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ZARA

:
PROCUREMENT &
OUTSOURCING
STRATEGIES
Describe Zara’s current sourcing strategy. How is it
a competitive advantage for the firm?
• 200 designers on staff who adapt haute couture styles for mass market
• Produces about 11,000 styles per year – 5 times more than comparable retailer
• Worked in large open spaces at Zara HQ, used CAD system to illustrate design and associated
specifications
• Store managers and specialists gather information from the streets and stores to inform the
designers
Planning & Design
Cycle
• Outsourced production : 60% form Europe, 30% from Asia and 10% from rest of the world
• Driving factors – expertise, relative cost and time sensitivity
• Garments with fashion styling manufactured in-house and basics and knits outsourced
• Altogether, in-house production weighted 85% to in-season and 15% to next season’s production
Production
Sourcing &
Scheduling
• Entailed two basic steps: (1) Fabric procurement and (2) Garment assembly & finishing
• External sourcing for synthetics and more fashion fabrics; sewing subcontracted to a network of
400 smaller firms within Galicia and Northern Portugal
• Deliveries between Zara factories and subcontractors occurred many times a week
• From start to finish on a style production within 10 days
In-house
Manufacture
• Committed only 50-60% of production in advance, remaining manufactured on a rolling basis during
season
• If an item selling well in the market created saturation, stop manufacturing it and create unsatisfied
demand on purpose
• Promote the thought “You better get it today because you might not find it tomorrow”
• Competitive advantage – ability to respond in-season that gave Zara a different fashion risk profile
In-Season
Production
• Distribution centers : Two main centers in Spain, namely Arteixo and Zaragoza
• About 2.5 million garments could move through DC each week
• Shipments made out of DC twice a week, by truck to Europe (time required 24-36 hours) and by
airfreight in stores outside Europe (time required within 1-2 days)
Distribution
• Stores receive new inventory several times a week
• Competitive advantage – Customers come into Zara stores on average of 17 times a year
compared to 3 to 4 times for competitors
• Tried to minimize the volume of merchandise moved at end-of-season sale prices – markdown of 15-
20%
Retailing
• Zara stores were uniform
• Store locations in prime high street areas and store design, displays and windows emphasized an
upscale, fashion forward message
Ex: Champ Elysees in Paris, Regant Street in London, Lexinton Avenue in NYC
Zara
Stores
• Competitive advantage - Contrasting pricing strategy to many others in its business
Others – Cost + Target Margin
Zara – Based on comparables within target market, subject to covering costs + Target Margins
• Till 2001, printed price tags for multiple jurisdiction showing all the different prices by country on a
single tag
• Post 2002, switched to a s system of local price marking in the stores, using a device to read bar
codes and printed appropriate local price
Pricing
Strategy
• Most stores are company owned, some are through franchise (Eg: the Middle East) and some
through alliances (Eg: Japan)
• 450 stores in 33 countries
• No local distribution centers and warehouses at the time of entry or any sort of store-opening
promotions
Growth
Strategy
What specific challenges are a result of Zara’s rapid
inventory turnover? What portion of Zara strategy make it
easier to manage
Shorter
lead time
Zara commits only 50-
60% of production in
advance of season while
rest roll during the
season
Most of sewing and
finishing work done
manually through
subcontractor.
Since it is a fashionable
item there were always
a risk of error in
prediction
Lower
quantity
Zara commits about 15-
25% of its season
inventory, six moth
advance of season
compare to industry
average of 40-60%
Due to this lower
quantity production they
not able to get
economies of scale.
This increases
transportation time and
cost
More
Styles
200 designers at Zara
produce about 11,000
styles every years
This require to maintain
fluid flow of information
within design centres for
better decision making
In some cases third
party supplies also
involved in designing
samples.
• Shipment were made out of the distribution centre twice a week by
truck
• Goods received by stores within 24-36 hours of shipment in Europe
and 1-2 days outside Europe
• No inventory held centrally and no inventory at stores that was not
selling.
Shorter route
Portion of Zara strategy make it easier to manage

 Commitment of only 15- 25% its season inventory, six moth advance of season compare to
industry average of 40-60%
 Commitment of 50-60% of its season inventory at the beginning of the season.
 Rest on rolling basis during the season without increasing capacity or higher cost.
 Centralised distribution system among 14 manufacturing plant through which goods received
by retailer within 36 hr. within Europe and 2 day outside Europe.
 Not relying on heavy advertising but on word of mouth
 Setting price at cost plus target margin
 Tagging procedure that permitted movement of goods store to store and country to country
without retagging