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By, Group 11 Vaishvik Kale (17) Venkata Ashok (44) Vicky Kumar
By, Group 11 Vaishvik Kale (17) Venkata Ashok (44) Vicky Kumar
By, Group 11 Vaishvik Kale (17) Venkata Ashok (44) Vicky Kumar (45)
History of ZARA
First ZARA store in LA Coruna in 1975 by Amancio Ortega Gaona International Expansion began in 1989 ZARA is Flagship
Case Facts
Two seasons:- Spring/Summer and the Fall/Winter Collection 200 designers 11000 styles each year In house manufacturing was reverse for more current ( season) production ZARA do External sourcing for synthetics and more fashion fabrics
Cont..
ZARA owned a sourcing company Comditel in Barcelona, manage 40% of fabric procurement Sewing subcontracted with 400 smaller firms within Galacia and northern Portugal Overall turnover time for sewing for 1-2 weeks 50-60% production in advance and remaining will based on demand rolling Centralise distribution for both outsource and inhouse manufactured garments
Risk pooling
Demand uncertainty transferred to the suppliers Suppliers reduce uncertainty through the risk-pooling effect
Increased flexibility
The ability to better react to changes in customer demand The ability to use the suppliers technical knowledge to accelerate product development cycle time The ability to gain access to new technologies and innovation. Critical in certain industries:
Fashion where products have a short life cycle High tech where technologies change very frequently
Conflicting Objectives
Demand Issues
In a good economy
Demand is high Conflict can be addressed by buyers who are willing to make longterm commitments to purchase minimum quantities specified by a contract
In a slow economy
Significant decline in demand Long-term commitments entail huge financial risks for the buyers
Dependency on knowledge
Firm does not have the people, skills, and knowledge required to produce the component Outsources in order to have access to these capabilities.
Production Sourcing
About half of total garment production is sourced to third party Orders for production are given six months prior to store delivery Out of the total outsourced production, 60% comes from Europe and 30% from Asia Huge scope of sourcing to (low cost) Asian countries Fashionable and stylish manufacturing is done in house Basics and knits are outsourced
Drawbacks of outsourcing: Existing standardized production line Going away with 'Zara Model' - in time & customizable delivery Benefits of outsourcing: Huge reduction in cost Capacity expansion
Zara commits 50% to 60% of its production in advance of season Remaining 40% to 50% production is done on rolling basis throughout the season as per demand
Production Allocation 1998 In house External 53% 47% 1999 50% 50% 2000 44% 56% 2001(expected figures) 40% 60%
4 Ps
Product - High Quality, fashion trend Price Based on comparables within target market Place Premier commercial streets and upscale shopping centres Promotion WOM, News paper ads (0.3% of sales)
Procurement Cost
2000 1999 1998 net sales 2044.7 1603.4 1304.2
EBIT
327.9
248.4
213
0.160366
0.154921
0.163319
6.24%
6.45%
6.12%
Modular Integral
Zara is independent for knowledge and dependent for capacity to some extent. Most of its products are modular and hence Zara should outsource to reduce cost
Apparel Industry
Tier 1 : Fashion elements , quality of material and workmanship Ex: Ladies Suits Tier 2 : Little differentiation among producers and little time sensitive fashion Ex: Khakis Tier 3: Low quality segment. Products are like commodities Ex: Mens underwear
Fabric Procurement
High High High Low Little Integral
Fabric Procurement
Medium Medium High High Highly
Fabric Procurement
Low Low Low High Highly modular
Kraljics matrix
High
Profit Impact
Fabric procurement Leverage Items Garment assembly Bottle neck item Finishing