ZARA

Supply Chain and Value-Creation

MAKRAND AGRAWAL (B43)

PALASH VERMA(E35)
SAI PRAVEEN(D23)
 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
•
 Statistics on ZARA's Supply Chain
• 15 days from designs to products VS. industry average of 6-9
months

• 12 inventory turnovers/year VS. industry average 3-4 times

• 12,000 designs/year

• 30,000 Stock-Keeping Units (SKUs)/year

• Unsold items account for 10% of stock VS. industry

average 17%~20%

• Commits 50%~60% of production in advance of

the season VS. 80%~90% for other
 Supply Chain
Suppliers are all
close to their
factories so ZARA Clothes are ironed in
can order on a need- advance and packed
basis on hangers, with
security and price
• ZARA buys fabric tags affixed
in only 4 different
colors;
• designs and cuts
its fabric in-house

Overnight trucks are

used to deliver to
European stores and
airfreight is used to ship
to other countries
 The Key to ZARA's Success

• Vertically integrated supply chain where

design, production, distribution, and retailing
were integrated.

▫ “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.”
 ZARA: Vertically Integrated Supply
Chain
•
THE AWKWARD FACTOR IN THE
PROFITABILITY FORMULA
• Buy low, sell high; Buy on credit, sell on cash.

• 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?
ZARA: Vertically Integrated Supply
Chain
In Spain, 200 fashion designers are in
charge of new designs for the clothing
line. They select the most cost
effective fabric for the new designs.

Designs will be made into models

when sent to the factory. The computer
then decide how to shear fabrics in
order to waste as little as possible.

Fabric will be sent to the factories.

ZARA: Vertically Integrated Supply
Chain
After the sewing process,
products will be sent back to
the factory for button nailing,
ironing and inspection.

Up to tens of kilometers of
underground transmission
channel connects all the
processors.

Label trademarks for

different countries.
 Why Vertical?
Cost
• & Speed China – 48
hours

• Local sourcing of raw

ZARA’s Rate
material – Cutting cost for the
because they do not Global
outsource any channel Distribution
• Fast time-to-customer – – from Spain
U.S. – 48
Cutting time, faster, effective, hours

and efficient
• Mass customization
• Low process costs
• Avoid conflicts emerge from
different channels
 Why Vertical? (Continued)

Information Technology (IT)

- 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
 Values Generated by Logistics
e.g. Managing
Supply Reduced Postponement smaller Reduced
chain logistics services lot sizes logistics Improved
Strategic visibility lead times lead times delivery e.g.
stock Higher sales reliability In-store
logistics
locations Lower quantity for meeting Higher sales services Reduced
Innovation of inventor to sell customer needs volumes from logistics
of solution at reduced prices
Project better off-the-shelf lead times
management Greater availability
Improved
of solution certainty of
delivery reliability
execution
Network Speed of getting
coverage Tighter control
change into
Revenue growth the market
of inventory
Increased
Flexibility to match Reduced logistics
flexibility
operational scale lead times
Enhanced
More competitive Lower utilisation Shared use
global supplier base bought-in costs activities
Improved purchasing Off-balance sheet
of low value items Reduced Cost reduction financing Third party
labour capital providers
Flexibility of Lower
costs Special purpose
location and inventories
Reduced Reduced vehicles
labour rates Reduced
transport Reduced Reducedtransport
Higher labour logistics
costs
utilisation cost of Reduced Reduced supply processing Strategiclead times
write-offs/ inventory systems chain mgt costs
Optimised asset stock
errors hold costs costs costs
utilisation Leveragedlocations
Fewer
Optimised
errors, losses Tighter Proven Simpler overheads
unit cost Flexibility of
and claims control systems management
of inventorylocation and at lower tasks
overheads
costs
 Increase Revenue
Faster time to the Reduced product discounting
market/extending product life Books 85% of the full ticket price
4-5 weeks from conception to for its merchandise, while the
distribution industry average is 60%

Tailored products
Produces 11,000 designs annually Flexibility to respond to change
Competitors only have 2,000 to in consumer demands
4,000 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, ZARA has
twenty-three highly automated factories.
• Cost of logistics
Since nearly 60 percent of ZARA's merchandise is
produced in-house, 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
THANK YOU !!!