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Supply Chain Management of ZARA

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Supply Chain Management of ZARA

  1. 1. ZARA Supply Chain and Value-Creation MAKRAND AGRAWAL (B43) PALASH VERMA(E35) SAI PRAVEEN(D23)
  2. 2. PURPOSE • To analyze ZARA's success due to its supply chain • How it correlates with value-creation for the company.
  3. 3. AGENDA • ZARA: Company Profile • ZARA: The Supply Chain ▫ Vertically Integrated
  4. 4. 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.
  5. 5. Inditex : 2012 Global Sales Breakdown •
  6. 6. 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 • 12,000 designs/year • 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
  7. 7. Supply Chain Suppliers are all close to their factories so ZARA can order on a needbasis • ZARA buys fabric in only 4 different colors; • designs and cuts its fabric in-house Clothes are ironed in advance and packed on hangers, with security and price tags affixed Overnight trucks are used to deliver to European stores and airfreight is used to ship to other countries
  8. 8. 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.”
  9. 9. ZARA: Vertically Integrated Supply Chain •
  10. 10. THE AWKWARD FACTOR IN THE PROFITABILITY FORMULA • Buy low, sell high; Buy on credit, sell on cash. • Zara, which contributes around 65 per cent of group sales , concentrates on three winning formulae to bake its fresh fashion: Short Lead Time = More fashionable Lower quantities = Scarce supply More styles = More choice, and more chances of hitting it right?
  11. 11. ZARA: Vertically Integrated Supply Chain In Spain, 200 fashion designers are in charge of new designs for the clothing line. They select the most cost effective fabric for the new designs. Designs will be made into models when sent to the factory. The computer then decide how to shear fabrics in order to waste as little as possible. Fabric will be sent to the factories.
  12. 12. ZARA: Vertically Integrated Supply Chain After the sewing process, products will be sent back to the factory for button nailing, ironing and inspection. Up to tens of kilometers of underground transmission channel connects all the processors. Label trademarks for different countries.
  13. 13. 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 China – 48 hours ZARA’s Rate for the Global Distribution – from Spain U.S. – 48 hours
  14. 14. 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
  15. 15. Values Generated by Logistics e.g. Managing Reduced Postponement smaller Supply logistics chain services lot sizes visibility lead times Strategic stock Higher sales locations for meeting Lower quantity Innovation customer needs of inventor to sell of solution at reduced prices Project management Greater certainty of of solution execution Network coverage Increased Flexibility to match flexibility operational scale Lower More competitive global supplier base bought-in costs Improved purchasing of low value items Reduced labour costs Flexibility of location and labour rates Higher labour utilisation Optimised asset utilisation Reduced transport costs Reduced logistics Improved lead times delivery e.g. reliability In-store logistics Higher sales services Reduced logistics volumes from lead times better off-the-shelf availability Improved delivery reliability Speed of getting Tighter control change into of inventory Revenue growth the market Reduced logistics lead times Enhanced utilisation Shared use activities Off-balance sheet Third party financing Cost reduction capital providers Lower Special purpose inventories vehicles Reduced Reduced transport Reduced Reduced logistics cost of Reduced Reduced supply processing Strategiclead times costs write-offs/ inventory systems chain mgt stock errors costs hold costs costs locations Leveraged Fewer Optimised Proven errors, losses Tighter Flexibility of unit cost systems and claims control location and of inventory at lower overheads costs Simpler overheads management tasks
  16. 16. Increase Revenue Faster time to the market/extending product life 4-5 weeks from conception to distribution Reduced product discounting Books 85% of the full ticket price for its merchandise, while the industry average is 60% Tailored products Produces 11,000 designs annually Flexibility to respond to change in consumer demands Competitors only have 2,000 to 4,000 items Unsold items account for <10% of stock, as opposed to the Improved product availability industry average of 17-20% Stores Twice-weekly shipments
  17. 17. 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
  18. 18. THANK YOU !!!

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