European Union And Its Application In Zara Commerce Essay

In today’s competitive world, the organisations have to focus on the development of effective logistics and supply chain that will ensure that it is able to meet the demands of its customers at a consistent pace. With the advent of time and increased trend of globalisation across the world, the trade barriers are fading out and favourable trade policies are promoting fast and quick exchange of goods and services (European Commission, 2010).

The latest trend in the market is creation of an integrated logistics and supply chain infrastructure that is supported by the technologically advanced systems such as SAP, Enterprise Resource Planning (ERP), E-Retailing, Radio Frequency Identification (RFID) and many more (European Logistics Report, 2012). All leading corporations that are operating on international level have ensured that they have a well-coordinated Supply Chain Management and Logistics system that will employ the best systems for procurement, warehousing, inventory management, storage and inbound and outbound logistics (Johnson & Turner, 2006).

In order to gain competitive edge in the market especially European market, the logistics and supply chain system has to be developed after exploiting all available options so that the inventory is effectively managed and there is proper balance between the demand and supply of raw materials, inventory and goods (DeMeyer, Van Dierdanck & Vercecke, 1996). There has been drastic shift in the European Logistics and Supply Chain Business operating systems as its market has been transformed into single market that allows the operating firms to take advantage of various economies of scale.

European Logistics and Supply Chain System

In the European economy, both logistics and transport are considered to be its primary means of support that have mean the contributing factor in the robust growth of economy. According to European Union (2012), there is strong relationship between the economic growth and level of transportation escalation. It is believed to be the fundamental part of every society that is the main factor for intensive growth of every country’s economy and creates ample opportunities of job for the citizens. In European Union, more than ten million people are employed in the transport and logistics industry which makes a significant contribution in GDP i.e. almost 5% (Evans, 2000).

The European Commission (2011) highlighted in its annual report that a well-developed system of transportation is the primary driving force for dynamic performance of the member states. For all European companies, their logistics are the vital areas of concern as the storage and transport cost accounts for about 10-15% of the total cost of a product that is completed and finished. Almost every corporation is spending certain percentage of the budget on effective transportation system for its goods and services which is usually about 13.2% (European Commission, 2011).

The market of European Union can work smoothly only when there is a well-integrated transport system which provides assistance in free movement of the goods within its territory; it is mandatory for the cohesion of territories and long-term economic growth. The pre-requisite for an effective logistics and supply chain system is the transport system that has interoperability of networks and harmonisation among rules.

European Transport Policy

In order to develop an excellent and well-defined European Transport Policy for the entire European Union region, the European Commission has undertaken various steps to address the obstacles that are hampering the creation of an effective transport system. It is reported by European Commission (2012) and Harps (2002) that the region is the central hub for manufacturing of products for various leading companies and they are looking for accurate logistics and supply chain system that can boost their performance in the market. The key mediums of transportation used are air, sea, road and rail but the latest trend is of intermodality.

Intermodality is defined as the mechanism in which different modes of transportation are used along the entire chain of transportation to ensure that the overall supply chain system is effective and promotes the attainment of desired efficient logistics system objectives (Tseng, Yue & Taylor, 2005). The European Transport Policy has been developed to provide guidance to the companies about developing an appropriate and highly efficient logistics and supply chain system so that they can supply goods and services with precision worldwide (Cooper, Browne & Peters, 1994).

Since there are many companies that are operating in European Union region, both markets and European Transport Policy have been modified to a greater extent to incorporate all the requirements of the players of the diversified industries ().

Changes in European Market for enhanced growth of Logistics and Supply Chain system

Up till now, the market of European Union has evolved from national emphasis to regional and finally to pan-European but now it is moving more towards customer-oriented. With the advent of Single Market which is also known as Common Market, the logistics networks of all companies have evolved and they have been developed to ensure compliance with the latest market trends (EIU, 1999).

The organisations are restructuring their strategies of distribution in Europe and even revisiting their networks so that they can move closer to internationalisation by sourcing the products from other fields and ensure supply of products from one central location (). The developmental phases of the single market can be broken down into three parts i.e. pre-1993 period, 1993-present period and future period.

In pre-1993 period, there was no specific European logistics strategy has European Union was not established at that time. All companies had a single national setup along with a distribution centre that was located in every major country of their operation. Every organisation used to do sourcing directly from the plants of manufacturing present in Europe and the logistics strategy differed among every country as it was developed in accordance to the respective country. Most of the offerings for supply chain services were similar as the suppliers followed the one-size-fits-all concept. The domestic carriers were the main source of transportation and majority of the third-party logistics providers were either regional or local companies (Harps, 2002).

Larsen (2000) has stated that after the formation of European Union, all member states have been able to achieve robust growth in their economic performance and they have exploited all benefits for doing expansion globally at an accelerating rate. After the era of 1993, European Union opened its borders internally because global outsourcing was heavily demanded by the companies and factories of the manufacturers were starting to become focussed on global level. As a result of shift in the logistics strategy, the organisations revamped their supply chain management structures so that they were consistent with the European Logistics and Supply Chain Business Operations System.

In major countries across Europe, the Pan-European Distribution Centres marked their developments in the region and they extended their importance by incorporating all processes required in the effectiveness of logistics and supply chain system. These centres postponed the role of manufacturing and combined some value-added activities to various traditional activities such as receiving of raw materials, transportation of inventory and shipment of the finished goods. In fact, Pan-European Distribution Centres allowed the companies to transfer their transport needs to the integrators who had the facilities of doing direct shipment from one central location (McDonald & Deardsen, 1994).

With the help of the centralised and Pan-European networks of distribution the products were easily shipped to the customers living in far off distant places and they helped the companies in saving huge amount of time and money. However, the companies are changing their logistics and supply chain systems to develop a perfect blend of both decentralised and centralised facilities for distribution so that they can strategically fulfil all their business objectives. With the developments taking place at an accelerating pace in the market, the entire logistics and supply chain system will get extraordinary efficient and competent for the organisations (Cousins, Lawson & Squire, 2006).

Key Drivers of change in European Transport Policy

Since transport is the crucial element of logistics and supply chain system, the European Transport Policy has been developed by the European Commission so that the companies can abide by the laws related to the transportation policy. According to Walker and Jones (2012), the main driving forces that are impacting the European Transport Policy are as follows:

Political Developments – The liberalisation in the transport sector like US-EU Open Skies Initiative has a significant impact on Europe as it is expected to increase the traffic and create competition within the region. The international liberalisation of the trade has even boosted the transport as there is an increase in need of transportation of goods and services because of growing trend of outsourcing. There has been a rise in the environmental concerns which is leading immense pressure on sustainability within the environment.

Economic Developments – There are many economic drivers that are impacting the development of Europe’s economy on the targeted level. The key economic factor impacting the economy is the rising oil prices along with an increase in the transportation level that is closely linked to the economic growth level. As the income of people is increasing, there is an increase in the number of car ownerships and there is an increase in the GDP of the country as a whole.

Environmental Issues – The environment is one of the main areas of concern for any country and the transport sector has responsibility of about 28% of the Carbon dioxide emissions in European Union. The policymakers are identifying the alternatives that control the emission of Carbon dioxide by investigation various options for the road transport. As a result of growth in transport, the routes have become congested that have been hampering the transportation at both commercial and passenger level.

Technological Drivers – Since both increase in prices of fuel and environmental issues are primary areas of apprehension, there is an increase in the work of researchers to indentify excellent alternatives for the transport technologies. However, an enhanced level of efficiency is expected in the transportation of all goods by adoption of latest technologies such as RFID.

Socio-demographic Changes – The European workforce is getting older now and there is a huge reduction in the labour force. The companies are forced to recruit women in the manufacturing and logistics sector. The organisations are even compelled to provide additional training to the workforce so that their skills are enhanced and they have to incur more cost for recruiting new workers who are more competent and skilled.

ZARA – Leading Fashion Retailer in Europe

ZARA is a top-ranked Spanish retailer of clothing and accessories that is headquartered in Artexio, Galicio. It was founded by Rosalia Mera and Amancio Ortega in 1975 and it is the leading flagship chain store of the Inditex group. ZARA has been successfully meeting the demands of its customers by employing an entirely different strategy from its competitors. According to Zhelyazkov (2011), ZARA follows a differentiation strategy of Porter’s generic strategies and focuses on enhancing the value chain by developing highly efficient and effective logistics, distribution and supply chain system.

According to Cook, Heiser and Sengupta (2011), ZARA used to follow time-to-market strategy i.e. competing on the basis of time before the formation of European Union. After 1993, it shifted its policy to agile supply chain which meant that every step in logistics and supply chain was visible and well-coordinated. It is believed that the company needs only two weeks of time to develop the unique products and deliver them to the stores and it has made a reputation of launching more than ten thousand new designs on yearly basis (About US, 2012). The three key success factors of ZARA are short lead times, limited number of products and extensive range of styles.

Agile supply chain of ZARA

In order to get competitive edge in the market, ZARA is employing an agile supply chain which allows it to make the best use of Quick-Response System. Agile supply chain is described as the supply chain in which all elements work together in the form of a cross-functional team with the aim of eliminating unnecessary steps and predicting the demands of customers beforehand so that the products are available in advance in the market (Zhelyazkov, 2011). ZARA has been successful in the market because of its focus on designing of an excellent and efficient logistics and supply chain system.

The entire process of supplying the goods to ZARA stores is started at the cross-functional teams who are working in the design department located at the headquarters of company in La Coruna. Almost all the designs are contemporary and inspiration for them is drawn from conducting various researches in the market by visiting university campuses, pubs, fashion shows, competitor’s offerings and cafes in addition to other places where the target customers can be found. Further data about the customers is gathered from EPOS data and online sources from across the websites.

When the design that has been proposed is accepted, the specialists of commercial department move ahead with their tasks and do negotiation with the suppliers, decide about the purchasing price, carefully analyse the cost and margins and then fix price position of cross-currency for garments. It has a global sourcing policy which is organised by the buying offices present in the Netherlands, China and UK; the wide supplier base ensures that the best fabric is selected and there is less risk of dependence on one supplier.

More than 40% of the garments which have the least transitory appeal are mainly imported in the form of finished goods from various low-cost centres of manufacturing located in the Far East, while, the rest are produced on quick responses in Spain by using the automated factories of ZARA that has a small network of contractors (Godsell et al., 2011).

Value Chain Analysis of ZARA

ZARA ensures that there is a proper balance between in-house and outsourcing operations. The operations that enhance the cost-efficiency of the company via economies of scale are done in-house such as packaging, labelling, cutting and dyeing. The labour-intensive tasks required at the finishing stages are usually done by the subcontractors’ network that comprises of more than 300 firms and each one of them has specialisation in specific garment type or process of production.

In order to respond quickly to the demands of the customers, the process is flexible and the production level is always kept slightly less that the expected level of sales so that the stock is always moving. It believes in having under-supply of stock as opposed to stocking huge amount of inventory. When the finished goods have been labelled, packaged and price-tagged, they are then transported by the third-party contractor either by road or air to their destinations. There is only one distribution centre that is located in the company’s headquarters i.e. La Coruna. Every store of ZARA gets fresh stock twice a week that has been pre-determined by the design department of the company (Zhelyazkov, 2011).

Figure : Designing, production and marketing cycle of ZARA

(Source: Godsell et al., 2011)

The entire cycle of designing, production and marketing has declined to 22-30 days that is too less when compared to the industry average of nine months as the lead time. The main factor that has supported such an efficient logistics and supply chain system is the investment in Information technology. The 500,000 sq m. and five storey centre of logistics comprises of about 200 kilometres of moving rails along with an automated routing system that delivers all electronically tagged garments at the proper bays of loading for dispersal through the third party distributors.

Almost all the products can be dispatched within eight hours of their arrival and it has been found that almost 98.9% perfect and the shrinkage level is even less than 0.5%.

Implications of changes in EU Policy

With the changes in EU Policy especially transport policy, ZARA has been able to develop a highly competent logistics and supply chain system. It has been able to utilise all available options within European countries to a maximum level. With the help of development of a good logistics system within the region, the transportation of goods, materials and inventory has become quick and responding to the customer changes on fast pace has become convenient for the companies. The biggest advantage for ZARA has been that it has been able to expand into European countries strategically and has even exploited all available opportunities so that it can maintain its core competencies in the production and operations area.

Future of Logistics and Supply Chain System in European Union

Since European Union is continuously striving to develop a good transportation system for development of an effective logistics and supply chain, there are huge chances that the countries are able to take advantage of developments in the transport and logistics sector. In years ahead, there kind of revolutions are expected in this sector i.e. increased trade globalisation, development of the information era and continuously changing preferences and demands of customers.

In order to provide excellent logistics and transport sector to the companies, the concerned authorities will have to take certain steps to develop the best logistics and supply chain system for the business operations. Some of the suggestions made by the European Commission (2012) are:

Improve interoperability by standardising the processes of loading units.

Set up an entire network of transfer of nodes across Europe.

Eradicating all differences found in the national regulations that are the barriers for achievement of flexible and smooth interoperability around Europe.

Using Information Technology to boost the performance of key players and define a single most authentic and worthwhile ICT system that can meet all requirements of the participants.

Ensuring harmonisation of paperwork and reducing and simplifying the number of the documents required for transportation.

Review the current regulations at both international and European levels for development of an approach that is integrated for implementation of the measures required for security related to the transportation along with the assessment of risk along the entire chain.

Enhance the co-operation among the players among the supply chain that can result in improved competitiveness via the reduced costs, high service quality and smaller lead times.

Conclusion

All organisations that are competing in today’s dynamic and ever changing environment have to ensure that they have a well-coordinated and highly integrated transport and logistics system that will allow them to meet the requirements of their customers. E-commerce and RFID are gaining immense popularity in the market and it is expected that the every supply chain will have to employ these technologies in their systems to have an efficient inventory management system along with warehousing facilities, cordial relations with suppliers and enhanced production locations that assist in appropriate deployment of finished goods.

Third party logistics service providers have become an integral part of the entire logistics and supply chain systems and it is vital for the companies to implement an appropriate policy of logistics management. All the companies in Europe have huge potential of growth as the trade barriers have faded and there are ample opportunities available for them to enhance their production and operations within the region. Hence, European Union offers immense range of options to the organisations for development of a cost-effective and flexible logistics and supply chain system for efficient management of their business operations.