Group 8

Abhay Mittal (U109153)

Asit Mohanty (U109155)
Purbesh Mahapatra (U109158)
Akash Bansal (U109164)
Amrita Sen (U109165)
Jagrat Kumar Bhanja (U109171)

SDM PRESENTATION Abhijeet Shrivastava (U109173)

Varsha Mohan (U109182)
Table Of Content

 About ZARA
 Why to discuss ZARA
 Zara’s Unconventional Wisdom
 The 3 Principles
 Conclusion
About ZARA

• In 1975, when a German wholesaler cancelled a huge

garment order , Amancio Ortega, the owner thought his
fledgling clothing company might go bankrupt.
• All his capital was tied up in the order. There were no
other buyers. In desperation, he opened a shop near his
factory in Spain and sold the goods himself. He called
the shop Zara.
• Today, over 650 Zara stores in some 50 countries
attract customers luxury shopping districts around the
world.
 Why to discuss ZARA
• Spanish clothier Zara turns the rules of supply chain
management on their head.
• A super responsive network and profit margins that
are the envy of the industry. around the world.
• Revenues grew more than 12-fold from €367
million to €4-6 billion
• Profit ballooned 14 folds from €14 mn to €447
million
• IPO in May 2001 , sold 25% shares to public for €
2.3 billion
Why to discuss Zara

• Zara has developed a super responsive supply chain. The

company can design, produce, and deliver a new garment
and put it on display in its stores worldwide in a mere 15
days.
• Such a pace is unheard of in the fashion business
• Zara offers a large variety of the latest designs quickly and
in limited quantities
• It collects 85% of the full ticket price on its retail clothing,
while the industry average is 60% to 70%.
• it achieves a higher net margin on sales than its
competitors; in 2001, for example, when Zara”s net margin
was 10.5% Benetton's was only7%, H&M's was 9.5% and
Gap‘s near 0.
Zara’s Unconventional Wisdom
• Zara defies most of the current conventional wisdom about how
supply chains should be run
• Unlike so many of its peers in retail clothing that rush to outsource,
Zara keeps almost half of its production in-house.
• Far from pushing its factories to maximize their output, the company
intentionally leaves extra capacity. Rather than chase economies of
scale, Zara manufactures and distributes products in small batches.
• Instead of relying on outside partners, the company manages
housing, distribution, and logistics functions itself.
• It holds its retail stores to a rigid timetable for placing orders and
receiving stock. It puts price tags on items before they're shipped,
rather than at each store.
• It leaves large areas empty in its expensive retail shops. And
tolerates, even encourages, occasional stock-outs.
 THE 3 PRINCIPLES
• Close the communication loop

• Stick to a rhythm across the entire supply chain

• Leverage you capital assets to increase supply

chain flexibility
Close the Loop
Fast Fashion
Beats other
40,000 new 10,000 3 lakh SKU’s fashion houses to
Designs production on an the market
Annually designs Average offering same
product at lesser
How ? ----------- costs

Constant Exchange of Information

Centralized design & production

centre

Operational procedures,
performance measures, and even
office layouts are all designed to
make information transfer easy
 How ??

• Three operationally distinct product families

• Separate design, sales, and procurement and production
planning staffs for each clothing line
• Although expensive, information flow is fast, direct &
independent of problems in other channels

Net Result: A responsive Supply chain

• The Cross functional & Co-location

leveraging of teams
• A cadre of designers with other
Planner specialists provide a information sharing
Designer
edge
• Can examine designs, prototypes &
market opportunities &commit resources.

Buyer Result Introduction in few hours if

necessary
Marketing
Specialist
The technological Edge

Computer Aided
PDA’s
Design
• Support Connection
between retail stores • Refining colors &
• Hard Data- Orders & textures on CAD
retail trends • Bar Codes track pieces
•Soft Data – Trends & as they get converted to
Buzz around new styles garments
 The Advantage

• Virtual Stock Outs

• More Customer Visits Shops- New merchandise displayed in limited quantity & for short time
• No BullWhip Effect - Avoiding Costly overproduction & Discounting
Stick to a Rhythm

 The company designs and distributes all its products and

outsources small portion of the manufacturing processes
 It owns all its retail shops
 Thus has higher reach and helps in setting pace with the flow of
products and information
 The rhythm is maintained by careful timing of all the processes
 It begins in the retail shops where the store managers are given
fixed specific timings for ordering
 The rhythm is then carried forward in the fulfilment process
 A central warehouse in La Coruna prepares shipments
 Established schedules are used for air routes as well as road
transport
 Thus reaches parts of Europe in 24 hrs, US in 48 hrs and Japan in
72hrs
 Stick to a Rhythm
 This rapid rhythm in the delivering is maintained in the stores
 As the items have been already priced tagged and hung on racks,
thus can be put directly for display
 Also, the customers know when the new lot has arrived and
increases the frequency of visits
The whole process thus provides
 Reinforcement of production in small batches
 Validation of the frequent shipping
 Justification of use Air and Road transport
 Rationalization of the decision of sending the items on hangers and
racks
With all these, Zara maintains lower inventory levels(10%) and higher profit margins
 Leverage Your Assets
Experts Opinion:
In a volatile market, where product life cycles are short, it is better to own fewer
assets.

Zara’s model is based on a premise that is quite contrary to this belief.

•

Zara’s model: In favour of more investment in capital assets.

Produces half of its products in its own factories.
•

High degree of Vertical Integration.

•

 Raw materials are sources from branches of its own parent company
Inditex.

Benefit of this model:

Better control over schedules and capacity.
Other Strategies
 Outsourcing of simpler products and In-House manufacture of the
complex ones.
 Use of local sub-contractors for In-House labour intensive processes.
 Factories operate in a single shift and can be used for extra hours as
and when the need arises.
 Use of Just-In-Time systems to customize processes and exploit
innovations. (e.g. Uses “postponement” process like Benetton to
gain more speed and flexibility).
 Creation of ample capacity in the distribution centers and factories.
 Temporary employees are hired to maintain lead times during peak
hours.
 Why Extra Capacity?
According to the fundamental rule of queuing
models:

“As capacity utilization begins to

increase from low levels, waiting times
increase gradually. But at some point, as the
system uses more of the available capacity,
waiting times accelerate rapidly. As demand
becomes ever more variable, this
acceleration starts at lower and lower levels
of capacity utilization”.

Higher capacity means the capacity utilization always

remains low and thus the waiting time does not increase.
Reinforcing Principles
 The above three principles reinforce one another.
 A direct, quick, and rich communication between the managers of a

supply chain makes it easier to set a steady rhythm.

 A strict schedule for moving information and goods through the supply

chain makes it easier for operators at different steps to communicate

with one another.
 When the company controls and focuses its own capital assets on

responsiveness, it becomes simpler to maintain the rhythm.

Main Ingredient of Zara’s success:

 Focus of the management on optimizing the entire supply chain rather than
focusing on each players profitability.
THANK YOU