ZARA

Apparel Manufacturing and Retail

Summary
• Zara- owned by Inditex, Spain’s largest apparel manufacturer and
retailer.
• 2002-Centralized all its European and some global distribution through a
single distribution center in Spain and smaller satellite DCs in Latin
American countries.
• 2004- 13 billion euros of sales from 2,200 retail outlets in 56 countries.
• Zara has grown rapidly with a strategy to be highly responsive to
changing trends with affordable prices.
• Achieved Design-to-Sales cycle time of 5-6 weeks whereas the average
time in the apparel industry is more than 6 months.
• New designs every week and change 75% of its merchandise display
every 3-4 weeks
• They sell most of their products at full price and about half the
markdowns in stores compared to the competition.
• Manufactures its apparel using combination of flexible and quick
resources in Europe (Portugal and Spain) and low-cost sources in
Asia.
• About 40% of the manufacturing capacity is owned by Inditex, the rest
are outsourced. Products with highly uncertain demand are sourced out
of Europe, whereas products that are more predictable are sourced from
Asia.
• More than 40% of its finished-goods purchases and the in-house
production occur after the sale season starts.
• The postponement of decisions until after trends are known allows Zara
to reduce inventories and forecast error as they invest heavily in
information technology to ensure the availability of sales data to drive
replenishment and production decisions.
• Shipments from DCs to Stores were made twice a week to match
customer demand.
Zara’s Supply Chain

Inditex
in-house
manufacturers
Distribution Physical
Suppliers Customers
Centers Stores
Inditex
Out-sourced
manufacturers
• 1. What advantage does Zara gain against the competition by having a
very responsive supply chain?
It gives them the advantage over others that is hard to achieve in the
fashion industry - they have a shorter cycle time from designing to sales of their
products. With this they can come up with new design whose trends are actually
in line with the season’s current “hot stuff ” that can help them to increase
customers’ loyalty.
Their responsive supply chain also bolsters their standing towards their
customers for they show that they listen to what the customers think they want
to see and buy. Plus, with much more affordable price consumer will surely
swarm or will be much more interested on Zara's products that may lead ahead
to every competition in the market.
• 2. Why has Inditex chosen to have both in-house manufacturing and out-
sourced manufacturing? Why Inditex maintained manufacturing capacity
in Europe even though manufacturing in Asia is much cheaper?
When the sales season began, they use the in-house production because it
enables the firm to generate drafts on the latest trends and demand, then show
their market what they think of it. They could either continue to mass
production (out-sourced manufacturing) after receiving client feedback or
redesign.
They choose to continue manufacturing in Europe because they have a lot
of distribution centers, stores, and loyal customers there that were already
established, and as well as the fast and flexible sources that help them quickly
lay out their designs and production.
• 3. Why does Zara source products with uncertain demand from local
manufacturers and products with predictable demand from Asian
manufacturers?
Having the European manufacturers allow them to cater to the taste and
pockets of their European customers; with this view, the uncertain demand can be
done also within local manufacturers because the possible losses stemming from
fluctuating demand market can be minimized from the prices in European markets.
Moreover, it enables Zara to easily adjust from the unstable demand of its products
and control the volume of the products that they produce.
 Zara's strategy of sourcing products with certain demand from Asian
manufacturers results to lower labor costs. Since they are aware of the volume of
the products in demand, the cost of producing them must be put in
consideration. It will be beneficial to the company if those products may be
produced in lower costs because they might produce it in higher volume
compared to those products with uncertain demand.
• 4. Why is Zara building a new distribution center as its sales grow? Is it
better to have the new distribution center near the existing one, or at a
completely different location?
Ofcourse as sales grow, Zara needs to expand its coverage in the market for
larger sales and building a new distribution center alleviates some of the load
that the current distribution centers handle.
New distribution center/s would be best built in a place where majority of
its neighbors are also markets of the company.
• 5. What advantage 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?
This makes sure that every store inventory is always up to date and that new
designs can be introduced often to meet changing trends. It also means that
products can be replenished if demand is high and can be taken away if
demand is low.
The frequency of replenishment has made Zara increase their size and
centralized its distribution system by handling its global operations through
different DCs in order to meet worldwide 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 needs a constant flow of information in the form of sales data to
accurately forecast demand and respond quickly. They need a centralized
information technology in order to coordinate distribution, replenishments and
obtain information close to real time.