ZARA Supply Chain

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Eng. M. Yasser


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0

5

10

15

2003 2004 2005 2006 2007

Zara

Gap

H&M

Benetton

Sales in Billions of $


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0

1000

2000

2003 2004 2005 2006 2007

Zara

Gap


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GMROII= GM% x (Sales/Average Value ofInventory)

GM%= (Selling Price-Cost)/(Selling Price) *100

GM%

(Assumed)

Inventory

Turnover

GMROII

ZARA 60 14.2 852

MATALAN 60 10 600

H&M 60 8 480

GAP 60 7.14 428.4


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Markd

own

Profit Margin PM

Regular Retail Zaras Model


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Fashion is a thing which constantly changesits value depreciates slowly after the time is

gone This industry tends to extract as much profit

as possible when the product in fashion thengives heavy discount.


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Inditex

ZARA

-Pull and bear

-Massimo Dutti

-Bershka-Stradivarious

-Oysho

-Uterqe

Zara achieves more than 75% of Inditexs total sales.


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ZARA is the flagship chain store of Inditexgroup

The groups headquarters is in A Corua,Spain ZARA needs only 2 weeks to develop a

product and get it to stores, compared with 6months (Industry Average)

ZARA launches ~10,000 new design annually.


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1975 The opening of first ZARA store in Spain

1988 The opening of first ZARA store outside Spain(Portugal)

2003 ZARA had 565 stores in 33 countries

2009 There are more than 1500 ZARA stores all around

the world


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2% 50%

8%

13%2%

25%


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Short Lead Time=More Fashionable Clothes Lower Quantities=Scarce Supply

More Styles= More Choices and MoreChances of Hitting it.


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High products turnover Low level of inventory due to fast supply

chain Efficient distribution system Commitment of its employees Scanning of the fashion and market trends,

and meeting the consumer demand relatingto fashionable clothes

Flexible production system


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Low volumes per style and quickly changingproducts in stores minimizes discount costs

This strategy closely emulates make to orderenvironment This strategy builds up customers

anticipation of the next products to bereleased

This strategy creates an artificial scarcity.


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Fashion is

FunAgain ! ! !

Exclusivity on rarity. . . instead of Price


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by Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca Editor's note: With some 650 stores in 50 countries, Spanish clothing retailer Zara has hit on a formula for supply chain success that works by defyingconventional wisdom. This excerpt from a recentHarvard Business Review profile zeros in on how Zara's supply chain communicates, allowing it todesign, produce, and deliver a garment in fifteen days. In Zara stores, customers can always find new productsbut they're in limited supply. There is a sense of tantalizing exclusivity, since only a fewitems are on display even though stores are spacious (the average size is around 1,000 square meters). A customer thinks, "This green shirt fits me,and there is one on the rack. If I don't buy it now, I'll lose my chance."Such a retail concept depends on the regular creation and rapid replenishment of small batches of new goods. Zara's designers create

approximately 40,000 new designs annually, from which 10,000 are selected for production. Some of them resemble the latest couture creations.But Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, at much lowerprices. Since most garments come in five to six colors and five to seven sizes, Zara's system has to deal with something in t he realm of 300,000 newstock-keeping units (SKUs), on average, every year. This "fast fashion" system depends on a constant exchange of information throughout everypart of Zara's supply chainfrom customers to store managers, from store managers to market specialists and designers, from designers toproduction staff, from buyers to subcontractors, from warehouse managers to distributors, and so on. Most companies insert layers of bureaucracythat can bog down communication between departments. But Zara's organization, operational procedures, performance measures, a nd even itsoffice layouts are all designed to make information transfer easy.Zara's single, centralized design and production center is attached to Inditex (Zara's parent company) headquarters in La Corua. It consists ofthree spacious hallsone for women's clothing lines, one for men's, and one for children's. Unlike most companies, which try to excise redundantlabor to cut costs, Zara makes a point of running three parallel, but operationally distinct, product families. Accordingly, separate design, sales, andprocurement and production-planning staffs are dedicated to each clothing line. A store may receive three different calls from La Corua in oneweek from a market specialist in each channel; a factory making shirts may deal simultaneously with two Zara managers, one for men's shirts andanother for children's shirts. Though it's more expensive to operate three channels, the information flow for each channel is fast, direct, andunencumbered by problems in other channelsmaking the overall supply chain more responsive.Zara's cadre of 200 designers sits right in the midst of the production process.In each hall, floor to ceiling windows overlooking the Spanishcountryside reinforce a sense of cheery informality and openness. Unlike companies that sequester their design staffs, Zara's cadre of 200designers sits right in the midst of the production process. Split among the three lines, these mostly twentysomething designershired because oftheir enthusiasm and talent, no prima donnas allowedwork next to the market specialists and procurement and production planners. Largecircular tables play host to impromptu meetings. Racks of the latest fashion magazines and catalogs fill the walls. A small p rototype shop has beenset up in the corner of each hall, which encourages everyone to comment on new garments as they evolve.The physical and organizational proximity of the three groups increases both the speed and the quality of the design process. Designers can

Consumers in central London visit the average store four times annually, but Zara'scustomers visit its shops an average of 17 times a year. The high traffic in the storescircumvents the need for advertising
http://hbswk.hbs.edu/


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ZARA operates using a vertical supply chain ZARA has total control of various business

activities of garment supply chain, whichgives the company total businessmanagement.


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Design

Purchasing

Production

Distribution

Retailing


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Internal Data:

-Daily feedback from stores

-Sales Reports

External Data

-Universities, discos, clubs..etc-Fashion trade

Outsourcing Sample

Commercial Team Planning and Procurement People

Store Managers Final Quantity of 10,000 items per year


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Designers Market specialists

Buyers


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60% Womens section 20% Mens section

20% Childrens section


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ZARA obtains 40% of its fabrics supply fromanother Inditex owned subsidiary.

50% of the fabrics are produced undyed 60% of the fabrics come from a range of 260

other suppliers


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ZARA manufactures 50% of its products inits own network of 22 Spanish factories

18 of which are located in and around the LaCoruna complex

These factories use 500 sewing sub-contractors in very close proximity to La

Coruna The other half of its products are producedfrom 400 outside suppliers, 70% are inEurope.


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Europe Production Asian Production

Cost: $$$$$$$$$$

Fashion Value: ZZZZZZZZZZ

Cost: $$

Fashion Value: ZZZZZ

High fashion suits & skirts Commoditized eyeware and plain shirts


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Production Facilities

60%Spain

20%Europe 20%

Asia


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ZARA has a true Just_In_Time system From to design, production, and fabric

manufacturing Customers pull not designers push is what

drives the system


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ZARA Relies more on having prime retaillocation than on advertising for attracting

costumers ZARA spends 0.3% of its sales on advertising

compared to an average 3.5% of competitors Only about 18% of ZARA clothing doesnt

work with its costumers and has to bediscounted, thats half of the industrysaverage which is 35%.


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% of Sales

Benetton 3Diesel 4

H&M 4Gap 5.5Macys 6

Zara 0.3


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Reduction in mark-down can more than makeup for the increase in labor cost.

Planned shortages can induce more futuredemand Good store location, layout, and product

display can substitute advertising Faster response eliminates inventory risks.

ZARA Supply Chain

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