SUPPLY CHAIN AT ZARA

Zara is a fashion label and fashion chain stores established in 1975 by the Spanish group Inditex
own by Amancio Ortega. Next to Zara, the rest of the labels the groups own are Bershka, Massimo
Dutti, Pull and Bear, Stradivarius, Oysho, Zara Home, Zara kinds and Uterque. During the last two
decades Zara tripled its profit and stores and nowadays is ranked the third biggest retailer world-
wide (Zhang, 2008). It has 3000 in-house designers located in its headquarter in the region of A
Coruña, Spain,which design over 40 000 items per year among which only 10 000 are selected for
production (Li, 2009).

PROCUREMENT
Every organization purchases items, meaning, every organization requires purchasing supplies,
perhaps as raw materials, components, sub-assemblies, spares, equipment, services and
consumables. The procurement of these is either buying or leasing them.
Procurement interacts with every single unit in the organization, going from marketing and sales
to engineering, design and manufacturing, therefore is important for the organization.

● Procurement is important for the company for a number of reasons: Materials change-
The global markets and agile supply can provide various materials very briefly on
different price. This affects directly the final product, making it more competitive,
possible cheaper and more appealing to the customers.
● Customer demand - Lately there is a growth in companies product mix, while shortening
products life cycle. Good examples are Zara designs, they produce small quantities and
wide variety, that way updating the shop outlook every week and cutting down on.
● Price variation - The new technologies allow a product price to change couple of times a
day, depending on supply and demand. The same technologies allow monitoring that
process.
● Procurement is value adding process and not a cost center.
● Manufacturing - It is important for the manufacturing materials to be delivered on time,
with the correct quality, to the correct place, in correct condition and at the right total
cost.
● SCM - Supply chain management puts great emphasis on procurement.
● Subcontracting and outsourcing - become more cost effective.

PRODUCTION
Supply Chain Operations (SCO) manages three clear aspects: maximize resource used, minimize
inventory and lead times. Those three directly affect pricing, customer satisfaction, and overall
business values like profit, turnover, sales, etc. (Bititci, 2010). Zhang (2008) argues that
production lot in Zara should be kept as small as possible, leaving the extra capacity in the
products which are mostly needed in the manufacturing.

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The Zara basic label is daily commodities with no shelf life, e.g. underwear, basic t-shirts, socks,
etc. and is mainly produced in China, which presume cheaper production and longer lead times.
On the other hand the high-end trendy Zara labels like Zara RTF, mainly consisting of up-to-date
fashion outfits are produced in Portugal and Spain, meaning higher production cost and shorter
lead times, but helping fast reaction on demand.

PRODUCT DISTRIBUTION
Cai-feng (2009) said that “marketing success was based upon strong brands and innovative
technologies”. Nowadays, next to them we can place ASC, which is capable of responding faster
to the changeable demand. This new addition changes the business to enhance competition on time
by efficient supply chain (SC).
Zara is considering being the pioneer in fast fashion, with it’s twice a week supply to its stores
with new fashion items. For comparison, the usual times are from six to nine months (Bruce and
Daly, 2006) for far east clothing industry, 4 months for an international brand and only a week
for Zara (Zhang, 2008). This way Zara can react immediately on demand changes and even if an
item is not salable, there are small numbers of it in a store. The new items in store keep people
coming back every week and find new goods to buy. It helps to keep the stores “fresh” and
minimize the risk of wrong forecasting (Dutta, 2002).
ASC is critical for the fashion business success. In order to manage supply chain correctly retailers
should take into consideration all possible variables. Those can be: weather conditions, specific
customer requirements, shelf life, raw materials supply lead times, sales forecasts, market specific
requirements, etc (Bititci, 2010).
Zara's success is due to many reasons, e.g. efficient supply chain, efficient organization
management, and one of the most important customer orientations. Another important aspect is
that rapid turnover, eliminates working capital needs, consequently number of short term loans is
decreased. In that sense, the efficiency of Zara originates from a small scale in operation, small
batch of production and transportation, many times of distribution in small quantities.

Questions:
a) What could be concluded from Zara's success from the perspective of speed in each stage
of supply chain management?
b) According to your understanding, what are challenges and opportunities of supply chain
management in the fashion industry of Pakistan?
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 E-Procurement at IBM

“In 1999, IBM did what would seem to be a near impossible task. It began doing business with
12,000 suppliers over the Internet — sending purchase orders, receiving invoices and paying
suppliers, all using the World Wide Web as its transaction-processing network.”
Setting up 12,000 suppliers to do business on the Internet was relatively easy compared to the
resistance of suppliers to link to IBM via EDI (electronic data interchange). Suppliers who didn’t
have large contracts with IBM balked at EDI because of the expense of special software and a
VAN (value-added network) that were needed to do EDI. No such problem with using the Internet:
Suppliers don’t need special software or a costly VAN to do business with IBM.
The Internet’s simplicity reduces costs for IBM and its suppliers. IBM estimated that it saved $500
million in 1999 by moving procurement to the Web, and believes that is only the tip of the iceberg.
Much of the savings came from eliminating intermediaries. IBM uses the Web to manage multiple
tiers of suppliers and as a tool to work with suppliers to improve quality and reduce costs. But cost
reduction was not the only reason IBM switched to Internet procurement. Web-based procurement
is a key part of its supplier management strategy: IBM sees great value in using the Internet to
collaborate with suppliers and tap into their expertise much more rapidly than previously. “The
Internet will also allow IBM to collaborate with suppliers over scheduling issues. If the company
wants to increase the production of a certain product it will be able to check with component
suppliers and determine if suppliers can support the increase. If there are schedule cutbacks, [it]
will be able to notify suppliers almost instantaneously and excess inventory can be avoided.”
And although supply chains are viewed as sequential, IBM doesn’t necessarily want to manage
them that way. Rather, it wants to use the Internet to manage multiple tiers of suppliers
simultaneously. An example of this is how it deals with CMs (contract manufacturers). The
company sends forecasts and purchase orders to the CMs for the printed circuit boards they supply.
It also gives all the component manufacturers the requirements and they ship parts directly to the
CM. The company estimates it saved in excess of $150 million in 1999. “The savings were the
difference between the contract manufacturer’s price for components used on the boards and
IBM’s price that it had negotiated with component suppliers.”
Because the Internet is becoming crucial to IBM’s supplier management strategies, IBM is trying
to make it easier for suppliers to do business over the Web. The company has developed a Web-
based portal to provide a single entry point to IBM. As is the case with most large companies, IBM

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has multiple interfaces with its suppliers, including engineering, quality, as well as purchasing, and
typically suppliers have to connect to separate URLs (universal resource locators) in a company.
IBM’s portal provides a single point of entry for suppliers, making it easier for suppliers to do
business with IBM and increasing the speed of the supply chain. Speed is vitally important in the
electronics industry due to very short product life cycles. If products don’t get to the market
quickly, most of the profit opportunity is lost.
Still another benefit envisioned by IBM will be the ability to form strategic alliances with some of
its suppliers. In the past, the fact that many suppliers used by IBM for its production processes
were as far as 12,000 miles away made it difficult to build strategic alliances with them. IBM
believes that using the Internet will strengthen relations and enable it to develop alliances.
“The Internet also will play an important role in IBM’s general procurement . . . IBM was doing
EDI with core production suppliers, but not with . . . other forms of general procurement.
Purchasers were still faxing and phoning orders, which is timely and costly.”
Additional cost savings come from small volume, one-of-a-kind special purchases, because of the
speed and ease of using the Internet.
Web-based procurement will eliminate mistakes that occur during the procurement process due to
having to type or enter prices and other figures on paper documents.

Questions:
1. Aside from cost reduction, what major value does IBM envision for its interaction with
suppliers?
2. How does the use of the Internet for procurement reduce mistakes?