Zara supply chain management

1. DSA – RETAIL MANAGEMENT
MBA – JAN’16 BATCH
3RD SEMESTER

2. ZARA SUPPLY CHAIN MANAGEMENT PRACTICES
GROUP 1
Abhijeet A D 16010121801
Akhil Devan 16010121915
Sreekanth J 16010121880
Swetha Gopinath 16010121884

3. The global apparel market currently is a consumer-
driven industry. Also, globalization and new technologies have
allowed consumers to have more access to fashion and different
varieties. As a result, consumers are changing, competition is
fierce, and companies are evolving to meet these demands

4. • Zara was founded by Amancio Ortega Goana in the year 1975.
• A garment manufacturing company, which specially manufactures
apparels, footwear and accessories for men, women and children.
• Parent company Inditex.
• First store outside Spain was opened in the year 1988 in Portugal.
• Zara expanded globally in various countries like UK, Japan, Chile, Canada,
Germany Poland and many more countries in late 1990s and early 2000s.
• Zara became the world’s third largest clothing retailer in terms of revenue
(3819.6 million euros) where 65% of it came from international markets.
Introduction

5. Fast fashion strategy
• Pop singer incident in 2004.
• Featured as top 100 global brands in 2005, 77.
• Introduced 12000 designs every year.
• It had 853 stores around the world in the year 2006.
• Central distribution centre and orders received by stores.
• Vertically integrated system.
• Scarcity creation
• Concept of customized retailing.

6. Spotting Trends
• Dedicated designing team in Spain.
• Ideas from store mangers.
• Wireless handsets to update the data regarding fast moving styles.
• Selection of store managers
• Team of designers that travels across the world in search of new designs.

7. Designing
• 2000/60 a year
• Free to experiment styles
• 3 design centers for M/W/C
• Each line had separate procurement, design and production planning
staff.
• Orders twice a week and regular feedback about trends.
• Team work – sharing work space
• Prototype, sampling and approval at one place.
• Eight months in advance designs.

8. Production
• Garments are cut by machines based on computer layout of the sample
pieces.
• pieces cut are distributed for sewing among 350 small work shops which
are not owned by Zara.
• 60% of total production is carried out in Portugal and Spain.
• Manufacturing process like dyeing and cutting the fabric where done in
the plant while labor intensive steps were outsourced.

9. Distribution
• Distribution Centre was located centrally among 14 manufacturing plants
in laCorunna.
• Distribution Centre had two levels and was full automated.
• The sorted goods are shipped off to national and international
destinations.

10. Store outlay
• The stores were strategically placed where there is constant pedestrian flow.
• The stores were mostly located in prime locations
• Stores are UNIFORM in outlay(lighting, fixtures, window display)
• the arrangement of the interior is designed to give more importance to the
product rather than ambience.
• It gives the feeling of a classy boutique
• Zara follows uniform window presentation designs
• It is organized on the basis of color and type of garment.
• The location themselves provided enough advertisement to the store.
• Zara adopted alliances and franchises in Asian markets.

11. Reaping the benefits
• Zara concentrated on emerging trends.
• The constant weekly updating of style attracts consumers as
they get the feel of exclusivity
• Producing only limited stocks were advantageous to Zara as
they did not loose much if sales are down.
• Based on the sales feedback, they would plan pull process if a
product did not reach expected sales.

12. LOOKING AHEAD
• By the changing attitude of the economy the analysts had opinion that
Zara could not continue with SCM model.
• many of the retailers were moving their manufacturing process to INDIA
and CHINA to reduce its costs.
• Removing the quota imposed on china by US and EUROPEAN UNION
lead to many of the leading companies were suppose to move to Asian
countries.

13. • Analyst suggested that aggressive expansion will create problems in the
centralized distribution system
• It was suggested that Zara’s strength(vertical integration) will turn out to
be its weakness if it continued expanding
• Zara needed to complete expansion in European markets before they
consider Asia and America,
• It was suggested that they should have a decentralized production
process and clustered production outlets.

14. • Question 1
According to Richard Hyman, Vertical integration has gone out
of fashion in the consumer economy. Zara is a spectacular
exception to the rule. Explain how Zara used its vertically
integrated supply chain to its advantage. What are the
drawbacks of having a highly vertically integrated supply chain
for a fashion retailing company? Explain

15. • Zara has the competitive advantage of vertical integration to be sustainable.
• Zara’s success is based on its vertically integrated supply chain system that
achieves a speed of response to market demand in the fast moving fashion
clothing sector.
• Zara’s cycles of design, production, and distribution are substantially faster
than any of its main competitors. (6months-3weeks)
• The strength of Zara lies in having the new design product on the retail
counter within 2 weeks time. This is due to its very closely integrated supply
network.
• For its own production, 40% of fabric requirements are supplied by Comidex
a wholly owned subsidiary of Inditex.

16. • Finished products are ironed, labelled, bagged in boxes or on hangers ready for
retail display, then transferred by monorail to the Spain distribution center.
• Each retail store submits its orders twice a week and receives shipments twice a
week. Orders are dispatched within eight hours of receipt and are delivered
within few days.
• Zara's compressed product cycles have induced changes in customers retail
buying behavior (more frequent visits/faster purchase decisions)
• Zara's vertical integration works for Zara because it fits with other aspects of its
strategy: mid-market pricing, high-fashion orientation, and constantly changing
product range.
• Zara is playing both roles of the manufacturer and the retailer and hence is
capable of making more profits than any of its close competitors.

17. Drawbacks of having a highly vertically integrated supply chain for a fashion
retailing company.
• Economies of scale: Vertical integration has made Zara successfully develop a strong
merchandising strategy. Vertical integration often leads to the inability to acquire
economies of scale. Zara cannot gain the advantages of producing large quantities of goods
for a discounted rate. These higher costs are then incurred for the Inditex Corporation.
(scarcity climate)
• Increased costs: Zara's speedy and recurrent introductions of new products incur increased
costs as well. They have higher research and development costs. (constant changeover of
production techniques/employees training to use new manufacturing techniques)
• Increased R&D costs: In the manufacturing environment, Zara's product development
teams are responsible for attending high-fashion fairs and exhibitions to translate the latest
trends of the season into their designs. Also throughout the season, Zara's product
development teams are constantly researching the market by traveling to universities and
clubs around the world to track customer preferences.

18. • Question 2
In the light of Zara’s global expansion in far-off locations like
Asia and America, what modifications according to you, the
company has to bring in its supply chain and why?

19. • Decentralization of its supply chain.
• Having multiple vertical integrations
• Outsource some of its operations to other countries which helps in cost
cutting.
• Come up with advertisements to create awareness of the brand when
expanding in other countries.
• Use cheaper means of transport and also make air cargo agreements in
bulk to minimize the transportation costs and speed delivery.
• Efficient packaging of inventory.

20. • Question 3
Most of the supply chain management efforts by organisations
now-a-days are aimed at minimizing costs rather than on
maximizing revenues. However Zara's supply chain
management practices are an exception. Do you think Zara
should continue with these practices or should aim at reducing
costs so as to maximize profits? Take a stand and justify.

21. • Today Zara is moving ahead and is progressing to attaining a larger global
market by expanding to both the American continent as well as the Asian
region. In this aspect and looking at the future of the growth of Zara it is
suggested that Zara should continue with its vertically integrated supply
chain management but at the same time should resort to outsourcing and
utilisation of the multiple vertical integrated supply chain.
• The fewer the number of firms, the greater are the transaction costs and
bigger the advantages of Vertical Integration.
• The greater are information asymmetries, the more likely is opportunistic
behaviour and the greater the advantages of Vertical Integration. This will
be effective in the European Markets.

22. Thank you.