best practices in supply chain management at zara by siyu liu, alfonso izquierdo and pooranan...

BEST PRACTICES IN SUPPLY CHAIN MANAGEMENT AT ZARA BEST PRACTICES IN SUPPLY CHAIN MANAGEMENT AT ZARA

BY SIYU LIU, ALFONSO IZQUIERDO AND POORANANBY SIYU LIU, ALFONSO IZQUIERDO AND POORANAN MURUGESANMURUGESAN

• Historic development of the three companies – Historic development of the three companies – Facts and FiguresFacts and Figures

• Current state of Supply chain management Current state of Supply chain management organization organization

• Current product strategyCurrent product strategy

• Competitive situationCompetitive situation

• Assessment of the best practice in Supply Chain Assessment of the best practice in Supply Chain ManagementManagement

• Prognosis of future developmentPrognosis of future development

• ConclusionConclusion

AgendaAgenda

HISTORIC HISTORIC DEVELOPMENT DEVELOPMENT OF THE THREE OF THE THREE COMPANIESCOMPANIESFACTS AND FIGURESFACTS AND FIGURES

BENETTONBENETTON COMPANY OVERVIEW COMPANY OVERVIEW

FounderFounder

Giuliana Benetton, Luciano Giuliana Benetton, Luciano Benetton,Benetton,

Gilberto Benetton, Carlo Benetton

FoundedFounded 1965 in Italy1965 in Italy

ProductsProducts Shoes, Bags, Clothing,AccessoriesShoes, Bags, Clothing,Accessories

MarketsMarkets 120 Countries120 Countries

Style and Style and FeaturesFeatures

Casual, Fun, Colorful, Fresh Casual, Fun, Colorful, Fresh Mediterranean, Latin style Mediterranean, Latin style

EmployeesEmployees

(2011) 9,5579,557

RevenueRevenue

(2011) 2.032 Billion Euro2.032 Billion Euro

BENETTONBENETTON HISTORIC DEVELOPMENTHISTORIC DEVELOPMENT

BENETTONBENETTON DUAL SUPPLY CHAIN SYSTEMDUAL SUPPLY CHAIN SYSTEM

HENNES & MAURITZHENNES & MAURITZ

FounderFounder Erling PerssonErling Persson

FoundedFounded 1947 in Sweden1947 in Sweden

ProductsProducts Clothing,AccessoriesClothing,Accessories



Wide range from party dresses, Wide range from party dresses, sport shirts to suits and other sport shirts to suits and other

formal wearsformal wears

EmployeesEmployees

(2010) 59,44059,440

RevenueRevenue


H&MH&M HISTORIC DEVELOPMENTHISTORIC DEVELOPMENT

H&MH&M SUPPLY CHAIN SYSTEMSUPPLY CHAIN SYSTEM

information information on sales on sales

and stockand stockstatusstatus

ZARAZARA

FounderFounder Amancio Ortega Amancio Ortega

FoundedFounded 1975 in Spain1975 in Spain

ProductsProducts Clothing, Accessories, Shoes, BagsClothing, Accessories, Shoes, Bags



Wide range from party dresses, Wide range from party dresses, sport shirts to suits and other sport shirts to suits and other

formal wearsformal wears

EmployeesEmployees

(2012) 69,24069,240

RevenueRevenue


ZARAZARA HISTORIC DEVELOPMENTHISTORIC DEVELOPMENT

CURRENT STATE CURRENT STATE OF SUPPLY OF SUPPLY CHAIN CHAIN MANAGEMENT MANAGEMENT ORGANIZATION ORGANIZATION OFOF ZARAZARA

SUPPLY CHAIN MANAGEMENT ORGANIZATIONSUPPLY CHAIN MANAGEMENT ORGANIZATION

SUPPLY CHAIN MANAGEMENT ORGANIZATIONSUPPLY CHAIN MANAGEMENT ORGANIZATION

Other Other RetailersRetailers

ZARZARAA

Zara- Supply Chain Management Zara- Supply Chain Management

Zara- Supply Chain Zara- Supply Chain Management Management

• Fast Fashion- Manufactured quickly and Sold at Fast Fashion- Manufactured quickly and Sold at affordable pricesaffordable prices

• Competitors like H&M, Forever 21 followed Competitors like H&M, Forever 21 followed ZaraZara’’ s Fast Fashion model.s Fast Fashion model.

• Produce and deliver in 3 weeks model.Produce and deliver in 3 weeks model.

• In typical season, Zara produces 11000 In typical season, Zara produces 11000 different items.different items.

Zara- Product LinesZara- Product Lines

• At each Store, each product line has a Section At each Store, each product line has a Section Manager, sales people and Cashiers. Manager, sales people and Cashiers.

Zara- Supply Chain Zara- Supply Chain Management Management

Zara – Supply chainZara – Supply chain

• Seasons-Autumn/winter and Spring/SummerSeasons-Autumn/winter and Spring/Summer

• First designs were presented 6 months before First designs were presented 6 months before each seasoneach season

• During the season, Suppliers with short lead During the season, Suppliers with short lead times allowed it to introduce new designstimes allowed it to introduce new designs

• For basic, easy to forecast Products, Zara used For basic, easy to forecast Products, Zara used cheaper suppliers with longer lead timescheaper suppliers with longer lead times

Zara – Supply ChainZara – Supply Chain

• All products came to logistic centers in Spain.All products came to logistic centers in Spain.

•A Coruna - 50% of all Women and MenA Coruna - 50% of all Women and Men’’ s s wearwear

•Zaragoza – 50% of all Women and MenZaragoza – 50% of all Women and Men’’ s s wearwear

•Meco – All childrenMeco – All children’’ s wears wear

Zara – Order CycleZara – Order Cycle

• For Every season, new collections are sent to For Every season, new collections are sent to store based on commercials.store based on commercials.

•25000 units were sent to each store25000 units were sent to each store

•Replenishments was ordered by section managersReplenishments was ordered by section managers

• Twice a week, Section manager receives offer in Twice a week, Section manager receives offer in his or her PDA.his or her PDA.

• European stores received deliveries in 24 hoursEuropean stores received deliveries in 24 hours

•Asian stores received deliveries in 40 hoursAsian stores received deliveries in 40 hours

Zara – Supply chain Zara – Supply chain ImprovementsImprovements

• Consolidating Transport cost.Consolidating Transport cost.

•100 Million Euro state of art logistics centre for 100 Million Euro state of art logistics centre for ChildrenChildren’’ s Merchandise in Madrids Merchandise in Madrid

• Unloading the merchandise were outsourced Unloading the merchandise were outsourced to logistic providers.to logistic providers.

• Attaching Alarm tags were shifted from Back Attaching Alarm tags were shifted from Back room to factories.room to factories.

Zara – Supply chain Zara – Supply chain ImprovementsImprovements

• Automatic replenishments of basic(10-15%) Automatic replenishments of basic(10-15%) products.products.

• Algorithm for allocating Inventory at logistics Algorithm for allocating Inventory at logistics centers to stores.centers to stores.

•Commercials had the intelligence to find out if Commercials had the intelligence to find out if a manager is making mistakes.a manager is making mistakes.

Zara – In Store Logistics Zara – In Store Logistics

• Processing deliveriesProcessing deliveries

• Managing product flow between backroom and Managing product flow between backroom and selling floorselling floor

• Managing display areas and fitting roomsManaging display areas and fitting rooms

• Conducting physical audits.Conducting physical audits.

Zara - Competitive SituationZara - Competitive Situation

COMPETITORSCOMPETITORS

• American Forever 21, Swedish Hennes & Mauritz(H&M), American Forever 21, Swedish Hennes & Mauritz(H&M), Japanese UniqloJapanese Uniqlo

ADVANTAGESADVANTAGES

• Market Leader Market Leader

• High cost Supply chain management with low inventory and High cost Supply chain management with low inventory and higher profit margins, which maximized revenueshigher profit margins, which maximized revenues

• 18% of clothes were sold in Discount sales compared to 18% of clothes were sold in Discount sales compared to industry average of 36%industry average of 36%

• Aggressive expansion strategyAggressive expansion strategy

INDITEX MANAGEMENT /

DESIGNERS

Determine apparel designs and

manufacturing locations

IN-HOUSE (40%)

High QRHigh Cost

EUROPE / N. AFRICA

(40%)

High QRHigh cost

ASIA(20%)

Low QRLow Cost DISTRIBUTION

CENTER

Increased shipment frequency increases

QR

Small batch production lowers

cost of demand uncertainty

STORES

Decentralized store management supplements

QR

Managers determine products to sell and

return

IT SYSTEMS

Provides accurate demand

information to determine

manufacturing locations and

production levels

Manufacturing

Design SaleDistribution

System is designed for short production

cycles, quick response (QR) to demand,

and reduced number of markdowns

System is designed for short production

cycles, quick response (QR) to demand,

and reduced number of markdowns

Returns from stores either rerouted or disposed of in local stores near dist. center

ZARA OVERVIEW: ZARA OVERVIEW: ASSESSMENT OF THE BEST ASSESSMENT OF THE BEST PRACTICE IN SUPPLY CHAIN PRACTICE IN SUPPLY CHAIN MANAGEMENTMANAGEMENT

•Spanish retailer Inditex, owner of cheap-chic Spanish retailer Inditex, owner of cheap-chic clothing chain Zara, pioneered the concept of fast clothing chain Zara, pioneered the concept of fast fashion. fashion. •While most of the retail industry takes months to While most of the retail industry takes months to bring new merchandise to market, Zara is able to bring new merchandise to market, Zara is able to move from designer’s drawing board to shop floor in move from designer’s drawing board to shop floor in as little as two weeks thanks to its tight control over as little as two weeks thanks to its tight control over every step of the process. every step of the process.

Zara’s Fast Track to Zara’s Fast Track to FashionFashion

The key to the Spanish The key to the Spanish clothing chain is efficiency clothing chain is efficiency

– with a side order of – with a side order of fashion sense. fashion sense.

Tag TeamTag Team

•In Arteixo, Spain, Zara’s 200 in-house designers work In Arteixo, Spain, Zara’s 200 in-house designers work in teams for the company’s women’s, men’s, and in teams for the company’s women’s, men’s, and children’s clothing lines. children’s clothing lines.

Vertically Integrated Supply

Chain

Total control of the production

process

Zap ItZap It

•The design team electronically sends the The design team electronically sends the patterns to Zara’s factory across the street, patterns to Zara’s factory across the street, where a prototype is made. The patterns are where a prototype is made. The patterns are optimized via computer so that no fabric is optimized via computer so that no fabric is wasted.wasted.

In the BagIn the Bag

•Massive rolls of fabric are moved in the factory Massive rolls of fabric are moved in the factory by lifting equipment. by lifting equipment.

Press and GoPress and Go

•Once the finished clothing is back at the Arteixo Once the finished clothing is back at the Arteixo factory, workers handle finishing touches, such factory, workers handle finishing touches, such as adding buttons and detailing. as adding buttons and detailing.

Alarming EfficiencyAlarming Efficiency

•Next, labels for each country are attached. Zara Next, labels for each country are attached. Zara used to rely on store managers to do this once the used to rely on store managers to do this once the product reached the store. product reached the store.

“Stores managers feel

like the owners of the store”

Lonely JobLonely Job

•Once tagged, the garments are sent to Zara’s Once tagged, the garments are sent to Zara’s nearby distribution center via tunnel. nearby distribution center via tunnel.

Quick TurnaroundQuick Turnaround

•More than 2.6 million items move More than 2.6 million items move through the distribution center each through the distribution center each week, and most spend little more than a week, and most spend little more than a few hours at the center. few hours at the center.

Short lead times

“Catching fashion while it is hot”

Focus on short time response Meet the

customer expectati

on on timeProduce a new style in 2 – 4 weeks

Show TimeShow Time

•Just two days after leaving Zara’s distribution center Just two days after leaving Zara’s distribution center in Spain, merchandise arrives in U.S. stores. in Spain, merchandise arrives in U.S. stores. •Zara transports its merchandise to the U.S. and Asia Zara transports its merchandise to the U.S. and Asia by plane, enabling it to arrive in 48 hours. by plane, enabling it to arrive in 48 hours. •Delivery time in Europe is even faster. Delivery time in Europe is even faster.

ExampleExample

Zara (Inditex) has delivered financially whilst achieving the Zara (Inditex) has delivered financially whilst achieving the most aggressive growth of the industry most aggressive growth of the industry

““You need to have You need to have five fingers touching the factory and five touching the five fingers touching the factory and five touching the customercustomer..““

Amancio Ortega, Chairman, Inditex (Zara)Amancio Ortega, Chairman, Inditex (Zara)

Make

Pla

nM

ove

Sell

Desig

nB

uy

Product launch<15 daysFast customer feedbackShort product life cycle300,000 new SKUs / yearCollaborative planning with POS dataSynchronised planning framework

Global sourcing

Limited outsourcing (simple products only) Small production runs

Limited outsourcingReal time product tracking.Oversized capacities

Integrated IT systems Bi-Weekly replenishment Empowered sales manager

Zara’s 3 guiding principles for supply chain

1. Close the communication loop.

Transfer data and anecdotal information from shops to designers and production

Track materials and products real time every step of the way, including in stores.

Close the information loop between the end users and the upstream operations of design, procurement, production, and distribution quickly and directly

2. Stick to a rhythm across the entire chain.

Rapid timing and synchronicity are paramount.

Spend money on anything that helps to increase and enforce the speed and responsiveness of the chain as a whole.

3. Leverage your capital assets to increase supply chain flexibility.

Major capital investments in production and distribution facilities to increase supply chain's responsiveness to new and fluctuating demands.

Produce complicated products in-house and outsource the simple ones.

Source: Kasra Ferdows; Michael A. Lewis; Jose A.D. Machuca, Source: Kasra Ferdows; Michael A. Lewis; Jose A.D. Machuca, HBR 11/04HBR 11/04

Main BrandsMain Brands

Reliability & Flexibility

Synchronisation of Supply with Demand

Integrate with Customers & Suppliers

Simplification & Control

Transaction

Processing

Internal

Comm

unications

External Collaboration

Data

Accuracy

Func

tiona

l

Wor

king

Cros

s-fu

nctio

nal w

orki

ng

Cros

s-fu

nctio

nal w

orki

ng

Inte

r-bus

ines

s W

orki

ng

Skill

s &

disc

iplin

es

Supply Chain OptimisationAdvanced D

ecision Support

Virtua

l Sup

ply

Chai

n

Leadership & Vision

Performance Measures

Program Management++ ++

People

Processes

Systems

To step forward a business needs to align each dimension

Establishing the starting point focuses the action plans

Prognosis of future development

The Supply Chain of the Future must be SMARTER...It will be Instrumented, Interconnected & Intelligent

InstrumentedInstrumented

InterconnectedInterconnected

IntelligentIntelligent

Automated Transactions & Smart DevicesAutomated Transactions & Smart Devices

Optimized FlowsOptimized Flows

Networked Planning, Execution & Decision AnalysisNetworked Planning, Execution & Decision Analysis

• Use of sensors, actuators, RFID, & smart devices to Use of sensors, actuators, RFID, & smart devices to automate automate transactionstransactions: inventory location, shelf-level replenishment detection, : inventory location, shelf-level replenishment detection, transportation locations & bottleneckstransportation locations & bottlenecks

• Supports Supports real-time data collection & transparencyreal-time data collection & transparency from POS to from POS to manufacturing to raw materialmanufacturing to raw material

• Sense-and-respondSense-and-respond demand/supply signals allow demand/supply signals allow ““predict and actpredict and act””

• Multi-Tier Multi-Tier system integrationsystem integration across the network. Standardized across the network. Standardized data and processes.data and processes.

• Collaborative decision makingCollaborative decision making through decision support and through decision support and business intelligence – starting with the customerbusiness intelligence – starting with the customer

• Networked risk management programsNetworked risk management programs for integrated financial for integrated financial controls with operational performance – monitored and measured controls with operational performance – monitored and measured

• Simulation models to evaluate trade-offsSimulation models to evaluate trade-offs of cost, time, quality, of cost, time, quality, service and carbon and other criteriaservice and carbon and other criteria

• Probability-based risk assessment & Probability-based risk assessment & predictive analysispredictive analysis

• Networked planning/execution with Networked planning/execution with optimizedoptimized forecasts & forecasts & decision supportdecision support


Static Supply Static Supply ChainChain

Functional Functional ExcellenceExcellence

Horizontal Process Horizontal Process IntegrationIntegration

External Collaboration &External Collaboration &IntegrationIntegration

Smart Supply Smart Supply ChainChain

How can it be so very difficult when we have the ability to use all these assets: Our Point of View on the Progression of Supply Chain Management to a Smarter Future

InstrumentedInstrumented

InterconnectedInterconnected

IntelligentIntelligent

Integrated Integrated TransactionsTransactions(ERP to ERP)(ERP to ERP)

Balancing risk Balancing risk and and

performanceperformance

Effectively driving Effectively driving profitable growth profitable growth

Managing Managing complexity complexity

NetworkedNetworkedPlanning, Planning,

Execution & Execution & Decision AnalysisDecision Analysis

OptimizedOptimizedFlowsFlows

Flexibility & Flexibility & stability stability

FutureFuture

AutomatedAutomatedTransactions Transactions

(Sensors & Actuators)(Sensors & Actuators)


Conclusion

• ZaraZara’’s production system is pulled by s production system is pulled by demand which allows a better demand which allows a better alignment to customersalignment to customers’’ expectations. expectations.

• ZaraZara’’s vertically integrated supply s vertically integrated supply chain process is the keystone of its chain process is the keystone of its success since its ensure the needed success since its ensure the needed flexibility to be able to react quickly to flexibility to be able to react quickly to the market trends.the market trends.

best practices in supply chain management at zara by siyu liu, alfonso izquierdo and pooranan...

Documents

benetton slide

hm slide

figures slide

stock status slide

pooranan murugesan slide

figures historic development

luciano benetton

carlo benetton