Project Supply Chain

Management
Muhammad Kaleem Ullah
03-398192-032
MSPM-B
Supply Chain of ZARA
Clothing Brand

FINAL PROJECT
BACKGROUND
• World biggest retail clothing company
• Founded by Amancio Ortega in 1975 in a small Spanish town
in A Coruna, Galicia, Spain
• Net sales were ramped up to $30 billion with a staggering
profit of more than 3.5 billion euros
• ZARA was ranked as 46th more valuable brand in the world
(June 2019).
BUSINESS MODEL
ZARA has its own supply chain model called Fast Fashion
Fast fashion model of ZARA can be divided into two categories
• QUICK RESPONSE MANUFACTURING
• Dynamic Assortment
Target Market

Mature Steady

S
U
P
P
L Developing Growth
Y

DEMAND
DDD
Revenue Model
PLAN
• Demand Forecasting
• Product Pricing
• Inventory Management
SOURCE
• Purchasing
• acquisition of raw materials
• Consumption
• Negotiating
• Vendor Selection
MAKE
▪ Production Scheduling

▪ Manufacturing Strategies

▪ Facility Management System

DELIVER
▪ Order Management System

▪ Order Management System Operations

▪ Method of Delivery

▪ Method of Transportation
RETURN
▪ Return Mechanism

▪ Level of Return

▪ Ins and outs of Return

SCOR CARD
Supply Chain Scorecard Industry Benchmark

Overview Matrix Score Level 1 Actually Parity Advantage Superior Value of

Matrix % % % % Improvement
%/ days
Supply Chain Delivery 75 80 85 90 10 %
Reliability performance
to commit
date
E Fill Rate 85 80 90 95 5%
X
T
E
Perfect Order 88 86 94 98 6%
R
fulfillment
N
A Responsiveness Order 10 days 6 days 5 days 3 days 4 days
L fulfillment
lead time
Flexibility Supply Chain 20 days 15 12 days 7 days 5 days
Responsive days
Time
Production 25 days 20 15 days 10 days 10 days
Flexibility days
Cost Total SCM 12 14 11 7 1%
I Cost
N
T
E Warranty 6 4 3 2 3%
R Cost
N
Assets Cash to Cash 19 days 14 12 days 7 days 5 days
A
cycle time days
L
Implementation of Supply Chain
Management
THANK
YOU
 PROJECT SUPPLY CHAIN MANAGEMENT

FINAL PROJECT REPORT

SUBMITTED TO:
Mr. AHSAN CHUGHTAI

SUBMITTED BY:
M. KALEEM ULLAH MSPM-3B (03-398192-032)

DATE: 12/23/2020

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Contents
I. BACKGROUND ........................................................................................................................................3

II. BUSINESS MODEL ..................................................................................................................................3

1. QUICK RESPONSE MANUFACTURING ..............................................................................................4

2. Dynamic Assortment .............................................................................................................................4

III. Target Market ........................................................................................................................................5

IV. Revenue Model .....................................................................................................................................6

V. SCOR (Supply-Chain Operations Reference) model ................................................................................7

I. PLAN .....................................................................................................................................................7

II. SOURCE .............................................................................................................................................10

III. MAKE ...............................................................................................................................................10

IV. DELIVER ..........................................................................................................................................11

V. RETURN .............................................................................................................................................12

VI. SCOR CARD .......................................................................................................................................13

VII. Implementation of Supply Chain Management ....................................................................................14

INDIVIDUATION ........................................................................................................................................14

LIMTED .....................................................................................................................................................15

DESIGNER ................................................................................................................................................15

DATA .........................................................................................................................................................16

MAMNUFACTURER & LOGISTIC .............................................................................................................16

VIII. SUGGESTIONS & RECOMENDATION ..............................................................................................18

Impact of SCOR Model on the Operation of a SC .....................................................................................18

IX. Advantages for the Companies ...........................................................................................................19

X. Suggestions to Improve Supply Chain Management of ZARA ...............................................................19

XI. Reference............................................................................................................................................20

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I. BACKGROUND
ZARA is owned by the parent company INDITEX, based in Spain. Zara is the world’s biggest

retail clothing company. It is founded by Amancio Ortega in 1975 in a small Spanish town in

A Coruna, Galicia, Spain. It has approximately 2500-3000 stores worldwide in more than 96

countries. ZARA has revolutionized the clothing industry because of its business model and

efficient supply chains. ZARA has defeated many clothing-industry tycoons such as H&M,

GAP, Forever 21, CK and Tommy Hilfiger. Their net sales were ramped up to $30 billion with

a staggering profit of more than 3.5 billion euros. According to Forbes, ZARA was ranked as

46th more valuable brand in the world (June 2019). It is a privately owned company and

holds the rights to withhold any piece of information to public. However, they publish annual

reports every year for their investors and other legal reasons.

II. BUSINESS MODEL

ZARA has devised its own supply chain / business model. It is called Fast Fashion model. It

is pioneered and perfected by ZARA. This model is a series of chain retailers who basically

are able to look at the fashion runaways of other brands, clubs or any fashion events for

design inspirations and make garments really quickly and put then on to the shelves in

shorter lead times. Fast fashion model is the new epicenter of retail environment. This model

is popular because it democratized high fashion by knocking off designer brands at scale.

E.g. a famous footwear brand out of Spain, Balenciaga, sells a pair of shoes for around

$800. However, ZARA sells its knock-off style for only $60. Fast fashion model ensures

consumers a feeling of luxury without paying full price. In apparel industry, counterfeits are

illegal, however, knock-offs (designs that resemble the original) are legal for manufacturing.

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The parent company of ZARA, INDITEX, made 1.6 billion pieces of clothing in 2018. It

operates 7500 stores (including 2500-3000 of ZARA’s) worldwide. That is why, its owner,

Amancio Ortega is the 7th richest person in the world with net worth of almost $60 billion.

The fast fashion model of ZARA can be divided into two categories:

1. QUICK RESPONSE MANUFACTURING

ZARA does not invest in expensive releases of clothing. Rather, they knock off designs

of other brands quickly with the help of fashion scouts in major fashion capitals of the

world such as Milan, Paris and New York where fashion events take place regularly. They

keep raw material on hand and only make those designs that are popular in demand. In

this way, they streamline their distributions. It is expected that ZARA sells its 85% of

clothing items at full price. Rest is sold during sale season.

2. Dynamic Assortment
ZARA’s efficient manufacturing process requires real-time data to regulate and

corroborate supply and demand. They collect data directly from their customers using point

of sales (POS) data, hence reducing bullwhip effect in the meantime. They monitor latest

fashion trends and scour social media for feedback from their consumers.

If quick response manufacturing helps catch waves fast, dynamic assortment constantly

pumps out new products to see what sells more and fast.

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III. Target Market

The management needs to define procedures that underline the fundamental targets of the organization.

The goal of the organization is to build up the best quality item and deal it at a sensible cost. So as to

accomplish this target it is essential that the organization approve the business line that is required for

generation of the materials. There are four basic kinds of markets or market quadrants. ZARA has a very

strong competitive position. So it is in growth market.

Mature Steady

S
U
P
P
L Developing Growth
Y

DEMAND
DDD

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IV. Revenue Model

Zara generated online net sales of around US$2 billion in 2018. For 2019, revenue of up to US$2.5 billion is

projected. Zara revenue generation is based upon its selling of more than 450 million products per year, i.e.,

it works on economy of scale. Zara has 1700 stores in more than 86 countries around the world. Total sales

of the company are around the US $13 billion that makes it one of the top 3 largest fast fashion brands in

the world.

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V. SCOR (Supply-Chain Operations Reference) model
The SCOR model has six basic categories of operations:

1) Plan

2) Source

3) Make

4) Deliver

5) Return

6) Enable

I. PLAN
ZARA does not invest in fashion advertising and collaboration with other designers. Instead,

they invest in real estate, technological innovation and hiring best fashion designers who

synchronize their brains with the ever-changing fast-fashion business model of ZARA. The

nucleus of this business model is customer focus. The customer generates demand and the

retailer brand fulfills within a shorter lead time of two weeks from manufacturing to

distribution to selling it on the shelves. The planning part of ZARA’s supply chain is one of

the key reasons behind their success. As they invest in real estate than advertising, they

open their stores next to iconic fashion brands such as Louis Viton, Cartier, Armani, CK,

Versace etc. To become a brand of luxury, it has to be seen near its peers.

The price of the clothing item is not set by the cost of manufacturing; rather it is set by the

customer demand and their willingness to pay for it. Usually, ZARA items are affordable and

they are trendy with small shelf lives.

ZARA’s fashion scouts scour social media and fashion events for design inspirations. They

send their feedback to fashion headquarter in Spain. They start planning on demand

forecasting, buying fabrics, dying and cutting fabrics and delivering fabrics to retail outlets.

ZARA’s supply chain model is vertically integrated where they own and operate most of their

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 business on their own terms. They do not outsource much compared to other brands such

as Levi’s, GAP, and Old Navy etc.

Following activities are performed during planning process:

a) Demand Forecasting

As demand is generated by customers who indulge in latest fashion trends of other

celebrities such as Kendell Jenner, Kylie Jenner, Kate Middleton, Cheryl, influencers and

designers in fashion capitals of the world, fashion events or over social media. They usually

take design inspirations from these sources and modify them according to latest trends.

These designs are called knock-offs and legal in fashion industry. They are not counterfeits.

Moreover, due to availability of real time data and dissemination and sharing of information

directly from customers and point of sales, they maintain their production and inventory

levels in advance to meet customer demand. Their accuracy in demand forecasting enables

them to deliver products on the shelves in two weeks as compared to 2-3 months of their

competitors. They do not produce in larger quantity and their clothing articles are sold within

weeks, hence maintaining lower levels of inventory and reducing cost associated with it.

ZARA’s business model is shown below:

Planning &
Retailing
Design

Sourcing &
Distribution
Manufacturing

Figure 1

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b) Product Pricing

The responsiveness of supply chain ensures success of ZARA’s business model. They

make their designs on basis of “see-now, buy now” basis. The cost is determined on the

basis of market demand. It has nothing t do with cost of manufacturing. That is a unique trait

of their business model. They do not produce in large quantities meaning they have shorter

delivery lead times and shorter production times as well. Their business model creates

panic-buying among their customers, even clothing items are not needed. People just want

to buy trendy clothes that were worn by their favorite celebrities. A lot of influencers endorse

ZARA freely on social media that helps them capture market demand as much as they can.

c) Inventory Management

Since ZARA is work on fast-fashion model. They do not have to maintain large bulk of

inventory. They just manage cycle inventory. Their efficient delivery system within production

unit is called “The Cube”. The cube houses 5 million square feet of area with automated

monorails installed linking 11 factories within a radius of 11km of production area. They take

material in and out of the company quickly. This in-house moving facility knocks the

competition out of the park and streamlines their production process as compared to other

competitors. Vertical integrated supply chains enable them to increase and decrease supply

on the basis of customer demand. Their inventory cycle turns per year are 12. They maintain

very low inventory as their production is done mostly advance. At the end of the year, only

10% unsold inventory is left.

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Figure 2

II. SOURCE
ZARA buys fabric required for production of clothing item in four or five colors. They usually

buy it from Italy, France, Portugal, Greece, China and local vendors. They have set up

cutting and dyeing facilities in house in 11 factories. They move raw material through

underground monorails (The cube) at the speed of 200 km/h. they usually use aerospace for

transportation purposes to increase responsiveness. The orders arrive at their production

house within a week from the date of order placed. Local transportation is done via trucks.

They practice lean and agile manufacturing that reduces waste and respond to changes

quickly. 50% products are manufactured in Spain; rest are manufactured in European

countries such as Portugal, Greece, Turkey and Asian Countries such as Pakistan, China,

Bangladesh.

Their procurement activities are done by a well-established procurement department that is

responsible for purchasing and acquisition of raw materials, consumption, negotiating and

awarding contract, and administrative management of contractors and subcontractors.

III. MAKE
ZARA designers scout public gathering and fashion events for design aspirations. They

sketch the design quickly and send it to headquarter. These designers are given training to

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enhance such skills and their identity is kept anonymous. They use modern technology

softwares such as Photoshop, Illustrator, Corel Draw and gadgets such as Wacom drawing

tablets. These designers play vital roles in design inception.

When these designs arrive to in-house designing department, they work on it, modify it and

get it approved from top management.

Most of manufacturing is done in Spain, Europe. Some designs are specific for particular

regions. E.g. swimwear and bright colors and specific for American markets where coastal

areas are plenty. Similarly, dark colors are preferred in European markets. They maintain

high level of customer service. This ensures that inventory is kept at minimum level. They

adjust their production rates according to demand.

Sometimes, they increase it and sometimes they reduce it. Optimal production is done

according to demand and supply. Since, raw material is bought in larger quantity to maintain

economic order quantity.

IV. DELIVER
The supply chain management uses contemporary technologies to keep track of order

delivery dates & schedule. They also use RFID systems to track items and batch orders

online throughout the world. The store managers generate demand through daily order

standing and point of sales. This feedback is given to production facilities that replenish the

demand within few days. The distribution system of ZARA supply chain is one of the best

and quickest in the world because, in fast-fashion model, products demands are changing

quickly and it requires efficient means of transportation in and out of the facility. That is why;

they use air transport to be more responsive to their customers. They also make use of

customer relationship management (CRP) to streamline their supply chains to enhance

customer satisfaction. When the finished items reach retail stores, they are already in

hangers and price tags are attached on them.

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 Moreover, their online stores sells more than retail stores. Due to expensive real estate in

America and Europe, they only introduce minimalist design in those outlet stores; rest of the

catalogue is advertised on online stores where a huge variety is available from. Since items

are repeated once they are sold out, that is why sales on online stores is sold out within

days, even some trendy products are sold out within hours.

They maintain low inventory but their delivery system from distribution centers to customer

doorsteps are very efficient.

V. RETURN
In retail market, a huge amount of product is returned. ZARA ensures efficient order return

management. They believe products can be made again but customer’s trust can not be

won again once lost. Moreover, their return processing also include recycling processes

wherever waste and leftover inventory is recycled to make it reusable. Normally, their return

rates are lower as compared to their counterparts because they have quality assurance,

quality control and improvement processes to ensure quality of their products.

Figure 3

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VI. SCOR CARD

Supply Chain Scorecard Industry Benchmark

Overview Matrix Score Level 1 Actually Parity Advantage Superior Value of

Matrix % % % % Improvement
%/ days
Supply Chain Delivery 75 80 85 90 10 %
Reliability performance
to commit
date
E Fill Rate 85 80 90 95 5%
X
T
E
Perfect Order 88 86 94 98 6%
R
fulfillment
N
A Responsiveness Order 10 days 6 days 5 days 3 days 4 days
L fulfillment
lead time
Flexibility Supply Chain 20 days 15 12 days 7 days 5 days
Responsive days
Time
Production 25 days 20 15 days 10 days 10 days
Flexibility days
Cost Total SCM 12 14 11 7 1%
I Cost
N
T
E Warranty 6 4 3 2 3%
R Cost
N
Assets Cash to Cash 19 days 14 12 days 7 days 5 days
A
cycle time days
L

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VII. Implementation of Supply Chain Management

ZARA has become the largest retailing brand in the world due to its responsive and efficient

supply chain networks. Following key factors explain how well the organization implements

supply chain management activities to reach where it is today.

Individuation

Logistic &
Limited
Manufacturer

ZARA

Data Designer

Figure 4

INDIVIDUATION
Their clothing styles are based on individuals that separate them from rest of the group.

They do not make in bulk to lower costs so that everyone can afford it. They make it in

unique styles in smaller quantities that distinguish individuals from rest of the community.

Everyone feels a bit of celebrity-is after wearing ZARA. They target usually millennials

because they are trend-setters all over the world. Their supply chain is based on

uniqueness; their business model knows that people are able to pay a certain price to look

unique.

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LIMTED
Their clothing products are limited. They make it in small lots to create unique value that

make customers to buy instantly and at the full price. This instant fashion model has put

them on the top. Since, their supply chains are vertically managed, they can control

production rates and order delivery times on their own that give them a massive advantage

in the market where other retailing brands outsource some supply chain activities because of

virtual integration. The credit goes to their supply chain network. They introduce new

designs frequently instead biannual designs. Some fast fashion models introduce new

designs every weak.

DESIGNER
They hire best young, professional and skillful designers all over the world. They are given

special training for gathering design inspirations. They are sent to fashion capitals like New

York, Milan, Paris, Tokyo to study latest fashion trends and cultural values. They are told to

prefer cultural values as well to reflect modern fashion. They go to fashion events, clubs and

social gathering to scour for fashion ideas that are immediately translated into sketches and

sent back to headquarters. They keep material on hand because of efficient supply chains

and large production factories; new product is launched in the market within two weeks.

These designers play a vital role in streamlining supply chain activities.

Similarly, these fashion designers are critic as well. They get feedback from people instantly

if the product is going to be a hit or a miss. This information is shared back to Spain to adjust

accordingly.

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DATA
The backbone of supply chain networks is data gathering and information sharing. Data is

collected from point of sales on daily basis. Since customer demand is directly obtained from

customers, this helps in reducing bullwhip effect. They have also introduced personal digital

assistants (PDA) to gather customer information. Moreover, they also conduct surveys for

accurate demand forecasting. This data is shared throughout the supply chain to enhance

support and coordination.

MAMNUFACTURER & LOGISTIC

ZARA has 11 factories that perform activities from designing to manufacturing to distribution

to retail stores. They produce 50% of the products in Spain and keep an eye on demand and

supply effectively.

They use biodiesel trucks for local distribution and air planes from country-country logistics.

Even though, air transport is costlier than road transport, however, to ensure shorter cycle

times, they pay the price happily. Otherwise they would lose market share due to longer

delivery rates.

Customer Facing KPI

Performance

Criteria

1. Reliability I. Perfect order fulfillment

2. Responsiveness II. Order fulfillment cycle time

3. Agility III. Upside SC flexibility

IV. Upside SC adaptability

V. Downside SC adaptability

VI. Overall Value at risk

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 Internal Facing KPI

Performance Criteria

4. Costs VII. SCM cost

VIII. Cost of goods sold

5. Assets IX. Cash-2-cash cycle

X. Return on SC fixed

assets

XI. Return on working

capital

The six KPIs of customer facing performance criteria depict contractor perspective by

measuring supply chain performance and the last five KPIs of internal facing measure

supplier performance. All KPIs are explained below:

 Perfect order fulfillment identifies waste and ensure good quality in supply chains.

 Order fulfillment cycles determines the time when order is placed and delivered.

 Upside SC flexibility deals with the schedule of procures materials and identifies

variations in demand and supply and delays in delivery.

 Upside SC adaptability shows if supplier is capable of meeting excess demand.

 Downside SC adaptability shows if supplier can handle reduction in orders when

contractor activities are declining and less demand is required than anticipated.

 Overall value at risk deals with identification and mitigation (acceptance, avoidance,

transference) of risks associated with contractor and suppliers.

 SCM costs help suppliers identify overall costs of managing supply chain networks

such as cost to make, cost to deliver, cost of quality and other costs etc.

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  Cost of goods sold is another KPI that helps supplier estimate the costs of goods

sold and profit made on them

 Cash to cash cycle identifies the account receivables and account payables of

different suppliers associated in a supply chain.

 Return on SC fixed assets can help in doing make or buy analysis for suppliers.

 Return on working capital can show return on investment and net profit.

VIII. SUGGESTIONS & RECOMENDATION

Business of the organization can be improved by the improvement of supply chain of the

organization.

Impact of SCOR Model on the Operation of a SC

SCOR model is a basic management tool that provides framework for smooth design,

operation and control of supply chains through its processes between suppliers and

customers. It also includes physical materials, equipments, tangible and intangible products

as well. It does not include processes such as sales administration, technological and post-

delivery technical.

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IX. Advantages for the Companies
In conclusion, SCOR model is necessary to support the definition of competitive strategies for

any company. It provides benefits such as improved management of inventories which is

reflected through reduction of operating and storage costs, a rigid channel for communication

for smooth flow of information, integration with suppliers through feedback systems and

removing faults along the chain that diminish productivity of a supply chain.

X. Suggestions to Improve Supply Chain Management of

ZARA
 use of virtually integrated network of supply chains by outsourcing some operations to third-

party service providers and focusing on core competencies

 reduce capital investment through outsourcing

 implementation of lean and agile frameworks to produce minimum waste by focusing on more

value added things

 use of Artificial intelligence and machine learning for demand forecasting and product pricing

 Focus on sustainable business model than fast fashion model as it produces a lot of waste

and puts echo system in jeopardy as one leather jacket made of synthetic fibers consumes

10,000 liters of water that is enough for a person to drink for more than 20 years.

 Implementation of quality management systems for quality planning, quality assurance,

quality control and quality improvement.

 Implementation of disaster management systems to streamline the operations of supply

chains and logistics like in the case of Covid-2019.

 Do not rely on a number of suppliers; introduce diversity in supply chain operations.

 Introduce risk management activities to counter unknowable unknowns.

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XI. Reference

I. https://www.businessoffashion.com/organisations/zara

II. https://www.academia.edu/5492552/The_Strategic_Management_Analysis_of_ZARA_
Relative_to_the_Case_in_Developing_Countries_

III. https://studiousguy.com/zara-business-model/

IV. https://www.researchgate.net/figure/SCOR-card-metrics-approach_fig1_235280181

V. https://www.termpaperwarehouse.com/essay-on/Zara-Vs-H-m-Benchmarking/313024

VI. https://www.researchgate.net/publication/233637928_Zara

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