Zara

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Zara Supply Chain Report

By:
A.H.
C.L.
H.L.     
S.H.
X.W.

Humble Beginnings
In 1975, Amancio Ortea Gaona started Inditex Corporation in his first small shop in a remote town in Spain, Arteixo. Only 35 years later, it has emerged the largest apparel company in the world—Zara. Currently, Zara’s headquarters and two distribution centers are located in this small Spanish town. Zara broke a new path between the traditional high fashion and the mass fashion strategies; it provides the concept of fast fashion to common customers. Their mission is “to produce a fashion forward product for the masses”. Zara is described by its customers as having “first-class design, second-class materials, and third-class prices”. By 2010, it has in operation 917 stores in more than 60 countries and plans to enlarge the number to 2,000 until 2011. Its brand value reached to $6.79 billion in 2009. More than 400 designers work for Zara, creating 120,000 new fashion designs annually with 300,000 new stock-keeping units every year. We are going to discuss how Zara achieved its success through supply chain integration and Just-in-Time logistics management.

Product Flow and Geographic Scope
Unlike most apparel companies, Zara insists “no advise, no outsourcing, no discount.” Zara’s highly responsive vertically integrated supply chain is the company’s core competency.  By eliminating middlemen through integration across design, production, distribution, and retailing, Zara can react to the customers’ needs, with design-to-store-delivery cycle time being as fast as just two weeks. To illustrate Zara’s supply chain further, the following is a summary and analysis of the product stream throughout the company.

Product Design, Sourcing, and Manufacturing
The design process is done by Zara designers and also by sourcing specialists and product development personnel at their corporate office in La Coruña, Spain. They form a “creative team” that simultaneously works on clothing styles and materials as well as production costs and pricing. Rather than predicting future styles, Zara uses a react strategy that captures the real time information of store demand. Each year, 10,000 designs are selected for production out of 40,000 designs. After the designs are approved, manufacturers receive fabrics from Zara’s La Coruña warehouse. Zara sources its textiles into this warehouse from Spanish fabric shops as well as from Asian countries, such as China. The fabrics and sewing materials arrive undyed and uncut to give Zara the most flexibility in how they design and manufacture their products. This is because they can use the same fabric to manufacture different designs to react to mid-season fashion shifts. After selected fabrics are approved, the material is sent by truck to manufacturing facilities where it is cut and dyed by robots in 23 highly automated factories. The cut pieces are assembled and sewed at sub-contracted workshops in Europe. Assembled products are then shipped to Zara’s finishing and packing facilities. The finished garments are shipped to Zara’s distribution centers and then shipped to stores within 48 hours. Zara manufactures all of its products in-house. While most companies in the clothing industry have outsourced the manufacturing process to Asian countries and enjoy the low labor cost, Zara does not use outsourcing. Instead, it uses local strategic partnerships. Almost 80% of the products are manufactured in Europe, with 50% manufactured in Spain (see Fig 1). By using proximate manufacturers, Zara increases its flexibility by reducing the transportation time and thus in-transit inventory. Zara also reduces its manufacturing inventory by frequent deliveries and manufacturing in batches. In each style of clothing, only a limited quantity is manufactured. This provides flexibility in reacting to the changes in customers’ preference. Order quantity can also be changed as much as 40%, comparing to other retailers of 20%....
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