ZARRA SUPPLY CHAIN MANAGEMENT

SAIF MAHABUB 1530209030

Section 19

ZARA SUPPLY CHAIN

Executive Summery
Supply chain is defined as the global network used to deliver products and services from raw materials
to end customers through an engineered flow of information, physical distribution and cash. Supply
Chain Management encompasses the planning and management of all the activities involved in
designing, sourcing and manufacturing, distribution, retailing and logistics. It also includes coordination
and collaboration with channel partners which can be suppliers, intermediaries, third party service
providers and customers (Ayers). Zara is a Spanish clothing brand based in Arteixo, Glacia owned by a
Spanish tycoon Amancio Ortego Gaona. Zara is a flagship chain store of Inditex Group which is the
world’s largest apparel retailer. The business model of ZARA is characterized be a high degree of vertical
integration as compared to models developed by international competitors. The vertical integrated
business model include all the phases of fashion process: Design, manufacture, logistics, distribution to
its owned stores. The key to this model is ability to deliver products to customer as per their desire in
shortest span of time. Time is the main factor that is been considered as compare to the production cost
in ZARA. Vertical integration shortens the turnaround times and achieves greater flexibility thereby
reducing the stock inventory to minimum and hence reducing the fashion risk to greatest possible
extent. The best feature of ZARA supply chain management is that it takes maximum five to six weeks to
deliver the product to the customers as compare to its competitors which deliver the final product in
five to six months (Garcia).

ZARA SUPPLY CHAIN

Table of Contents
Executive Summery....................................................................................................................................... 3
Company Overview ................................................................................................................................... 4
Supply Chain Model .............................................................................................................................. 5
Information Flow ...................................................................................................................................... 6
Design and Order Administration ......................................................................................................... 7
Sourcing and Manufacturing................................................................................................................. 9
Distribution ......................................................................................................................................... 13
Conclusion ........................................................................................................................................... 16
Referencing ......................................................................................................................................... 17

Company Overview

Zara, a Spanish clothing and accessories retailer, was founded in 1975 by Amancio Ortega and Rosalia
Mera. It is the flagship retail store of the Inditex group, a fashion group that owns other brands such as
Massimo Dutti, Pull and Bear, Uterque, Stradivarius, and Bershka.

Amancio Ortega opened the first Zara store in a central street in Galicia, Spain under the name Zorba.
Although another store a few blocks away was also named Zorba, the molds of the letters for the sign
was already created and it was rearranged, thus coming up with the name Zara. In 1980, the company
started its international expansion in Portugal. In 1989, they penetrated the US market and in 1990, they
entered the French market.

Zara is a vertically integrated retailer, controlling the supply chain, design, manufacturing and
distribution of all its products worldwide.

Zara currently has 2,000 stores worldwide. They incur an annual revenue of over $9 Billion dollars.

Zara's Mission Statement aims to contribute to "the sustainable development of society and that of the
environment with which we interact." In stores, Zara saves energy and is eco-friendly. They also create

ZARA SUPPLY CHAIN

less waste and they continue to recycle. Each and every employee is aware of the environmental
commitment of Zara. In their product, Zara uses ecological fabrics and organic cotton. They also
manufacture PVC-free footwear. In transporting product, Zara uses biodiesel fuel, which reduces Co2
emissions by 500 tons per year.

Supply Chain Model

Zara has 2000 stores strategically located in 88 countries around the world. It becomes challenging for
such a firm to supply the orders as per the latest demand. Although Zara uses its flexible business model
in order to adapt to new changes as per the season and thereby delivering the best output to the
consumers as per their desires. Specific retail locations are selected after an extensive market research
to ensure that the target market segments by ZARA is of sufficient size in that particular locality to
render the store financially viable. Moreover ZARA always tries to locate its stores in most up market
with high traffic and prestigious locations. These prime locations gives the opportunities to the
customers to browse the stores as and when they are going back from work. The supply chain
management of ZARA is divided into four categories as shown below:-

ZARA SUPPLY CHAIN

Information Flow

Design &
Sourcing &
Order
Administratio
Manufacturin Distribution Retailing
g
n

ZARA SUPPLY CHAIN

Design and Order Administration

Zara designs all its products. It has a “commercial team” which consists of designers, market specialists,
and buyers. All of them are involved in detailed designing of the products where the designers are the
key players. Almost 40,000 products are designed every year out of which 10,000 are selected for
production. The teams work on both next season’s design and simultaneously updating the current
season’s design in order to maintain a competitive edge. There is dynamic atmosphere among the
designers and design inspiration is from global sources which includes catwalk, magazines, trade fairs,
discotheques etc. Zara creates two basic collection each year- one in fall/winter, other in spring/summer
season. The designers take around nine months before the start of season to make initial sketches. After
the sketches are done, the sketches are redrawn using Computer Aided Design (CAD) and further
adjustments are done in order to find the better matching of weaves, textures and colours. Later, the
fabric and other components are finalised by the designers. Simultaneously the price of the product is
determined at which it will be sold in future. The samples are presented in front of sourcing and product

ZARA SUPPLY CHAIN

development unit for selection process. The sourcing unit identifies the production requirement and
decides whether the item will be insourced and outsourced. Based on this, the sourcing unit allocates a
timeline to ensure that initial collection arrives before the start of selling season.

The process of adapting to the changing trends and differences across market is more revolutionary in
order to find the demand of customers. The demand of target customers who are very young and
fashion conscious city dwellers plays an important role. Thus frequent conversations with store
managers becomes important to capture the sales data in IT system. Various other sources of
information includes TV, internet, university campus, film industry, and even Zara’s fashion conscious
staff. Market specialist plays an important role in linking the designers and stores. Several dozens of
items are designed each day but only one third of the items goes into production. Due to time
constraint, very limited volumes of items are prepared and presented in key stores to determine
customer response. If the customer response is unambiguously positive then those items are produced
on large scale. Market specialist are in constant contact with the store managers through phones
discussing the sales order, new lines and other matters. The store managers are equally in contact with
Market specialist and thereby rely heavily on these discussions before placing the final order. Thus the
failure rate is supposed to be 1% compared with an average of 10% in this sector. Overall, the
responsibility of the design team is to track customer preferences and use sales information along with
other factors for a detailed analysis of product life cycle. Based on this analysis the orders are repeated
and new designs are given to internal and external suppliers. Thereby the design teams with market
specialists bridge the merchandising and back end production process (Kasra Ferdows)

ZARA SUPPLY CHAIN

Sourcing and Manufacturing

Zara manufacture approximately 50% of its product in its own store in Spain but uses external suppliers
for all its sewing operations. Zara sources fabrics, threads and other components from external supplier
with help of purchasing offices in Barcelona, Hong Kong along with sourcing personal in headquarters
located at Arteixo, Spain. About one half of the purchased fabric is not dyed in order to provide latest
season fashion with maximum flexibility, thereby reducing the waste cost. Comditel, a 100% owned
subsidiary of Inditex deals with number of external suppliers of fabric and other components. Comditel
deals with dyeing, patterning and finishing undyed fabric. Due to the vertical integration of Zara, it
makes around 40% of its own fabric and purses rest of the dyes from its own subsidiary. After cutting
and dyeing, the items are stitched with help of many local cooperatives. Since Zara manufactures
around 60% of its own product, hence it is more flexible in variety, amount and frequency of new style
that are produced. Fifty percent of the items that are sold by Zara are being manufactured in Spain, 28 %
in Europe, and 24% in Asia and rest of the world. Zara has a global distribution centre that functions as
mentioned below:

ZARA SUPPLY CHAIN

There is more risk involved in most fashionable item hence these type of items are produced on small
scale and if the customer response is positive then these items are reordered depending upon the
demand. The items that are price sensitive rather than time sensitive are been outsources to Asia as the
manufacturing cost in Europe is 15-20% higher as compare to Asia. Zara has the ability to create rapid
product turnover due to limited stock production and controlled inventory. This creates opportunities in
retail stores of Zara. The quick response system of Zara is unique which consists of human resources and
Information technology. Zara focuses on ultimate customers and emphasizes on the use of quick
backward vertical integration rather than manufacturing efficiencies. It becomes crucial for Zara to
speed up the information flow from consumer desires to apparel designers. The combination of vertical
integration, technology-orchestrated coordination of suppliers, fined tuned logistics and just in time
manufacturing makes Zara so much competitive.

Inventory optimization helps the firm determine the exact requirement of items that needs to be
delivered twice a week and how much stock needs to kept to fulfil the requirement of retail stores. The
average time taken by Zara to implement an idea into a final product is maximum 15 days as compare to
other firms which takes four to five months. Zara is twelve times faster than its competitors in delivering
a product. Generally, there is a lead time of about four to five weeks for new garments and two weeks
to restock. In this period, Zara is able to find the response of fashion items that are selling well and items
that are to be discontinued.

ZARA SUPPLY CHAIN

The procedure of design and procurement starts five to six months prior to the selling season in order to
find the requirement of approximately 65% of the fabric needs, rest depends on the latest trends of
market. Zara manufactures about 15-20% of the items before the season in order to check the response
of customers towards the newly designed items, it later manufactures 50-60% at start of season and rest
is manufactured in the season. The manufacturing of the items is done is such a way that customer
inputs are received at all stages in order to determine the items produced are according to the
expectations of the fashion diva’s.

Zara always keeps the customers priority first and always delivers as per the below strategy:-

ZARA SUPPLY CHAIN

The production commitment of the company is different from other apparel industries. The inventory of
Zara is regulated and the items are been revealed on different stages as per modified designs to
maintain curiosity among the customers and not unlike other industries where the designs are revealed
in one stage and the same stock is repeated throughout the season , thereby creating monotony among
customers.

ZARA SUPPLY CHAIN

Distribution

The distribution system of Zara is centralized giving it a copetitive advantage by miminizing the lead time
of the goods. Zara has a system which is about 600.000 square meter facility in Spain and other smaller
satellite centres in Argentina, Brazil, Mexico that consolidate the entire shipment from Spain.

ZARA SUPPLY CHAIN

Zara has four main warehouses in Spain that receive shipments of finished clothes from internal and
external suppliers across Europe and different parts of world. These finished items are then directed to
Zara store in the world twice a week during regular periods and twice during sale seasons. New models
of items are incorporated with each delivery for constant refreshing stock maintenance in stores. The
products are inspected in order to check if there are any defects in the stock that has to be delivered,
after proper inspection the stock is immediately shipped. There is a rule in Zara that the stock will not be
kept on hold in warehouses for longer period. As a result the items are shipped as soon as the stock
arrives from various suppliers after inspection. In order to increase the delivery speed, the shipments
are scheduled by time zones and the stock is shipped either through land or air. The retail stores that
are located closeby Spain recieves the stock through land transport. Rest the shippment is done through
air across the world for speedy delivery.

ZARA SUPPLY CHAIN

The software of logistic system is designed by the company’s own team, hence it reduces the time
between receiving the order at distribution center to the delivery of order in stores. On an average it
takes 24 hours to deliver the order within Europe and 48 hours for order delivery in America or Asia. The
distribution center moves around 2.5 million items per week. Trucks serve closer locations like Europe
and chartered cargo flights serve destinations that are far from central distribution center.

ZARA SUPPLY CHAIN

Conclusion

The study finds that the strength of Zara’s competitive advantage stems from its efficiency in supply
chain management. The choice of a co-opetition strategy that revolves around establishing favorable
collaboration with suppliers has helped in establishing a successful supply chain. It has been viable to
enhance vertical integration and customer centered operations in order to gain the upper hand against
its competitors. Moreover, agility, lean thinking, strategic management as well as strong distribution
networks ensure speed in delivery of products to customers. The uniqueness in its supply chain as
evidenced through centralized logistic, collaboration and inventive capacity are proof of the benefits of a
favorable co-opetition model. The high responsiveness with which the company handles customer
feedback and integrates the same into its products provides an advantage over its rivals. Also, its
strategy is customer centered and is based on the belief that competitive advantage is attained through
value addition to the consumers.

ZARA SUPPLY CHAIN

Referencing

https://www.researchgate.net/profile/Jose_Machuca2

https://www.goodreads.com/author/show/1479290.William_F_Glueck

https://www.barnesandnoble.com/w/retail-supply-chain-management-james-b-ayers/1009036960

ZARA SUPPLY CHAIN