Zara’s Supply Chain

The fashion industry is known to run on a high degree of uncertainty. With ever
changing trends it is even harder to predict the market and hence forecast the required
raw materials and supplies. In the past the apparel industry has been categorized as
more of a push model where the retailer outlets push styles and new outfits to the
market. However, the same strategy is doomed for failure as of today, with new
entrants and competitors at every corner, brands are being forced to listen to their
customer. It’s important to recognize what chimes with the consumer and quickly
respond by satisfying this need. Additionally, every geographic location differs in
spending patterns, styles, per capita income etc. and all the clothing lines need to
accurately evaluate the demand that will exist in every market.

What increases the complexity of the supply chain is the dependence on exports from
other developing countries. Almost 30% of all garments produced in the world are
exported in developing nations. Hence, there is a large cost involved in transporting
materials and finished goods.

Zara has maintained it’s stand as a leader in the apparel industry and what makes it so
profitable is it’s unique supply chain strategies. Zara uses the following principles to
increase their net income and maintain a standing of being a brand that is both fashion
forward and affordable:

1) Produce in small lot: small lot is the unique characteristics of lean manufacturing
which is not the case here. The logic behind this is that small lot creates the sense of
exclusivity. Customer need to make a quick decision otherwise the next day the
products they want will be gone. So customer visits Zara's stores to see new
products more often and this creates the huge amount of traffic and revenue.
2) Centralize design and product development: the norm in the apparel (and some
other) industries is to develop new products by both in-house staffs and through
merchandisers. In the latter case, suppliers need to send samples (through
merchandisers) to buyers many times. Elimination of this back-and-forth
communication reduces the time to market drastically.
3) Utilize work cell organization: each new product development team has its
own designers, sales, and procurement and production planners the same way as in
a cellular manufacturing. This help Zara to streamline the internal communication a
lot.
4) Control scheduling strictly: at Zara, store managers can place order 2 times a
week, shipments are prepared and delivered within 24 hours (in Europe) and
products will be on displayed at stores the same day they arrived. Since everything
runs in a steady pace, they can reduce a waiting time at every step of the way.
5) Keep production in-house: Zara tries to stay away from low-cost country
sourcing and make an investment in the in-house manufacturing as much as
possible. The reason is that they believe the in-house production help them to
increase the overall flexibility.
6) Automate production and warehouse facilities: since Zara believes in time
based competition, automation is the key to help them to increase the speed and the
accuracy of the operations.
7) Adhere to all rules: implementing any one of these rules alone is not quite
effective. Then, they have to stick to all rules so the whole supply chain is running like
the well- oiled machine. Conclusion Zara's supply chain is a very good example of the
strategic alignment because people, processes and practices support time-based
strategy perfectly

Full Description of Zara’s Supply chain:

1) Design: Zara designs all products. The headquarters of Zara has a commercial
team that consists of designers, market specialists and buyers. The designers
for men’s, women’s and children’s wear are sitting in different halls in a building
attached to the Inditex headquarters.

2) Order Administration: There are a number of market specialists and each one
is responsible for dealing with a number of certain Zara stores. These market
specialists are in regular contact, in particular via phone, with the store managers
of “their” shops. They discuss sales, orders, new lines etc. Furthermore, the
store managers are equipped with special devices to make quick and accurate
exchange of market data possible. The salespersons in the Zara stores are
equipped with wireless handsets to communicate the inventory levels to the store
manager at the closing time in the evening. The store managers use internet-
connected phone lines to pass the numbers on to the design/order and
distribution departments. Zara stores hold very low levels of inventory. Because
of this, it happens very often that the shelves are empty at the end of the day.
So, the stores are dependent on regular replenishment with the newest designed
products. Designers, market specialists and buyers make final decisions about
the products. After the decision is made, the buyers are responsible for the order
fulfilment process, which includes
Flow Chart of Zara’s Supply Chain
monitored warehouse inventories, allocated production to different factories and third
party suppliers and kept track of shortages and oversupplies. It follows that the
headquarters, where all the data from the stores flow together starts the production,
when the when consumer requirements are identified (through the support of the
stores).
3) Production: 40 % of the fabrics are supplied by Inditex part owned mills. The rest
of the fabrics is produced by 260 other suppliers. To minimize the dependency on
single suppliers and support maximum responsiveness from them, the amount on
Zara’s total production of each supplier accounts not more than 4 %. More than half of
the fabrics are purchased undyed to make faster response to midseason color
changes possible. For all sewing operations, Zara has sub suppliers (around 500)
under contract. These are workshops that are not owned by Inditex and employ
informal economy workers (mothers, grandmothers, teenage girls). They are located in
Spain and Portugal and strictly monitored by Zara. The 1) 2) 3) 4) 5) Distribution center
in La Corunã Design by Zara Order administration (by Zara) in headquarters ->
designers, market specialists, buyers Production 50 % by Zara -> manufacturing in 22
factories in Spain 50 % by 400 outside suppliers -> 70 % of the suppliers are in Europe
(many in Spain and Portugal)
-> most of the rest in Asia 40 % of fabric supply from other Inditex owned subsidiaries
subcontractors for all sewing operations (~500 close to the Galicia region) in-house
CAD controlled piece cutting dyestuff producer Fibracolor (part owned by Inditex) to
facilitate quick changes in printing and dyeing Distribution by contractors, using trucks,
bearing Zara’s name small warehouse in Brazil small warehouse in Argentina small
warehouse in Mexico Retailing Stores place their orders and receive shipments twice
per week
4) Distribution: The major distribution center of Zara is located in La Corunã, where all
products pass through. The distribution center is equipped with the most sophisticated
and up-to-date automated systems. For every store, the orders are packed in
separated boxes and racks and are ready to ship within 8 hours after the order arrived.
The apparel is then transported directly to Zara’s stores in Europe by contractors, which
use trucks bearing Zara’s name. For deliveries over sea, the trucks drive to airports,
which are close to La Corunã (mostly Santiago di Compostela). The orders arrive in the
stores in Europe normally within 24 hours, in the USA within 48 hours and Japan within
48 to 72 hours.
5) Retailing: A Zara store normally places the orders and receives its shipments twice
per week. The stores have to place orders at determined times. Stores in Spain and
Southern Europe have to place the orders on Wednesdays before 3 p.m. and on
Saturdays before 6 p.m. By keeping the production voulmes low when the season
starts and reacting fast to orders and new trends during the season, Zara tries to
minimize the risk of oversupply.
Conclusion:

Zara's supply chain is a very good example of the strategic alignment because people,
processes and practices support time-based strategy perfectly.