Zara’s Supply Chain – Case study

Table of content

• Zara’s Vision and Mission

• Competitive Strategy

• Logistical Drivers

• Cross Functional Drivers

• Key Performance Indicators

• SWOT

• Some sugesstions

“Zara is committed to satisfying the desires of our customers. As a result we

pledge to continuously innovate our business to improve your experience. We

promise to provide new designs made from quality materials that are

affordable”.

“Through Zara’s business model, we aim to contribute to the sustainable

development of society and that of the environment with which we interacts”.

ZARA

VISION

MISSION

Strategy of ZaraC

reat

ing

and

mar

keti

ng • Degree of

development of Zara is quite low

• Spanish firm has 12 collections a year

• Communication is minimal

• You cannot buy over the internet

Tim

e • Manufacture and delivery can be done within fortnight

Co

mp

etit

ion • Cannot afford

to operate in an extremely competitive market

• Distribution represents up to half the cost of the product

• competitive advantage low distribution costs

Mar

keti

ng

and

sal

es • inventory turnover is very high (twice a week)

• Signs are open in the inner cities

• Stores are proper named

• offer cutting edge fashion at affordable prices

• move from identifying a trend to having clothes ready for sale within 30 days

Fashionable, affordable clothes

• produces around 12,000 styles per year

• typical Zara’s customer visits the store 17 times a year

Large choice of styles

• Creates artificial scarcity

• Scarcity in fashion increases desirabilityScarcity

• spends relatively little on advertising

• Reach target market by locating stores in prime town-center Prime locations

Zara’s Values

Supply Chain Drivers

Supply Chain Drivers

Cross Functional

Drivers

Information SourcingPricing

Logistical Drivers

Inventory Transportation Facilities

Logistical Drivers

• Launched approximately 11,000 new items per year, compared to competitors

• High inventory turnover – 14 days lead time – 6 day worth inventory

• Small quantities of latest fashion – Scarcity – Leading to increased demand

• Focused on reducing response time - Stock outs are not uncommon

• Short shelf life attracts more customers more often

1. Inventory

Zara holds 6 days worth of inventory, while H&M holds 52 days, and Spanish retailer Cortefiel holds 94 days of inventory

Logistical Drivers…….

• Main distribution center – Located in Coruna, Spain

• Centralized Distribution with 2000 stores in 88 countries

• Production and design facilities are in close proximity – 22 factories 18 in Spain

• Stores are electronically linked to the company’s headquarters – But no inter store connections because of DOS operating system

• Currently building a new state-of-the-art warehouse

and facility complex in Zaragoza, Spain

2. Facilities

3. Transportation

• Effective and efficient transportation network – Mostly Planes and Trucks

• Each travel through Main Distribution Centre – Even Asian products

• High velocity shipping – For regular fashion

• Coordinates with all aspects of logistics

• Final step in order fulfilment

• Fast delivery time

Logistical Drivers……….

ZARA’s Rate for the Global Distribution –

from Spain

China – 48 hours

U.S. – 48 hours

Cross-functional Drivers

• Information is the biggest driver as it directly effects the responsiveness and efficiency of supply chain

• Clubs, Universities, Fashion shows, social gatherings are major sources• The designers, market specialists and buyers have real-time information –

Customer driven process• IT advantage has shortened the time in Designing to Production• Sales and Feed back information is sent to Headquarters every day in evening• The link between inter-stores is poor• PDA devices is not connected to POS terminals

leading to once a day communication• Old POS OS is used since cheap and stable

1. Information

2. Sourcing

• Source Raw materials from suppliers in Spain and Europe - Flexibility, quality and Lead time but expensive

• 50% of raw materials are not dyed due to postponement strategy –Fibracolor is dying agent.

Cross-functional Drivers………

Total Production

50% in house – 22 Spain factories

40% Raw material from Comditex –Inditex subsidiary

From 260 suppliers –

maximum 4%

50% from outside -400 suppliers

70% in Europe Rest in Asia

Cross functional Drivers…..

• Pursues a cost - Leadership strategy• Scarce (low quantity) fast fashion for comparatively low cost • Zara prices are based on comparable within the target market• Zara switched to a system of local price marking in the stores – Same tag

with different markings for different regions

3. Pricing

Zara supply chain partners Suppliers

Fabric and other raw materials

• Inditex-owned subsidiary, Comditel

• Fibracolor

• The rest of the fabrics come from a range of 260 other suppliers

Final products

• The half of its products are procured from 400 outside suppliers, 70% of which are in Europe, and most of the rest in Asia

Factory

• 50% of its products in its own network of 22 Spanish factories

• They heir 500 sewing subcontractors

Transportation

• Subcontractors use their own truck fleet to transport between factory and subcontractor’s plant

• Finish product transportation :their own system of aerial monorails connects ten of the factories in La Coruña to the distribution center

• Contractors, using trucks bearing Zara’s name pick up the merchandize at La Coruña and deliver it directly to Zara’s stores in Europe.

• Products shipped by air are flown from either the airport in La Coruña or the larger airport in Santiago

Warehouses

• Central distribution center at La Coruña

• Three other smaller warehouses in Brazil, Argentina, and Mexico

Stores

• There are over 2000 Zara Retail stores located across 88 countries

Zara supply chain partners(contd…)

ZARA SUPPLY CHAIN

Key Performance IndicatorsSupplier interface

• Time taken to deliver goods (in European stores and American and Asian outlets)

• Employees in logistics department

• Annual distribution of garments

• Number of retail stores

• Lead time (compared with competitors)

• E-commerce usage (online sales percentage)

Customer interface

• Capacity in in house and outsourced manufacturers.

• Flexibility of above mentioned manufacturers (extra capacity available as a percentage)

• Labor costs (as a percentage of sales or compared with competitors)

• No of deadlines met regarding production (or any other processes for that matter)

• Number of errors in processes (compared with competitors or as a percentage of processes amount)

• percentage of automation in operations (as a percentage)

• Supplier ratings (A grade, B grade, C grade and so forth)

Key Performance Indicators

Design and Production- Just in Time Production

• Wastage in terms of proportion of sales

• Number of designers

• Number of designs & number of approved designs

• Variability of demand in percentage or standard deviation

• Inventory level (inventory ratios- compared with competitors)

• Replenishment time

• Number of designs distributed

Centralized Logistics and Distribution

• Number of orders from retail outlets

• Shipment preparation time

• Work time on full capacity

• Time to market the product from scratch (from design)

• Ownership and control of manufacturing facilities in Spain (and other regions that speeds up delivery)

• No of stores (region wise)

• Revenues (region wise)

• Vertical integration (no of integration and size of the investment – compared with competitors)

• No of distribution centers (in America, Asia and Europe)

Key Performance Indicators

Financial performance Indicators

• Gross profit margins compared with competitors

• Working capital cycle (in days)

• Inventory turnover

SWOT Analysis – Strengths and Weaknesses

Strengths

• Vertically Integrated Supply Chain –Design, Production, Distribution, Sales –days lead time

• Successful Postponement Strategy –Coloring

• Small quantities of Latest fashion – High Inventory Turnover

• High flexibility assured quality – Local suppliers

• Process located with Close proximity• Efficient and accurate Distribution

channel• No franchising and outsourced channels

Weaknesses

• 80% production in Europe – 50% in Spain

• High Distribution Costs with centralized distribution

• Unethical Practices in outsourcing –Sewing and Coloring -

• Expensive Labour and aw material costs

• Improperly coordinated IS/IT functions –PDA devices

• Low economies of Scale

SWOT Analysis – Opportunities and Threats

Suggestions for improvements

1. To locate additional distribution and Production centers

- Probably in emerging markets including Brazil, Asia.

Posi

tive

s

Low distribution costs

Less lead time if coordinated

properly

Diversified risk

Low labour, Raw materials

Neg

ativ

es

Issues in collaboration of

designers

Lead time increase

extensively if failed

Lack of experience in suckh markets

Suggestions continuation…

2.Installing an updated IT platform - Removing the obsolete dos platform and upgrading to LINUX, WINDOWS OR UNIX

Posi

tive

s Facilitates intra communication

Low extending costs

Proactive use of information

Neg

ativ

es High cost of initiation

Vulnerable to failures

Unfamiliarity within the staff

Suggestions- Continuation…..

3. Outsourcing to ethical partners in the supply chain process - Currently based on economy – Currently people are concerned on CSR – Tarnished reputation as Wallmart

Posi

tive

s

Good perception

Enthusiastic workforce leading to

productivity

Neg

ativ

es

Costs may be high