Zara Case Study: Role of Supply chain in organizational Success

2. Presented By:
1.Sabina Irfan-364 4.Sadia Butt-355
2.Hafsa Mateen-3100 5. Amina Khan-376
3.Shakeela Mushtaq-324 6.Nazish Inam-398
Institute of Quality & Technology Management
Punjab University
ERP Implementation
In Hershey’s
ZARAZARA-Business Case-Business Case
Role of Supply Chain in Organization SuccessRole of Supply Chain in Organization Success
Presented To: Dr. Saima Saleem

3. Contents:Contents:
 Business Case: Summary
 Company Overview
 ZARA ‘S Supply Chain
 Role of Supply Chain
Drivers
 Key Supply Chain
Success Factors
 Conclusion

4. SCMSCM ISTHE SUCCESS FACTOR IN FAST FASHION BUSINESS. IT LOOKS ATTHEISTHE SUCCESS FACTOR IN FAST FASHION BUSINESS. IT LOOKS ATTHE
PROCESS FROM RAW MATERIALS ORIGINTO CUSTOMER CONSUMPTION.PROCESS FROM RAW MATERIALS ORIGINTO CUSTOMER CONSUMPTION.
ZARAZARA IS A CHAINIS A CHAIN THAT COMPETES ON ITS SPEEDTOTHAT COMPETES ON ITS SPEEDTO
MARKET, LITERALLY EMBODYINGTHE IDEA OF “FAST FASHION”.MARKET, LITERALLY EMBODYINGTHE IDEA OF “FAST FASHION”.
.AT ZARA,.AT ZARA, SPEED & RESPONSIVENESSSPEED & RESPONSIVENESS ARE MORE IMPORTANTTHANARE MORE IMPORTANTTHAN COSTCOST..
ZARA’S OVERARCHING STRATEGY IS ACHIEVING GROWTHTHROUGHZARA’S OVERARCHING STRATEGY IS ACHIEVING GROWTHTHROUGH
DIVERSIFICATION WITH ANDVERTICAL INTEGRATIONS.DIVERSIFICATION WITH ANDVERTICAL INTEGRATIONS. ZARAZARA BY WORKINGBY WORKING
THROUGHTHE WHOLETHROUGHTHE WHOLE VALUE CHAINVALUE CHAIN ISVERYISVERY VERTICALLY INTEGRATEDVERTICALLY INTEGRATED THATTHAT
OWNS DIFFERENT LEVELS OFTHE SUPPLY CHAIN.THIS ALLOWS ZARATOOWNS DIFFERENT LEVELS OFTHE SUPPLY CHAIN.THIS ALLOWS ZARATO
GLOBALLY OPTIMIZE INSTEAD OF LOCALLY.GLOBALLY OPTIMIZE INSTEAD OF LOCALLY. CUSTOMER DRIVEN PROCESSESCUSTOMER DRIVEN PROCESSES,,
INFORMATION MANAGEMENTINFORMATION MANAGEMENT && SHORTERSHORTER LEADTIMESLEADTIMES ALSO CONTRIBUTETOALSO CONTRIBUTETO
THE SUCCESS OF SUPPLY CHAIN.THE SUCCESS OF SUPPLY CHAIN.
Business Case: Summary

5. . IInditexnditex is a global specialty retailer thatis a global specialty retailer that
designs, manufactures, and sellsdesigns, manufactures, and sells
apparel, footwear, and accessories forapparel, footwear, and accessories for
women, men and children through itswomen, men and children through its
chains around the world.chains around the world. ZaraZara is theis the
largest and most internationalized of thelargest and most internationalized of the
sixsix retailers thatretailers that InditexInditex owns.owns.
Date of
Establishmen
t
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.
Locations,
Stores,
Competitors
1,763 stores in 86 countries-Competitors include Gap, H &
M , Benetton
Company Overview:

6. Zara’s ProductsZara’s Products
Men & Women
Clothing
Zara Footwear's
Zara Bags &
Accessories
Zara HomeZara Home
specialtiesspecialties

7. Industry Overview:Industry Overview:
CompetitorsCompetitors
Gap, Inc. H&M Benetton Zara
Production Outsourced Outsourced In-House
40% In-House
60%
Outsourced
Production
Lead Times
High High High Low
Net Margins -.06% 9.6% 7.05% 10.47%

8. INDITEXINDITEX
MANAGEMENT /MANAGEMENT /
DESIGNERSDESIGNERS
Determine designs andDetermine designs and
manufacturing locationsmanufacturing locations
IN-HOUSE
(40%)
High QR
High Cost
EUROPE /
N. AFRICA
(40%)
High QR
High cost
ASIA
(20%)
Low QR
Low Cost
DISTRIBUTION
CENTER
Increased shipment
frequency increases QR
Small batch production
lowers cost of demand
uncertainty
STORES
Decentralized store
management
supplements
QR
Managers determine
products to sell and
return
IT SYSTEMS
Provides accurate
demand information to
determine
manufacturing locations
and production levels
Manufacturing
Design SaleDistribution
System is designed for short production
cycles, quick response (QR) to demand,
and reduced number of markdowns
Returns from stores either rerouted or
disposed of in local stores near dist.
center
ZARA ‘S:
SUPPLY CHAIN

9. Zara’s Supply ChainZara’s Supply Chain

11. Role of Supply Chain DriversRole of Supply Chain Drivers

Facilities
Sourcing

12. 1. Inventory1. Inventory
focus on reducing time Zara holds 6 days worth of
inventory, while H&M holds 52 days, and Spanish
Retailer holds 94 days of inventory .
Stores place orders twice per week and the supply
of finished goods is matched to store demand.
Demand based production means there is very
little inventory in Zara’s supply chain.
 It avoids piling up inventory in any part of its
supply chain & stock delivered is limited
Inventory optimization models are put in place to
help the company to determine the quantity that
should be delivered to its retail stores
This goes towards the brand image of being
exclusive while avoiding the build up of unpopular
stock.

13. 2.Sourcing2.Sourcing
Zara sources fabric, other inputs, and
finished products from external suppliers
with the help of purchasing offices in
Barcelona and Hong Kong, as well as the
sourcing personnel at headquarters.
40% of the garments are manufactured
internally,2/3rd
of items sourced from
Europe & North America & 1/3rd
from Asia.
 Most fashionable products are
produced in small lots internally or under
contract by suppliers who are located
nearby
More basic & price sensitive items are
outsourced to Asia, Europe as production
in is 15-20% more expensive.

14. 3. Information3. Information
Sources of Information:
•Mobile Tracking System
•Centralized distribution system,
-for 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. 4.Transportation4.Transportation
Deliveries typically arrive one to two
days after ordering with most deliveries
arriving by truck from the Spanish
factories.
Trucks serve destinations that can be
reached overnight, to be more precise
in Europe, while chartered cargo flights
serve farther destinations.
The firm recently tweaked its shipping
models through Air France-KLM Cargo
and Emirates Air, so flights can
coordinate outbound shipment of all
Inditex brands.

16. Facilities & PricingFacilities & Pricing
5.Facilities
Reach their target market by locating
their stores in prime town-centre
locations.
Most of the suppliers are located
closely
6.Pricing
Product price is affordable
 Cost Leadership
As production is carried out in Spain
where average wages are higher than
low cost Asian countries so factory
wage costs will be higher than
competitors, which affects margins.

17. Key Supply Chain Success FactorsKey Supply Chain Success Factors

18. Key Supply Chain Success FactorsKey Supply Chain Success Factors

19. 1.Vertical Integration1.Vertical Integration
where design, production, distribution, and
retailing are integrated.
“The vertical integration of production
system allows Zara to place a garment
in any store around the world in a
period between two to three weeks.”
Why Vertical?
•Local sourcing of raw material – Cutting
cost because they do not outsource any
channel
• Fast time-to-customer – Cutting time,
faster, effective, and efficient
• Low process costs

20. ZARA:ZARA: Vertically Integrated Supply ChainVertically Integrated Supply Chain

21. ZARA:ZARA: Vertically Integrated Supply ChainVertically Integrated Supply Chain

22. 2.Information Technologies:2.Information Technologies:
Four ( 4 ) critical information related areas
that give Zara its speed, include:
11. information on customer needs:. information on customer needs:
•Trend information flows daily, and is
fed into a database at head office.
• Designers have access to real-time
information
2.2.Standardization of Product Information:Standardization of Product Information:
Allows Zara to quickly & accurately prepare designsAllows Zara to quickly & accurately prepare designs
3.3. Product information & inventory management:
Gives Zara’s team the capability to design a
garment with available stock
4.4. Distribution management:
•Distribution facility functions to ensure each order
reaches its right destination.
•Optical reading devices sort out and distribute more
than 60,000 items of clothing an hour.

23. 3.Shorter Lead Time:3.Shorter Lead Time:
 Key objective of Zara is “ To GetKey objective of Zara is “ To Get
the Shortest Time to Marketthe Shortest Time to Market
Zara moves in step with its customerZara moves in step with its customer
(( Pull SystemPull System ) & produces response) & produces response
withinwithin 2-5 Weeks.2-5 Weeks.
Chooses manufacturers that canChooses manufacturers that can
provideprovide speed over costspeed over cost
Zara’s relationship with their
manufacturers, proximity to market,
and logistics skills, combined with
their concurrent product development
process, help them achieve short lead
times.

24. 4.Customer Driven Process:4.Customer Driven Process:
Zara uses Information System for
customer profiling, to analyze
purchase patterns & direct targeting
Zara is able to more quickly respond
to fluctuating customer demands in
fashion trends.
5.Lower Quantities:5.Lower Quantities:
 The added benefit of lower
quantities is that if a style does not
work well, there is not much to be
disposed when the season-end sale
does happen.

25. CONCLUSIONCONCLUSION
11.. Zara hasZara has Vertically integratedVertically integrated supply chain, which gives them asupply chain, which gives them a
highly competitive advantage.highly competitive advantage.
2. Zara choose to handle design, production, and distribution2. Zara choose to handle design, production, and distribution in-housein-house
and concentrate the whole production close to their headquarters inand concentrate the whole production close to their headquarters in
Spain.Spain.
3. By entire process, Zara can react much faster than its competitors3. By entire process, Zara can react much faster than its competitors
dodo
4. Their success is directly related to their ability to understand
their customers most innate needs and desires and tie these to
successful innovation strategies, which ultimately lead to these
new and unique approaches to their business.

26. Thank you !!Thank you !!

27. Q & A????Q & A????