1. ZARA
Supply Chain and Value-Creation
MAKRAND AGRAWAL (B43)
PALASH VERMA(E35)
SAI PRAVEEN(D23)

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 1975.

5. Inditex : 2012 Global Sales Breakdown
•

6. 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

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

8. 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.”

9. ZARA: Vertically Integrated Supply
Chain
•

10. 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?

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 and 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
China – 48
hours
ZARA’s Rate
for the
Global
Distribution
– from Spain
U.S. – 48
hours

14. 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

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

16. Increase Revenue
Faster time to the
market/extending product life
4-5 weeks from conception to
distribution
Reduced product discounting
Books 85% of the full ticket price
for its merchandise, while the
industry average is 60%
Tailored products
Produces 11,000 designs annually Flexibility to respond to change
in consumer demands
Competitors only have 2,000 to
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

17. 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

18. THANK YOU !!!