ZARA - Supply Chain & Value Creation

1. ZARA
Supply Chain & Value-Creation
Zubin Poonawalla

2. PURPOSE
• To analyze ZARA's success due to its supply chain
• How it correlates with value-creation for the company.

3. AGENDA
• ZARA: Company Profile
• ZARA: The Supply Chain
• Vertically Integrated

4. 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
FY75.

5. Inditex : FY15 Global Sales Breakdown
•

6. Statistics on ZARA's Supply Chain
• 15 days from designs to products V/s. industry average of 6-9
months
• 12 inventory turnovers/year V/s industry average 3-4 times
• 12,000 designs/year
• 30,000 SKU’s/year
• Unsold items account for 10% of stock V/s industry average
17%~20%
• Commits 50%~60% of production in advance of the season V/s
80%~90% for other

7. Supply Chain
• ZARA buys fabric in
only 4 different
colors;
• Designs & cuts its
fabric in-house
Suppliers are all close
to their factories so
ZARA can order on a
need-basis
Clothes are ironed in
advance & packed on
hangers, with security
& price tags affixed
Overnight trucks are used
to deliver to European
stores & airfreight is used
to ship to other countries

8. The Key to ZARA's Success
• Vertically integrated supply chain where design, production,
distribution, & 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.”

9. ZARA: Vertically Integrated Supply Chain
•

10. THE AWKWARD FACTOR IN THE PROFITABILITYFORMULA
• Buy low, sell high; Buy on credit, sell on cash.
• Zara, which contributes around 65% 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, & more chances of
hitting it right?

11. 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.

12. ZARA: Vertically Integrated Supply Chain
After the sewing process,
products will be sent back to
the factory for button nailing,
ironing & inspection.
Up to tens of kilometers of
underground transmission
channel connects all the
processors.
Label trademarks for different
countries.

13. Why Vertical?
•Cost & Speed
• Local sourcing of raw material
– Cutting cost because they do
not outsource any channel
• Fast time-to-customer –
Cutting time, faster, effective,
and efficient
• Mass customization
• Low process costs
• Avoid conflicts emerge from
different channels
ZARA’s Rate
for the Global
Distribution –
from Spain
China – 48
hours
U.S. – 48
hours

14. Why Vertical? (Contd..)
Information Technology (IT)
- Collecting vital information
• POS (Point of Sale Terminals)
• “H” structure – information from
each store is independent & parallel to
the headquarter in Spain
• PDA – order from the headquarter in
Spain by the manager of each store

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

16. Increase Revenue
Reduced product discounting
Books 85% of the full ticket price for
its merchandise, while the industry
average is 60%
Flexibility to respond to change in
consumer demands
Unsold items account for <10% of
stock, as opposed to the industry
average of 17-20%
Faster time to the market/extending
product life
4-5 weeks from conception to
distribution
Tailored products
Produces 11,000 designs annually
Competitors only have 2,000 to 4,000
items
Improved product availability
Stores Twice-weekly shipments

17. Decrease Costs
• COGS
Outside the distribution center in La Coruña, ZARA has twenty-three
highly automated factories.
• Cost of logistics
Since nearly 60% of ZARA's merchandise is produced in-house, decreased
transportation costs
• Management & administration
Plants use JIT systems developed in cooperation with logistics experts
from Toyota Motor (TM)
• Cost of capital/assets
ZARA owns 40% of their production facilities in Europe

18. THANK -YOU