TEAM ASSIGNMENT 4

PROFESSOR: CESAR SANDRO SAENZ ACOSTA

SECTION: S-001

DATE: 13/05/2020

MEMBERS:

CORTEZ YAHUAN, LADY LETICIA

COSQUILLO GARAY, FAVIO JAVIER

FLOREZ HURTADO, SARA ALEXANDRA
HUAMAN PINTADO, MIRELLA
MARCANI RAMOS, PAUL NEHEMIAS
ROJAS URIBE, JOSE CARLOS

LIMA-PERU
ÍNDICE

Summary of the Company4

Organizational Chart5
Company Timeline5

Description of the Global Supply Chain6

Description of the different flows involved in Zara’s supply chain7
Material flow7
Finance flow8
Information flow8
Supply chain decisions9
Supply Chain strategy9
Supply Chain Planning9
Push and Pull processes10
Advantages of Push and Pull processes10
Disadvantages of Push and Pull processes10

Supply Chain Performance: Achieving Strategic Fit and Scope11

The competitive strategy of Zara, key customer needs and the Responsiveness Spectrum11
Low prices strategy11
High variety of products12
Short Lead Time13
High quality products13
High quantity products13
Innovative fashion apparel14
High quality service14
Low Supply Chain uncertainty15

Level of responsiveness and uncertainty demand absorbed by Zara’s global supply chain16
Classification of the product and the demand16
Presenting the stages16
Which stage absorb most uncertainty demand?17
Which stage absorb the least uncertainty demand?17
Zara’s zone strategic fit18
 Strategy to expand the scope of strategic fit across Zara’s supply chain20

Identification of Supply Chain Drivers22

Description of the level of responsiveness of each driver22
Facilities22
Inventory26
Inventory related Metrics:27
Transportation27
Information28
Information-Related Metrics30
Sourcing31
Source-related metrics32
Price32
How could the company use inventory to increase the responsiveness of the company’s
supply chain?34
How could the company use transportation to increase the efficiency of its supply chain?35
How could the company increase responsiveness through its facilities?35
How Does the company manufacture its product? (In-house or outsourcing)36
What are the pros and cons of the two approaches?37
Outsourcing can increase company profits.38
Outsourcing can distribute jobs from developed countries to developing countries.38
Outsourcing can strengthen international ties.38
Lack of transparency.38
Labor and environmental standards may slip.38
It can backfire for the outsourcing company.38

Appendix 1: Inditex’s business model39

Bibliography:39
Summary of the Company

Zara is one of the main Spanish international fashion companies. Also, it belongs to
Inditex, one of the largest fashion distribution companies in the world. Additionally, it
was founded by Amancio Ortega Gaona and Rosalía Mera.

Zara is summarized with four concepts: beauty, clarity, functionality and sustainability.
Moreover, Zara represents and offers an attractive and responsible fashion. Furthermore,
the company constantly improve customer service, thanks to its designers who have the
ability to respond quickly with new ideas to several requests and comments in their
Lady, Gentleman and Child collections.

The market that Zara is targeting ranges from teenagers to middle-aged people, both
men and women looking for new designs and good quality clothing. Also, Zara sells
clothes for babies and children; however, these are not its target audience.

According to Zara's official website, they have 1,339 stores in Europe, 349 in America
and 582 in Asia and in the rest of the world. Zara tends to select the best located and
most expensive areas of the world to maintain their reputation.

According to the "Best Spanish Brands 2019" ranking, Zara continues to be the most
valuable brand in Spain due to its business strategy based on its greatest competitive
advantage, such as logistics, and the ability to reinvent the experience in its stores and
break down the barrier between the digital and the physical.
Organizational Chart

Company Timeline
Description of the Global Supply Chain

As is shown in the diagram, there are two channels: the first one is the conventional, it
goes from the suppliers to the customers through the outlets; the second one goes from
the supplier to the customer through online warehouses.According to Expansion (2016),
some of Zara’s suppliers are Hisla that is in charge of making the buttons and Uniter
which supplies labels. They send those pieces to the manufacturers. According to an
article of Conexión ESAN , in 2016, Zara had a network of automated factories in Spain
and more than 300 small factories in North Africa and Turkey. As Zara has been
implementing a just-in-time system, factories from North Africa and Turkey were in
charge of making intermediate clothes and send them to be finished in other plants.

According to EAE Business School (2018), 50% of the production is carried out in
countries close to the central logistics headquarters in A Coruna and 80% of the
garments are finished in Spain and the other 20% must be made in "third world
countries" so that it can be profitable, since this percentage refers to more elaborate and
complex garments. Afterwards, these finished products are sent to the Distribution
Centers1 in Spain and, later on, those are already available within 24 hours for Europe
and 40 hours for Asia and North America, the points of demand.

Zara has developed the fourth Supply Chain Configuration. In contrast to the first one,
the distances from plants to the Distribution Centers are short. As the distance from

1
Spain to America is near than from Turkey. Therefore, the transportation cost is lower.
Moreover, the delivery time is short as the points of consumption are in the same
country as the Distribution Centers, Spain, or near than the plant in Turkey or Africa.
Furthermore, the facilities investment is somewhat high in comparison to the first
configuration, as there are more than just one plant. Thus, the inventory cost is high.

Description of the different flows involved in Zara’s supply chain

Material flow

Downstream Upstream

- Raw material (fabric,cloth,etc) - Defective products (returns to be

- Intermediate products (cut repair)
fabrics) - Wrong product (to be changed,
- Final designs (final product) size,type,etc)

Zara has installed garment, footwear

The different products that Zara offers,
these are made of raw materials such as
cotton, polyester or viscose.
and accessories collection containers in
1,382 stores in 24 markets, as well as in
cities and offices in some of our main
markets. In addition, they carried out a
project called "Closing the Loop" where
They prevent used garments from
ending up in the garbage

Finance flow

Downstream - Credits (dues)

- Payment terms
 - Invoices
Zara's total sales represent 20.9 billion
euros, which see that Europe represents
the highest percentage of the weight of
the company's sales, followed by Asia.
Upstream:
Information flow
Downstream
- Promotions plans (discounts)
- Delivery schedule
- Capacity
Zara has a newsletter where provides
information about new collections, their
designers, promotions plans and so on.
Also, on their official website,
customers can check the stock in the
stores.
Supply chain decisions
- Payment for the final product.
Upstream:
- Orders (Clothes that people ask
for in stores)
- Sales
- Willingness to pay
- Feedback of the product and
service.
Customers have been using social
networks to interact with Zara
(Distribution Centers and
Manufacturers). In their official
account, customers complain and give
feedback to the company about the
quality of the product or the delivery
service. In that way, Zara can inform the
suppliers if there will be any change in
the materials they were using.
Moreover, on Zara’s website, customers
can make orders, so Zara asks suppliers
for more materials.
Supply Chain strategy

One of the most important decisions of Zara was planning the supply chain strategy.
Despite Zara success in international market, Zara decided to make the most important
point in Spain. This kind of strategy looks forward to have control of the products
around the glove and their subsidiaries. Zara logistics and distribution center are located
in Spain, which is the main country and the center of the management of the company.
It is important to know that Zara also has a lot facilities to make the products delivery
for their store and clients, this is because Zara possess digital network between the
stores and the websites that make easier the purchase of their products.

Supply Chain Planning

Zara follows the model just in Time, they treat their product like perishable. Zara visions
about their products is to innovate and be always in the lead. If one of their products
does not sell in one season, Zara decision is transporting that product to other store or
redesigning it. This follows a large connection between their stores and the headquarters
of Zara. This planning decisions makes Zara one of the few companies around the world
that use synergy and innovation for their products. This is key to Zara’s business model,
because Zara inventory turnover is 2 weeks. Also Zara can put any of their products
around the glove in a 2 days timer, due to the logistics department, making them one of
the most efficient companies. At the end of each season Zara has a major inventory
rotation, just in a few days without a shortage.
Push and Pull processes

Advantages of Push and Pull processes

● The time of delivery is more efficient.

● If there is a problem with the products, the distance to return the products are
low and also it implies less costs.

Disadvantages of Push and Pull processes

● In Zara, the push/pull boundary is near to the customers, so it implies a bigger

inventory costs.
Supply Chain Performance: Achieving Strategic Fit and Scope

The competitive strategy of Zara, key customer needs and the Responsiveness
Spectrum

The strong and rapid changes in recent years which have occurred in the textile sector
have triggered a change in the traditional policies of big companies, forcing them to
implement new strategies caused by increased competitiveness. Speed and permanent
changes in the products operate in markets which do not support privileges, nor for
those who have made history. The economic crisis has accentuated fierce competition
and has forced companies to remain constantly vigilant and propose different
communication, marketing, image, quality and customer strategies. Zara has been an
excellent example to study, with an entrepreneurial dynamism capable of optimizing all
its resources to support and position itself against possible and future attacks from the
market.

Low prices strategy

Zara aims to produce goods or services at a lower cost than the competition so that the
profit margin of the sale is greater. From the beginning, Zara opted for a clear cost
leadership strategy. Thanks to their economies of scale, production costs are very low
compared to the profit margin it gets. If we compare the two large multinationals in
terms of prices, today, the cheaper option is in the H&M brand. By relocating manages
to produce large quantities at negligible costs, allowing you to establish lower prices
than its competitors.

A few years ago, Zara gave in to the price war. It has raised the prices of its products,
although they are still affordable prices for the majority of the population.
Zara's price is higher compared to brands like Primark, Forever 21 or H&M, but inferior
to brands such as Benetton, DNKY or GAP, as we can see in the following graph:
Source: Universidad de Barcelona

High variety of products

The competitive advantage of the differentiation strategy is it offers the buyer a unique
product on the market. Capture trends in the social environment, reinterpret - at a price
affordable- the designs presented by the most luxurious brands and renovate stocks are
constantly business strategies that Zara uses and that provide differentiation from the
point of view of the exclusivity perceived by the client. Zara manufactures more than
half of its articles -the most innovative- in Spain.

Its stores receive new products twice a week, always incorporating its offer the latest
fashion trends and adapting its proposals to the tastes and wishes of their own
customers. Logistic agility, together with the ability to providing designer clothes at a
good price and a tight quality give you differentiation to the brand. In addition, by
constantly renewing stocks, Zara manages to retain the customer and encourages a
compulsory purchase.

Short Lead Time

Zara sticks to a deep, predictable and fast rhythm, based around rapid deliveries to
stores. Each Zara outlet sends in two orders per week on specific days. Trucks leave at
specific times and shipments arrive in stores at specific times. Garments are already
labeled and priced upon arriving at their destination, meaning they’re immediately
ready to be sold.

As a result of this clearly defined rhythm, every staff member involved in the supply
chain - from design to procurement, production, distribution, and retail - knows the
timeline and how their activities impact other functions. That certainly also extends to
Zara customers, who know when to visit stores for fresh new garments.

High quality products

Achieving maximum product quality is closely linked to sustainability: in our view,
maximum quality means safe products that are manufactured in appropriate social and
environmental conditions. To achieve this, we work at every stage of the value chain –
from design through the right choice of raw materials, and the manufacturing and
distribution processes, right up until the end of the product lifecycle – using the best
available techniques to reduce consumption and environmental impact, especially when
it comes to greenhouse gases. The completion of our Strategic Environmental
Sustainability Plan 2011-2015 has allowed us to introduce and consolidate various work
streams at all stages of the value chain. («The quality of our products», Zara.).

High quantity products

Zara stores have a large number of products, not only because of the storage capacity,
but also because the Zara’s distribution center delivers the new products every two
weeks, and twice in a week in case they achieve the minimum level of stock, in less
than 48 hours which helps to effectively meet consumer demands, in addition to their
product availability needs.

Innovative fashion apparel

Zara’s clothing collections are renewed every two weeks, as they try to adjust to new
trends and the weather. According to Mary, head of the commercial department of Japan
in 2014, Zara’s commercial strategy approach allows clients to always find what they
are looking for. In order to achieve this objective, the manufacturers that made the parts
most associated with trends and clothing are found in España, Portugal, marruecos and
Turkey, which allow the supply chain to react quickly to the needs in stores.

High quality service

For Zara, it is all about the customer—experiences for the customer, exchange with the
customer, Evangelism through the customer, and being every place for the customer.
Shelley E. Kohan, assistant professor Fashion Institute of Technology, recently shared
an analysis of the Zara difference based upon the 4Es marketing concept.

Zara’s stores know their demand and the profile of the current customers, thus they
place orders to the distribution center according to these characteristics, adjusting
supply to demand. Moreover, consumers are always asked about what products they
don't like, to take them out of circulation.
Low Supply Chain uncertainty
Zara’s supply chain is stable as they have developed a strong relationship with its
suppliers, so they are reliable. Also, in order to react to continuous changes in demand
and trends, they have made a flexible configuration that can be changed easily.
Moreover, as they have achieved a synchronized supply chain, the lead time is almost
fixed and the distribution time last less than 24 hours.

All in all, Zara’s supply chain is highly responsive as achieve five out of six variables
of the responsive spectrum such as high range of quantity, short lead time, high variety
of products, innovative products and high service level.
Level of responsiveness and uncertainty demand absorbed by Zara’s global supply
chain

Classification of the product and the demand

Defining Zara product is about the flexibility that it presents related to the demand, in
this case we have innovative products and this leads to a uncertain demand.

This concept can be related with a economic topic, is called elasticity, which reflects the
variability of a product on his demand.In the case of uncertain demand, most of the
cases have a high elasticity of demand due to high variability and the substitutes in the
market.

Presenting the stages

Which stage absorb most uncertainty demand?

In this case is the Retailer (Zara) the one that absorbs the most of the demand, due to the
business model that it presents to the public, they have a highly responsive sistem
between their stores and the main logistic center located in Spain.To predict uncertain
demand Zara has evolved into a self-sustain model, including the response time that can
be 2 days in every part of the world.Zara tries to be prepared every season with the new
trends and redesigning models that didn't make it in the past season.This kind of
strategy positions Zara as one of the most prepared companies in the market.

Which stage absorb the least uncertainty demand?

The least of the demand is on the supplier, this is because the level of responsibility in a
high responsive model. Suppliers have a low influence in the demand of an exact
company like Zara, this is because of the high variability of their products and their way
to adapt different markets. It's important to know that Zara does not rely on a unique
supplier, in this way they diversify risk.

Zara’s zone strategic fit

Zara’s company targets to a high responsiveness. In general, it shows that Zara uses an
appropriate strategic fit because as it is a company that according to the side of the
demand uncertainty products classification offers innovative products, which are
ephemeral, so have short life cycles. In addition, its products have high volatility ,
which means that the clothing Zara offers can be influenced by the weather, influencers
and new trends. According to the side of the supply processes classification, Zara offers
stable products, so it implies that they have fewer breakdowns, a stable process stability
and higher yields and more supply sources. For the side of the supply chain
responsiveness, this company complies with incurring high warehouses costs in order to
respond to a wide range of quantity of products. Also, Zara invests in facilities or
retailers near to its customers, in order to have a short lead time. For other hand, Zara
works with innovative and constant new designs in its clothing, so they invest a high
cost in its clothing research and development department. Zara has a high-quality
service to its customers. For example, Zara seeks to locate its stores in exclusive areas
of the city in which it is located, which implies incurring at higher costs in order to offer
a high-level service. Besides, Zara offers a variety of products, so they manage a
modern system in its inventories. In this case, we can affirm that the high level of costs
incurred is justifiable because it has more responsiveness. In addition, we can affirm
that the high level of response that Zara manages has a direct relationship with costs. In
other words, the greater the response capacity, the costs incurred by Zara are greater.
But the costs incurred by Zara in turn have an indirect relationship with efficiency, that
is, at higher costs incurred, due to Zara's greater responsiveness, there will be less
efficiency.
On the other hand, we can see that in order to reach the Zone of strategic fit, the demand
uncertain spectrum and the responsiveness spectrum have had to be combined.

If we place the demand spectrum on the axis of the abscissa and on the axis of the
ordinate the responsiveness spectrum, we will obtain the zone of strategic fit of Zara.
Strategy to expand the scope of strategic fit across Zara’s supply chain

First, the scope of strategic fit refers to all the functions within a company and to the
stages along the supply chain that create an integrated strategy with a common
objective. Zara to expand its strategic scope uses Intercompany Scope (The Maximize
Supply Chain Surplus View) they work from two points, minimizing inventory cost
while implementing just-in-time processes and increasing customer value through the
continuous inspection of all the processes in the supply chain. To achieve the first point,
they have to ensure that the product is produced in such a way that all promotional
demand is met without generating excess of unsold inventories. In this way, they have
the ability to count on exhaustive inventory information in real time, in order to respond
to the availability of the product in time, place, form and have high sales impact while
minimizing the marginal cost increase. To reach the second objective, Zara uses a
special strategy of cooperation with its suppliers and manufacturers. Zara allows
suppliers to absorb the least of the uncertainty demand as they are informed through
purchase orders about the materials to be used. Regarding manufacturers, Inditex, the
group to which ZARA belongs, trains and supports them. Also, Zara constantly informs
them about changes because of new trends. Moreover, Zara and Inditex believe in the
idea that the entire supply chain and the parties involved are their responsibility. In
addition, to minimize the delivery times of the modification at the points of sale and
influence the speed of the products, 54 percent of the 7,799 factories and 659 of the
1,800 suppliers with which the group works are located near the logistics center of
Coruña. Finally, Zara continues to improve the concept of what is known as "fast
fashion", in other words, the process that follows from design to final consumption.
Identification of Supply Chain Drivers

Description of the level of responsiveness of each driver

Facilities
Zara is business model is based on a hierarchy.As mentioned before, Zara facilities is all
about the Distribution center, but most important the logistics behind it.

Some of Zara facilities are related to the matrix of the company located in Spain, over
95% of the logistics of the company are registered in that country.
● Role:In the role we can define Zara response with many products, a lot of them
different in order to response a big demand in other part of the world, but in
some cases is just a small quantity of products that hasn't been sold, Zara most
of the time try to redesign and transport t them to another market, this can
include a few products or exclusive trends.We can define Zara as a flexible
company, do to their high response in the new trends.

Zara uses the cross docking facilities to optimize their process in the
Distribution Center having times from a couple of hours to a maximum of 3
days, Zara prefers to move the merchandise rather to store it.
● Location:At this moment Zara & Inditex Company have around 7700 stores
around the world,2220 stores are part just from Zara and they are distributed in
88 countries.In this case Zara is a multinational company, with a high response
in all their headquarters, mainly located in Spain, but some of then are very
responsive with the other ones located around the world.This result let us know
that Zara facilities are in decentralised level.

● Capacity:At this moment Zara capacity in Spain is distributed in a large number

of factories, each one ready to respond high demand volumes of demand, each
season Zara prepares a new set of clothes for production and this help the
company due to the large capacity that it presents in the factories located in
Spain.
Facility related Metrics:

Capacity
On the average, 50% of its products are manufactured in Spain, 26% in the rest of
Europe and 24% in Asian countries. Zara outsources products of high labour intensive
processes but maintains in-house capital intensive processes, protecting knowledge and
know-how. It takes less than two weeks for a skirt to get from Zara’s design team in
Spain to a Zara stores in any part of the globe, as much as 12 times faster than the
competition.

Number of stores per region:

Average production cost per unit :
Zara in comparison with other companies try to maintain a 53% of the cost of the actual
cost of the product in most of their product, in a interview the CEO of Zara confirms
that they want to increase the quality of their products and maybe this percentage can go
higher.

Facilities Classification:
Zara is a Highly responsive company in the facility driver considering the points of
flexibility, decentralized model and high capacity, all of them giving an idea of a better
forecast of the demand and being more responsive than any other company in the
fashion apparel.
Inventory
*Components of Inventory Decisions:

A) Cycle Inventory:
Zara launches approximately 11,000 new items and produces around 450 million
items per year, compared to competitors. Store managers communicate customer
feedback on shoppers' likes, dislikes, and what they're looking for. Demand
forecast data is instantly piped to Zara designers, who start drawing on the spot.
It generates frequent shipments and a greater number of customer visits to
stores, creating an environment of scarcity and opportunity.
B) Safety Inventory:
Inventory optimization models are put in place to help the company to determine
the quantity that should be delivered to every single one of its retail stores via
shipments that go out twice every week. The stock delivered is strictly limited,
ensuring that each store only receives just want they need. This goes towards the
brand image of being exclusive while avoiding the build up of unpopular stock
and to safe them self from shortage of supply to customers .
C) Seasonal Inventory:
Zara commits six months in advance to only 15 to 25 percent of a season’s line.
And it only locks in 50 to 60 percent of its line by the start of the season,
meaning that up to 50 percent of its clothes are designed and manufactured
smack in the middle of the season.
If a certain style or design becomes the new must-have on the street, Zara gets to
work. Designers churn out the new styles and they're fast-tracked to stores while
the trend is still going strong .
D) Level of product availability:
Zara has extra capacity on hand to respond to demand as it develops and
changes, so It has a high level of product availability. Furthermore, Zara’s strong
distribution network enables the company to deliver goods to its European stores
within 24 hours, and to its American and Asian outlets in less than 40 hours.
Zara delivery time is 2 to 3 days (low lead time).
Inventory related Metrics:

Inventory turns:

Zara has 12 inventory turns per year, compared to 3-4 per year for competitor.Zara
stores place the orders in a 2 times in a week.Having short inventory cicles makes Zara
one of the best companies to forecast the consumer demand, this because they know in a
short period of time about some changes in the consumer preferences, due to the
inventory turn being very responsive.

Transportation

Inditex's role is key to Zara's success. Inditex has a distribution center in Spain, the
garments are at the planned destination in record time.

The transport and distribution of Inditex products in stores such as Zara is carried out
entirely by external contractors. Thanks to the impeccable management of transport and
distribution, from the moment a store requests a new garment until it is received,
approximately 48 hours pass. It uses trucks to deliver to stores in Europe and it uses air
transport and by sea to send clothes to other markets. It is only 24 hours to supply any
establishment in Europe or 48 hours to reach the rest of the world, which generates high
costs in the transport section. Zara can allow this increase in shipping cost because you
don't need to discount clothes very much and you don't have to spend a lot of money on
advertising. According to Expansion newspaper, the 350 million garments that it
distributes in a year, 40% is transported by air and 60% by truck and train.For Zara,
speed is a primary concern and distance is not measured in kilometers, but in time.
Stores order and receive deliveries twice a week.

In conclusion, Zara has high-speed shipping, which is why we consider it to be

somewhat responsiveness.
Information
The information consists of data and analysis on facilities, inventory, transportation,
costs, prices and customers throughout the supply chain. The collection and
management of information is very important for the supply chain because it allows
having the data at the right time to optimally coordinate the various activities that will
be carried out. Managing and obtaining information is one of the factors that has led
Zara to success. Zara has a centralized decision structure since all the information
collected in the stores goes directly to the Acoruna Logistics Center. For information
management, Zara use 2 important technologies. One of those of the FRID (Radio
frequency identification) .The RFID system identifies each item through radiofrequency
waves that are recorded in a chip inside the alarm, a process that allows for greater
speed and precision in distribution centers and stores. Each item remains identified from
the moment it leaves the logistical center until its sale. The second is artificial
intelligence to predict the buying behavior of consumers, this is one of the recent Zara
innovations that it made in alliance with the startup Jerote and the Spanish big data
company The Art of Measurement.
The push systems of Zara (suppliers, manufacturers, distribution centers) require
information to forecast the required production, have the adequate amount of raw
material flow for the manufacture of garments and the adequate production capacity to
make these garments. The pull systems (Zara Stores), requires that this information be
transmitted quickly and correctly in order to respond to demand accurately.
Information-Related Metrics

Business strategy. Zara also commits six months in advance to just 15 to 25 percent of
the season line. And he only blocks 50 or 60 percent of his line at the beginning of the
season, which means that up to 50 percent of his clothing is configured and
manufactured mid-season. If a certain style or design is to become a trend, designers
will produce the new styles and quickly bring them to stores to utilize demand. Store
managers communicate customer feedback on what shoppers like, dislike, and what
they are looking for. Demand forecast data is instantly piped to Zara designers, who
start drawing on the spot. (EAE Business School,2019).

● Forecast Horizon: Zara forecasts its production to be months, advancing from 15

to 25 percent of this and leaving 50 percent for the middle of the season.
● Seasonal factors: Only blocks 50 or 60 percent of his line at the beginning of the
season, which means that up to 50 percent of his clothing is configured and
manufactured mid-season.
Sourcing

Components Brief description

In-house or Outsource 1. Products for customer segments that

are price-sensitive are produced by
outsourced manufacturers (original
equipment manufacturers) in further
countries, to reduce costs such as
China, Bangladesh, India, Pakistan,
Vietnam and Cambodia where labor
wage rates are lower and
order-to-delivery lead times are
significantly longer.

2. Products for women, the core

business of the Zara, are made
in-house to have more control over
production and reduce supply lead
time. The plants are in Spain so the
cost labor wages rate are higher than
in asian countries, 8.00 euros/hour
in contrast with 0.40 Euros/hour.

Supplier selection 1. In 2020, Zara has 13 fully owned

automated manufacturers (high
level of technology) to make
capital-intensive production
processes (fabric dyeing, pattern
design), they look for high quality
designs.

2. In 2015, Zara had 400-450 partner

factories in Spain to make sewing
processes. As the cost of production
 is high, they look for quality and
short supply lead time.

3. In 2018, efficient production is made

in 1866 plants in China and 296
plants in Bangladesh which are
bigger than the other ones what let
them achieve economies of scale and
have lower unit cost of production.

Procurement 1. Lead time for raw material, fabric

pre-dyed, is long (5 days), thus Zara
purchases high level of this material
in advance. This material let them be
prepared for new trends, colors and
patterns.

Source-related metrics
Average purchase price: “In Spain at an average wage rate of 8.00 euros/hour
compared to average labor wage rates in Asia of about 0.40 Euros/hour” (Aftab &
Yuanjian & Kabir & Barua, 2018)
Supply lead time: The company purchases raw fabric from suppliers in Italy, Spain,
Portugal and Greece. The supply lead time is around 5 days as the mode of
transportation is mostly by truck. (SCM GLOBE, 2020).

Price
Zara has product lines segmented: Women’s, Men’s and Children’s, with additional
segmentation of the women's line into three sets of offerings that varies in terms of their
prices, fashion content, and age targets. This is because women collection line is more
fashionable, moves at very high speed and constitutes Zara’s core business.

Zara avoids the industry standard cost-plus margin pricing policy and instead first
identifies the prices customers are willing to pay and also the price of similar products
offered in competitors stores. Then the company establishes target prices for each of its
specific items, often 15% below those of competitors.

Also, Zara bases its strategy in a product differentiation since it is continuously

reinventing itself and innovating thanks to its design team, and despite this, manages to
offer its quality products at very affordable prices since the organization philosophy is
to be accessible to everyone and narrow the market.

Likewise, we can observe the great difference in prices of some countries to others due
to various factors such as the positioning of the brand, the level of purchasing power of
citizens, differences in tastes, exchange rate or logistics costs. However, they have
managed adopt prices taking into account a multitude of variables that influence the
country or continent in question, achieving great success.

Image: Price position

Source: AlphaWise, Morgan Stanley Research, Zara (april 20, 2015)

In addition, they take into account the preferences of consumers in the sense that the
people responsible for the stores they have full freedom to choose the clothes they want
to put on sale within the entire collection, based on what sells the most or estimates that
will be more successful. Therefore, we will hardly find the same products in a Paris
store than a Dubai store.

In order to maximize revenues, the Inditex brands target specific age groups and market
segments. The overall price range covers the majority of consumers from the cheap
t-shirt for teenagers to expensive outerwear for women. Discover average prices of
major product categories to understand the price positioning of each brand. See the
price ranges at which Zara offers its products and compare them with those of H&M
and Mango.

That's why Zara sell the cheap products, but despite being basic products they are a little
more expensive than brands such as H&M or Topshop, they are still products with a
large inventory, available for sale each season. Also Zara also offer expensive
outerwear: Zara is so many things to so many people. To some people, it's their go-to
place to buy the season's best short-lived trends for cheap. For others, it's where they
stock up on basics that are too boring to splurge on, and for others still, it's where they
shop for wardrobe builders that aren't instantly recognizable as Zara. For those that fall
into the latter category, you probably gravitate toward the Zara items that look designer.
They certainly exist and this clothes fulfilling the high expectations of being the last cry
of fashion, so a quick response from Zara is needed, these products are more expensive.

Price:Low
Facility: Centralized
Inventory: High level product availability
Transportation: Rapid

Price: High
Facility: Centralized
Inventory: High level product availability
Transportation: Rapid
How could the company use inventory to increase the responsiveness of the
company’s supply chain?

Firstly, Inventory is the key to profitability in supply chain. Inventory cycles and components
turns assets into profits. The faster inventory turns the greater the profitability. Customers
demand that their orders be shipped complete, accurate and on-time. That means having the
right inventory at the right place at the right time. Inventory covers all types of
businesses-manufacturers, distributors, wholesalers, retailers and others in about every
industry. Furthermore, to increase the responsiveness ,the company has to improve processing
time, delivery time and insertion order. Additionally, the accuracy of forecasts anticipate
unexpected increases in demand that helps to improve the response chain. In conclusion, If a
firm wants to be responsiveness, a company can achieve it by locating large amount of
inventory close to customers. On the other hand, If a firm wants to be cost efficient,
accompany can achieve it by reducing inventory through centralized stocking.

How could the company use transportation to increase the efficiency of its supply
chain?

Although Zara considers to be more responsiveness, because of its rapid response through the
transportation that moves its products around the world.

Taking into account that Zara uses external transport, Zara could become more efficient if it
seeks to invest in transport in the long term ,so that it can carry out the transport of its products ,
which would reduce its costs on a large scale, since the supplying all your stores around the
world 2 times a week greatly increases its costs, transportation making an investment that in the
long term would leave you more profits.

Another important point is that Zara must ensure that its freight costs are being appropriate. In
other words, better monitoring of route guides or reviews that capacity will be at 100% must be
done.

On the other hand, Zara could consider the idea of ​negotiating transport prices, due to the large
scale of products shipments that Zara carries out, any other external transport company would
be willing to negotiate freight prices.

Finally, Zara should consider reducing the costs it uses in transportation according to the
seasonality of its products, because there are times when innovative products such as Zara's
clothing do not have a high turnover.

How could the company increase responsiveness through its facilities?

In the problematic of Variability as a main factor to determine an strategy Marzieh

Mehrjoo*, Zbigniew J. Pasek(2014) mentions:
Product variety directly affects several departments in a firm such as, for example,
marketing, logistics and manufacturing. Increasing product variety in style, size,
package, function, etc., can result in improved customer satisfaction, higher market
share and enhanced competitiveness ]. Product variety also affects consumer purchase
behavior and welfare. The needs and desires of heterogeneously distributed consumers
are better satisfied by higher product variety. In addition, consumers can enjoy a
diversity of options through “variety seeking” behavior, which satisfies intellectual
curiosity . Thus, increasing product variety enhances consumer welfare . In
contrast, a reduction in variety has an adverse impact on both purchase quantity
and shopping frequency . On the other hand, increasing availability of product variety
also changes consumer behavior, requiring, for example, better product choice selection
strategies, and in the long run creating much more sophisticated and savvy customer.
Establishing relations with facilities and the flexibility of Zara products, we can obtain
a view of the strategy in a long term.Having more different products to offer puts Zara
in a better position, this due to the reason that Zara try to forecast the demand and new
trends,, we can focus on the strategy to expand the variety of products to its peak.We
know that Zara has not reach it yet , because Zara also defined themselves as an
evolving company in 2018, this means they have a lot of work to in a further future.

How Does the company manufacture its product? (In-house or outsourcing)

According to Sodhi & Tang (2012) companies decide to outsource or made the products
in-house depending on their strategic value, the internal capability and efficiency
relative to suppliers. Also, it is affirmed that low value-added processes considered for a
firm can be outsourced and high value-added processes can be maintain in-house. Thus,
for innovative clothing related to woman customer segment, Zara uses in-house
processes in their 13 fully owned plants and , in 2015, 400-450 partner factories to
respond to market dynamic quickly. In that way, “Zara can design, manufacture and
ship a new line of clothing to its stores within two weeks” (Sodhi & Tang, 2012).
Important processes as intensive assembly or sewing operations are made in partner
factories located nearby the Inditex-owned factories in Galicia and Portugal. In that
way, Zara has more control over the production and the information about design among
other characteristics are maintain inside the business involved. Moreover, according to
Amed & Abnett (2015) “Zara employs about 3,000 workers in these factories
performing assembly processes in Spain at an average wage rate of 8.00 euros/hour
compared to average labor wage rates in Asia of about 0.40 Euros/hour” which is more
expensive but also responsive as supply lead time is shorter (Aftab & Yuanjian & Kabir
& Barua, 2018).
On the other hand, Zara also outsources design and production processes to original
design manufacturers in near countries such as Turkey, Morocco, Portugal and Bulgaria
that helps to compress order-to-delivery lead times and react to demand as Zara can
quickly cancel unpopular lines while avoiding markdowns that are regular drain on
profit. Also, for other Zara’s product lines less fashionable, for men and children,
Zara approach is to be efficient as these segments are more price-sensitive than
time-sensitive. Hence, Zara outsource the total production process to original equipment
manufacturers that operates on further countries such as “ China, Bangladesh, India,
Pakistan, Vietnam and Cambodia where labor wage rates are lower and
order-to-delivery lead times are significantly longer” (Aftab & Yuanjian & Kabir &
Barua, 2018)

Fuente: Sodhi & Tang

In 1963, twelve years before the first Zara store opened and 23 years before the Inditex
group was born, Amancio Ortega began his career in a workshop where women's
dresses and robes were made for distribution.
Its name was Confecciones Goa and today it is still one of the 13 Inditex's own factories
in the world. All of them are located in Arteixo and Narón (A Coruña), and their history
is closely linked to the production needs linked to the growth of the world leader in the
textile industry. (Osorio. V, 2020)

What are the pros and cons of the two approaches?

PROS CONS

In house ● Total control of ● High wage rates

production ● It involves high
● Production can be maintenance costs
used as an example
for outsourced
plants.
● Order-to-delivery
lead times are
significantly
shorter
 ● They are very close
to the logistics
center

Outsourcing ● Where labor wage ● Order-to-delivery

rates are lower lead times are
● Outsourcing can significantly
increase company longer.
profits. ● Lack of transparency.
● Outsourcing can ● Labor and
distribute jobs from environmental
developed countries standards may slip.
to developing
countries. ● It can backfire for
the outsourcing
● Outsourcing can company.
strengthen
international ties.

4.Designing Distribution Networks and Applications to Online Sales.

· What sort of distribution network Does the company utilize?

In the case of Zara, it uses a Distributor Storage with last-mile delivery.

· In which product category does going online offer the greatest advantage
compared to a traditional channel? In which product category does the
online channel offer the smallest advantage (or a potential cost
disadvantage) compared to a traditional channel? Why?
Appendix 1: Inditex’s business model

Source: Expansion. (2018). Inditex afina su modelo de negocio. Retrieved from

https://www.expansion.com/empresas/distribucion/2018/03/16/5aabf87c468aeb07788b4
5ed.html

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