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August 20, 2010
Supply Chain Management of Zara

Executive Summary Globalization has open doors of opportunities for firms to reach and explore new markets. Now more than ever, supply chain management plays a key role for organizational success for those that aim to expand their market reach around the globe. This paper discusses perhaps one of the most excellent organizations when it comes to supply chain management. Zara is known around the world as one of the most successful provider of fashion products. This paper presents a description of supply chain management including its elements and components. The different stages of Zara’s supply chain and their contributions to the overall efficiency and effectively of Zara’s business model are discussed. Lastly, the paper discusses the different metrics that are used by the firm in measuring supply chain performance. Introduction Zara is one of the most notable fashion stores in the world. Notable for its products and notable for its excellent supply chain management. This paper discusses the supply chain management at Zara, tackling the different areas of supply chain and their contribution to the company’s success. Supply Chain Management Supply chain refers to all the value adding operational activities involved with supplying to an end user with a service or product (Lowson 2002). A supply network is defined by Christopher (1992) as an interconnection of organizations which relate to each other through upstream and downstream linkages between the different processes and activities that produce value in the form of products and services to the ultimate consumer (cited in Lowson 2002). Porter (1985) is among the earliest influences upon an integrated supply network. According to Porter, the organization’s value chain is embedded within a value system comprising suppliers and buyers. The linkages within this chain or system provided the building blocks of competitive advantage. Conversely, supply chain management involves partnerships that are developed between organizations performing adjacent, linear steps in the chain. The

1996). where to produce it and which suppliers to use. can be configured. its suppliers. These can involve demand and supply planning. distribution channels.connecting process to structure via communication.the operational activities that transform inputs into outputs. Inditex . ○ Processes . ○ Linkages .these are the organizational units within the supply chain that interact. the basic units of competitive advantage. ○ Distribution – Businesses address questions about how their products should be moved and stored. manufacture. manufacturing and service operations. sourcing. Christopher (1998) defines supply chain management as the management of upstream and downstream relationships with the suppliers and customers to deliver superior consumers value at less cost to the supply chain as a whole. usually in the form of shared information and continuous communication (Lowson 2002). Supply chain or value chain management is composed of the operational or tactical activities and can be defined as ‘managing the entire chain of raw material supply. design and engineering centres. manufacturing and service centres. logistics. order entry.supply chain is viewed as a whole rather than a set of fragmented parts in order that activities. confined and performed in different ways to rival chains (Porter. assembly and distribution to the end consumer (Jones 1989 cited in Lowson 20002). its customers. Components of the Supply Chain The supply chain has four basic components: ○ Production – Businesses focus on how much to produce. Elements of the Supply Chain ○ Structures . ○ Inventory – Businesses decide where to store their products and how much to store. They include a company. ○ Payments – Businesses look for the bets ways to pay suppliers and get paid by customers. purchasing. and new product or service development. materials management. forecasting.

digital networks that link Zara with its suppliers and customers. Zara is the largest Inditex division – accounting for more than 75 percent of total Inditex sales. subcontractors.In 1963. provides continual updates to all players. Portugal. Since then Zara chains have grown into retailing giants with almost 1000 stores worldwide and an impressive sales record. after a German customer cancelled a sizable order. In 1975. warehousing and distribution system. The original intent was simply to have an outlet for cancelled orders but the experience taught the firm the importance of a marriage between manufacturing and retailing – a lesson that guided the evolution of the company ever since. creating what the company terms a ‘value net’ for all the firms in the supply network. These advances have enabled Zara to deliver tailored products quickly and reliably. In parallel with its overseas expansion. Each brand operates independently. Zara estimate that it takes only two weeks to convert design . Zara at a Glance: Operations and Supply Chain Management The first Zara clothing store opened in 1975 in Spain as a small retailer selling men’s and women’s clothing. the firm opened its forts Zara retail shop. The particular operation strategy used by Zara helps it respond quickly to shifts in customer demand and build a powerful brand. the company established retail operations in all the major Spanish cities during the 1980’s. The company at the center of the operations strategy coordinates all activity. But the real ‘step-up’ in foreign expansion took place during the 1990s when Inditex entered 29 countries in Europe. and organizational structure (Inditex 2006). The success of Zara is partly to do with the appeal of its men’s and women’s and children’s fashions and accessories that display unique style but at real world prices. But it is also partly as a result of their collaborative. with its own stores. In 1988 the first overseas Zara store opened in Porto. allowing customer choices to be simultaneously transmitted to all supply partners who then deliver components as need by other partners. followed shortly by New York City in 1989 and Paris in 1990. the Americas and Asia (particularly during 1998 to 2001 when it entered 21 of these 29 countries). From a starting point of 6 stores in 1979. ordering system. This value net is a key part of the operations strategy. Amancio Ortega started a small company in Spain that manufactured women’s pajamas and lingerie products for garment wholesalers. and captures significant value for its efforts. Inditex diversified its retail offering by adding and acquiring new brands in order to target different customer segments.

Supply Chain at Zara For Zara stores to be able to offer cutting edge fashion at affordable prices requires the firm to exert a strong influence over almost the entire garment supply chain: design. This process helps to retain an overall ‘Zara Style’. distribution. and retailing. it is necessary to determine whether . The sketches are redrawn using a CAD system where further changes and adjustments. capital-intensive steps are executed in factories owned by Zara. for better matching of weaves. Store employees regularly tour urban hot spots looking for new trends and reporting back to designers.000 are selected for production. The company ensure product quality by designing its own products.ideas into products on the shelf to satisfy its young. also update the current season’s designs. and colors are made. These talented people include designers. Customers seem to relish the results of this high velocity operation and are often seen queuing outside stores on designated delivery days – a phenomenon dubbed as ‘Zaramania’ (Lowson 2002). textures. magazines and more importantly customer feedbacks. specialists and buyers. hip. As part of this strategy. Together they produce designs for approximately 40. Knowing what’s in today may be out next month is the secret of the success of the Spanish retailer as is the ability to apply operations strategy that puts new fashion concepts on the shelf twelve to fifteen days. Zara has almost 300 people working in its headquarters in Spain. Designers – the supply chain starts with the designers. 1. planning and procurement people. Women’s. Unlike their industry peers. fashion shows. Design and Order Administration The design and order administration at Zara is very effective and efficient. Before moving further through the process.000 items per year from which 10. purchasing. these teams work both on next season’s designs and. Extensive feedback from the store network also forms an integral part of the design process. clientele with fashion for the masses. Based on information and inspirations gathered from different resources such as trade fairs. while labor intensive operations are outsourced to small shops and manufacturers with whom Zara have collaborative partnerships that include providing them with the necessary technology and logistics capabilities. simultaneously and continuously. men’s and children’s designers sit in different halls in a modern building attached to the Inditex headquarters. production. the designers draw out design sketches by hand and then discuss them with colleagues – including market specialists.

Over half of these fabrics are purchased undyed to allow faster response to mid-season color changes. 70 percent of which are in Europe and most of the rest in Asia. new lines and other matters. To facilitate quick changes in printing and dyeing. and in what volumes are normally made collectively by the relevant groups of designers.the design can be produced and sold at a profit. The next step is to make a sample. The other half of its products are procured from 400 outside suppliers. Zara also work closely with Fibracolor. The buyers are responsible in planning procurement and production requirements. Comditel (Zara account for almost 90 percent of their total sales). often completed manually by skilled workers located in the small sample making shop in one corner located in the small sample making shop in one corner of each hall. and buyers and after the decision is taken. Zara is a preferred customer for almost all its suppliers. a dyestuff producer part owned by INditex. discussing sales orders. For its in-house production. Zara obtain 40 percent of its fabric supply from another Inditexowed subsidiary. when. 3. These factories generally work a single shift and are managed as independent profit centers. The rest of the fabrics come from a range of 260 other . especially by phone. 2. With its relatively large and stable base of orders. allocating production to various factories and third party suppliers and keeping track of shortages and oversupplies. Production 1. Zara procure “basic” products and those for which the region has a clear cost or quality advantage. Suppliers – Zara manufacture approximately 50 percent of its products in its own network of 22 Spanish factories but use subcontractors for all sewing operations. Many of the European suppliers are based in Spain and Portugal. Market Specialists – Each market specialist has responsibility for dealing with specific stores. Stores rely heavily on discussions with Market Specialists before finalizing orders. market specialists. Buyers – Final decisions concerning what products to make. If there are any specific questions or problems. The market specialists work in close contact with store managers. they can just walk over to the designers and discuss and resolve them on the spot. the buyers take charge of the total order fulfillment process. From Asia. These market specialists have wide experience. monitoring warehouse inventories. and Zara exploit this geographical proximity in order to ensure quick response to Zara orders which is critical for fashion products.

cost-effectiveness. Distribution 1. If the buyers cannot obtain desired prices.After in-house CAD controlled piece cutting. There are some 500 sewing subcontractors in very close proximity to La Coruña (in the Galicia region) and most work exclusively for Zara. and quality from Zara factories. 3. they are free to look outside.000 square meter distribution center employs some of the most sophisticated and up-to-date automated systems. and availability of sufficient capacity. 50. the distribution center shipped 130 million pieces. compliance with labor laws. together with the appropriate components (like buttons and zippers) in small trucks. Distribution Center – all products pass through Zara’s major distribution center in La Coruña. Fashion garments represent around 80 percent of Zara’s products and the rest are more basic items. With a workforce of 1200. 2. Completed products procured from outside suppliers are also sent directly to the distribution center. A system of aerial monorails connects ten of the factories in La Coruña to the distribution center. the distribution center normally operates four days per week with the precise number of shifts depending on the volume of products that have to be distributed. Subcontractors then bring back the sewn items to the same factory. Zara use a sampling methodology to control the incoming quality. Contractors using trucks bearing Zara’s name pick up the merchandize at La Coruña and deliver it directly to Zara’s stores in . delivery terms. and above all else adherence to the production schedule. Zara use subcontractors for all sewing operations. The key criteria for making this decision are required levels of speed and expertise. 2. none account for more than 4 percent of Zara’s total production in order to minimize dependency on sungle suppliers and encourage maximum responsiveness form them. Logistics (Contractors) – In 2001. The subcontractors themselves often collect the bagged cut pieces. The 5-storey. Finished products are then placed in plastic bags with proper labels and then sent to the distribution center. Zara closely monitor their operations to ensure quality. where each piece is inspected during ironing (by machine and by hand). Procurement and Production Planners – The make or buy decisions are made by the procurement and production planners.suppliers. Orders for each store are packed into separate boxes and racks (for hanging items) and are typically ready for shipment 8 hours after they have been received. 75 percent of these shipments were to stores in Europe. Subcontractors .

Zara’s supply network entails a near-vertically integrated company the owns retail. Personnel receive specifi c training on customer care as one of the main intangible values of the store. shipments at Zara are almost flawless – 98. encourage freedom and comfort of the visitor by taking an active role in the shopping process exclusively when the customer requests this (Inditex 2007). Zara’s Supply Network Zara can move from design to in-store availability in a matter of weeks as a result of closely connected. Apart from its location. Products shhiped by air are flown from either airport in La La Coruña or the larger airport in Santiago. Apart form the fashion supply. . maximum care over window displays and customer care are some of the elements that guarantee this experience. The store is Zara’s main image vehicle. the interior design of the store. Typically. the United Sates in 48 hours and Japan in 48 to 72 hours. customer care is one of the elements that Inditex takes most care of: its relationship with consumers. Store personnel with supervisors as the main drivers of quality of service. The store plays an important role in the Inditex business model that ranges from production up to end distribution. which it largely owns and controls. its window designs and interior design. highly synchronized arrangements with out-sourced suppliers. coordination of collections. Inditex establishments are thought out so that the encounter between the customer and fashion can take place in a pleasant environment. Retailing 1. The trucks run to published schedules.9 percent accurate with less than 0.5% shrinkage. Store/Customer Stores usually place their orders and receive shipments twice per week. The overall experience of the customer in the store in considered. Zara relies on a local supply network. Orders have to be placed at pre-designated times. products design. stores in Europe receive their orders in 24 hours.Europe. dyeing. Compared to similar companies in the industry. That network can design and replenish hot-selling fashion products in the stores within three weeks. for which reason the location in the main commercial areas of cities and care over interior design take on vital importance for the company. The stores where Zara concentrates the majority of its investment are the essence of the group’s chains.

Zara use flexible arrangements with a wide supply base. operational procedures. each specializing in one particular part of the production process or garment type. Zara controls most of its supply chain. distribution. The reduction in order cycle time leads to reduction in supply chain response time. manufacturers. These subcontractors work exclusively for Zara’s parent. Operational Level Measures Operational level measures include ability in day to day technical representation. In return. they can also provide the product at a lower price. customers visit Zara stores more frequently. including the labor intensive finishing stages. warehousing. but they beta the designers to market. and logistics functions. provided on predictable schedules. adherence to developed schedule. are completed by networks of more than 300 small subcontractors. . and as such is an important performance measure and source of competitive advantage. All other manufacturing activities. Because Zara’s merchandise is produced in small quantities. often small. ability to avoid complaints and achievement of defect free deliveries. called order delivery cycle time. To achieve this type of competitive advantage. The system is flexible enough to cope with sudden changes in demand (Christopher et al 2004). by managing all design. Zara produces clothes that resemble the latest couture creations. The strategy at Zara is that only those operations which enhance cost efficiency through economies of scale are conducted in-house (such as dyeing. This has an added advantage of helping Zara avoid the cost of advertising. labeling and packaging). Zara has achieved high levels of customer responsiveness by working closely with specialist. refers to the time elapsed in between the receipt of customer order until the delivery of finished goods to the customer. and displayed in the stores for only a short amount of time. Supply Chain Performance Measure Order Lead Time The total order cycle time. Zara design the organization. Only sewing operations are outsourced (Korhonen and Hartiala 2006). performance measures and even office configurations to make information and product transfer easy. financial and logistical support required to achieve stringent time and quality targets. cutting.and fabric cutting operations. theyr receive the necessary technological. Because they use less expensive fabrics. Inditex.

production. removing steps that does not contribute to the achievement of the company’s goals and developing those elements that add value. efficient scheduling of shipments Flexibility of Delivery Systems to Meet Particular Customer Needs This refers to flexibility in meeting a particular customer delivery requirement at an agreed place. Recommendations 1. ○ Centrally Managed Inventory – controlled and timely delivery of clothing to all stores across the world ○ Reduced Design Cycle Time – timely response to items that sell well and ability to quickly alter or enter new designs ○ Strong IT System – allows almost immediate communication of sales and inventory information across enterprise ○ Logistics and Distribution – clothes move within hours to their destination. the firm exerts a strong influence almost the entire garment supply chain: design. Conclusion Zara is an example of how a firm can design and manage its supply chain to gain competitive advantage. Zara makes sure that it streamline its supply chain. The retailing success of Zara can be partly attributed to its excellent supply chain management.Effectiveness of Scheduling Techniques Scheduling refers to the time or date on which activities are to be undertaken. Zara makes sure that each element of the supply chain network adds value to the entire operation. and retailing. The scheduling techniques of Zara is very efficient. Such fixing determines the manner in which resources will flow in an operating system. purchasing. the effectiveness of which has an important impact on production and thus supply chain performance. distribution. Total Quality Management . In order for Zara to provide cutting edge fashion at affordable prices. agreed mode of delivery and with agreed upon customized packaging. Zara is considered a retailing giant with almost 1000 stores worldwide.

It is designed to be context specific and to be contingent upon the setting. QR relies on sales data. a program developed by textile and apparel manufacturers and retailers around 1985 as a way to cope with problems challenging the apparel industry.inditex.com/en/shareholders_and_investors/investor_relations/annual_reports> Christopher. sales data are transmitted and transformed as useful information that reveals consumers’ preferences and reactions. QR is a way to gather information about consumer preferences and to reflect them in production decisions in a timely manner. Logistics and Supply Chain Management. The QR strategy links all activity to real time demand. increase worker productivity.The idea of total quality management (TQM) emphasizes planning for quality. viewed 17 September. The production process must be designed with quality in mind (Summers 1998). References Annual Report 2006. and reduce merchandise markdowns and inventory costs. Through computerized information systems. 2. M 1998. and decisions are then made promptly to respond to what consumers want (Kang and Sullivan. The product must be designed in such a way that it can be produced consistently without losing sight of the design aspects demanded by the customer. M 1992. It is customized by the individual retailer or manufacturer and is particularly suited to small and medium-sized firms. improve merchandise quality. Christopher. London. uses a combination of strategies to reduce inventory levels. Pitman Publishing. London. < http://www.com/en/shareholders_and_investors/investor_relations/annual_reports> Annual Report 2007.inditex. The impetus for a company to devote significantly more resources to quality through a TQM program comes from a trend that most companies are now experiencing – an increased competitive pressure that leads to higher costs associated with poor quality. To comply with consumers’ needs. Pitman Publishing. viewed 17 September. 2008. increase stock turnover. including designing the product in such a way that consistent quality is more easily obtained and more easily measured. Quick Response Quick Response (QR). Inditex. . < http://www. Inditex. 2008. Logistics and Supply Chain Management: Strategies for Reducing Cost and Improving Service. Fundamentally. Quick Response as an operations strategy is designed to overcome the impact of seasonality in operations. 1999).

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