About Zara Zara¶s Vertical Supply Chain The Speeding Bullets in Zara¶s Supply Chain Management Winning Formulae Zara¶s supply chain - advantages and disadvantages

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when a German retailer cancelled a major order. Across all the stores. Products that are not selling well are quickly pulled and hot items quickly replenished. 3 . In 1975. Ortega worked as an assistant in an apparel shop and in 1963 he set up his own fashion retail business named Confecciones Goa. Zara reacted swiftly to emerging trends in the fashion industry. in 1936. Strategy for keeping ahead One of the secrets behind Zara's success was its ability to spot emerging trends and react quickly. who was born in León. he was responsible for making designer clothing accessible to the masses. Zara had operations in 82 cities across Spain and three cities internationally. Zara's presence was extended to major Spanish cities. A Coruña. In contrast. the retail store is the eyes and ears of the company. Their quick turn around on merchandise helps generate cash which eliminates the need for significant debt. Industria de Diseño Textil. Empowered store managers report to headquarters what real customers are saying. The next international ventures were New York in 1989 and Paris in 1990. popularly called Inditex. Small and frequent shipments keep product inventories fresh and scarce²compelling customers to frequent the store in search of what¶s new and to buy now«because it will be gone tomorrow. The first store outside Spain was opened in 1988 in Portugal. which was founded in1979. Between 1976 and 1984. Zara's initial forecast was limited to the kind of fabric and the amount of fabric it would buy. Zara had a dedicated design team in Arteixo. By the end of 1990. or style and launching such products. other retailers took between 8 and 12 months to forecast and arrive at a style and send it for production. Ideas for new designs or for modifications to be made in existing designs mainly came from Zara's stores. Ortega started selling the clothes from a small outlet in his factory and called the outlet Zara.About Zara Zara was founded by Amancio Ortega Gaona (Ortega). Ortega was credited with democratizing fashion in Spain. in northern Spain. Under the Zara model. The fabric thus procured was unprocessed and undyed and Zara colored the product only before selling it. The manager consolidated the data and sent it to the company headquarters through the Internet. Zara utilizes word-of-mouth information to understand more about their customers. fabric. SA. Spain. Zara's sales staff was equipped with wireless handsets which provided data to the store manager about the pieces sold. based on the need and demand by consumers. The company ensured that its stores were stocked with the products that the customers wanted at that point of time. Instead of projecting sales for a certain color. to manufacture housecoats. Zara has tapped into the power of fashion. Instead of relying solely on electronically collected data. in Arteixo-La Coruña.Zara went on to become the flagship brand of the holding company.

Vertically integrated supply chain enabled company's domination of a market by controlling all steps in the production process. It clearly stated that Zara perform a successful fast fashion with it unique supply chain which is integrated supply chain. sourcing. which keeps customers going back to Zara to check out updated stocks. quantity. By owning an in-house production. from the extraction of raw materials through the manufacture and sale of the final product. Zara introduce new items every two weeks. This gives the company total business management. 4 . and it's driven by Zara's "fast fashion" with its vertically integrated supply chain. and frequency of the new styles they produce. Zara has its own unique business model that enabled Zara to be compete with its competitors. and to distribution to retail stores. Vertically integrated business undertakes a variety of activities from designing. manufacturing. the latest fashion could be delivering to Zara's customer in short time period. and to distribution to retail stores around the world. clothing with retail chain throughout the world is probably the world's fastest growing retailer with almost a thousand stores. In this case. A company that operates in a vertically integrated strategy has total control of various business activities. sourcing. manufacturing. Vertically integrated supply chain allowed Zara to successfully build up a strong retail chain combine with the forces of fast fashion. Zara enabled itself to be flexible in the multiplicity.Zara¶s vertical supply chain Zara. such as designing.

A customer thinks. at lower-prices. 5 .Main aspects/points of Zara¶s supply-chain Network that led to higher profitability: y y y y Limited-supply: In Zara stores. If I don¶t buy it now.000 are selected for production. from which 10. and there is one on the rack.) Organization-Structure: This ³fast-fashion´ system depends on a constant exchange of information throughout every part of Zara¶s supply-chain²from customers to storemanagers to market-specialists and designers. from buyers to subcontractors. ³This green shirt fits me. Some of them resemble the latest couturecreations. from designers to production staff. Regular-creation: Zara¶s designers create approximately 40. customers can always find new products²but they¶re in limited supply.´ Outsourcing-Labor: Zara outsourced the labor-intensive operations to a network of local subcontractors (advantage: the company was able to respond quickly when items sold better than expected and also cut off production when demand for particular items fell. Zara¶s flat organization ensures that important conversations don¶t fall.000 new-designs annually. But Zara often beats the high-fashion houses to the market and offers almost the same-products. I¶ll lose my chance.

Unlike similar apparel retailers. it is withdrawn from shops. which encourages Zara fans to make repeat visits. No design stays on the shop floor for more than four weeks. and 24% in Asian and African countries and the rest of the world. Zara controls most of the steps on the supply-chain: It designs.  The designers came out with the design specifications and the technical brief. Clothes with a longer shelf life. 26% in the rest of Europe.  Team consisted of more than 200 designers who can churn out 60 styles each. design and fabric as demanded by the store. further orders are canceled and a new design is pursued. The company can design a new product and have finished goods in its stores in four to five weeks.  The store managers and sales staff updates the head office every day about the moving stock and provided inputs regarding the new lines. Design  The design centre is located in Spain as well and is divided into three segments for Men. Zara can offer considerably more products than similar companies. the prototypes were ready within a few hours!! 6 .Manufacturing and distribution Zara is a vertically integrated retailer. An average high-street store in Spain expects customers to visit three times a year. are outsourced to low-cost suppliers.000 items for its key competitors. Zara was a fashion imitator.  The store specialists provided the designers with an outline of the new style. particularly in Galicia and northern Portugal where labour is somewhat cheaper than in most of Western Europe.000 distinct items annually compared with 2.  The procurement and production managers provided inputs regarding the capacity and manufacturing costs. 50% of the products Zara sells are manufactured in Spain. such as basic T-shirts. rather than on promoting predicted season's trends via fashion shows and similar channels of influence. styles and fabrics that customers are a dozen company-owned factories in Spain and Portugal. If a design doesn't sell well within a week. It produces about 11. it can modify existing items in as little as two weeks. and distributes itself. which the fashion industry traditionally used. That goes up to 17 times for Zara.000 to 4. produces. Shortening the product life cycle means greater success in meeting consumer preferences. With all the teams working in tandem. colors. mainly in Asia and Turkey.half of all its merchandise -. Women and Child wear. Zara makes its most fashionable items -. So while some competitors outsource all production to Asia. It focused its attention on understanding the fashion items that its customers wanted and then delivering them.

The cut-pieces were barcoded and marked and were then distributed for sewing to 350 small workshops in Spain and Portugal where almost 60% of production happens. Zara achieves accuracy of 98. The production facility cuts the fabrics as per the required design using computer layout of sample pieces.Production      Zara procures unprocessed and undyed fabric and colored the product based on the need. In the stores. The garments are shipped out twice a week. Optical reading devices sorts out more than 60. The codes on the clothes conveyed to the staff where exactly the items needed to be placed. This helps keep cost down. Non-european consignments are sent to the airport for further distribution. These workshops. Distribution Distribution centre (5lac sq meter) is located centrally in Spain. The layout was prepared to minimize wastage. This is done in order to encourage customers to spend more time at the stores matching items. Morocco and India. wrapped in plastic bags and sent to the distribution centers.000 workers and were provided with a set of instructions on how to sew the garments. The prototype is made by design team. tagged.9% in its shipments. Zara has its own railway track of 211 km on which the goods moved to the distribution centre. Garments are usually ready in a week¶s time. which were not owned by Zara. the goods are put on display straight away. Once the merchandise reaches the stores. Zara sourced undyed fabric from far east. employed about 11.           7 . Quality is assured by maintaining proper training and audit. the stores always had something new to offer and the customers waited eagerly for new arrivals. pressed.000 items every hour. The stitched garments after coming to the production centers of Zara were checked twice for quality. With new stocks arriving twice a week. the clothes are organized by color rather than type of garments. Stores within Europe receive consignment within 24-36 hrs whereas outside Europe received them within two days.

Zara has turned this practice upside down²Zara is fabric driven. design decisions are delayed as long as possible. Design collections are not developed by small elite groups of designers but by creative teams. For quick turnaround. the designers. meaning they reserve mill capacities to ensure production facilities are available when needed. they do the vast majority of cutting themselves²a crucial process that determines fit. Designers are trained to limit the number of reviews and changes. Controlling notorious trouble spots along the supply chain is key to speed. expanding on styles that were previously successful. Zara practices precommitment. To successfully react to consumers demands. Traditionally. Decision-making is encouraged and bad decisions are not severely punished. Zara has following speeding bullets in its supply chain management. as well as everyone else involved in getting the product completed. Internal communication is maximized by housing on one floor. speeding up the development process and minimizing the number of samples made. Zara is a large investor in a dye and finishing plant. Dyeing and fit are critical processes within the supply chain. y y y y y y 8 . y y Potential bottlenecks can be thwarted because Zara is a vertically integrated structure. Although Zara uses sub-contractors for sewing. Teams consist of designers. Designs are developed with available fabrics and trims. This eliminates waiting for the long and laborious process of fabric formation. Designers are trained to limit the number of reviews and changes. Zara commits to 50%-60% of their production in advance of the season. 60% of the manufacturing processes are outsourced in countries close to the Zara headquarters in Spain. design and development precedes fabric procurement. Typically. whereas other apparel retailers commit to 80%-90%. sourcing specialists and product development personnel. allowing them to oversee the dyeing process²a notorious bottleneck. Zara invested in information technology (IT) early on. Poor communication is often the culprit of bottlenecks. The teams work simultaneously on different products.The Speeding Bullet in Zara¶s Supply Chain Management. pattern makers and merchandisers. Zara maintains a strong relationship with their contractors and suppliers²viewing them as part of the company. Their in-house IT is simple and effective. Vendors and suppliers report that people are accessible and answers can be obtained quickly. speeding up the development process and minimizing the number of samples to be made. Zara hires young designers and trains them to make quick decisions.

roughly 12. and more chances of hitting it right. Catching fashion while it is hot is a clear recipe for better margins with more sales happening at full prices and fewer discounts.Winning Formulae Zara concentrates on three winning formulae to bake its fresh fashion. work on timelines that stretch into 4-12 months. Zara not only reduces its exposure to any single product but also creates an artificial scarcity. even if a style sells out very quickly. the more desirable the object becomes. there are new styles already waiting to take up the space. and since re-orders are rare the stores look fresh every 3-4 days. Fresh produce. Many other retailers have such long supply chain lead times that for them it would seem a lost cause for them to even try and respond to a sales report. thinking that they would come back to buy during a sale. y y y Short Lead Time = More fashionable clothes Lower quantities = Scarce supply More styles = More choice. shoppers are said to have browsed without shopping. most retailers try to forecast what and how much its customers might buy many months in the future. most retailers of comparable size or even smaller. It delivers merchandise to its stores twice a week. Zara can move from identifying a trend to having clothes in its stores within 30 days. the less its availability. As with all things fashionable. and the style liked by the customer would very likely not be available later. That means that Zara can quickly identify and catch a winning fashion trend. Then the store assistants explained that the styles were changed every week. Reducing Risk By reducing the quantity manufactured in each style. while Zara moves in step with its customers. Short Lead Times: Keeping Up With Fashion By focusing on shorter response times. Subsequently. Thus. while its competitors are struggling to catch up. Zara's machinery can react to the report immediately and produce a response in terms of a new style or a modification within 2-4 weeks.000 a year. Zara can offer more choices in more current fashions than many of its competitors. Unlike other retailers. the company ensures that its stores are able to carry clothes that the consumers want at that time. Zara produces more styles. Thus. Regent Street became one of Zara's most profitable stores and more stores opened in the UK. Leadership in Numbers Thirdly. moving in step with the fashion trend and updated frequently the ingredients are just right to create the sweet smell of success. instead of more quantities per style. When Zara opened its first store on London's Regent Street. In comparison. 9 .

it is estimated that 80 per cent of Zara's production is carried out in Europe. While this gives Zara a tremendous amount of flexibility and control. India. This has meant a significant investment in information technology and communications infrastructure to keep streaming up-to-date trend information to the people making the product and business decisions. cutting and garment finishing. Inditex has fabric. much of it within a small radius of its headquarters in Spain. and Morocco. the entire product development cycle begins from the market research. a far lower figure than other retailers or brands.000 new styles every month is managed by a design and development team of over 200 people. many of them in low cost Asian countries. 10 . In addition. Ownership and Control of Production For one.Zara achieve its above three key success factors through a structure that is more closely controlled than most other retailers. almost half of its production is in owned or closely-controlled facilities. Greige (undyed fabric) is more of a commodity and is sourced from Spain. each style would provide only around 200. It also does not own the labour-intensive process of garment stitching. with up-to-date equipment for fabric dyeing and processing. too. This combines information from visiting university campuses. and pays further by having the various business elements in close proximity to each other. But obviously. In fact. the Far East. but controls it through a network of subcontracted workshops in Spain and Portugal. and certainly not ³cost-efficient´ in terms of design and product development costs. By retaining control over the dyeing and processing areas. most other retailers (like the American chain Gap and the Swedish retailer Hennes & Mauritz) completely outsource their production to factories around the world. In contrast. With new styles being developed and introduced frequently. Counter-intuitively Inditex has also gone the route of owning capital-intensive manufacturing facilities in Spain. it is a vertically integrated group. all based in Spain. Supercharged Product Development Design and product development is a highly people-intensive process. discos and other venues to observe what young fashion leaders are wearing. it does have to contend with higher people costs averaging 1720 times the costs in Asia. this higher cost of product development is more than adequately compensated by higher realized margins. each person in effect producing around 60 styles in a year (or 1-2 styles a week). and from the sales reports. around its headquarters in Spain.processing capacity available ³on demand´ to provide the correct fabrics for new styles. from daily feedback from the stores. The heavy creative workload of 1.000-300.000 of retail sales. In fact.

but worked towards maximizing revenues. In contrast. the low production quantity ensured that Zara did not lose much.  If the style did not sell as expected.Zara¶s supply chain .  Though this supply chain of Zara has higher cost but it allowed Zara the advantage of low inventory and higher profit margins.advantages and disadvantages:  Zara is able to react swiftly to the emerging trend in the fashion industry. Analysts opined that Zara¶s supply chain did not minimize costs. Zara sold only 18% of the clothes through discount sales twice a year. On an average.  The biggest disadvantage with Zara is that since Zara owned all the channels of supply chain. as against the industry average of 36% and constant markdowns. as there was not much stock to be discounted. it is difficult for Zara to expand to far location as it becomes very costly to distribute such products. 11 . other retailer took between 8 to 12 months to forecast and arrive at a style and send it for production.

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