. As previously mentioned, outsourcing also results to several benefits for both the client and the outside vendor. Upon deciding to pursue outsourcing, the following question would probably be where to outsource. According to Shine Technologies (2004), possible outsourcing sites are found all over the world.

Why companies tend to apply outsourcing is a common inquiry. In a survey conducted by Cohen and Stonich (2004) together with the World Trade Magazine, the 180 companies who participated stated various reasons for their decision to outsource. Among the common responses include capacity expansion, attainment of greater flexibility in production, product quality improvement, attainment of better focus on primary competencies, reduction of investment in capital assets and achievement of global presence in retail. The researchers noted however, that the most common reason why companies apply outsourcing is to save monetary resources. In fact, 40% of the respondents stated that the reduction of costs is their major driver for outsourcing.

Outsourcing has been defined in literature by several analysts and authors. In general, outsourcing is a present business trend wherein companies extend its services to other locations do as to distribute internal functions. Various companies have chosen to conduct outsourcing to retail industries with potentials in order to obtain several organizational benefits. Nonetheless, outsourcing also results to certain difficulties primarily because there are third parties and barriers involved.

            In the retail industry setting, outsourcing has started to flourish along with the economic progress of the industry. As the retail industry possesses several potentials of a good outsourcing area, apparel industries and other retail industries have been interested in conducting outsourcing.

Through outsourcing in Apparel industries and other retail industries, these industries where able to obtain company objective as well as various benefits, including increased market, profit gains, enhanced global presence, reduced costs, and company flexibility.

            Based on the analysis provided above, outsourcing in Apparel industries and other retail industries has its advantages and downsides. While some companies are hesitant in venturing into outsourcing, the benefits gained by apparel industries and other retail industries in Apparel industries and other retail industries apparently outweigh the risks involved. Moreover, from the experiences of the sample companies cited, these difficulties are manageable by means of certain risk management strategies and prompt actions. Conducting business operations and making business deals in whatever aspect naturally has its pros and cons. Outsourcing is then no different. Thus, the gain from outsourcing in Apparel industries and other retail industries has its potential risks. The good thing about these difficulties is that they are manageable. In the article by Cohen and Stonich (2004), the authors states that in spite of the known difficulties in establishing business partnerships in Apparel industries and other retail industries, apparel industries and other retail industries still take the risk as the advantages and benefits gained from it is indeed very real. So as to minimize expected difficulties, companies who intend to outsource in Apparel industries and other retail industries must consider certain factors and conduct important initial procedures.

Consider all possible costs when evaluating

In order to do these step, read on recent literature regarding outsourcing in Apparel industries and other retail industries. Weigh over the benefits and risks. In this case, a balance between the two is crucial. To support the documentary findings, it is advisable to consult other apparel industries and other retail industries who had outsourced in Apparel industries and other retail industries. From this brief conversation, invaluable data that is not publicly available may be obtained. Through this step, apparel industries and other retail industries may learn from others’ experiences, successes and pitfalls. The company may also learn of other qualitative or quantitative factors to evaluate through consultations.

Ensure that the products to be outsourced suits Apparel industries and other retail industries

This step is a major driver for the company’s cost analysis. It is important to remember that mature products do not need ground-breaking retail capabilities. Hence, these products are likely to lead to near-term cost savings if transported to Apparel industries and other retail industries. Moreover, mature products that have clear and established retail mechanisms will result to a much flatter learning curve when transported to a new area. In addition, this type of products does not need much management attention and engineering.

Make it certain that internal resources can support outsourcing relations

            The manner in which companies conduct outsourcing with Industry partners is essential for business success. For this purpose, a high-touch model must be used to attain a higher possibility to succeed. High-touch basically means that the role of both parties involved is clearly defined. Ideally, this can be achieved through a joint service agreement (JSA), which provides legal contracts, enabling both business partners to comprehend their core objectives. This clear agreement also encourages both parties to direct all activities towards their constant improvement.

Make sure that sufficient supply chain personnel is available

Adequacy is not only measured in number. Hence, it is important that the supply chain personnel is also adequately capable or skilled and has the necessary experience to manage the change to an outsourcing strategy. They must also be able to work efficiently with Industry business partners. While it is a plus if the company personnel can communicate in Industry, the ability to work and deal well with foreign employees is more advantageous and useful.

Previous experience is crucial

Past experiences on outsourcing are vital factors for success. If the company intends to do outsourcing in Apparel industries and other retail industries for the first time, it is recommended that the people behind the transition process are not new to it. Their experiences may be vital in resolving present problems related to outsourcing. Moreover, their experiences can enable the prediction of possible problems in the future. Thus, the companies can resolve it immediately before it affects the business operations.

Design and implement business practices with the new Industry Partner

Supply chain management practices are not generalized. Hence, the practices of the apparel industries and other retail industries may not necessarily be applicable to the Industry setting. Work instructions that the foreign company have been using for years can be incomprehensible to their Industry partner. In order to design and implement a more effective supply chain management practice, variation in techniques, skills and equipment may require re-evaluation.

This also applies to core supply chain procedures. For instance, the foreign company may have to make essential changes to its planning and sourcing procedures so as to operate within the outsourcing model. In this case, the core staff members that will be in charge of managing cultural and communication issues must fully understand all that it takes to change major supply chain procedures from the internal environment to the work environment of the Industry partner.

Do not determine the level of expertise in supply chain of the partner on their sales pitch alone

This a common practice among most company management, in which their supply chain expertise is based on their general customer base, overlooking the company site they have considered for outsourcing. Several retail service providers that are operating in Apparel industries and other retail industries have developed through acquisition. In order to achieve consistency and successful assimilation of new partners and facilities, sufficient time should be allotted combined with a huge amount of management attention. Effort must be exerted by the foreign company to fully understand the company site it has considered for transition.

 

            In general, in conducting outsourcing in Apparel industries and other retail industries, or to any site for that matter, the key to success is to make sure that all factors, both qualitative and quantitative, have been taken into account. Consider the experience of other companies as well; their achievements, and most importantly, their mistakes. Apparel industries and other retail industries should never be overly confident about outsourcing. They should not underestimate the difficulties and possible risks in managing and implementing outsourcing operations abroad. Good human and social skills are also essential in this type of business setting. Not only will this enable a more profitable and successful outcome, but it will also help in the establishment of long-term relationships.

 

2.5 Retail Clothing Outsourcing

The concept of retailing is simply defined as the direct sale of commodities to consumers. However, to be able to succeed in this kind of venture, a considerable number of considerations must be identified. The tool that one uses to measure its success often defines the vision and strategy in retailing (Hughes, 2002). It is said that the net present value of the customer base should be at the top of the measurement hierarchy. Lifetime value is the net present value of the profit to be realized on the average new customer during a given number of years. Hughes (2002) suggested that one should get customers to give data, and build it into a database complete with purchase history. For a retailer, that means that one have to keep track of their spending. Moreover, he asserted that building a relationship with customers only works if the customer benefits from the relationship.

The main technique in retailing is to find ways which one can do for clients that will be able to modify behavior in profitable manners. What the retailer provides to customers has to be something that they will appreciate and value, but which do not cost you too much. In retailing, the margins are often thin (Hughes, 2002).

               The problem arises when retailers can’t adapt to the rapid changes of their environment. There is pressure in competition.  While it is being said that advancement on marketing operations and adapting to the current forms of retailing methods will drive you to ultimate success, however there are other factors that will block your way. It has been noted that the most ambiguous, accommodating and changeable, yet the most persistent and potent forces that control retail competition are custom, consumer expectations, and social pressure (Greco & Michman, 1995). The market in a lot of ways limits what retailers can do.  There is a constant adjustment to customer needs and tastes.  The relationship between retailing and its environment is complex.  The ability of the small firms to successfully operate and compete its environment, could hinder their success against the market competitors in all areas. The importance of high quality services and products is consistently taken as a component of successful firms (Hofer & Sandberg, 1987).  One of the ways that most retailing industries nowadays consider is the aspect of outsourcing.

Outsourcing probably is one of the most influential phenomenons of the millennium. Its impact worldwide has been tremendous, and perhaps, maybe even contagious. Companies from all over have integrated outsourcing into various business operations. Indeed, many studies and published documents have noted significant aspects on the real meaning of outsourcing, how companies can apply it and why they should apply it. Alternatively, many critics have pointed out the downsides of outsourcing. Due to opposing points it is difficult to gauge how efficient outsourcing is. An in depth discussion of the matter perhaps will help in determining whether companies are better or better off with outsourcing. According to David (2003), there are at least four types of resources which the company can use to achieve its objectives: financial, tangible, human and technological resources. These are the same critical success factors that Zara or other retail companies should be equipped with in order to conceptualize efficient supply management and cost-effective distribution strategies from the main suppliers to the end-users of the products, particularly their clothing products.

In some other countries, the domestic channels for apparel are characterized using three dominant patterns as shown in the schematic diagram below (Figure 1). Approximately 70-80% of the garments in the local market are distributed in the local market through Pattern A through product supply chain and interchanges between the textile manufacturers, apparel manufacturers and the retailer to the consumers. the large cities of China normally employ Pattern A while Pattern B is dominant in small and middle-sized cities and towns. In pattern B, the distribution channels or retail outlets include the specialty stores, the department stores, and the street fashion peddlers. Pattern C is seldom used in the local market to distribute apparel products to the consumers (retail chains and direct mails) (China Textile University & Harvard Center of Textile and Apparel Dissertation, 1999). 

 

 

 

Figure 1. Distribution Patterns of Clothing and Apparel Products

 

 

 

Some of the ways that companies acquired cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. If competing firms are unable to lower their costs by a similar amount, the firm will be able to sustain a competitive advantage based on cost leadership. This has been the practice within some retail and apparel companies and retail and apparel production through contracts with direct supplier in order to lessen the expenditures of the company spent on materials.

 

2.6 Synthesis

The literature review provided above has been able to explain basic concepts of outsourcing and its advantages and disadvantages upon consideration. Herein, outsourcing can be done with the technology, with the human resources and most probably with the products. Being able to realize the benefits of outsourcing, different companies are able to utilize this approach and integrate it to their current system. Accordingly, the analysis of the previous studies shows that outsourcing has vast effect to the organization as a whole. In the case of retail apparel industries outsourcing has also

 

           

Zara

                                          Dissertation Methodology        

3.0 Overview

This part of the paper discusses the methods that have been used for this dissertation.  This detailed the steps the researcher took in order to accomplish the study.  The said steps then include the collection procedure of the data that is required in the delivery and completion of the dissertation.  It also presents the manner in which these data will be utilized and integrated in the study and at the same time, detail how the dissertation proceed to answer the aims and objectives in order to reach to the conclusion.

In this manner, this part of the paper justifies the means in which the study will be performed.  It also emphasizes its credibility by making mention of widely accepted scientific methodologies. Through the methods mentioned in this paper, a plausible conclusion will be obtained.

 

Looking back to the aims and objectives of the study, the study intends to determine whether outsourcing maximize profit or fair trade for Zara. In order to identify the opinions of the s of the company, the study’s methodology was focused on collecting both primary and secondary data through related literature dissertation and the survey and interview materials.

As the dissertation intends to discover the general consensus of staff in ZARA with regards to retail outsourcing, the immediate dissertation methodology in mind is the descriptive dissertation design.  The dissertation are taken from various data sources that is integral in identifying issues of  retail outsourcing,  and the status of their performance in ZARA.

 

3.1       Dissertation Design

The study is exploratory, being descriptive and illustrative. To achieve the objective of this study, the researcher opted to use descriptive method of dissertation was utilized. The purpose of employing the descriptive method is to describe the nature of a condition, as it takes place during the time of the study and to explore the cause or causes of a particular condition. The researcher opted to use this kind of dissertation considering the desire to acquire first hand data from the respondents so as to formulate rational and sound conclusions and recommendations for the study.

 

According to Creswell (1994), the descriptive method of dissertation is to collect information or data regarding the present existing situation or phenomenon.  Descriptive dissertation has as its purpose developing a better understanding of a phenomenon in detail. Descriptive studies usually have as their purpose the first two aims of normal science as described by Kuhn (1970, pp. 25-26): “attempts to increase the accuracy and scope with which facts are known” or “determination of those facts that can be compared directly with the predictions from theory”. The aim of descriptive dissertation is to clarify the nature of a phenomenon in a specified, static context while viewed from a specific, fixed perspective.

 

Descriptive dissertation design, then, is directed toward clarifying a phenomenon's appearance or nature. In other words, it describes a particular phenomenon, focusing upon the issue of what is happening, rather than why it is happening.

 

Two types of data were used: the primary and the secondary data. The primary data were derived from the answers respondents gave in the self-administered questionnaire prepared by the researcher. In addition, the information obtained from the interview also provided primary dissertation data that supported the study. The secondary data on the other hand, were derived from the findings stated in published documents and literatures related to the dissertation problem. These were based from the recent literatures related to retail outsourcing and motivation and the concepts cited by the respondents.

In terms of approach, the study employed both qualitative and quantitative approaches. The quantitative approach focused on obtaining numerical findings was used with the survey method. The interview on the other hand, made up the qualitative approach of the study as this focused on personal accounts, observations, description and individual insights of the respondents. This study employed the combined approach so as to overcome the limitations of both approaches. In order to achieve the goal of this paper, the researcher has been able to use appropriate approach.  For this study, the research design used is qualitative approach (Mays & Pope, 2000). In this study, the qualitative data used provides details descriptions of the entire topic which is the health incentives which allowed the researcher to gain better understanding of the objective of the study (Creswell, 1994). It can be said that the article used qualitative research method since it will try to find and build theories that will explain the impact of retail outsourcing with Zara.

In this research design, the data collection approach includes the consideration of relevant literatures that provides discussion about the practical considerations for employers which want to use strategically incentives as a vital program approach for motivating their employees and engaging them to health promotions.

Herein, the researcher has been able to gather information from relevant studies and incorporate it qualitatively through the use of content analysis. Through the secondary documents, it can be said that the researcher have been able to achieve the goal and objective of this study. It is said that the qualitative research utilized in this article can be said to be as it is more open to adjustment and refinement of research ideas as an inquiry proceeds.

Several researchers had stated that generally, qualitative research takes place within a natural setting. It is less likely for qualitative research to impose restriction on data collection. Furthermore, it is more focused on idiographic descriptions and emergent themes rather than on categorical frameworks and very specific hypothesis (Cassell & Symon, 1994).

 

3.2        Participants

The respondents have been chosen directly from ZARA HR department. This may include managers, line managers and other employees of the company.  All of these participants were selected through random sampling. This sampling method is conducted where each member of a population has an equal opportunity to become part of the sample. As all members of the population have an equal chance of becoming a dissertation participant, this is said to be the most efficient sampling procedure.

 

In order to conduct this sampling strategy, the researcher defined the population first, listed down all the members of the population, and then selected members to make the sample. For this purpose, a self-administered survey questionnaire in Likert format was given to the respondents to answer.  The respondents assessed the retail outsourcing strategies of ZARA and determine whether retail outsourcing have a significant impact with organizational performance. However, due to time and budget constraints, the researcher opted for a smaller sample size. In this regard, the dissertation will only consider 50 employees of the company. ZARA employees have been chosen to ensure that the data and information that will be gathered is pertinent.

 

3.3        Dissertation Instruments

For this study, two dissertation instruments were used to evaluate the relationship of the two contexts. These dissertation instruments included the survey questionnaire methods. A self-administered questionnaire was distributed to the selected s. The questionnaire given to the respondents aimed to assess retail outsourcing strategies of ZARA and identify whether retail outsourcing maximize profit or fair trade. In addition, this also aims to evaluate the advantages and disadvantages of the ZARA’s retail outsourcing strategies as perceived by the respondents in terms of the mentioned aspects above. This focus of the assessment was based on the principles introduced by various authors.

The questionnaire was structured in such a way that respondents will be able to answer it easily. Thus, the set of questionnaire was structured using the Likert format with a five-point response scale. A Likert Scale is a rating scale that requires the subject to indicate his or her degree of agreement or disagreement to a statement. In this type of questionnaire, the respondents were given five response choices. These options served as the quantification of the participants’ agreement or disagreement on each question item. Below are the designated quantifications used in the questionnaire for this dissertation:

1

Strongly Agree

2

Agree

3

Uncertain

4

Disagree

5

Strongly Disagree

 

            The survey method will be facilitated through the use of survey forms and questionnaires. This will include inquiries on the general characteristics, particularly the socio-demographic information of the selected research participants. Quantifiable inquiries will be likewise contained in the survey forms and questionnaire regarding the real advantage of retail outsourcing in general on Zara. The survey format will be distributed to employees of the company. The criteria which will be used to select the employees will be the individuals that have long been in the company for more than 3 years. This will enable the participants to compare and contrast the business processes of their company before and after the popularity of the use of retail outsourcing operations.

 

3.4       Instrumentation

3.4.1. Content analysis

Content analysis was done to analyze communications in order to answer two levels of questions – the descriptive and the interpretive. Descriptive questions focused on what the communication contains. Interpretative questions focused on what the contents was likely to mean. The process entailed searching through one or more communication to answer questions that an investigator brings to the search (Brubaker & Thomas, 2000). Content Analysis was used to analyze and interpret the interviews.

 

3.4.2. Statistical Treatment

The Likert scale was used to interpret items in the questionnaire. These responses were based on the respondents’ assessment of the current investment process model. There were instances that the respondents were asked to rate the effectiveness of implementing the phases in the investment process.

The range and interpretation of the five-point scale are shown in Table 1.  

Table 1: The Five-point Likert Scale

Scale

Range

Interpretation

5

4.50 – 5.00

Strongly Disagree

4

3.50 – 4.49

Disagree

3

2.50 – 3.49

Uncertain

2

1.50 – 2.49

Agree

1

0.00-1.49

Strongly Agree

 

Weighted mean was used to measure the general response of the survey samples, whether they agree to a given statement or not.

The formula in computing weighted mean is as follows:

                                    Where:           f – weight given to each response

                                                            x – number of responses

                                                            xt – total number of responses

 

Results of the survey were presented in tables. Excerpts from the interview were integrated based on the analysis outline. Relevant literatures to support the findings are also included. Basically, the data acquired from the survey was analyzed using Pearson Correlation to find out the significant impacts and relationships.

 

Furthermore, the correlational analysis is conducted in this study. The correlational kind of dissertation method is use due to ethical problems with experiments. Moreover, it is also used due to practical problems with experiments. Moreover, inferring causality from correlation not actually impossible, but very difficult. This mode of study is widely applicable, cheap, and usually ethical.

Nonetheless, there exist some "third variable" issues and measurement problems. The correlational dissertation refers to studies in which the purpose is to discover relationships between variables through the use of correlational statistics (r). The square of a correlation coefficient yields the explained variance (r-squared). A correlational relationship between two variables is occasionally the result of an outside source, so we have to be careful and remember that correlation does not necessarily tell us about cause and effect. If a strong relationship is found between two variables, using an experimental approach can test causality.

To assess the strength of relationship between variables, it is important to get the correlation coefficient, which can take on any value between -1 and +1, since this will tell the strength of the relationship between two ranked or quantifiable variables (Saunders et al, 2003, p. 363). Accordingly, a value of +1 represents a perfect positive correlation, which means that the two variables are exactly related, where, as the values of one variable increase, values of the other variable will increase. Conversely, a value of -1 shows a perfect negative correlation, which also means that the two variables are exactly related, only this time, as the values of one variable increase, that of the other decreases. Finally, correlation coefficients between +1 and -1 stand for weaker positive and negative correlations, and a value of 0 means that the variables are completely independent from each other.

Table 1: Values of Correlation

To assist the researcher in the statistical analysis of the gathered data, the Statistical Package for the Social Sciences (SPSS) was used. SPSS is one of the most widely available and powerful statistical software packages that covers a broad range of statistical procedures, which allows a researcher to summaries data (e.g., compute means and standard deviations), determine whether there are significant differences between groups (e.g., t-tests, analysis of variance), examine relationships among variables (e.g., correlation, multiple regression), and graph results (e.g., bar charts, line graphs).

  3.5        Ethical Considerations

As this study utilized human participants and investigated business practices, certain issues were addressed. The consideration of these issues is necessary for the purpose of ensuring the privacy as well as the security of the participants. These issues were identified in advance so as prevent future problems that could have risen during the dissertation process. Among the significant issues that were considered included consent, confidentiality and data protection.

In the conduct of the dissertation, the survey forms and interview methods were drafted in a very transparent and unbiased e manner to prevent conflicts among respondents.  Employees who participated in the dissertation were given an ample time to respond to the questions posed on them to avoid problems and conflicts as well as inaccuracies in the employee’s answers.

The participants of this dissertation were provided waivers about the confidentiality of employee’s identity and details that they did not wish to disclose. The cooperation of the participants was eagerly sought after, and the employees of the company were given assurance that the collated data from them would be treated with the strictest confidence to make them more open in answering the questions. This was done with the hope that this would promote rapport and trust between the researcher and the respondents.

 

 

 

Chapter 4

Presentation, Interpretation and Analysis of Data

 

In this chapter, the data gathered from the chosen respondents who are mostly managers and employees of Zara. . This chapter discusses the results of the structured survey questionnaires given to the 50 chosen respondents and the result of the survey process which has been initiated among 50 senior managers of Zara. Prior to the initiation of the survey process, the purpose, the importance, and objectives of the study were relayed to the chosen respondents.

They were also assured that all the information they had provided are solely for the purpose of the study while their identities would remain confidential. All questions asked in the survey questionnaire pertain only to the respondents’ insights regarding the significant relationship of china and international apparel industries with each other. For a clearer presentation, the findings of the survey are presented in graphs and tables and the findings of the conducted survey were also presented. To give an appropriate flow of discussion, findings are also divided into sections.

Section one gives a summary of the demographic profile of the participants used in the study. This profile was categorized according to the respondents’ age, gender, civil status, educational attainment, and length of service in their respective apparel industries.

 

Part 1 Demographic characteristics of the respondents

In order to have a general idea on the general social and economic characteristics of the respondents, the data and discussion provided in this section of the results and findings of the study presents the details of the overall description of the sample population.

Age. In terms of age, almost three-fourths of the total number (78%) of respondents comprises the adult group categorization (30 – 59 yrs. old) while the age of the remaining participants compose the managers who are below 20 years old (4%), and 20 to 29 years old (18%). A more graphic illustration of the respondents’ age distribution is detailed in the pie chart below.

Figure 2

 

Gender. The data also indicated that more than half of the respondents (66%) are female while the remaining participants in the research activity are male (34%). It could be inferred that the job nature in Zara provides career opportunities to women than men. Figure 3 below illustrates the specific results of the research study in terms of the gender of the respondents. 

Figure 3

 

Civil status. Meanwhile, the largest portion of the respondents (64%) indicated that they are married followed by those who are single (20%), thus supporting the inference in Figure 1 regarding their familial responsibilities. Managers who claimed that they are separated comprises of 4% out of 50 respondents and widows/widowers (12%). From these research results, it is evident that three-fourths of the respondents (84%) attend to and meet the needs of their immediate family members. See Figure 5 below for the details of the research findings on the participants’ claimed civil status.

Figure 5

 

Years of employment in the company

 The largest portion of the total number of respondents (50%) stated that they have 6-10 years of working experience in the Zara followed by the managers who have gained 11-15 years of career experience (36%) in the Zara. It is remarkable to note however, that there are 14% of the respondents who have 5 years or less of work dedicated to the organization. These findings are clear indication that the company has interesting strategies of minimizing the turnover of the employees and provides good opportunities to company members who have relatively lesser experience in the company operations. Details of these findings are illustrated in Figure 6 below.

 

Figure 6

 

Part 2: Perception of Respondents

            The proceeding sections will present the results in accordance to the Likert technique. It will be remembered that the respondents of the study were presented a set of attitude statements so they can express their agreement or disagreement with the use of a five -point scale, wherein 5 is equivalent to an answer that merits a strong agreement and 1 as showing a strong disagreement (see Likert).

Table 1

Perception of the Respondents about Outsourcing

Statements

1

2

3

4

5

Weighted Mean

Interpretation

1. The outsourcing system used within Zara can be considered as one of the critical success factors of the company

36

14

0

0

0

1.28

 

 

 

 

Strongly

Agree

2. The good supplier partnership of outsourcing used within the company makes it applicable as a method for managing successfully the supply chain of the company.

26

19

0

5

0

1.68

 

 

 

 

 

Agree

3. The different methods of having external connection and links with the outsourcing approach of the company enables them to successfully handles supply chain activities and other logistics

41

9

0

0

0

1.18

 

 

 

Strongly

Agree

4. Outsourcing enables the company to be able to meet the needs and demands of both the customers and suppliers effectively.

38

12

0

0

0

1.24

 

 

Strongly

Agree

 

 

The table above present the perception of the respondents regarding outsourcing. Herein, the answers of the respondents’ ranges from agree to strongly agree.  The employees of Zara have perceived that the outsourcing system used within Zara can be considered as one of the critical success factors of the company. In addition, the respondents also strongly agreed that the different methods of having external connection and links with the outsourcing approach of the company enables them to successfully handle supply chain activities and other logistics and they also strongly agreed that outsourcing enables the company to be able to meet the needs and demands of both the customers and suppliers effectively. On the other hand, they agreed that the good supplier partnership of outsourcing used within the company makes it applicable as a method for managing successfully the supply chain of the company.

Table 2

Advantages of Outsourcing

Statement

1

2

3

4

5

Weighted Mean

Interpretation

focus on company's core competencies,

41

9

0

0

0

1.18

Strongly Agree

better Return On Investment (ROI),

38

12

0

0

0

1.24

Strongly Agree

better cost control,

39

11

0

0

0

1.22

Strongly Agree

more focus on R&D,

36

14

0

0

0

1.28

Strongly Agree

improved the performance of time-to-market,

35

15

0

0

0

1.30

Strongly Agree

no need to do the investment on buying new machines for making new products,

42

8

0

0

0

1.16

Strongly Agree

reduce total cost,

41

9

0

0

0

1.18

Strongly Agree

better product quality and reliability

39

11

0

0

0

1.22

Strongly Agree

flexible retail services,

36

14

0

0

0

1.28

Strongly Agree

less risk on releasing the new product to the market,

35

15

0

0

0

1.30

Strongly Agree

improve the services to the customer (Quick respond for sampling and mass production),

42

8

0

0

0

1.16

Strongly Agree

less investment but faster lead time.

35

15

0

0

0

1.30

Strongly Agree

           

The table above provide the perception of the respondents about the advantages of outsourcing in Zara. Herein, it shows that majority of the respondents strongly agreed that through outsourcing; Zara is able to focus on company's core competencies, have a better Return On Investment (ROI), better cost control, more focus on R&D and improved the performance of time-to-market.

Furthermore, the respondents also perceived that through outsourcing there is no need to do the investment on buying new machines for making new products.  The respondents also strongly agreed that outsourcing reduce total cost, and generate better product quality and reliability, flexible retail services, less risk on releasing the new product to the market, improve the services to the customer (Quick respond for sampling and mass production), and less investment but faster lead time.

 

Table 3

Disadvantages of Outsourcing

Statement

1

2

3

4

5

Weighted Mean

Interpretation

cannot own the retail know-how,

12

8

0

19

11

3.18

Neutral

relationship driven, need to spend more time on communication,

18

9

0

6

7

1.90

Agree

need to spend more time on relationship development,

21

13

0

9

7

2.36

Agree

Not easy to have better communication with supplier partner

23

19

0

0

8

2.02

Agree

high data integration cost,

16

21

0

0

13

2.46

Agree

  product knowledge will be disclosed to the suppliers

35

15

0

0

0

1.30

Strongly Agree

not easy to build up the trust with the supplier,

41

9

0

0

0

1.18

Strongly Agree

            The table above presents the perception of the respondents with regards to their perception on the disadvantages of outsourcing. Based on the result and analysis, the answers of the respondents corresponds from neutral, agree to strongly agree.  The respondents have neutral perception that one of the disadvantages of outsourcing is the inability of the management to own the retail know-how.

            On one hand, the respondents agreed that the disadvantage of outsourcing is its relationship driven which do  not have more time on communication, need to spend more time on relationship development,  uneasiness to have better communication with supplier partner. They also agreed that outsourcing results to high data integration cost. lastly, the respondent strongly agreed that  product knowledge will be disclosed to the suppliers and it is uneasy to build up the trust with the supplier.

Table 4

Alternative Measures on Outsourcing Process

Statements

1

2

3

4

5

Weighted Mean

Interpretation

1. Having an effective process of production planning and the corresponding inventory control process.

32

18

0

0

0

1.36 Strongly Agree

2. Ensuring a proficient process of distribution and the underlying logistics process

31

19

0

0

0

1.38

 

Strongly Agree

3.  Ability to measure the performance of the supply chain activities for maintenance and sustainability of the supply chain process within the organization.

28

22

0

0

0

1.44

 

Strongly Agree

4.  Conducting Supply chain evaluation based on customer responsiveness.

39

11

0

0

0

1.22

 

Strongly Agree

5.  Ensuring Customer/client/supplier satisfaction for every supply chain process involved in the company

23

27

0

0

0

1.54

 

Strongly Agree

6. Having a continuous coordination among important suppliers.

29

21

0

0

0

1.42

 

Strongly Agree

7. The enterprise network infrastructure must work together seamlessly since its effectiveness depends on the ability of users to access up to the minute information across the supply chain.

28

22

0

0

0

1.44

 

Strongly Agree

8. Organizations must capitalize on customers' active participation in organizational activities so as to gain competitive advantage through greater sales volume, enhanced operating efficiencies, positive word-of-mouth publicity, reduced marketing expenses, and enhanced customer loyalty

31

19

0

0

0

1.38

 

Strongly Agree

 

The table above shows the alternative solutions that can be suggested by the employees of Zara which are facing problems in terms of managing effectively their outsourcing. Outsourcing covers the entire integrated process of acquiring raw materials, transforming the raw materials into final products from the outsource companies, and delivering these products from Zara end customers. The highest level of outsourcing involves two integrated processes: first are the process of production planning and the corresponding inventory control process; and second are the process of distribution and the underlying logistics process. (Martin 1994). Herein, the participants strongly believed that this process is a really helpful idea to manage outsourcing effectively or successfully. 

            Production design involves the plan and management of the entire production process. The production process is a cyclical and continuous process but it generally starts with the acquisition of raw materials and other necessary resources followed by the scheduling or allocation of resources in the succeeding production cycles. After which the business develops a retail design and set target outputs for every deadline in its retail schedule. Inventory control process refers to the succeeding development of a plan and system of handling and controlling the flow of resources such as the codes for the different resources and a warehouse storage plan. This also includes a synchronized system of conducting inventories to determine the status of the supply of raw materials and final products and to prevent damage and wastage of raw materials and final products. (Beamon 1998)

            After these processes, a business firm has to develop a distribution and logistics process that involves a system of transporting final products from the warehouse to the distribution outlets and directly to customers. The considerations are inventory retrieval in the warehouse, arrangements for the transportation of products to the different channels of distribution and the delivery of the final products to end consumers. (Beamon 1998)

            These two processes interact in the operations of the business to develop the integrated outsourcing of the business. The plan and management of the integrated outsourcing determines the extent that the outsourcing operates as a unit in attaining the target performance objectives. Determining the performance of outsourcing in goal achievement requires the establishment of a performance measure. The performance measure is used to determine the effectiveness of the current outsourcing of the business or to compare alternative systems to find one that is appropriate to the needs of the business. Performance measures may also be used as basis for the design of a system, which means that a system of checks is incorporated into the system to ensure regular evaluation of the implementation of the system. Generally, there are two forms of performance measures, which are the qualitative and the quantitative measures.

            Outsourcing evaluation based on customer responsiveness involves the achievement of these goals: 1) fill rate maximization or increasing the number of customer orders met on time; 2) product lateness minimization or decreasing the period between the order and actual delivery; 3) customer response time minimization or decreasing the period between the customer order and receipt of product; 4) lead time minimization or decreasing the period between the beginning and end of the production process; and 5) function duplication minimization or eliminating the assignment of a single task to two or more business entity. (Nicoll 1994)

 

Part 3 Industry Analysis: Zara

             This part of the paper will provide the internal and external analysis of Zara. Herein, the marketing tool used to do this is SWOT Analysis. The discussion also includes the analysis of the strategic capabilities of Zara.

 

SWOT Analysis of Zara

            This part of the paper will analyze Zara using SWOT analysis.

Strengths

• The company used vertical integration in its supply chain approach while most of its competitors outsource their products as well as other process to countries with cheaper labor like China. This enables Zara to shorten turnaround times and attain great flexibility and reduce stock to a minimal and diminishing fashion risk to the greatest plausible context.
• The company’s business model is based on producing the latest styles in high quality apparel goods at an affordable price. With their creative team of more than 200 employees who are professional and well trained, the design process of the company is able to meet the demands of their target market. Herein, the information travels from the clients to the designers, and transmit the demand as well as concerns of the clients.
• Zara has been able to manage the shortening of lead times by several period and have the ability to turn out new apparel products in a week to meet the needs of the clients (Jones, 2005)

Weaknesses

• The inability to penetrate American market is one of the weaknesses of Zara.  Zara’s presence in the US is still unstable because of the competitors. This is because Zara has European preferences.
• Inability of Zara to replicate their winning European business approach in the United States which include strong production and distribution strategy so as to shorten the time of production as well as lead times.
• The company is also struggling in terms of acquiring economies of scale. The use of vertical integration often results to their inability to acquire economies of scale which implies that Zara don’t have the opportunity to gain advantage of producing large quantities of products for a discounted rate.

Opportunities

• The company can have great opportunities in terms of internalization. Ever since the decision of the company to internationalize in 1988, Zara has been able to gain experience to be competitive in the international market Internationalization. The company still have the chance to be more active in the global market by opening more stores in different countries.
•  Internet/Company Website – Because of the internet Zara is able to reach its customers in diverse locations around the world. The company’s website, aside from its stores, also serves as a tool for Zara and its customers to communicate.

Threats

• The disruptions may threaten the operation of Zara. The operations of the company from design to their logistics are concentrated in La Coruna Spain. Though the company is considered to have the most efficient supply chain, the disruptions in their headquarters may have an effect on the global operation of the company. Zara is quite vulnerable to these risks like natural disaster, weather, terrorism, political instability, and labor strike that may happen in Spain.
• The centric business approach in Spain makes the company more susceptible in terms of financial issues, for instance Euro has been strong relative to the dollar. Different low cost retail countries have currencies which are either fallen against the Europe or pegged to the dollar. This implicates that the Spain-centric costs of Zara rose at higher rates as compared to rival industries, which present greater challenge in keeping profit margins check.
• Another threat is the rising cost of transportation. Due to the erratic costs of transportation as well as continued rise of fuel, the model of twice-weekly delivers which have been vital for defining the experience of Zara can become expensive to maintain.

 2.3 Strategic Capabilities of Zara

2.3.1 Innovative Business Model

Inditex is the company which owns Zara. It can be said that Zara has innovative business approach which serves as the base of their strategic capability. Such business approach enables Zara to provide utmost value t their clients as well as their continuous innovation. The company has been able to consider their clients as the beginning and the end of their business. Nonetheless, Zara has pushed forwards by providing their target market an active role and position from the start of the supply chain and turned it as a principal driver for their entire operations. The feedback and other suggestions of the clients are specifically considered by their design team, which establish proposals which are sent to their stores as soon as possible. The beginning of the business model of Zara is their store which is essential to the industry’s business model because this is where the information from the clients are collected and received. Such information is sent to design centers as well as commercial departments in real time. Herein, the response of their clients with new product requests sets the operations going. The stores are receiving new products twice week, providing quick response to their clients.

2.3.2 Excellent Supply Chain Management

For the store of Zara, to be able to provide cutting edge fashion with lower prices, needs the company to exert strong effect over almost the entire garment supply chain which includes fashion design, purchasing operation, production, distribution as well as retailing. The company produces and creates clothing lines which result the latest in the fashion industry, but the company beat other designers to market. Since the company use inexpensive fabrics, the company can give the clients affordable price. To attain such competitive advantage, the company controls most of their supply chain by taking control of the design, warehousing or storing, distribution and logistics functions.

The company design the organization, operational activities, performance measures and even the configuration of the office to enable information and product transfer easily. Since Zara’s merchandize is generated in small numbers, provided on predictable schedules, as well as displayed in the stores for only short period, clients visit the stores often. With this the company can reduce cost in terms of advertising. The scheduling approach of the company is also very efficient.

The following are the specific operations and operations of the company:

• Centrally Managed Inventory – managed the timely delivery of clothing to their stores in the market.
• Reduced Design Cycle Time – This enables the company to timely response to items which have potentials and ability to easily change or enter new products and designs.
• Strong IT System – permits almost urgent communication of sales and inventory information all over the market place
• Logistics and Distribution – the company moves their products within hours to their destination with effective scheduling of shipments

 

Chapter 5

Summary, Conclusion and Recommendation

 

This part of the study will provide the discussion of the summary, conclusion and recommendation based on the results presented in the previous chapters. The focus of the study is to determine in detail the researcher’s findings on whether retail outsourcing Zara maximizes profit or fair trade. Specifically, this paper aims to achieve the following objectives.

      Identify the context of retail clothing outsourcing.

      Identify the perception of Zara employees about outsourcing as a business strategy.

      Determine the advantages and disadvantages in Zara.

      Know whether retail clothe outsourcing maximize profit or fair trade.

      identify alternative measures to improve outsourcing

 

This is done by carefully examining the answers from the employees of the company e. Data collected from the managers provided answers to the queries of the researcher.  The primary source of data will come from a questionnaire that will be distributed to the respondents coming from companies who are implementing this kind of leadership approach.  Their cooperation was fervently soughed after and its descriptive analysis was undertaken by the researcher through the descriptive research method that uses observation and surveys.

 

SUMMARY

Profile of the Respondents

The respondents for this study were composed of 50 employees directly from the targeted industry, i.e. Zara. Employees were chosen so as to make sure that the researcher will only get pertinent data from pertinent source. The description of the respondents was based on their age, gender, civil status and the length of service within the company. The researcher opted to choose Zara employees as respondents because of their knowledge regarding the outsourcing approach of the company. And with the use of the outsourcing context in their company, the researcher is assured that all the respondents are knowledgeable enough regarding the topic.

Statistics have shown that  almost three-fourths of the total number (78%) of respondents comprises the adult group categorization (30 – 59 yrs. old) while the age of the remaining employees  who are below 20 years old (4%), and 20 to 29 years old (18%).

In terms of gender, statistics show that 66% of the respondent’s female while the remaining participants in the research activity are male (34%). It could be inferred that the job nature in Zara provides career opportunities to women than men. In terms of civil status, it has been revealed that most employees in Zara are already married comprising (64%) of the total employees.

In line with the length of stay in the company or the number of years working in the company, it is said that most of them are working in Zara for 6-10 years. These findings are clear indication that the company has interesting strategies of minimizing the turnover of the employees and provides good opportunities to company members who have relatively lesser experience in the company operations.

 

 

Conclusions

Outsourcing system can be considered as one of the most influential phenomenons in the retail industries. Its impact worldwide has been tremendous, and perhaps, maybe even contagious. Companies from all over are trying to integrate the concept of an effective outsourcing as part of their management system and business practice, specifically in handling their supply chain activities and operations. Indeed, many studies and published documents have noted significant aspects on the real meaning of outsourcing, how it affects organizational performance. Based on the findings of this study, the researcher concludes the following:

1.     The respondents who took part in this study are already mature in age, responsible and reliable.  They are also aware about the existence of outsourcing strategy within their company and how it enhances the organizational performance of Zara.

2.     The respondents agreed that outsourcing is an important approach which can be used by many retail industries provided that they have been able to determine the advantages of this to the operation of the company.

3.     The respondents also strongly agreed that the outsourcing has both advantages and disadvantages for Zara

4.     Based on these results, it can be concluded that outsourcing can be considered as an approach that maximize profits for Zara depending on how the company effectively used it?

 

 

Recommendation

Organizations could not be able to attain its mission, objective and vision, if it does not implement a strategic management system that will deliver all the functions for ensuring competitive and developmental organization. With outsourcing along with the identified critical success factors, Zara are able to become successful in the field of retail and delivering products or services. This approach helps the company to have better commitment on the things that they do specifically in handling effectively their supply chain procedures.

 

Hence, with the result of this study, it is recommended that other retail industries like Zara. must consider the implementation outsourcing and other given alternative measures or approach within their organization. Although, outsourcing  have some flaws, the optimistic view and the acceptance of the organization can make these flaws as a challenge to have a more effective supply chain system.

 

By and large, the study only have small number of respondents which may have  significant effect in terms of result, in order to have a more reliable and evident result, it is recommended that other studies should be conducted focusing on the same topic.

 

Reference

 

Antonucci, L. (1998). The Pros and Cons of IT Outsourcing. Journal of Accountancy, 185 (6), 26+.

Arnold, U 2000, ‘New dimensions of outsourcing: a combination of transaction cost economics and the core competencies concept’, European Journal of Purchasing & Supply Management, vol. 6, pp. 23-29.

Benamati, J. & Rajkumar, T. M. (2002). The application development outsourcing decision: An application of the technology acceptance model. Journal of Computer Information Systems, 35-42.

Bernstein, A. (1995, July 17). Outsourced - And Out of Luck. Business Week 3433 (Industrial/Technology Edition), 60-61.

Burzawa, S. (1995, January). Benefit Plan Administration Challenges Have Employers Looking at Outsourcing, Technology. Employee Benefit Plan Review, 8-11.

Cassell, C., & Symon, G. (1994). Qualitative research in work contexts. In C. Cassell, & G. Symon (Eds.), Qualitative methods in organizational research (pp. 1-13). Thousand Oaks, CA: Sage Publications.

Creswell, J.W. (1994) Research design. Qualitative and quantitative approaches. Thousand Oaks, California: Sage.

David, FR 2003, Strategic Management, Pearson Education, Upper Saddle River, New Jersey.

Domberger, S 1998, The Contracting Organization: A Strategic Guide to Outsourcing, Oxford University Press, Oxford.

Earl, M. (1996). The Risks of Outsourcing IT. Sloan Management Review, 37, 26-32.

Economist 330 [7853]. (1994, March 5). Farming Out the Farm, 79

 

Göransson, Susanne and Jönsson, Angelica and Persson, Michaela (2007) Extreme Business-Models in the Clothing Industry - A Case Study of H&M and ZARA. Högskolan Kristianstad/Institutionen for ekonomi.

 

Greco, J. (1997). Outsourcing: The New Partnership. Journal of Business Strategy, 18, 48-54.

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Hormozi, A., Hostetler, E. & Middleton, C. (2003). Outsourcing Information Technology: Assessing Your Options. SAM Advanced Management Journal, 68 (4), 18+.

Irwin, R. D. (1995). Advantages of Outsourcing Strategies, Retrieved November 24, 2004 at www.csuchico.edu

Juma’h, A.H. & Wood, D. (1999). Outsourcing implications for accounting practices. Managerial Auditing Journal, 14 (8), 387-395.

Krajewski, L.J., Ritzman, L.P. “Operations Management: Strategy and Analysis.” 3rd Ed., Prentice Hall, 2000.

Mays, N. and Pope, C. (2000) Qualitative research in health care: Assessing quality in qualitative research. BMJ, 320, pp.50-52

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Ryan, C. (1996). Outsourcing. Journal of Small Business Management, 34.

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White, R. & James, B. (1996). The Outsourcing Manual. Gower Publishing Limited England.

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Williamson, O.E. (1988). The logic of economic organization. Journal of Law Economics and Organization, 4 (1), 65-93.

 

 

Questionnaire

The researcher is conducting a study to investigate whether retail clothes outsourcing in Zara maximize profit or generate fair trade.  To enable the researcher to make the necessary conclusions and recommendations for this study, it would be very appreciated if you answer all the items in the questionnaire.

            Information given will be treated in strictest confidence.

Thank you.

                                                                                                   

 

Part 1.  Profile of Respondent

 

Direction: Please answer all questions.

 Are you a full time staff (  ) or part time staff (  )

 

a.            Age

Below 25                   ( )        

25-35                          ( )        

36-45                          ( )        

                   46-55                           ( )

                   56-above                 ( )

 

 

b.            Gender

Male      ( )

Female ( )

 

c.            How long have you been working in Zara?

Less than 1 year            ( )

1-2 years                       ( )

3-4 years                       ( )

5-6 years                       ( )

7-8 years                       ( )

            9- above                        ( )

Part 2: Perception of the Respondents

  Direction:       Check the number corresponding to your answer

 

                        1          -           Strongly Disagree

                        2          -           Disagree

                        3          -           Uncertain

                        4          -           Agree

                        5          -           Strongly Agree

 

a.    Perception about Outsourcing

 

 

Statements

1

2

3

4

5

1. The outsourcing system used within Zara can be considered as one of the critical success factors of the company

 

 

 

 

 

2. The good supplier partnership of outsourcing used within the company makes it applicable as a method for managing successfully the supply chain of the company.

 

 

 

 

 

3. The different methods of having external connection and links with the outsourcing approach of the company enables them to successfully handles supply chain activities and other logistics

 

 

 

 

 

4. Being able to meet the needs and demands of both the customers and suppliers effectively.

 

 

 

 

 

 

 

 

 

 

 

b.    Advantages of Outsourcing

 

Statement

1

2

3

4

5

focus on company's core competencies,

 

 

 

 

 

better Return On Investment (ROI),

 

 

 

 

 

better cost control,

 

 

 

 

 

more focus on R&D,

 

 

 

 

 

improved the performance of time-to-market,

 

 

 

 

 

no need to do the investment on buying new machines for making new products,

 

 

 

 

 

reduce total cost,

 

 

 

 

 

better product quality,

 

 

 

 

 

flexible retail services,

 

 

 

 

 

less risk on releasing the new product to the market,

 

 

 

 

 

improve the services to the customer (Quick respond for sampling and mass production),

 

 

 

 

 

better product quality and reliability,  and

 

 

 

 

 

less investment but faster lead time.

 

 

 

 

 

 

 

 

c.    Disadvantages of Outsourcing

 

Statement

1

2

3

4

5

not easy to build up the trust with the supplier,

 

 

 

 

 

cannot own the retail know-how,

 

 

 

 

 

relationship driven, need to spend more time on communication,

 

 

 

 

 

need to spend more time on relationship development,

 

 

 

 

 

Not easy to have better communication with supplier partner

 

 

 

 

 

high data integration cost,

 

 

 

 

 

  product knowledge will be disclosed to the suppliers

 

 

 

 

 

not easy to build up the trust with the supplier,

 

 

 

 

 

cannot own the retail know-how,

 

 

 

 

 

 

 

 

 

d. Alternative Measures to Improve outsourcing Process

 

Statements

1

2

3

4

5

1. Having an effective process of supply chain and distribution planning and the corresponding inventory control process.

 

 

 

 

 

2. Ensuring a proficient process of distribution and the underlying logistics process

 

 

 

 

 

3.  Ability to measure the performance of the outsourcing activities for maintenance and sustainability of the outsourcing process within the organization.

 

 

 

 

 

4.  Conducting outsourcing evaluation based on customer responsiveness.

 

 

 

 

 

5.  Ensuring Customer/client/supplier satisfaction for every outsourcing process involved in the company

 

 

 

 

 

6. Having a continuous coordination among important suppliers where outsourcing is taking place.

 

 

 

 

 

7. The enterprise network infrastructure must work together seamlessly since its effectiveness depends on the ability of users to access up to the minute information across the supply chain.

 

 

 

 

 

8. Organizations must capitalize on customers' active participation in organizational activities so as to gain competitive advantage through greater sales volume, enhanced operating efficiencies, positive word-of-mouth publicity, reduced marketing expenses, and enhanced customer loyalty

 

 

 

 

 

 

 

 

 

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