Supply chain drivers of Zara PDF

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Supply chain drivers of Zara Zara concentrates on three winning formulae •

Short Lead Time = More fashionable clothes

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Lower quantities = Scarce supply

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More styles = More choice, and more chances of hitting it Right

They have structured their supply chain drivers in order to release more styles in short lead time.

Logistical drivers Facilities Zara set up its own factory in La Coruña (a city known for its textile industry) in 1980. 50% of the products Zara sells are manufactured in Spain, 26% in the rest of Europe, and 24% in Asian and African countries and the rest of the world. So, while some competitors outsource all production to Asia, Zara makes its most fashionable items—half of all its merchandise—at a dozen company-owned factories in Spain and Portugal, particularly in Galicia and northern Portugal where labour is somewhat cheaper than in most of Western Europe. Zara is the flagship chain store of Inditex Group and they have 4.607 stores in 74 countries. There are over 2000 their own stores located across 88 countries. Zara tends to use franchisee and joint ventures in countries that were small, risky, or subject to significant cultural differences or administrative barriers that encouraged this mode of market participation. Examples included Andorra, Iceland, and Poland in Europe and the Middle Eastern countries that the chain has entered (where restrictions on foreign ownership ruled out direct entry).

Inventory Zara’s parent company, Inditex, had the lowest inventory, as a percentage of annual sales, compared with its nearest global competitors, such as Gap, Benetton, and H&M. Zara seems fully aware of the adage: “inventory = death.”

The firm therefore avoids building inventories in any part of its supply chain from raw materials to end user. Inventory optimization models are in place to help the firm determine how many of which items in which sizes should be delivered to stores during the twice a week shipment ensuring sores stock just what they want. Zara designs around 10,000 new models every year and replenishes ranges within every one of its 650 retail stores twice per week, but in strictly limited quantities of stock. This ensures Zara’s brand promise to customers of exclusivity, and also of design freshness. But it also avoids build-up of large quantities of unpopular stock.

Transportation The transportation system is based on software designed by the company’s own teams. The time between receiving an order at the distribution centre to the delivery of the goods in the store is on average 24 hours for European stores and a maximum of 48 hours for American or Asian stores. With this system its possible ship 45.000 folded garments per hour. The facilities move about 2.5 million items a week. Trucks serve destinations that can be reached overnight, to be more precise in Europe, while chartered cargo flights serve farther destinations. The firm recently tweaked its shipping models through Air France-KLM Cargo and Emirates Air, so flights can coordinate outbound shipment of all Inditex brands with return legs loaded with raw materials and halffinished clothes items from locations outside of Spain. Zara is also a pioneer in going green.

Cross functional drivers Information Information is the key drier which coordinates all other drivers. Zara have come out of box and practising more advance and reliable information sources. Zara is in tune with its customers. Trend information is entered into database in regular basis and designers check the database to identify the latest fashions among the customers. Shop managers use PDAs to check on the latest clothes designs and place their orders in accordance with the demand they observe in their stores. Constantly updated information reduces the damage done by bullwhip effect.

Sourcing Zara sources fabric, other inputs, and finished products from external suppliers with the help of purchasing offices in Barcelona and Hong Kong, as well as the sourcing personnel at headquarters. Combitel, a 100%-owned subsidiary of Inditex, that dealt with more 200 external suppliers of fabric and other raw materials. Combitel manages (45%) the dyeing, patterning and finishing of undyed fabric for all of Inditex’s chains. Fabric is cut and dyed by robots in 23 highly automated factories, outside the distribution centre in La Coruña.50% of the items that Zara sells are manufactured in Spain, 28% in the rest of Europe, and 24% in Asia and the rest of the world. Zara experience flexibility and more control by giving priority to in-house production.

Pricing Zara offers unique, high quality, latest fashionable clothing to its customers at affordable price. Zara’s pricing method can be identified as, 𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃 𝑃 𝑃𝑃𝑃𝑃 Most of the Zara’s production is carried out inside of Spain where average labour cost is higher than Asian countries. Therefore, Zara has to charge premium price comparing with other competitor who outsourced all of their production to Asian countries. Zara’s change prices of the same product according to the region. As example, a coat in Spain could be priced at 90 Euros, and the same coat in France could be priced at 118 Euros. Therefore, they use a demand-oriented method for setting prices based on region, taking advantage of what customers are willing to pay.

Gap between services Overwhelming success of the company is also accompanied by some gaps between the services but there are no significant signs of difference between customer’s perception and satisfaction. Some of the gaps and weakness in Zara’s strategy are: 1. Over depends on European market – there market is heavily dependent on Spain. 2. Only have one manufacturing and distribution centre 3. Vertical integration – this leads to inability to acquire economies of sale 4. Lack of marketing communication – they do not spend much money on marketing and advertising. They use only simple marketing strategies such as weekly change the shop layout. But it not contributed to attract new customers. It only increases the buying of existing customers....