Zara in China
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Zara in China

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Group project for Global Sourcing and Supply Chain Management in China. ...

Group project for Global Sourcing and Supply Chain Management in China.

We learned an immense amount about e-commerce and fast fashion to supply chain (turnaround rates, warehouse management, etc).

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  • steph
  • steph
  • steph
  • steph8 Brands in InditexOver 60 percent is centrally focused on ZARAZARA Home and ZARA, but we are solely focusing on ZARA
  • EmilySTATE:Asian markets show great long-term growth potential for Inditex“Inditex has strong potential to continue growing in a profitable way over the coming years and, in this regard, our priority is to focus on expansion in Europe and Asia”“In other words: Right Working Conditions (Compliance), Right Health and Safety, Right Quality, Right Delivery Time and, finally Right Price” –2009 Inditex Annual Report
  • EmilySTATE:Asian markets show great long-term growth potential for Inditex“Inditex has strong potential to continue growing in a profitable way over the coming years and, in this regard, our priority is to focus on expansion in Europe and Asia”“In other words: Right Working Conditions (Compliance), Right Health and Safety, Right Quality, Right Delivery Time and, finally Right Price” –2009 Inditex Annual Report
  • Emily75 countriesin five regions, with 12 of those countries being in Asia 2 11 12 39 11
  • emily
  • Emily恒隆广场 (进南京西路)Nanjing Xi Lu, ShanghaiZARA opened its first store in Shanghai, China during February of 2006. On the day of the grand opening, the Company gained a revenue of 80,000RMB. Within three years, 23 stores appeared in 2009, and by the end of that year the number of stores nearly doubled. ZARA has predicted to increase the number of stores within 2011 by a 150 percent jump from the previous year. The Company intends to expand towards secondary cities, expanding quicker than many popular apparel brands (i.e., H&M, Gap, etc). First – shanghai, then beijing – then they started to move towards first tiered cities like Nanjing, ShenzhenObjective: Expand to secondary cities (ask casey more about secondary cities)Established institution
  • CAsey
  • Casey
  • Casey
  • Casey
  • Casey
  • Casey\\ZARA operates using a vertical supply chain, which is a unique strategy in the fashion industry. Vertically integrated business undertakes a variety of activities from designing, manufacturing, sourcing, and to distribution to retail stores around the world. it has total control of various business activities and gives the company total business management.
  • Casey
  • Casey
  • Jingya
  • Jingya
  • Jingya
  • Jingya
  • JingyaJIT-the process relies on signals between different points in the process, which tell production when to make the next part.saves warehousespace and costs.-gives the company a level of control that would be impossible if it were entirely dependent on outsiders.Buy fabrics in only 4 colors. Cut and dye them themselves, allows for flexibility.In their huge DC, they pre-iron and put clothes on hangers->ready to be put onto shelves-> cuts three hours of prime time for store employees
  • Jingya
  • EMIOLYYH&M came to China a year after China, where 33 stores were operating by the end of 2010, half of the amount of ZARA stores in China.At Huahai Road’s H&M store, the Company intakes a monthly revenue of 8 million RMB (around $1.2 million USD). Gap entered the Chinese market in 2010, with only four stores. ZARA not only has the most stores in China, but around the world as well with over 13,000 stores. Gap trails as the runner up with approximately 3,000 GAP stores, and there are nearly 2,000 H&M stores.ZARA's expanding quicker than UniqloH&M came to China 2007End of 2010: 33 StoresMonthly Revenue @ Huahai store: 8 million RMB (2010)ZARA ( around 30 % more expensive than in Europe and US to equate the transportation ) Comparison: H&M needs 5 more days from design – product (by doing that, prices are 30 – 50 % lower than ZARA)ZARA – design to product: 15 daysH&M – 21 daysGap – 90 days (more quantity, less designs)Comparison: Gap came to China last year – 4 stores (2010)In the world:ZARA 13,095 stores (2010)H&M 1,988 GAP 3,095
  • EMIOLYY13 years of being here – Tom DoctoroffConfucian conflict: self protection (Darwinism 1.4 billion people) & status projection (mianzi) Achieve success by understanding China’s hierarchical system, ambitions and regimentsThose who don’t fail and fall into the traps (i.e., failure in business models, logistics, and operations management)
  • EMIOLYY
  • EMIOLYY1998 – VS gained involvement with E-CommerceWhile some retailers such as Gap Inc.  and ZARA have launched new localized international sites this year, several more retailers will focus on global expansion in 2011, predicts Zia DaniellWigder, a Forrester Research Inc. senior analyst. Rather, Wigder, who also wrote about global e-commerce markets in the December issue of Internet Retailer, predicts many retailers will increasingly look to expanding in China because the country has the world’s largest online population and a burgeoning e-commerce marketChina’s poised to Rival US E-Commerce in the coming years
  • EMIOLYY1998 – VS gained involvement with E-CommerceWhile some retailers such as Gap Inc.  and ZARA have launched new localized international sites this year, several more retailers will focus on global expansion in 2011, predicts Zia DaniellWigder, a Forrester Research Inc. senior analyst. Rather, Wigder, who also wrote about global e-commerce markets in the December issue of Internet Retailer, predicts many retailers will increasingly look to expanding in China because the country has the world’s largest online population and a burgeoning e-commerce marketChina’s poised to Rival US E-Commerce in the coming years VS - #1 Apparels/Accssories in Online SalesLL bean #2 GAP - #3
  • Nearly raised by 30 percent of visitors (27 percent to be exact)Backfront - StorefrontIT, LOGISTICS, SALES MANAGEMENTTake stuff after marketPut the on sale onlineWorking from a computerManagers from the warehouse Keep value of product w/o
  • ZARA's current supply chain strategy works well in Spain, but as it expands more in China, the costs of shipping will outweigh the benefits of being centered in Spain. China’s business environment is very different from Spain’s so ZARA will need to adapt to Chinese practices if it truly wants to expand successfully. We suggest starting a new branch in Xiaomen. The location is ideal since it is located near the ocean, decreasing the costs of transportation. It also has many foreign investors, so business there are accustomed to working with western policies.
  • ZARA uses many suppliers in Spain to keep up with its frequent orders. This has caused problems with fabric quality. To prevent this problem in China, we suggest for ZARA to choose a few reliable suppliers and focus on making good relations. This way, they can treat the suppliers as if they were part of the same company, achieving the same flexibility and low costs they are used to. We suggest working directly with HungJin Trading, a supplier known for its variety of fabrics, high quality, and good relations with customers. Since ZARA has experience dealing with suppliers, we suggest ZARA cut out any middlemen. ZARA is “capital intensive”, meaning it relies mostly on machines rather than people to make their clothes. Since China is still a developing country, labor is only a sixth of the cost.

Zara in China Zara in China Presentation Transcript

  • ZARA
    Supply Chain and Value-Creation
    Emily Pan, Stephanie Pan,
    Casey Chen, Jing yaChen
    (PC)2
  • Purpose
    To analyze ZARA's success due to its supply chain
    How it correlates with value-creation for the company
    Look at the supply chain from a global perspective and try to apply it to China
  • Agenda
    ZARA: Company Profile
    ZARA: The Supply Chain
    Vertically Integrated
    ZARA: Competitors Landscape
    Challenges in China
    Future Suggestions for ZARA
  • Company Profile
    • ZARA is the flagship chain store of Inditex Group owned by Spanish tycoon Amancio Ortega
    • HQ in Coruna, Spain, where the first ZARA store opened in 1975.
  • Inditex: 2009 Global Sales Breakdown
    International Sale of $7 Billion US
  • ZARA in China
    “Inditex has strong potential to continue growing in a profitable way over the coming years and, in this regard, our priority is to focus on expansion in Europe and Asia”
    – 2009 Inditex Annual Report
  • ZARA in China
    “In other words: Right Working Conditions (Compliance), Right Health and Safety, Right Quality, Right Delivery Time and, finally Right Price”
    –2009 Inditex Annual Report
  • ZARA: Across the World
    How is ZARA Involved in Asia?
    12
  • ZARA's Milestone in China
  • ZARA's Milestone in China
    First store opened in Shanghai
    Grand Opening Day = 800,000 RMB
    Objective: Move to secondary cities
  • Market Environment in China
    Chinese Economy
    • GNP per capita $5890
    • GDP growth of 10.7%
    • Industry/service economy
    Government & Politics
    • Deregulation of most sectors
    • New textile policy
    • Stable communist country
    Social Structure
    • Country of two speeds: Urban VS. Rural
    • ‘New’ middle class with purchasing power
    • Cultural shift in urban areas
    The Industry Environment
    Demographic Structure
    • 1.7 billion people
    • 85.2% literacy rate
    • Skilled labor available
    The Natural Environment
    • Free access to natural resources for textile clothing
    Technology
    • Easy access
    • Financial benefits
  • Statistics on ZARA's Supply Chain
    • 15 days from designs to products VS. industry
    • Average of 6-9 months
    • 12 inventory turnovers/year VS. industry average 3-4 times (0.8~1.2 times in China)
    • 40,000 designs/year, 20,000 selected for production VS. 3,000~4,000 for its competitors apparel retailers
    • 30,000 Stock-Keeping Units (SKUs)/year
    • Unsold items account for 10% of stock VS. industry average 17%~20%
    • Commits 50%~60% of production in advance of the season VS. 80%~90% for other
  • The Key to ZARA's Success
    • Vertically integrated supply chain where design, production, distribution, and retailing were integrated.
    “The vertical integration of our production system allows us to place a garment in any store around the world in a period between two to three weeks.”
  • ZARA: Vertically Integrated Supply Chain
    Three Channels:
    • Women’s Line
    • Men’s Line
    • Kid’s Line
    ZARA Empire. Logistic distribution center of the ZARA company
  • ZARA: Production Sites
  • ZARA: Vertically Integrated Supply Chain
  • ZARA: Vertically Integrated Supply Chain
  • ZARA: Vertically Integrated Supply Chain
  • Why Vertical?
    Cost & Speed
    • Local sourcing of raw material – Cutting cost because they do not outsource any channel
    • Fast time-to-customer – Cutting time, faster, effective, and efficient
    • Mass customization
    • Low process costs
    • Avoid conflicts emerge from different channels
  • Why Vertical? (Continued)
    Information Technology (IT)
    - Collecting vital information
    • POS (Point of Sale Terminals)
    • “H” structure – information from each store is independent and parallel to the headquarter in Spain
    • PDA – order from the headquarter in Spain by the manager of each store
  • Values Generated by Logistics
    e.g.
    Postponement
    services
    Managing
    smaller
    lot sizes
    Reduced
    logistics
    lead times
    Reduced
    logistics
    lead times
    Supply
    chain
    visibility
    Improved
    delivery
    reliability
    Strategic
    stock
    locations
    e.g.
    In-store
    logistics
    services
    Higher sales
    for meeting
    customer needs
    Innovation
    of solution
    Reduced
    logistics
    lead times
    Lower quantity
    of inventor to sell
    at reduced prices
    Higher sales
    volumes from
    better off-the-shelf
    availability
    Project
    management
    of solution
    Improved
    delivery reliability
    Greater
    certainty of
    execution
    Network
    coverage
    Tighter control
    of inventory
    Speed of getting
    change into
    the market
    Revenue growth
    Increased
    flexibility
    Flexibility to match
    operational scale
    Reduced logistics
    lead times
    Enhanced
    utilisation
    Lower
    bought-in costs
    More competitive
    global supplier base
    Shared use
    activities
    Cost reduction
    Improved purchasing
    of low value items
    Off-balance sheet
    financing
    Third party
    capital providers
    Reduced
    labour
    costs
    Lower
    inventories
    Flexibility of
    location and
    labour rates
    Special purpose
    vehicles
    Reduced
    transport
    costs
    Reduced
    transport
    processing
    costs
    Higher labour
    utilisation
    Reduced
    logistics
    lead times
    Reduced
    cost of
    write-offs/
    errors
    Reduced
    supply
    chain mgt
    costs
    Reduced
    inventory
    hold costs
    Reduced
    systems
    costs
    Strategic
    stock
    locations
    Optimised asset
    utilisation
    Leveraged
    overheads
    Optimised
    unit cost
    Fewer
    errors, losses
    and claims
    Tighter
    control
    of inventory
    Simpler
    management
    tasks
    Flexibility of
    location and
    overheads
    Proven
    systems
    at lower
    costs
    Tailored products
    to meet specific
    customer needs
    Reduced
    product
    discounting
    Improved
    product
    availability
    Faster
    time to market/
    extending
    product life
    Flexibility to
    respond to changes
    in consumer demand
    Cost of goods
    Cost of
    capital/
    assets
    Management
    and admin
    Cost of logistics
  • Increase Revenue
    Faster time to the market/extending product life
    4-5 weeks from conception to distribution
    Tailored products
    Produces 11,000 designs annually
    Competitors only have 2,000 to 4,000 items
    Improved product availability
    Stores Twice-weekly shipments
    • Reduced product discounting
    • Books 85% of the full ticket price for its merchandise, while the industry average is 60%
    • Flexibility to respond to change in consumer demands
    • Unsold items account for <10% of stock, as opposed to the industry average of 17-20%
  • Decrease Costs
    COGS
    Outside the distribution center in La Coruña, ZARA has twenty-three highly automated factories.
    Cost of logistics
    Since nearly 60 percent of ZARA's merchandise is produced in-house, decreased transportation costs
    Management and administration
    Plants use just-in-time systems developed in cooperation with logistics experts from Toyota Motor (TM)
    Cost of capital/assets
    ZARA owns 40% of their production facilities in Europe
  • Supply Chain
    Suppliers are all close to their factories so ZARA can order on a need-basis
    Clothes are ironed in advance and packed on hangers, with security and price tags affixed
    ZARA buys fabric in only 4 different colors;
    designs and cuts its fabric in-house
    Overnight trucks are used to deliver to European stores and airfreight is used to ship to other countries
  • 2010
    ZARA's Competitor Landscape
    2007
    2006
    2002
  • ZARA: Challenges in China
    “Of course, one size doesn't fit all. But there are ‘unifying themes’ and ‘variations’ on these themes…Some roll their eyes when I harp on about a Chinese ‘worldview’ that is fundamentally differentfrom Westerners' basic motivations. But smirks be damned. In order to touch hearts, brands need to be brought into alignment with this worldview…
  • ZARA: Challenges in China
    “A unifying "Confucian" conflict—between self-protection and status projection—thatbrands have a fundamental role inresolving.”
    “Unlike practically any other country (Korea and Vietnam come closest),China isboth boldly ambitious (ladders are meant to be climbed and meritocracy is a cherished value) andregimented, with hierarchical and procedural booby traps for anyone who hasn't mastered the system”
    --Tom Doctoroff (JWT)
  • ZARA: Challenges in China
    Tension between upward mobility and fear-based conformism shows up everywhere, in every business meetings, in every struggle with a mother-in-law, in every new generation release on the internet. Brands that help consumers simultaneously stand out and fit in have the greatest appeal
    -Tom Doctoroff (CEO, Greater China of J. Thomson
  • Recommendation: E-Commerce
    Improve
    B2C
    Internet Retailer® Top 500 Guide for Business-to-Consumer
  • Recommendation: E-Commerce
    Improve B2C
    Internet Retailer® Top 500 Guide for Business-to-Consumer
  • Suggestions for ZARA: E-Commerce
    33 million Inditex visitors are going on ZARA's website
    26 million visits in 2008
    ZARA – Inditex 2008 Annual Report compared to Inditex 2009 Annual Report
  • Recommendations: Branch out to China
    New branch in China
    China’s business environment very different from Europe’s
    Needs to adapt if it wants to continue expanding
    Central distribution center in Xiamen
    Already has foreign investors
    Located by ocean, great for shipping
    Warehouse in many region to highly penetrate the market and to reduce the complexity of the process
    Faster, more effective and efficient in distributing their products to the retailers
  • ZARA: Branch Out To China
    Outsource
    Focus on creating connections
    Can still have flexibility and better prices
    Achieve economy of scale
    Ex) HungJin Trading Co., Ltd
    “Capital intensive” to “Labor intensive”
    Cost of labor in China still much lower than Europe
    Chinese workers lack the skills to properly operate and manage equipment
  • Sell Online
    Online sales have generated billions of dollars in revenue
    Victoria Secret earned1.56 billion USD in 2010
    Show no signs of stopping, only increasing
    L.L. Bean’s online sales increased by 29% in 2010
    Could do the same for ZARA
    China has the world’s largest online population
  • Green Supply Chain
    China develops quickly, but at expense of environment
    ZARA should create a green supply chain
    Create good reputation
    Be a leader for other companies in China
  • Thank You!
    Q&A