SUPPLY CHAIN AND LOGISTICS MANAGEMENT
CASE STUDY
PRESENTED BY : A S ATHIRA
T4, CETSOM
ZARA : APPAREL MANUFACTURING AND RETAIL
ZARA – A Spanish clothing and accessories retailer based in Arteixo, Galicia.
INDITEX – Industria de Diseno Textil of Spain, the owner of Zara and 5 other apparel
retailing chains, continued a trajectory of rapid, profitable growth by posting net income of
340million on revenues and 3250million in it’s fiscal year 2001.
Founded in 24 May 1975 by Amancio Ortegg and Rosalia Mere.
Zara needs just 2 weeks to develop a new product and get it to stores, compared to the six
month industrial average and launched around 10000 new design each year.
Zara has continuously maintain it’s mission to provide fast and affordable items.
Zara welcomes shoppers in 86 countries to it’s network of 1,763 stores in upscale locations
in the world’s largest cities.
Zara’s approach to design is closely linked to their customers.
1. What advantages does Zara gain against the competition by having a
very responsive supply chain?
INTRODUCE NEW
MATCH DEMAND
PRODUCT
LOW INVENTORY AND
MORE PROFITS
HIGHER PRICE
They can introduce new design every week and thus change 75% display every 3-4 weeks.
Reduce inventory overhead and forecast error.
Sell most products at full price and only half the markdowns in stores compared to
competition
Multiple weekly shipments allow close match demand.
Zara can sell products at full price and thus secure their margins and make a profit.
It also increases customer loyalty to the brand as Zara builds reputation for being up to date
on trends which increases demand products.
2. Why has Inditex chosen both in house and outsourced manufacturing? Why has
Inditex maintained manufacturing capacity in Europe even though manufacturing in
Asia is much cheaper?
Inditex chosen both in house and outsourced manufacturing because:
IN HOUSE OUTSOURCED
MANUFACTURING MANUFACTURING
PRODUCTS WITH PRODUCTS WITH HIGHER
PREDICTABLE DEMAND UNCERTAIN DEMAND
Outsourced manufacturing is for the production of products with predictable demand.
In house manufacturing is for products with higher uncertain demand.
40% in house production allows added responsiveness to trends and postponement of
decision until after trends.
A strong IT department helps them make quick product decisions and drive replenishment.
After the sales season has started Indetix begins to use in-house manufacturing as a way of
quickly responding to trends.
Inditex maintained manufacturing capacity in Europe even though manufacturing in Asia is
much cheaper because:
Maintained large fraction of manufacturing capacity of Portugal and Spain, despite the
higher cost there, it allows Zara to respond quickly to changing fashion trends in Europe.
For Zara, speed and responsiveness are more important than cost.
Manufacturing capacity in Europe helps manufacturers offer fast and flexible sourcing and
such products are to be delivered quickly instead of at Asia.
This helps Zara reduce inventories and forecast error.
3. Why does Zara source products with uncertain demand from local manufacturers
and products with perishable demand from Asian manufacturers?
Products with uncertain demand will not likely be produced at a lower volume to products with a
certain demand and therefore sourcing from local manufacturers provide Zara the speed it needs
to test and deliver these products before they become obsolete and have to be sold at a discount.
Predictable demand products are made in Asia due to low labour costs and high volume of
products needed. It is most cost effective to manufacturer in bulk due to the fact that predictable
demand products have a larger window with which to deliver products without becoming
obsolete. It also means that they can be made before the season starts.
This allows for multiple weekly shipments and close match to demand.
PUSH STRATEGY
PULL STRATEGY
RESPONSIVE
UNCERTAIN PREDICTABLE
DEMAND DEMAND
4. Why is Zara building a new DC as its sales grow? Is it better to have a new DC near
the existing one, or at a completely different location?
A new distribution centre (DC) is being built by Zara in response to the increase in sale
because, the stock turnover is increasing and in order to cater the growth of sales and avoid
any declination in it due to mismanagement of stock availability and customers demand.
It is better to have the new distribution centre at a new location ( different location ) than
near the existing one.
5. What advantages does Zara gain from replenishing its stores twice a week compared
to a less frequent schedule? How does the frequency of replenishment affect the design of
its distribution system?
Advantages Zara gain from replenishing its stores twice a week compared to a less frequent
schedule :
Frequent replenishment allows Zara to match supply and demand more effectively than the
competitors.
This allows Zara to respond quickly to changing fashion trends in Europe.
Sell most products at full price and only half the markdowns in stores compared to
competition.
This enables Zara’s supply chain speed and responsiveness.
Effect of frequency replenishment on the design of the distribution system:
The frequency of replenishment has made Zara increase the size and also centralize its
distribution of design by handling its global operations through 8 distributions canters
based in Spain.
This centralized structure means that products can be distributed rapidly from in house
manufacturing in order to meet world wide demands in as little time as possible.
6. What information infrastructure does Zara need in order to operate its production,
distribution and retail network effectively?
Zara has operated well using phones and fax machines with their store managers for a
number of years.
It is that “ High Touch” relationship they maintain that leaves little to misinterpretation.
Although computerisation is highly at play here there is still collaboration at work and their
online presence is forward thinking.
Being able to have an online site for store managers to preview what is up and coming in
the production line and even having input for what is trending depending on where they are
located in the world and having the option to reserve quantities for upcoming shipments is
hugely effective in fast fashion retail.
Being able to communicate face to face online between designers and production
managers when they can’t be in the same room is highly effective as well.
