Supply Chain and Value-Creation


PURPOSE • To analyze ZARA's success due to its supply chain • How it correlates with value-creation for the company. .

AGENDA • ZARA: Company Profile • ZARA: The Supply Chain ▫ Vertically Integrated .

COMPANY PROFILE • ZARA is the flagship chain store of Inditex Group owned by Spanish tycoon Amancio Ortega • HQ in Coruna. Spain. . where the first ZARA store opened in 1975.

Inditex : 2012 Global Sales Breakdown • .

industry average of 6-9 months • 12 inventory turnovers/year VS. industry average 17%~20% • Commits 50%~60% of production in advance of the season VS.Statistics on ZARA's Supply Chain • 15 days from designs to products VS.000 Stock-Keeping Units (SKUs)/year • Unsold items account for 10% of stock VS.000 designs/year • 30. 80%~90% for other . industry average 3-4 times • 12.

with security and price tags affixed Overnight trucks are used to deliver to European stores and airfreight is used to ship to other countries . • designs and cuts its fabric in-house Clothes are ironed in advance and packed on hangers.Supply Chain Suppliers are all close to their factories so ZARA can order on a needbasis • ZARA buys fabric in only 4 different colors.

distribution. ▫ “The vertical integration of our production system allows us to place a garment in any store around the world in a period between two to three weeks. and retailing were integrated.The Key to ZARA's Success • Vertically integrated supply chain where design.” . production.

ZARA: Vertically Integrated Supply Chain • .

Buy on credit.THE AWKWARD FACTOR IN THE PROFITABILITY FORMULA • Buy low. • Zara. which contributes around 65 per cent of group sales . concentrates on three winning formulae to bake its fresh fashion: Short Lead Time = More fashionable Lower quantities = Scarce supply More styles = More choice. and more chances of hitting it right? . sell on cash. sell high.

ZARA: Vertically Integrated Supply Chain In Spain. .

ZARA: Vertically Integrated Supply Chain After the sewing process. produc .

faster. and efficient • Mass customization • Low process costs • Avoid conflicts emerge from different channels . effective.Why Vertical? Cost • & Speed • Local sourcing of raw material – Cutting cost because they do not outsource any channel • Fast time-to-customer – Cutting time.

Collecting vital information • POS (Point of Sale Terminals) • “H” structure – information from each store is independent and parallel to the headquarter in Spain • PDA – order from the headquarter in Spain by the manager of each store .Why Vertical? (Continued) Information Technology (IT) .

losses • • systems • control management • unit cost • location and • and claims • • at lower • of inventory tasks • overheads • costs • . In-store logistics • Reduced services • logistics • lead times • Improved • delivery reliability Speed of getting • change into • the market • Tighter control of inventory Reduced logistics • lead times Enhanced More competitive Lower Shared use utilisation • bought-in costs • global supplier base activities Off-balance sheet • Improved purchasing • Third party financing Cost reduction Reduced • of low value items • capital providers • Flexibility of labour Lower • Special purpose costs • location and inventories Reduced • vehicles Reduced • Reduced • labour rates transport transport Reduced Reduced • Higher labour • logistics costs • Strategic cost of supply processing Reduced Reduced • utilisation • lead times costs write-offs/ chain mgt inventory systems • Optimised asset • stock errors hold costs costs costs • Leveraged • utilisation • locations • Fewer • • Proven • Tighter Simpler• • Optimised overheads • Flexibility of • errors.g.Values Generated by Logistics • • e. Managing • Reduced • • Postponement smaller • logistics • • • services lot sizes • Strategic • • • visibility lead times • stock Higher sales for meeting • Lower quantity locations • Innovation customer needs of inventor to sell • of solution at reduced prices • Project • managementGreater certainty of • of solution execution Network • • • • coverage Flexibility to match Increased flexibility operational scale • Supply chain • Revenue growth Reduced logistics• Improved • • lead times delivery • • reliability • Higher sales • volumes from better off-the-shelf availability e.g.

Increase Revenue Faster time to the market/extending product life 4-5 weeks from conception to distribution Reduced product discounting Books 85% of the full ticket price for its merchandise.000 to 4. while the industry average is 60% Tailored products Produces 11.000 designs annually Flexibility to respond to change in consumer demands Competitors only have 2.000 items Unsold items account for <10% of stock. as opposed to the Improved product availability industry average of 17-20% Stores Twice-weekly shipments .

Decrease Costs • COGS Outside the distribution center in La Coruña. • Cost of logistics Since nearly 60 percent of ZARA's merchandise is produced in-house. ZARA has twenty-three highly automated factories. decreased transportation costs • Management and administration Plants use just-in-time systems developed in cooperation with logistics experts from Toyota Motor (TM) • Cost of capital/assets ZARA owns 40% of their production facilities in Europe .