You are on page 1of 4

Supply Chain Practices of Three European Apparel Companies: Zara, H&M and Benetton The case details the

design, production and distribution practices of following three companies: Zara: One of the pioneers of fast fashion developed a fully integrated supply chain model. The processes like design, production and distribution were carried in-house and it owned and operated all the stores. Hennes & Mauritz: Designed & distributed the garments, and owned the stores, while the manufacturing was completely outsourced. Benetton: designed and manufactured all the garments, but did now own any stores.

ZARA Three key success factors short lead time, more style and low supply of any particular style. Zara the flagship brand of Spain based Inditex group, founded by Amancio Ortega Gaona and opened its first store in 1975. 1058 stores located in 69 countries as of March 08 Able to conceptualize the garment, develop, and deliver it to the stores within 2-3 weeks weres the industry average is six months.

Key to success integration of design, production, distribution, and retailing The model allowed Zara to respond quickly to shifts in consumer tastes and to newly emerging trends. The company's instant fashion model, which completely rotated its retail stock every two weeks, also encouraged customers to return often to its stores, with delivery day becoming known as "Z-day" in some markets. The knowledge that clothing items would not be available for very long also encouraged shoppers to make their purchases more quickly. In 1988, the company opened its first foreign store in Oporto, Portugal.

If a design doesn't sell well within a week, it is withdrawn from shops, further orders are cancelled and a new design is pursued. No design stays on the shop floor for more than four weeks, which encourages Zara fans to make repeat visits. An average high-street store in Spain expects customers to visit three times a year. That goes up to 17 times for Zara. While most retailers try to forecast the fashion trend and produce accordingly, Zara moves with the customer requirements and does not have to depend on forecast. Design The design centre was located in Spain as well and was divided into three segments for Men, Women and Child wear. Team consisted of more than 200 designers who can churn out 60 styles each. The store managers and sales staff updated the head office every day about the moving stock and provided inputs regarding the new lines, colors, styles and fabrics that customers are demanding. The store specialists provided the designers with an outline of the new style, design and fabric as demanded by the store. The procurement and production managers provided inputs regarding the capacity and manufacturing costs. The designers came out with the design specifications and the technical brief. With all the teams working in tandem, the prototypes were ready within a few hours!!

Production Zara procures unprocessed and undyed fabric and colored the product based on the need. Zara sourced undyed fabric from far east, Morocco and India. The prototype is made by design team. The production facility cuts the fabrics as per the required design using computer layout of sample pieces. The layout was prepared to minimize wastage. 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. These workshops, which were not owned by Zara, employed about 11,000 workers and were provided with a set of instructions on how to sew the garments. This helps keep cost down. Quality was assured by maintaining proper training and audit. Garments are usually ready in a weeks time. The stitched garments after coming to the production centers of Zara were checked twice for quality, pressed, tagged, wrapped in plastic bags and sent to the distribution centers. Distribution Distribution centre (5lac sq meter) is located centrally in Spain. Zara has its own railway track of 211 km on which the goods moved to the

distribution centre. Optical reading devices sorts out more than 60,000 items every hour. The distribution centre has two level and was fully automated. On one level, folded apparel was packed into cardboard boxes. The boxes were dropped through a shaft according to their destination. On the lower level, garments sorted based on their styles were placed on hangers. There were two belt systems one for folded and one for hung garments. The garments were then routed using automated routing devices. All the garments were pre-priced and the lots labeled according to their destination. The garments were shipped out twice a week. Non-european consignments were sent to the airport for further distribution. Stores within Europe receives consignment within 24-36 hrs wereas outside Europe received them within two days. Zara achieved accuracy of 98.9% in its shipments. Once the merchandise reaches the stores, the goods were put on display straight away. With new stocks arriving twice a week, the stores always had something new to offer and the customers waited eagerly for new arrivals. The codes on the clothes conveyed to the staff where exactly the items needed to be placed. In the stores, the clothes were organized by color rather than type of garments. This was done in order to encourage customers to spend more time at the stores matching items. The stores were mostly located in the prime locations across the world. All Zara stores were uniform in outlay, including lighting, fixtures, window display and arrangement of garments. Most of the stores were company-owned and in some markets, particularly in Asia, Zara went in for alliance and franchises. Zara retained the right to open its own stores in the location and buy out franchised operations in cast the franchise experienced any problems with running the stores.

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

supply chain, it was difficult for Zara to expand to far location as it becomes very costly to distribute such products.