ZARA

Supply 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 Chain
Suppliers are all
close to their
factories so ZARA
can order on a needbasis

ZARA buys fabric in

only 4 different
colors;
designs and cuts its
fabric in-house

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

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 supply
More styles = More choice, and more chances of
hitting it right?

ZARA: Vertically Integrated Supply Chain

In Spain,

ZARA: Vertically Integrated Supply Chain

After the sewing process, produc

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? (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

e.g.
Managing

Reduced

Postponement
smaller

logistics

services
lot sizes

Strategic

visibility lead times

stock
Higher sales
for meeting

Lower
quantity
locations

Innovation
customer needs
of inventor to sell

of
solution
at
reduced
prices

Project

managementGreater
certainty of

of solution execution
Network

coverage

Flexibility to match Increased

flexibility
operational scale

Supply
chain

Revenue growth

Reduced
logistics

Improved

lead times delivery

reliability

Higher sales

volumes from
better off-the-shelf
availability

e.g.
In-store
logistics

Reduced
services

logistics

lead times

Improved

delivery reliability

Speed of getting
change into

the market

Tighter control
of inventory
Reduced logistics

lead times
Enhanced
More competitive Lower
Shared use
utilisation
bought-in costs

global supplier base

activities
Off-balance sheet

Improved purchasing

Third party
financing
Cost reduction
Reduced

of low value items

capital providers

Flexibility of labour
Lower

Special purpose
costs

location and
inventories
Reduced

vehicles
Reduced

Reduced

labour rates
transport
transport
Reduced
Reduced

Higher labour

logistics
costs

Strategic
cost of
supply processing
Reduced Reduced

utilisation

lead times
costs
write-offs/
chain mgt
inventory systems

Optimised asset

stock
errors
hold costs costs costs

Leveraged

utilisation

locations

Fewer

Proven

Tighter
Simpler

Optimised
overheads

Flexibility of

errors, losses

systems

control
management

unit cost

location and

and claims

at lower

of inventory
tasks

overheads

costs

Increase Revenue
Faster time to the
market/extending product life
4-5 weeks from conception to
distribution

Reduced product discounting

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

Tailored products
Produces 11,000 designs annually Flexibility to respond to change
in consumer demands
Competitors only have 2,000 to
4,000 items
Unsold items account for <10% of
stock, as opposed to the
Improved product availability
industry average of 17-20%
Stores Twice-weekly shipments

Decrease Costs
COGS
Outside the distribution center in La Corua, ZARA has
twenty-three highly automated factories.

Cost of logistics
Since 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/assets
ZARA owns 40% of their production facilities in Europe

THANK YOU !!!