supply chain management of zara
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ZARASupply Chain and Value-Creation
MAKRAND AGRAWAL (B43)
PALASH VERMA(E35)SAI PRAVEEN(D23)
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PURPOSE
• To analyze ZARA's success due to its supply chain
•How it correlates with value-creation for the company.
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AGENDA• ZARA: Company Profile
•ZARA: The Supply Chain
▫Vertically Integrated
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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.
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Inditex : 2012 Global Sales Breakdown
•
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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
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Supply ChainSuppliers 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
Overnight trucks are used to deliver to
European stores and airfreight is used to
ship to other countries
• ZARA buys fabric in only 4 different
colors;• designs and cuts
its fabric in-house
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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.”
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ZARA: Vertically Integrated Supply Chain
•
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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 supplyMore styles = More choice, and more
chances of hitting it right?
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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.
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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.
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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
ZARA’s Rate for the Global Distribution –
from Spain
China – 48 hours
Europe – 24 hours
U.S. – 48 hours
Japan – 72 hours
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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
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Values Generated by Logistics
• Flexibility to match
• operational scale
• Network
• coverage
• Project
• management
• of solution
• Innovation
• of solution
• Strategic
• stock
• locations
• Supply
• chain
• visibility
• Reduced
• logistics
• lead times
• e.g.
• Postponement
• services
• Managing
• smaller
• lot sizes
• Reduced
• logistics
• lead times
• Improved
• delivery
• reliability
• e.g.
• In-store
• logistics
• services• Reduced
• logistics
• lead times• Improved
• delivery reliability
• Reduced logistics
• lead times
• Tighter control
• of inventory
• More competitive
• global supplier base• Improved purchasing
• of low value items• Flexibility of
• location and
• labour rates• Higher labour
• utilisation• Optimised asset
• utilisation• Optimised
• unit cost
• Fewer
• errors, losses
• and claims
• Tighter
• control
• of inventory
• Flexibility of
• location and
• overheads
• Proven
• systems
• at lower
• costs
• Simpler
• management
• tasks
• Leveraged
• overheads
• Strategic
• stock
• locations
• Reduced
• logistics
• lead times
• Special purpose
• vehicles
• Third party
• capital providers
• Shared use
• activities
Speed of gettingchange intothe market
Higher salesvolumes frombetter off-the-shelf availability
Higher salesfor meetingcustomer needs
Lower quantityof inventor to sellat reduced prices
Greatercertainty ofexecution
Increasedflexibility
Lowerbought-in costs
Reducedlabourcosts
Reducedtransportcosts
Reducedcost ofwrite-offs/errors
Reducedinventoryhold costs
Reducedsystemscosts
Reduced supply chain mgtcosts
Reduced transport processing costs
Lowerinventories
Off-balance sheetfinancing
Enhancedutilisation
Revenue growth
Cost reduction
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Increase Revenue
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%
Faster time to the market/extending product life
4-5 weeks from conception to distribution
Tailored productsProduces 11,000 designs annuallyCompetitors only have 2,000 to 4,000 items
Improved product availabilityStores Twice-weekly shipments
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Decrease Costs• COGS
Outside the distribution center in La Coruña, ZARA has twenty-three highly automated factories.
• Cost of logisticsSince 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/assetsZARA owns 40% of their production facilities in
Europe
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