Zara - supply chain & value creation

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ZARA Supply Chain and Value-Creation

ZARASupply Chain & Value-Creation

Zubin Poonawalla

PURPOSE To analyze ZARA's success due to its supply chain

How it correlates with value-creation for the company.

AGENDA ZARA: Company Profile

ZARA: The Supply Chain

Vertically Integrated


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.

Inditex : FY15 Global Sales Breakdown

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 SKUs/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

Supply ChainZARA 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-basisClothes are ironed in advance & packed on hangers, with security & price tags affixedOvernight trucks are used to deliver to European stores & airfreight is used to ship to other countries

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.

ZARA: Vertically Integrated Supply Chain

THE AWKWARD FACTOR IN THE PROFITABILITY FORMULA 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 supplyMore styles = More choice, & more chances of hitting it right?

ZARA: Vertically Integrated Supply Chain

ZARA: Vertically Integrated Supply Chain

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

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

Values Generated by Logistics

Flexibility to matchoperational scaleNetworkcoverageProject managementof solutionInnovationof solutionStrategicstocklocationsSupplychainvisibilityReducedlogisticslead timese.g.PostponementservicesManagingsmallerlot sizesReducedlogisticslead timesImproveddeliveryreliabilitye.g.In-storelogisticsservicesReducedlogisticslead timesImproveddelivery reliabilityReduced logisticslead timesTighter controlof inventoryMore competitiveglobal supplier baseImproved purchasingof low value itemsFlexibility oflocation andlabour ratesHigher labourutilisationOptimised assetutilisationOptimisedunit costFewererrors, losses and claimsTighter controlof inventoryFlexibility oflocation andoverheadsProven systemsat lower costsSimplermanagementtasksLeveragedoverheadsStrategicstocklocationsReducedlogisticslead timesSpecial purposevehiclesThird partycapital providersShared useactivities

Speed of gettingchange intothe marketHigher salesvolumes frombetter off-the-shelf availabilityHigher salesfor meetingcustomer needsLower quantityof inventor to sellat reduced pricesGreatercertainty ofexecutionIncreasedflexibilityLowerbought-in costsReducedlabourcostsReducedtransportcostsReducedcost ofwrite-offs/errorsReducedinventoryhold costsReducedsystemscostsReduced supply chain mgtcostsReduced transport processing costsLowerinventoriesOff-balance sheetfinancingEnhancedutilisation

Revenue growth Cost reduction

Increase RevenueReduced product discountingBooks 85% of the full ticket price for its merchandise, while the industry average is 60%

Flexibility to respond to change in consumer demandsUnsold items account for