the importance and role

of inventory management
and warehousing in the
performance of zara

Réalisé par : Lamnii Aya

 INTRODUCTION

Inventory management and warehousing play pivotal roles in the success of

businesses across various industries. Efficient management of inventory
ensures that companies can meet customer demand, minimize holding costs,
and maintain a competitive edge. Warehousing, on the other hand, serves as
a crucial link in the supply chain, providing storage, organization, and
distribution capabilities. An exemplary illustration of effective inventory
management and warehousing is demonstrated by Zara, a global fashion
retailer known for its agile and responsive supply chain strategies.
 INVENTORY MANAGEMENT

Inventory management is one of the most important business processes during the operation of a
manufacturing or production company as it relates to purchases, sales and logistic activities. It
concerned with the control of stocks throughout the whole supply chain. Inventory control sits at the
data level where the day-to-day business is organized. Activities here are data driven and are primarily
concerned with short-term planning and recording of events. Inventory control is concerned with
maintaining the correct level of stock and recording its movement.

Inventory is essential to organization for production activities, maintenance of plant and machinery as
well as other operational requirements. This results in tying up of money or capital which could have
been used more productively. The management of an organization becomes very concerned if inventory
stocks are high. This therefore calls for its close scrutiny by management. Management is very critical
about any shortage of inventory items required for production. Any increase in the redundancy of
machinery or operations due to shortages of inventory may lead to production loss and its associated
costs.

Inventory management techniques are extremely important for business operations because their
success and cost reduction of the firm’s expenditure necessitate improved supply chain performjance
and knowledge to the employees.

 Economic Order Quantity : . EOQ model is a technique that determines the optimal amount of
inventory to order each time the inventory of that item is depleted , the Economic Order
Quantity (EOQ) model of inventory management is used to mark the optimum size of delivery
and to choose the cheapest deliverer which guarantees minimization of total costs of
investments in inventories.

The EOQ model makes the following assumptions:

• Demand is constant and known with certainty.

• Depletion of stock is linear and constant.

• No discount is allowed for quantity purchases.

• The time interval between placing an order and receiving

delivery is constant

 Vendor-Managed Inventory (VMI) : Under the VMI technique, significant gains can be made
through transparent collaboration with credible vendors of critical inventories, especially in
large-sized production management. VMI enables the vendor in a vendor/customer relationship
to plan, monitor, and control inventory for their customers, with the vendor taking responsibility
for managing the inventory within specific levels previously agreed upon, while the customer
concentrates on improving demand accuracy. The customer-organization relinquishes the order-
making responsibilities in exchange for timely inventory replenishment that ultimately works
towards increasing overall capacity planning and institutional efficiency.
  Just-In-Time : As the name implies, JIT is a model that attempts to replenish inventory for
organizations just when the inventory is required. It will be the preferred method for very
expensive inventory items, that is, items with relatively higher purchase price, holding costs or

ordering cost, but low levels of demand. The model attempts to avoid excess inventory and its
associated costs. As a result, organizations receive 6 inventory only when the need for more
stock is approaching. For JIT approach to succeed, a crucial requirement is to ensure timely
delivery by the vendor. This is to avoid expensive and irreparable business downtimes
occasioned by any delay in inventory delivery.

Inventory management KPI

Inventory turnover ratio :

measures how quickly stock is sold and replaced (turned over) in a predefined period – usually
a year.
A common way to calculate an inventory turnover ratio is as follows:
Inventory turnover ratio = Cost of goods sold/Average inventory value
Average inventory value = (Opening inventory value + Closing inventory value)/2
Inventory turnover is a good indicator of the efficiency of your inventory management
processes. A higher turnover generally means greater efficiency. However, be careful not to
simply lower inventory levels across the whole warehouse to improve your turnover rate, as this
could be at the expense of order fulfilment.

Stock to sale ratio

The stock-to-sales ratio compares how much inventory you have available to sell versus what
you have already sold to check the health of your stock levels.
You can use this ratio to adjust your stock levels so they are continuously optimized to reduce
holding costs, improve cash flow, maintain high margins and reduce the possibility of stockouts.

Stock to sales ratio = inventory value/sales value.

Sell-through rate

The sell-through rate compares the total inventory sold with the total inventory received from a
supplier. This can help you understand your demand forecasting accuracy (which we discuss
next), highlight popular products, and mitigate storage costs, which all help you understand
supply chain efficiency.

Sell-through rate = (units sold/units received) x 100

 Demand forecast accuracy

Aiming to get a demand forecasting as accurate as possible is critical to ensure stock

availability, maximize sales and keep customers happy while preventing excess stock.
This KPI analyzes how accurate a forecast was against actual sales. The smaller the gap
between what was forecasted and what was sold, the more accurate the demand forecasting.
Accurate demand forecasts improve the inventory turnover rates and lower the carrying costs.
There are many formulas for calculating demand accuracy, or demand error, including the Mean
Absolute Percent Error (MAPE) and Mean Absolute Deviation (MAD),

Mean Absolute Percent Error = Actual Value / Absolute Difference * 100

Absolute Difference= Actual Value−Forecasted Value∣∣Actual Value−Forecasted Value.

Backorder rate

The backorder rate KPI keeps track of the number of delayed orders due to stockouts. It shows
the percentage of customer orders that cannot be filled at the time of placing.
If the orders often include multiple lines and shipments, it can also drill down into the actual line
orders for more accuracy.
A high backorder rate can indicate poor demand forecasting and planning and affect customer
satisfaction. It is calculated as:

Backorder rate = (Number of undeliverable orders/total number of orders)/100

Carrying costs of inventory

Inventory carrying costs or holding costs, include all the overheads (many hidden) it incurs by stocking
items in your warehouse. These costs include:

Capital costs – all costs related to the investment in buying stock, e.g. the cost of the stock, the interest
on working capital and the opportunity cost of the money invested.

Storage space costs – a combination of the warehouse rent or mortgage and maintenance costs, such as
lighting, heating and air conditioning.

Inventory service costs – these include insurance, security, IT hardware and the cost of physically
handling the goods.

Inventory risk costs – costs that cover the risk of items losing value while stored, shrinkage, or becoming
obsolete.

Order Cycle Time :

Time from order placement to product/service receipt

The total duration it takes for a customer order to be processed and delivered, from the moment the
order is placed until the customer receives the product or service. It includes order processing,
preparation, and transit time.
order cycle time : order completion time - order placement time.

WAREHOUSING :

Warehousing is a process of properly storing and handling goods in warehouses that are
to be distributed or sold later. Warehouses are large commercial buildings where
products are stored safely in advance. This process has an efficient role in providing a
smooth and regular flow of goods or other materials and avoids any shortage-like
situations.

Warehouses provide a proper place for arranging and controlling all products which helps
in boosting productivity and reducing the overall cost. It helps businesses in fulfilling the
orders of customers on time. The warehousing process creates time utility by bridging
the gap between the production and consumption time period.

Apart from using the warehouse as a place of storage, it is also used for packaging and
grading of products. Warehouses reduce the fluctuations in the price of the product by
holding it when its supply exceeds the market and by releasing it when its demand is
more than its regular supply. There are generally 3 types of warehouses: Public
warehouses, Private warehouses, and Bonded warehouses.

Public warehouses : Public warehouses

are commercial inventory spaces that are
owned by third-party businesses and rented to
other companies for storage and distribution
purposes.

Private warehouses : are storage facilities exclusively

owned and operated by individual companies to store
and manage their goods. These facilities provide
owners with the flexibility to customize storage and
distribution processes according to their specific
requirements.
 Bonded warehouses : are specialized facilities where
imported goods can be stored, processed, or undergo
manufacturing without the payment of import duties
and taxes. These warehouses are under the
supervision and control of customs authorities. They
play a crucial role in international trade, enabling
businesses to defer customs duties until the goods
leave the bonded warehouse for domestic
consumption.

Importance of warehousing is as follows:

 Provides Storage Space: Warehouses stores all surplus goods produced by

the business until their demand arises. Storing goods is the foremost and
primary role played by warehouses.

 Better Inventory Management: Warehouses provide one centralized location

where all goods of business are stored. It helps and makes tracking all goods
much easier so that surplus or deficiency of any product can be timely handled
by the business.

 Provides Safety of Products: Goods once send by businesses to

warehouses for storage are look after by warehouse owners. Warehouses
provide safe custody of goods and save them from damage, fire, theft, etc.

 Facilitates Regular Production: Warehouses help in regulating

the operations of the business. It continuously supplies all required raw
materials by storing and preserving them in large bulk quantities.

 Stabilizes Product Prices: Reducing the irregularities in the prices of products

is another advantage provided by warehouses. Warehouses stabilize the
prices of goods by ensuring optimum supply in the market. It does this by
holding on to goods when their supply exceeds the market whereas releasing
them as their supply is less than the demand in the market.

 Improves Customer Service: Warehouses helps in enhancing customer

satisfaction and improves their shopping experience. It optimizes the product
distribution process and provides fast delivery service to customers.
Warehouses aim at providing guaranteed timely delivery to customers which
makes them happy.

5 warehousing methods

Selective Pallet Racking:

  Pallets are stored on horizontal beams in multiple levels.
 Provides easy access to each pallet but requires more floor space.

Drive-In/Drive-Through Racking:

 Pallets are stored on continuous rails, allowing forklifts to drive directly into
the storage space.
 Efficient for storing large quantities of the same product but can be less
accessible.

Flow Racking (Gravity Flow):

 Products move along inclined rollers or wheels, allowing for easy
picking and restocking.
 Facilitates first-in, first-out (FIFO) inventory rotation

Mezzanine Storage:

 Additional storage space is created by building a raised platform within the warehouse.
 Useful for utilizing vertical space without expanding the warehouse footprint.

WAREHOUSING KPIS

Order Picking Accuracy

Measures the precision of order fulfillment.

Order Picking Accuracy = (Number of Accurate Picks/ Total Number of Picks) * 100

Dock-to-Stock Time

The Dock-to-Stock Time is the measure of the time it takes for products to move from the
receiving dock, where they are unloaded from incoming shipments, to being available in stock for
order fulfillment.
Dock-to-Stock Time=Time of Arrival at Dock−Time Available in Stock

The Warehouse Capacity Utilization

The Warehouse Capacity Utilization is a measure of how efficiently the available storage space
within a warehouse is being utilized.

Warehouse Capacity Utilization = Current Storage Used /

Total Available Storage Capacity * 100
 Backorder Rate

Measures the percentage of orders that cannot be fulfilled immediately due to insufficient stock.

Backorder Rate=(Number of Backordered ItemsTotal Number of Orders)×100

Inventory Management vs. Warehouse Management:

What are the Key Differences?

 Inventory management and warehouse management are two important facets

of managing stock. While inventory management usually provides a high-level
view, warehouse management is more likely to focus on the details of moving
stock. Here are some of their similarities and differences

Inventory Management and Warehouse Management Similarities

 Both inventory management and warehouse management are concerned with

the efficient storage, shipping, and ordering of necessary stock to keep
operations running smoothly.
 Each system relies on a combination of radio frequency identification (RFID),
barcode scanner tools, and software to improve accuracy and efficiency.
 These tools are used to provide visibility into stock within one warehouse or the
entire company.

Inventory Management and Warehouse Management Differences

 Inventory management systems are usually simpler, managing the total

amount of stock for one specific storage location. Warehouse management
systems provide the ability to manage entire storage systems within a
warehouse structure.
  Inventory management provides data, which is used to calculate sales trends,
profit margins, and holding costs. In contrast, warehouse management uses
that information to analyze sales trends, profit margins, and holding costs.
 Inventory management lets users know the amount of a specific product on
hand, while warehouse management provides information on where to place
the inventory and when to retrieve it.

Inventory management and warehouse management are two different processes.The main
differences between inventory management and warehouse management are :
Inventory management focuses only on product or stock, while warehouse management involves
managing employees and shipping or freight personnel operating in the warehouse environment.
Inventory management provides data, which is used to calculate sales trends, profit margins, and
holding costs. In contrast, warehouse management uses that information to analyze sales trends,
profit margins, and holding costs.
Inventory management systems are typically used to track and manage inventory, while
warehouse
management systems control and optimize the flow of goods within a warehouse.

Inventory Visibility and Accuracy: A Case Study of How ZARA Using

Technology and Speed to Become the worlds largets fashion retailer.
ZARA was launched in 1975, in Galicia, Spain. ZARA is one of the largest
international fashion stores with over 2000 physical stores in 96 countries.
ZARA specializes in fast fashion and launches over twenty new product lines
per year, with brands covering clothing, accessories, shoes, perfumes, and
beauty products.
On product strategy, ZARA adopted the principle of quick response, small
quantity, and great variety of style. To cope with this strategy, ZARA has
invested a lot on implementing just-in-time approach, RFID technology, and
Cloud-based inventory management system, in order to manage the
complex supply chain.

Just-In-Time (JIT)

 Changes and updates offer more reasons for customers to visit the stores and keep their
shopping experience fresh.
 ZARA changes its apparel design every 2 weeks on average, while the competitors
change theirs every 2 or 3 months. To be the lead of the market and compete on its
speed to market, ZARA implemented just-in-time (JIT) and production in-house.
 Just-in-time (JIT) is a strategy that encourage the company to generate the order of
material and intermediate products only when required. This method helps the company
to effectively reduce the production wastage, and the cost of storing and maintenance of
inventory, which is especially suitable for ZARA – a fast changing fashion company.

RFID

 ZARA started implementing RFID technology in its stores and warehouses in 2014. The
RFID tag is buried inside the plastic security tag of each product, and this allows ZARA to
track the item throughout the whole process from production until it's sold.

 Before RFID system was implemented, ZARA’s staff had to scan one barcode at a time,
so lots of staff and time have to be involved in each inventory-taking task, and hence,
they would carry out the inventory count once every six months only.

 The RFID system allows the warehouse to take inventory counting quickly, and now, they
can carry out the inventory count every 6 weeks, and this helps ZARA to get a clearer
picture on what products are popular and what are growing weak, and results in a better
demand forecast.

 In inventory management, RFID (Radio-Frequency Identification) technology involves

using electronic tags with unique identification codes to track and manage stock levels,
monitor product movement, and streamline the overall inventory control process.

Cloud-based Inventory Management

 ZARA is now using a cloud-based inventory management system, and its integrated
solutions allow ZARA to fulfill online orders from physical stores or warehouse, and this
enables ZARA to allocate their stock more effectively and shorten the order waiting time.

 Since ZARA will change their apparel design every 2 weeks, supply chain visibility and
inventory accuracy become more important to them. The cloud-based platform allows
everyone on ZARA’s team to check inventory levels, review orders and be productive
from anywhere and anytime.

 To execute the just-in-time approach, ZARA will need a high inventory visibility to monitor
the demand, to allow them to plan their replenishment accurately to meet customer
expectations, seasonal or even unexpected demand changes.

 A cloud-based inventory management system is an online software solution that enables

businesses to efficiently manage and track their inventory in real-time without the need for
on-site servers.

ZARA’S WAREHOUSE PERFORMANCE

Zara's warehouse performance is characterized by its commitment to agility,

speed, and efficiency in managing the flow of products within its supply chain.
 While specific details about Zara's warehouse operations may not be publicly
disclosed, the company is known for its innovative approach to fast fashion,
which likely influences its warehousing strategies. Here are some key aspects
of Zara's warehouse performance:

Quick Response (QR) System: Zara's warehouse performance is closely tied to its QR system,
emphasizing rapid response to changing market demands. This system requires streamlined
processes within the warehouse to ensure quick and efficient handling of new designs and
limited-quantity items.

Rapid Inventory Turnover: Zara's unique business model relies on frequent inventory turnover.
Warehouses play a critical role in managing this fast-paced rotation, ensuring that newly
designed and produced items are swiftly distributed to stores.

Distribution Center Network: Zara strategically positions its distribution centers to support the
timely delivery of products. This network is designed to facilitate efficient transportation and
reduce lead times between production and retail locations.

Agile Supply Chain: Zara's warehouse performance is part of a broader supply chain strategy
that values agility. The company aims to minimize lead times, allowing it to react quickly to
emerging fashion trends and customer preferences.

Technology Integration: Zara likely integrates advanced technologies within its warehouses to
enhance performance.

Customer-Centric Approach: Zara's warehouse performance aligns with its customer-centric

approach, aiming to deliver the latest fashion trends to stores rapidly. Warehouses are crucial in
ensuring that products are available when and where customers want them.

Zara's warehouse performance is a key component of its overall supply chain strategy,
emphasizing agility, rapid response, and efficiency. While specific details about its warehouse
operations are proprietary, the company's success in fast fashion suggests a well-optimized and
innovative approach to warehousing.
 Conclusion

the synergy between inventory management and warehousing is

indispensable for the sustained growth and competitiveness of businesses.
Zara's agile and data-driven inventory practices exemplify the significance of
adapting to market demands, reducing holding costs, and maintaining optimal
stock levels. As companies across industries continue to refine their inventory
management and warehousing strategies, they can draw inspiration from
Zara's success in staying ahead of market trends and delivering a seamless
customer experience.

BIBLIOGRAPHY

LOGI – Scientific Journal on Transport and Logistics Vol. 8 No. 2 2017 DOI: 10.1515/logi-
2017-0011 © 2017 Oluwaseyi J. Afolabi et al.

The Importance of Warehousing in a Logistics System (chron.com)

Inventory Visibility and Accuracy: A Case Study of How ZARA Using Technology and Speed to Become
the (linkage-retail.com)

Zara’s Fashion Retail Supply Chain Strategies - Supply Chain 24/7 (supplychain247.com)