Zara clothing supply chain case study

INTRODUCTION: Zara is a Spanish fashion clothing manufacturer and retailer, formed in

the 1970’s Zara mainly targets on young and urban female customers and acceptable prices are
offered. There are always new products in Zara stores. Even though usually Zara stores are
spacious but the stock is displayed in limited quantity. This kind of strategy gives customers a
sense of originality and exclusivity. Most of the stores display clothes only when they have a full
set of major sizes, so customers would not be upset to find out that the needed size is not
available. As shoppers enter the stores, reaction between Zara and customers starts with
creating a sense of “buy now since you won’t see it next time” because of the rapid turnover
environment. Customer relationship between Zara and shoppers is then strengthened by,
instead of offering VIP services and discounts, showing a sense of scarcity by displaying unfilled
shelves, limited offer notes on certain items and deliberate undersupply impression to
encourage customers to run to the counter.

Overview: Zara’s single, centralized design and production center is attached to Inditex
(Zara’s parent company). Inditex Chief Executive Jose Maria Castellano says, “This business is all
about reducing response time. In fashion, stock is like food, it goes bad quick.” To maintain a
healthy reaction with customers, keeping up with fashion has become one of the main strategies
of Zara. Zara has spent more than 30 years building its unique real-time supply chain and
training its people. So competitors have a lot of learning to do to create the mental models, and

roll out the operating procedures needed to do what Zara does so well. One of the biggest
advantages of Zara’s supply chain strategy is being able to react quickly to all fashion trends and
supply customers latest fashion outfits as soon as in few weeks’ time. Secondly, Zara never
makes its production in big quantities, so if the style does not sell as good as expected, Zara
does not lose much as there is not much stock to be discounted. Thirdly, though Zara’s supply
chain has higher cost but it allows the advantage of low inventory and higher profit margins.
The positive effects associated with the vertically integrated, shortened supply chain are obvious:
Zara’s advertising fee is only 0.3% of its revenue whereas the other similar fashion retailers
normally spend 3% for advertisements and marketing purposes. The short cycle time requires
less working intensive of new merchandise and allows Zara committing to the bulk of
production line for a season later than the peers. The high frequent of shifts of displayed
merchandise (about three quarters of them are changed every 3 weeks) allows regular
customer-visit rates to be maintained. The biggest disadvantage of Zara’s supply chain is that
since Zara owned all the channels of supply chain, it becomes difficult to expand to far location
as it is very expensive to distribute such products.

QUESTION AND ANSWER:

Q1. DO YOU THINK ZARA’s SUPPLY CHAIN HAVE ANY DISADVANTAGE, WHY?

ANSWER: the disadvantage of ZARA’s supply chain is that since ZARA owned all the channels of supply
chain, resulting in market expansion difficulty. As all system are tried together as a vertical integration,
one change in supply chain can lead to a major system restructure

Q2. Why no one has copied ZARA business model?

Answer: As ZARA have control over the whole supply chain while other rely on outsourcing. Zara is able
to take advantage of diseconomy of scale for better responsiveness while remain cost efficient.