ZARASupply Chain and Value-Creation

MAKRAND AGRAWAL (B43)

PALASH VERMA(E35)SAI PRAVEEN(D23)

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

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.

Inditex : 2012 Global Sales Breakdown

•

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

Supply ChainSuppliers are all

close to their factories so ZARA

can order on a need-basis

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

• ZARA buys fabric in only 4 different

colors;• designs and cuts

its fabric in-house

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.”

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 per cent 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, and more

chances of hitting it right?

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.

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.

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

ZARA’s Rate for the Global Distribution –

from Spain

China – 48 hours

Europe – 24 hours

U.S. – 48 hours

Japan – 72 hours

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

Values Generated by Logistics

• Flexibility to match

• operational scale

• Network

• coverage

• Project

• management

• of solution

• Innovation

• of solution

• Strategic

• stock

• locations

• Supply

• chain

• visibility

• Reduced

• logistics

• lead times

• e.g.

• Postponement

• services

• Managing

• smaller

• lot sizes

• Reduced

• logistics

• lead times

• Improved

• delivery

• reliability

• e.g.

• In-store

• logistics

• services• Reduced

• logistics

• lead times• Improved

• delivery reliability

• Reduced logistics

• lead times

• Tighter control

• of inventory

• More competitive

• global supplier base• Improved purchasing

• of low value items• Flexibility of

• location and

• labour rates• Higher labour

• utilisation• Optimised asset

• utilisation• Optimised

• unit cost

• Fewer

• errors, losses

• and claims

• Tighter

• control

• of inventory

• Flexibility of

• location and

• overheads

• Proven

• systems

• at lower

• costs

• Simpler

• management

• tasks

• Leveraged

• overheads

• Strategic

• stock

• locations

• Reduced

• logistics

• lead times

• Special purpose

• vehicles

• Third party

• capital providers

• Shared use

• activities

Speed of gettingchange intothe market

Higher salesvolumes frombetter off-the-shelf availability

Higher salesfor meetingcustomer needs

Lower quantityof inventor to sellat reduced prices

Greatercertainty ofexecution

Increasedflexibility

Lowerbought-in costs

Reducedlabourcosts

Reducedtransportcosts

Reducedcost ofwrite-offs/errors

Reducedinventoryhold costs

Reducedsystemscosts

Reduced supply chain mgtcosts

Reduced transport processing costs

Lowerinventories

Off-balance sheetfinancing

Enhancedutilisation

Revenue growth

Cost reduction

Increase Revenue

Reduced product discounting

Books 85% of the full ticket price for its merchandise, while the industry average is 60%

Flexibility to respond to change in consumer demands

Unsold items account for <10% of stock, as opposed to the industry average of 17-20%

Faster time to the market/extending product life

4-5 weeks from conception to distribution

Tailored productsProduces 11,000 designs annuallyCompetitors only have 2,000 to 4,000 items

Improved product availabilityStores Twice-weekly shipments

Decrease Costs• COGS

Outside the distribution center in La Coruña, ZARA has twenty-three highly automated factories.

• Cost of logisticsSince 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/assetsZARA owns 40% of their production facilities in

Europe

THANK YOU !!!