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ZARA Supply Chain

ZARA Supply Chain

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Published by: M. Yasser on Feb 20, 2010
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05/27/2013

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ZARA

“Supply Chain Practices of Zara”
Eng. M. Yasser
0
5
10
15
2003 2004 2005 2006 2007
Zara
Gap
H&M
Benetton
Sales in B illions of $
Sales
Profit
Profit in millions
0
1000
2000
2003 2004 2005 2006 2007
Zara
Gap
Inventory to Sales
Gross Margin Return on
Inventory Investment
(GMROII)

GMROII= GM% x (Sales/Average
Value of Inventory)

GM%= (Selling Price!ost)/(Selling
Price) " #$$
GM%
(Assumed)
Inventory
Turnover
GMROII
ZARA 60 14.2 852
MATAA
!
60 10 600
"#M 60 8 480
GA$ 60 %.14 428.4
ZARA vs. Average Prou!t
"ife #y!le
$as%ion #y!le
Mar&o'n
M
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P
r
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f
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t
M
a
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g
i
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Profit Margin PM
Regular Retail ’ Zara s Model
$as%ion Inustry
Overvie'

%as&ion is a t&ing '&ic& constantly
c&anges it(s value )e*reciates
slo'ly after t&e ti+e is gone

,&is in)ustry ten)s to extract as
+uc& *rofit as *ossi-le '&en t&e
*ro)uct in fas&ion t&en gives
&eavy )iscount.
Inite( in )etails
% ’ Z ara achieves m ore than 75 of Inditex s total
. sales
ZARA*s Profile

/ARA is t&e flags&i* c&ain store of
In)itex grou*

,&e grou*(s &ea)0uarters is in A
#oru+a, S-ain

/ARA nee)s only 1 'ee2s to )evelo*
a *ro)uct an) get it to stores3
co+*are) 'it& 4 +ont&s (In)ustry
Average)

/ARA launc&es 5#$3$$$ ne' )esign
annually.

.istory of ZARA
% 2 % 5
% !
% " #
% 2
% 2 5
Store "o!ations Glo/ally
ZARA*s 0ey $a!tors of
Su!!ess or 1inning
$ormula

S&ort 6ea) ,i+e=More %as&iona-le
!lot&es

6o'er 7uantities=Scarce Su**ly

More Styles= More !&oices an) More
!&ances of 8itting it.
ZARA*s #ore #om-etitive
Avantage

8ig& *ro)ucts turnover

6o' level of inventory )ue to fast
su**ly c&ain

9fficient )istri-ution syste+

!o++it+ent of it(s e+*loyees

Scanning of t&e fas&ion an) +ar2et
tren)s3 an) +eeting t&e consu+er
)e+an) relating to fas&iona-le
clot&es

%lexi-le *ro)uction syste+
ZARA*s Strategy

6o' volu+es *er style an) 0uic2ly
c&anging *ro)ucts in stores
+ini+i:es )iscount costs

,&is strategy closely e+ulates
;+a2e to or)er environ+ent<

,&is strategy -uil)s u* custo+er(s
antici*ation of t&e next *ro)ucts to
-e release)

,&is strategy creates an artificial
scarcity.
Rea!t Rat%er t%an
Prei!t
Fashion is
Fun
Again ! ! !
Exclusivity on rarity
. . . instead of Price
, . . . $% &asra 'erdows Michael ( )ewis and *ose ( + Machuca
: , ,ditor-s note .ith some /5 stores in 5 countries S0anish clothing retailer Zara has hit on a formula for su00l%
. chain success that works $% def%ing conventional wisdom 1his excer0t from a recent 2arvard Business Review 0rofile
, , , . 3eros in on how Zara-s su00l% chain communicates allowing it to design 0roduce and deliver a garment in fifteen da%s
, — . In Zara stores customers can alwa%s find new 0roducts $ut the%-re in limited su00l% 1here is a sense of tantali3ing
, ( , exclusivit% since onl% a few items are on dis0la% even though stores are s0acious the average si3e is around "
). , " , . , s4uare meters ( customer thinks 1his green shirt fits me and there is one on the rack If I don-t $u% it now I-ll
." lose m% chance
. Such a retail conce0t de0ends on the regular creation and ra0id re0lenishment of small $atches of new goods Zara-s
, , , . designers create a00roximatel% 5 new designs annuall% from which " are selected for 0roduction Some of them
. - resem$le the latest couture creations But Zara often $eats the high fashion houses to the market and offers almost the
, , . same 0roducts made with less ex0ensive fa$ric at much lower 0rices Since most garments come in five to six colors and
, , - ( ), five to seven si3es Zara-s s%stem has to deal with something in the realm of # new stock kee0ing units S&6s on
, . " " average ever% %ear 1his fast fashion s%stem de0ends on a constant exchange of information throughout ever% 0art of
— , , Zara-s su00l% chain from customers to store managers from store managers to market s0ecialists and designers from
, , , . designers to 0roduction staff from $u%ers to su$contractors from warehouse managers to distri$utors and so on Most
. , com0anies insert la%ers of $ureaucrac% that can $og down communication $etween de0artments But Zara-s organi3ation
, , o0erational 0rocedures 0erformance measures and even its office la%outs are all designed to make information transfer
. eas%
, ( ) Zara-s single centrali3ed design and 0roduction center is attached to Inditex Zara-s 0arent com0an% head4uarters in
± . — , , . )a 7oru8 a It consists of three s0acious halls one for women-s clothing lines one for men-s and one for children-s
, , , 6nlike most com0anies which tr% to excise redundant la$or to cut costs Zara makes a 0oint of running three 0arallel
, . , , , - $ut o0erationall% distinct 0roduct families (ccordingl% se0arate design sales and 0rocurement and 0roduction 0lanning
. ± staffs are dedicated to each clothing line ( store ma% receive three different calls from )a 7oru8 a in one week from
; , a market s0ecialist in each channel a factor% making shirts ma% deal simultaneousl% with two Zara managers one for
. , men-s shirts and another for children-s shirts 1hough it-s more ex0ensive to o0erate three channels the information
, , — flow for each channel is fast direct and unencum$ered $% 0ro$lems in other channels making the overall su00l% chain
. more res0onsive
. , Zara-s cadre of 2 designers sits right in the midst of the 0roduction 0rocess In each hall floor to ceiling windows
. overlooking the S0anish countr%side reinforce a sense of cheer% informalit% and o0enness 6nlike com0anies that
, . se4uester their design staffs Zara-s cadre of 2 designers sits right in the midst of the 0roduction 0rocess S0lit
, — , among the three lines these mostl% twent%something designers hired $ecause of their enthusiasm and talent no 0rima
— . donnas allowed work next to the market s0ecialists and 0rocurement and 0roduction 0lanners )arge circular ta$les 0la%
. . host to im0rom0tu meetings Racks of the latest fashion maga3ines and catalogs fill the walls ( small 0rotot%0e sho0
, . has $een set u0 in the corner of each hall which encourages ever%one to comment on new garments as the% evolve
1he 0h%sical and organi3ational 0roximit% of the three grou0s increases $oth the s0eed and the 4ualit% of the design
. 0rocess +esigners can
“ , 7onsumers in central )ondon visit the average store four times annuall%
. $ut Zara-s customers visit its sho0s an average of "7 times a %ear 1he
…” high traffic in the stores circumvents the need for advertising
ZARA Su--ly #%ain

/ARA o*erates using a vertical
su**ly c&ain

/ARA &as total control of various
-usiness activities of gar+ent
su**ly c&ain3 '&ic& gives t&e
co+*any total -usiness
+anage+ent.
ZARA Garment Su--ly
#%ain
)esign an Orer
Aminsitration
#ommer!ial 2eam

=esigners

Mar2et s*ecialists

>uyers

Zara #olle!tion

4$% ?o+en(s section

1$% Men(s section

1$% !&il)ren(s section
$a/ri!s Su--ly

/ARA o-tains @$% of it(s fa-rics
su**ly fro+ anot&er In)itex o'ne)
su-si)iary.

A$% of t&e fa-rics are *ro)uce)
un)ye)

4$% of t&e fa-rics co+e fro+ a
range of 14$ ot&er su**liers
O'ners%i- an #ontrol of
Prou!tion

/ARA +anufactures A$% of it(s
*ro)ucts in it(s o'n net'or2 of 11
S*anis& factories

#B of '&ic& are locate) in an)
aroun) t&e 6a !oruna co+*lex

,&ese factories use A$$ se'ing su-
contractors in very close *roxi+ity
to 6a !oruna

,&e ot&er &alf of it(s *ro)ucts are
*ro)uce) fro+ @$$ outsi)e
su**liers3 C$% are in 9uro*e.
,uro0e Production (sian Production
: 7ost $$$$$$$$$$
: 'ashion 9alue ZZZZZZZZZZ
: 7ost $$
: 'ashion 9alue ZZZZZ
& 2igh fashion suits skirts 7ommoditi3ed e%eware and 0lain
shirts
Euro-ean vs Asian
Prou!tion
Production 'acilities Production 'acilities
% /
S0ain
% 2
,uro0e % 2
(sia
)oes ZARA $ollo' 3I24

/ARA &as a true DustEInE,i+e syste+

%ro+ to )esign3 *ro)uction3 an)
fa-ric +anufacturing

!usto+er(s *ull not )esigners( *us&
is '&at )rives t&e syste+

0ee-ing #osts )o'n

/ARA Relies +ore on &aving *ri+e
retail location t&an on a)vertising
for attracting costu+ers

/ARA s*en)s $.F% of it(s sales on
a)vertising co+*are) to an
average F.A% of co+*etitors

Only a-out #B% of /ARA clot&ing
)oesn(t 'or2 'it& it(s costu+ers
an) &as to -e )iscounte)3 t&at(s
&alf of t&e in)ustry(s average
'&ic& is FA%.
(d Budgets of
Retailers
% of Sales
Benetton #
+iesel 5
& 2 M 5
:a0 . 5 5
’ Mac% s /
Zara . #
Goo #ase Pra!ti!es
from ZARA

Re)uction in +ar2)o'n can +ore
t&an +a2e u* for t&e increase in
la-or cost.

Planne) s&ortages can in)uce +ore
future )e+an)

Goo) store location3 layout3 an)
*ro)uct )is*lay can su-stitute
a)vertising

%aster res*onse eli+inates inventory
ris2s.

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