suppply chain management@zara

09501606 Robert JENNRICH09501258 Rebecca MELTON07011490 SIN Wai Yin07019025 CHAN Wai Hei07018568 CHAN Ngai Kin09501622 Olivier BRICLOT 11.11.2009

Supply Chain Management at Zara

School of Business Department of Finance and Decision ScienesDr. Vincent ChowBUS 3640 ERP and SCM

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1 Company overview

2 SCM & ERP activities

3 Performance analysis

4 Identifying weaknesses

5 Industry‘s best practices

6 Business Oportunities

7 Recommendations and Resistance

Outline

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1 Company overview







Outline

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Zara is a one of the largest international companies with european roots

OVERVIEW

�1975: first store in Spain�Part of Inditex one of the world’s largest fashion groups�More than 1500 stores in 72 countries nowadays�Sales > € 6 billion �In 2003, become the world’s fastest-growing volume garment retailer�Created “Zaramania” phenomenon

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Fashion evironment

OVERVIEW

Nowadays Fashion

� Fashion is fast, complex and furious

� It is always changing

� The product life cycle of fashion is very short

� New styles keeps emerging and old styles keeps re-occurring every in a

very short time

� This trend called “ Fast fashion”

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Fashion evironment

OVERVIEW

� Do not aim at maximizing the revenue from

each particular style.

� It is especially true for companies such as Zara

and hence the corresponding quantity available

for sales are both relatively small.

� Stock out does incur a loss of sales but not a

loss of goodwill.

Fast fashion Traditional fashion

� Maximization of the revenue from each style

� Stock out is a loss (loss of goodwill, loss of

sales).

� Design and manufacture clothing quickly, and

in an affordable way

� Allow the mainstream consumer to take

advantage of current clothing styles at a lower

price point

� Supply chain management of fast fashion

company is important

� The fast fashion supply chain will always

create new designs and apparel products to

satisfy the ever-changing taste of the market

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Fashion evironment

OVERVIEW

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1 Company overview







Outline

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Zara has very short Product Life Cycles

COMPARISON

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Customer segment

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Customer segment

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Zara’s 3 Keys for success

Short leadtime

Lowerquantity

More style

� more faschionnable clothes

� scarce supply

� more choice , more chance to hit it right

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Zara’s supply chain

Supply Chain

� Ownership and control of the production

� Market research( observe fashion leader,daily feedback from store, sale

report)

� React rather predict

� Quick bake recipe

� Information technology keep cost down

� Vertical Supply Chain

� Has total control of various business activities

� There are four stages of supply chain at Zara: --Design

--Production

--Distribution

--Retailing

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Speed keep cost down

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Zara‘s SCM Objective

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Zara‘s Design

Design stage�Women’s , Men’s , Children’s garments�Produce designs for approximately 40,000 items per year from which 10,000 are selected for production �Has almost 300 people, including designers, specialists and buyers

�Work in close contact with store managers to discuss sales orders, new lines and other matters �Stores rely heavily on discussions with Market Specialists before finalizing orders Market Specialists

�Final decisions concerning what products to make, when, and in what volumes

Buyers

Designers�The SC starts with designers�Draw out design sketches by hand�Discuss them with colleagues �The sketches are redrawn using a CAD system�Make a sample to determine whether the design can be produced and sold at a profit

Design

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Zara‘s production

� Make decisions

� Required levels of speed and expertise, cost-

effectiveness, and availability of sufficient

capacity

Suppliers Procurement and Production Planners

� 50 percent of products in its own network of 22

Spanish factories and use subcontractors for all

sewing operations

� Other half of its products are procured from

400 outside suppliers, 70 percent of which are

in Europe and most of the rest in Asia

Subcontractors

� For all sewing operations

� Use a sampling methodology to control the

incoming quality

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Zara‘s Distribution, Logistics and Retailing

� Stores in Europe receive their orders in 24

hours

� The United Sates in 48 hours

� Japan in 48 to 72 hours

� Shipments at Zara are almost flawless (98.9

percent accurate with less than 0.5%

shrinkage)

Distribution Center Logistics (Contractors)

� Orders for each store are packed into separate

boxes and racks (for hanging items)

� Finished products are typically ready for

shipment 8 hours after they have been received

Retailing

� Usually place orders and receive shipments

twice per week

� The store is Zara’s main image vehicle, so Zara

concentrates the majority of its investment on

it

� Encourage customers to revisit the store and

create a comfortable and inspiring atmosphere

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Value chain

OVERVIEW

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1 Company overview







Outline

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Performance of Supply Chain Management at Zara

• Order lead time- Zara controls most of its supply chain, by managing all design,warehousing, distribution, and logistics functions

• Operational level measures

-Make information and product transfer easy

- Produced in small quantities, provided on predictable schedules, and displayed in the stores for only a short amount of time

- Customers visit Zara stores more frequently

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• Effectiveness of Scheduling Techniques

- The scheduling techniques of Zara is very efficient

- Centrally Managed Inventory

- Reduced Design Cycle Time

- Strong IT System

- Logistics and Distribution

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• Effectiveness of Scheduling Techniques

- The scheduling techniques of Zara is very efficient

- Centrally Managed Inventory

- Reduced Design Cycle Time

- Strong IT System

- Logistics and Distribution

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International strategy

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Market selection (suppliers)

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Market selection

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Market entry

• Characteristic or behavior of customers

• Income per capita of country : gaining the right consumer

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Marketing approach

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1 Company overview







Outline

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Due to Zara‘s Supply Chain Management approach thereare excisting weaknesses in their current activities

IDENTIFYING ZARA‘S WEAKNESSES 1/2

� one manufacturing and distribution center (Spain)� Potential risks: power shortage, strike or even a natural disaster

� over saturation of Zara stores in Europe� strongest currency in the world

� has not been able to develop a strong supply chain strategy � has not invested in distribution facilities

Centralized distribution system

Inability to penetrate American market

Euro-Centric model

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Due to Zara‘s Supply Chain Management approach thereare excisting weaknesses in their current activities

IDENTIFYING ZARA‘S WEAKNESSES 2/2

Limitation from

verticalintegration

Increased costs

Issue of cannibalization

� inability to acquire economies of scale� dependence on Inditex

� due to speedy and recurrent introduction of new products� Higher production changeover, R&D and Employee training costs

� multiple Zara stores – selling the exact merchandise to the same people

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1 Company overview







Outline

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The apparel industry consists of several big companies, who all have applied different best practices

INDUSTRY‘S BEST PRACTICES 1/4

� H&M, GAP

� Distribution channels

� Infrastructure which allows for ease of distribution nationally and internationally

Decentralized structure

� Sourcing, procurement and production indifferent countries

� H&M: double- Supply Chain with focus onEurope and Asia

� Outsourcing

World-wide production and sourcing

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� H&M, GAP are using more advertising

� may aid them in entering new marketssuccessfully

� the local customer is aware of merchandise mix

Intense advertising

� GAP

� Very powerful brand in overseas countries,especially in eastern Asia region

� Stronger brand management& marketing activities

Strong Brand Name

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� GAP, H&M

� Longer Product Life Cycle

� Basic products

� Lower R&D, market research costs

Durability of products

� Especially H&M

� Higher number of units

� No return to warehouse

Discounts

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The apparel industry consists of big companies, who all have applied different best practices


� promote flow of information with suppliers

� collaborative relations with suppliers

� Suplier evaluation and development

Supplier relations - ERP

� GAP, H&M

� Tailored strategies for different countries

� Higher adaption of local customer needs

International strategy

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1 Company overview







Outline

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High CostsRelatively high costs for operation in complete vertical integration� High supplier searching, production and distribution costs in Europe� Resources used for more control over every process in the supply chain

Opportunities/Initiatives

INTERNAL

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Asian Market

e-Business

Emerging Asian apparel market with high potential� rapidly growing demand and purchasing power in developing Asian countries� lower production costs� Becoming the region with most potential growth and large demand

Opportunities/Initiatives

e-Business� Faster and easier access to product information and more convenient ordering required

� Shorter product life cycle

� Increasing acceptance of online shopping and transaction

EXTERNAL

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1 Company overview







Outline

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E-Procurement

42

allow to determine the performance measurement for suppliers

build a hub (maintains the catalogue data and is connected to the

suppliers)

• Leverage volume and major suppliers � control product costs

Provide real time information to the suppliers � Quick Response

E-Procurement

SUGGESSTION

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Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

ZARA

E-Procurement

SUGGESSTION

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Collaborative Planning, Forecasting, and Replenishment

Enhance Supply Chain

supporting and assisting joint practices

� enhance supply chain integration by supporting and assisting joint practices

� Control of SCM

SUGGESSTION

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Enterprise Resource Planning System Improvement

A team of experts in Euro Headquarter who plan production, design, distribution, retailing

With the expansion over the world:Planning Production of Asian Factories in EU HQDesigning Clothing for Asian Customers in EU HQPlanning Logistic Issue of Non-EU markets in EU HQ

a more integrated, web-enabled and enterprise-wide ERP system

So that, 1. Teams in Euro HQ can have real time information of stores, factories in Asia, US, etc.2. Stores outside Euro can have information of the inventory, producing progress, delivering progress, what goods other storesare selling, etc.

SUGGESSTION

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Resistance

More Resourcesneed to perform all feasibility study and get ready to commitment to time, costs, and human resources

• Without top management commitmenttop management commitment

• Process is long

• People managementneed to allocate valuable staff from each department to ERP team, that these people may not be returned to their position very soon

• Uncertain and unpredictable outcome

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attain higher penetration by closer interaction with the Asian

customers

supply more retail stores in the region in response to great demand

expand supply chain network in Asia for higher logistic and

production

Aim

provide specialized products for Asian market to stimulate demand

Second central distribution centre and production base in Asia

Suggested location – coastal cities in China

Reasons: Relatively low costs, rapidly growing demand and purchasing power

SUGGESTION

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Second central distribution centre and production base in Asia (cont’d)

Accurate interpretation of fashion trend

Shared risk of demand

fluctuation

Lower logistic and production

costs

Maximize efficiency in the Asian market

Higherpenetration and

popularity

Benefits

SUGGESTION

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Second central distribution centre and production base in Asia (cont’d)

• Insufficient initial knowledge of fashion in the Asian market� higher search costs to completely understand customers’ needs

• Keen competition with (i) international retailers and (ii) local brands� less competitve pricing tactics and comparatively low penetration

• Liquidity issue� large amount of capital involved, long return period

• Political and legislation barriers � extra operation costs

SUGGESTION

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develop more direct internet selling to reach more customers

establish platform for collection of feedbacks for

better understanding of customer behaviors inspiration for new and

specialized design

provide customers updated product information

Aim

encourage online shopping

Internet Retailing & stronger CRM

SUGGESTION

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Benefits:• Reach wide variety of potential customers more instantly, easily and

directly through online promotion

• Gain knowledge of customers’ preferences and spending habits

• Save promotional costs and enhance advertising power through the Internet

• Provide customized and comfortable service to customers by displaying updated designs and allowing convenient online ordering and transaction

• Reduce opertion costs unnecessary stores which lead to cannibalization by replacing them with online services

INTERNET RETAILING & STRONGER CRM (cont’d)

RESISTANCE

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• Difficulty to display all of Zara’s ever-changing fachions online� fast fashion model requires strong and responsive technical support

to maintain the provision of most updated product information.

• Impact on lower motivation for customers to visit the retail stores� less face-to-face communication with customers to understand theirs

needs

• Relatively low acceptance and popularity of online shopping in developing regions, e.g. Indonesia

INTERNET RETAILING & STRONGER CRM (cont’d)

RESISTANCE

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suppply chain management@zara

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