End Term Project

Supply Chain Management of Zara

Submitted By: -
Anshu Kumari
Mohammed Thanu Khan
Navneet Kaur Bhatti
Neha Prasad
Pooja Gathwal

Under the Supervision of

Mr Anirudh Chakrabarty
Professor, FMS Department

IN PARTIAL FULFILLMENT OF THE POST GRADUATE DEGREE "MASTER OF

FASHION MANAGEMENT (MFM)"

Submitted to

Department of Fashion Management Studies (FMS)

National Institute of Fashion Technology (NIFT)
National Institute of Fashion Technology
Hauz khas, Near Gulmohar Park, Delhi, India 110016

Tel: +91-1126542000
 CERTIFICATE

This is to certify that following students of National Institute of Fashion Technology

(NIFT), Delhi has successfully completed their end term work titled “Supply Chain
Management of Zara” in partial fulfilment of requirement for the completion of 2 Years
Post Graduate Programme "Master of Fashion Management (MFM)" as prescribed by
the Department of Fashion Management Studies (FMS), National Institute of Fashion
Technology.
Anshu Kumari
Mohammed Thanu Khan
Navneet Kaur Bhatti
Neha Prasad
Pooja Gathwal

This 'End Term Project' report is the record of authentic work carried out by the entire
team during the period of the entire semester two under my mentorship.

Mr Anirudh Chakrabarty
Professor, FMS Department
NIFT Delhi
 DECLARATION

We, hereby declare that the End Term Evaluation Project (GRP) entitled “Supply
Chain Management of Zara” is the result of our own research work carried out by us
during the entire semester two under the supervision of our subject faculty Mr Anirudh
Chakrabarty.

Name of the Students:

Anshu Kumari
Mohammed Thanu Khan
Navneet Kaur Bhatti
Neha Prasad
Pooja Gathwal

Date of Project Completion: 13th May 2019

 ACKNOWLEDGEMENT

We are using this opportunity to express my gratitude to everyone who supported us

throughout the course of this project. We are thankful for their aspiring guidance,
invaluably constructive criticism and friendly advice during the project work. We are
sincerely grateful to them for sharing their truthful and illuminating views on a number
of issues related to the project.
I express my warm thanks to Mr Anirudh Chakrabarty, our course faculty for his
support and guidance at National institute of Fashion Technology, New Delhi.
I would also like to expand my gratitude to all those who have directly and indirectly
guided me in writing this assignment.
Many people, especially my classmates have made valuable comment suggestions
on my paper which gave me an inspiration to improve the quality of the assignment.

Anshu Kumari
Mohammed Thanu Khan
Navneet Kaur Bhatti
Neha Prasad
Pooja Gathwal

Masters of Fashion Management

Batch 2018-2020
NIFT, Delhi
 TABLE OF CONTENTS

1. Introduction
2. About Zara
3. Business Model of Zara and its Strategies
4. Supply Chain Components
a) Planning and Design Development
b) Sourcing and Manufacturing
c) Logistics and Distribution
d) Retailing
5. Information Technology at Zara
6. Comparison with its Competitors
7. Suggestions
8. References
 INTRODUCTION
Supply chain management (SCM) is the broad range of activities required to plan,
control and execute a product's flow, from acquiring raw materials and production
through distribution to the final customer, in the most streamlined and cost-effective
way possible.
SCM encompasses the integrated planning and execution of processes required to
optimize the flow of materials, information and financial capital in the areas that broadly
include demand planning, sourcing, production, inventory management and storage,
transportation -- or logistics -- and return for excess or defective products. Both
business strategy and specialized software are used in these endeavors to create a
competitive advantage.
Supply chain management is an expansive, complex undertaking that relies on each
partner -- from suppliers to manufacturers and beyond -- to run well. Because of this,
effective supply chain management also requires change management, collaboration
and risk management to create alignment and communication between all the entities.
In the first half of the 1990s, Zara’s supply chain consisted of problems of
inconsistence, imbalances and market saturation for three of the store chains of Zara,
plus the inefficient launch of fashion position had created difficulties in joining the U.S.
garments market. It has suffered from a significant financial loss in 2001 and a
dramatic decrement in the share price. In May of the following year, the chairman, who
failed to reposition to a more fashionable assortment due to a major fashion missing,
had withdrawn from his long-term CEO position. The supply chain was restructured in
1990s by lowering the levels of inventories and reducing the number of suppliers.50%
of the production was then shifted back to the domestic manufacturing facilities to
compress cycle times, seasonal collections were cut down in order to allow reorders
of well selling products in a season’s 3rd.
Market-driven supply chain (linking customer value to supply chain strategy) was then
applied instead of the traditional supply chain which only designed to optimise the
internal operations. The company uses “value net” business design to support the
networked operation in order to allow connect customers with the company and its key
suppliers. Zara’s the “value net” includes: digital customer input provided by Zara
stores, Zara designers’ sketch pads of the required styles, globally sourced textiles ,
hi-tech cutting plant and local workshops sewing/assembly, single distribution system.
 ABOUT ZARA

Zara the pioneer and global leader in fast-fashion retailing were founded by Ignacio
Amancio Ortega in Galicia, Spain in year 1975. Zara is the flagship business unit of
the 8 total chains controlled by the holding company called Inditex. Inditex is a Spanish
multinational clothing company headquartered in Arteixo, Galicia, Spain and in
addition to Zara also owns the chains namely Zara Home, Massimo Dutti, Bershka,
Oysho, Pull and Bear, Stradivarius and Uterqüe. The fast fashion retailer Zara that
constitutes over 66% of Inditex’s business has a global reach in total of 94 markets
encompassing 2,200+ physical stores during the first half of year 2017, while its e-
commerce stores operated in 45 nations. During year end of 2016, Zara’s net sales
reached 15.394 billion Euros.

Zara targets a general industry-wide mass market rather than a luxurious segment in
the industry. Zara’s “fast fashion” puts emphasis on providing products that contains
the latest and most trendy fashionable design concepts manufactured in distinctive
types of styles, materials, colors, and silhouettes with reasonable physical quality
rapidly and at very attractive prices. Such products are categorized as fashion
products. New styles can emerge all of a sudden (based for example, on what a
celebrity put on during a televised television program), its demand surge in popularity
and then quickly fade away before the end of a particular season which apparently
makes “fashion misses” a common phenomenon. This makes demand for fashion
apparel product to be highly unpredictable and thus suggesting lower forecast
accuracy. Additionally, since fashion product category has a rapid pace of changing
styles, it results in short product life cycle of 1 month or less. High demand
unpredictability and short lifecycle makes fashion category apparel products extremely
time sensitive but not so price sensitive. Zara compares the fashion apparel business
to selling fish. When it’s fresh, it sells quickly and at a high price; the older it becomes,
the harder it is to sell and often requires discounting. The retail giant Zara capitalizes
on this problem by rapid responsiveness to the emerging new styles. Zara can bring a
new product from concept-design-production-store shelves in as little as 3 weeks
compared with industry standard for design-to-retail cycle for luxury brands of 5-6
months. Zara introduces new products in huge variety or replenish existing successful
products belonging to the high fashion category in small quantities in each twice-
weekly shipment. Products are not mass produced in terms of same color and style
but are differentiated to the extent that each customer feels of wearing a one of a kind
style. Products sold across the world is not confined to a specific region’s taste rather
is diverse by being inclusive of global trend. About 3/4th of the merchandise on display
is changed every 3-4 weeks. Thus Zara is able to offer customers with exclusivity in
their rapidly changing fresh assortments of product lines. Through consistent
introduction of new fashionable items, Zara has developed brand image for being
cutting edge, trendy, and highly fashionable retailer.Zara attires are not produced to
be “classics” (i.e. attires that would always be in trend) but rather to have reasonably
shorter life cycle, both within retail store product offerings and inside clientele’s
wardrobes. Zara clothes are not designed and manufactured to be long lasting as they
are made with less expensive fabric and are characterized as “clothes to be worn 10
times”. Zara also offers basic category apparel products that constitute 40% of its
product assortment vs. H&M’s 70%. The simple basic style apparel products contain
low fashion content, come in few classic colors, and have product life cycle of 2-3
years with little seasonal variation that sell all year round e.g. men's and children's
merchandise such as sweater, dress shirts. Basic style apparel products have a stable
demand pattern and can be forecasted with higher accuracy. Zara's product lines are
segmented into women’s, men’s, and children’s, with additional segmentation of the
women’s line into three sets of offerings that varies in terms of their prices, fashion
content, and age targets. This is because women collection line is more fashionable,
moves at a very high speed and constitutes Zara’s core business. As such women
collection lines are positioned in the most strategic places and often at the front part
of the stores. In addition to the three product families belonging to apparel items, Zara
also sell footwear, lingerie, accessories, cosmetics, and fragrances in its retail stores
Zara avoids the industry standard cost-plus margin pricing policy and instead first
identifies the prices customers are willing to pay and also the price of similar products
offered in competitors’ stores. Then, the company establishes target prices for each
of its specific items, often 15% below those of competitors. The information is provided
to the company purchasing department, who are in charge of margin control.
Purchasing department then controls the cost of production (i.e. in terms of costs for
material and supplier) so that desired price and margin can be achieved.
Merchandises are sent to stores in small shipments, display shelves are sparsely
stocked, individual items to be sold are on display for no longer than a month and
assortment of products in stores are frequently rotated.
 BUSINESS MODEL

1. Push/Pull
In a Pull system, procurement, production and distribution are demand-driven rather
than by a forecast. This approach follows the “supermarket model” where limited
inventory is kept on hand and is requested as it is consumed. Another attribute of Pull
is a supply chain where a customer purchase initiates real-time information flows
through the supply chain that consequently causes movement of product through the
network. And one further differentiation is utilizing Just-in-Time (JIT) methods. This
involves—Zero Defects, Reduced Lead Times, Reduced Setup Times and Smaller
Production Run or Lot Sizes. The net-net is: This supply chain approach concentrates
on demand pull rather than supplier push inventory models.
The Zara’s model measures the fast fashion retailer against the traditional retail sector
using 1) market cap/revenue and 2) operating income/inventory. We know that the two
metrics of success used today in retail are operating margins and gross margins.
These two are impacted by the way in which the supply chain is designed and
executed. Zara Capitalizes on the store experience by continuously offering reasons
for customers to visit the stores and catch the hottest trends at affordable prices. Zara
Evolved 4Es of marketing strategy—Experience replaces Product, Exchange is new
Price, Evangelism is now Promotion and Every Place is new Place that puts the
customer at the centre. Zara has designed a supply chain that mobilizes the financial
metrics of speed and flexibility, valuing both over cost. This working capital model
allows it to source and sell with lower risk and investment. Therefore, with its Demand-
Pull supply chain model, Zara’s profitability is unparalleled, capitalizing on high
margins without high markdowns.

2. Responsive System
By focussing on shorter response times, the company ensures that its stores are able
to carry clothes that the consumers want at all time. Zara can move from identifying a
trend to having clothes in its stores within 30 days. That means that Zara can quickly
identify and catch a winning fashion trend, while its competitors are struggling to catch
up. Catching fashion while it is hot is a clear recipe for better margins with more sales
happening at full prices and fewer discounts. In comparison, most retailers of
comparable size or even smaller, work on timelines that stretch into 4-12 months.
Thus, most retailers try to forecast what and how much its customers might buy many
months in the future, while Zara moves in step with its customers.
A very large design team based in A Coruña in North West Spain is busy throughout
the year, identifying the prevalent fashion trends, and designing styles to match the
trends. Trend identification comes through constant research not just traditional
consumer market research, but a daily stream of emails and phone calls from the
stores to head office. Unlike other retailers, Zara's machinery can react to the report
immediately and produce a response in terms of a new style or a modification within
2-4 weeks. Many other retailers have such long supply chain lead times that for them
it would seem a lost cause for them to even try and respond to a sales report.
3. A Lean and Agile Supply Chain
Here are five ways ZARA has used proven Lean techniques to stay ahead of its
rivals and achieve its global success.
1.‘Just in Time’ Production
It is widely recognised that ZARA deliver fast fashion through an integrated
design and production process, which is often referred to as ‘Just in Time’
production. Through its ‘Just in time’ or Lean business model, ZARA breaks
the fashion supply chain rules by holding low stock and updating its
collections continuously. Twice a week, at precise times, store managers
order clothes, and twice a week, on schedule, new garments arrive. To
ensure this happens, ZARA controls more of its manufacturing than most
retailers. New designs are can arrive in store within fifteen days, which means
that ZARA can respond to its customer demand by producing more of its
popular products and disregarding less popular items.
2. Agility
ZARA was designed from day-one to be responsive and agile. Rather than
outsourcing to Asia, ZARA uses a network of automated factories in Spain
and over 300 small finishing factories in North Africa and Turkey to constantly
create unfinished products. When a new design has been approved, the
unfinished products are pulled, sent to the finishing shops and turned into
products that are ready to shipped in as little as 24 hours to Europe, and in 40
hours to the Asian and North American markets. Dr. Warren Hausman of
Stanford University says that this innovative way of working allows retailers
like Zara to ‘reduce unwanted markdowns and lost sales enabling firms to
increase profits by as much as 28 per cent’. According to Hausman, Zara is
approximately four-times more profitable than the average retailer due to high-
margins and reduced inventory risk.
3. Kanban
One of the most obvious Lean techniques used by ZARA is a pull-model,
which is also known in the Toyota Production System as a Kanban system. A
Kanban system uses a queue of resources that are ready to be pulled by the
following process as they are needed. When a resource is pulled, a signal is
sent to the following process to replace what was used or completed. To
avoid over-producing and over-ordering, the Kanban system keeps small
quantities of resources that are needed and replaces what is used, only when
it has been used. ZARA creates up to 1,000 designs every month based on
store sales and current trends. It monitors how much money customers spend
in store to evaluate and understand which designs are being purchased and
then it updates its next designs accordingly.
4. Customer Value
When Amancio Ortega Gaona opened his first store 40 years ago, the
company’s goal was to provide customers with the latest fashion trends at a
reasonable price. The pull system relies on having a loyal customer base, as
 their feedback is communicated to the design team, which then creates the
design and sends back to the market to satisfy demand.
ZARA quickly realised that the demand for ‘on trend’ products is highly
uncertain. Therefore it buys capacity from its fabric suppliers, but does not
commit to a particular colour or print until it has a clear picture of customer
preferences. ZARA also continuously gathers customer feedback from retail
stores through leading edge IT infrastructure, which allows its designers to
identify new trends that the customer wants to buy. ZARA’s design process is
much more focused on the customer than we might realise. It is also a very
good example of continuous improvement or kaizen at work. Every evening,
store managers from 2,000 stores in 88 different countries feed everything
they have learned about their customers buying habits into a computer at the
collection counter. This information is then sent to the distribution centre,
where it is picked up by Zara’s design team. Designers then digest the
information allowing them to make improvements, reduce customer friction
and, most importantly, make excellent fitting clothes. The data aims to capture
the most popular selling garments. The database also keeps a record of all
the items of clothing that are returned. This is very important, as designers
can determine very quickly whether an item needs to be discontinued or can
be altered. If the overwhelming customer feedback on a sweater is that the
sleeves fray very easily, then the designer might be able make minor
adjustments. However, if the general consensus is that a suit is badly made,
then the designers would elect to discontinue the product. Using this strategy
ZARA has cut the time it can deliver new styles to market from six months to
just three weeks.
5. One Piece Flow
One-piece flow is the opposite of mass production. One Piece Flow is the
movement of a product one piece at a time through the production process.
With mass production, the more items are produced the lower the production
cost of an individual item. Whereas One Piece Flow reduces all types of
wasteful activities, it enables businesses like ZARA’s to be agile and respond
to customer demand much more quickly and efficiently. Approximately eight-
hours after a store manager places an order based on customer demand,
items are then picked, packed and ready to leave its distribution centre in
North-west Spain. Because ZARA’s logistics are centralised, it can send
products anywhere in the world within 48 hours. Just over fifty per cent of
ZARA’s clothing, usually the more trend-led items, are produced in Spain,
Turkey and North Africa instead of Asia, which means goods can move much
more quickly through its central hub.

4. Vertical Integration
For one, most other retailers (like the American chain Gap and sale does happen.
The result is that Zara discounts only about 18 the Swedish retailer Hennes &
Mauritz) completely outsource per cent of its products, roughly half the levels of
competitors. their production to factories around the world, many of them in low cost
Asian countries. In contrast, it is estimated that 80 percent of Zara's production is
carried out in Europe, much of it Thirdly, instead of more quantities per style, Zara
produces more within a small radius of its headquarters in Spain. In fact, almost half
of its production is owned or closely controlled facilities. While this gives Zara a
tremendous amount of flexibility and control, it does have to contend with higher
people cost, averaging 17-20 times the cost in Asia.
Counter-intuitively Intidex has also gone the route of owning capital-intensive
manufacture facilities in Spain. Infact, it is a vertically integrated group, with up-to-
date equipment for fabric, dying and processing, cutting and garment
finishing.Greige (undyed fabric) is more of a commodity and is sourced from Spain,
the Far East, India and Morocco. By retaining control over the dying and processing
areas, Intedex has fabric processing capacity available “On Demand” to provide the
correct fabrics for new styles. It also does not control the labour-intensive process of
garment stitching but controls it through a network of subcontracted workshops in
Spain and Portugal.

Zara’s Supply Chain Approach

The picture below illustrates how the Zara supply chain is organized. Manufacturing
is centered in northwestern Spain where company headquarters and the Cube are
located. But for their main distribution and logistics hub they chose a more centrally
located facility. That facility is located in Zaragoza in a large logistics hub developed
by the Spanish government. Raw material is sent by suppliers to Zara’s
manufacturing center. Then finished garments leave the Cube and are transported to
the Zara logistics hub in Zaragoza. And from there they are delivered to stores
around the world by truck and by plane.

Zara can deliver garments to stores worldwide in just a few days: China – 48 hrs;
Europe – 24 hrs; Japan – 72 hrs; United States – 48 hrs. It uses trucks to deliver to
stores in Europe and uses air freight to ship clothes to other markets. Zara can afford
this increased shipping cost because it does not need to do much discounting of
clothes and it also does not spend much money on advertising.
The key to Zara’s ability to establish an agile supply chain rests on the following
unique approaches:

● Procurement Methodology: Zara’s Procurement team doesn’t work on the

number of finished clothes but on the quantity of raw materials needed to
manufacture the clothes. This helps reduce waste, as you can re-use fabric
but not resell a piece of clothing that didn’t meet the expectations.
● Proximity of Supply: Suppliers are all close to Zara factories and collaborate
tighly, so Zara can order on an everyday-need basis.
● Production Feedback: Everyday, store managers give customer feedback to
the market specialists, who then pass the information along to production &
design teams. This rapid feedback loop enables a quick and agile response to
the market.
● Local Manufacturing: Zara presents a drastically different approach than its
competitors. Instead of outsourcing its production in Asia or Eastern Europe, it
decided to manufacture its products in Galicia. While lower cost production
could be achieved in other regions, the faster time to market, reduced
transportation costs and low exposure to changing tariffs and politics outweigh
that one factor. Also, Zara voluntarily keeps up to 85% of its plants idle, in
order to optimize the response to demand changes all around the world.
● Demand Forecasting: Zara reaps the benefits of very efficient inventory
management models that help them determine the exact quantity of items
needed for every store. They ship very small batches twice a week. As a
result, it creates a sense of scarcity, very few items are unsold, and if the
experiment fails there is much time (thanks to their very responsive Supply
Chain) to try other different styles. This eventually helps Zara find the right
product almost every time.
 SUPPLY CHAIN MANAGEMENT
The supply chain management of ZARA is divided into four categories as shown
below:-
Information Flow:

Zara’s vertical supply chain

 1. Planning and Design Development

Centralized Design: Zara designs all its products and it has single, centralized design
and production center that is linked to the Inditex headquarters in La Coruna with an
area of 1.7m sq ft. Zara’s design center consist of 3 spacious halls each dedicated to
clothing lines for women, men, and children. Each clothing line is operationally distinct
because separate design, sales, procurement and production-planning staffs are
dedicated to each. Though it’s more costly to operate three different channels, the
information flow for each channel is swift, direct, and free from inaccuracy thus
profoundly increasing the responsiveness of the overall supply chain. At Inditex, the
design teams consist of 700 highly talented designers who translate the desires of
customers into the fashion. In addition to raw creativity, these designers also need
attention to detail, analysis, instinct, insight and simple human empathy.

Designers are co-located with other members of supply chain like buying team,
merchandising team, pattern-makers and suppliers to enable cross functionality and
thus high coordination. As such they can have increased product knowledge and can
streamline the product design decision making process. The team can use standard
frameworks and process mapping which can quickly be communicated across the
supply chain.

It is absolutely necessary to foresee fashion trends and fickle consumer preferences

in the rapidly changing fashion industry. Zara generally employs young fashion-
conscious staffs in the retail stores that pay meticulous attention to identify local trends
from media or public places.
Store managers worldwide use customized handheld digital devices to quickly and
accurately exchange market data such as sales trends broken down by style, color
and size and use phone conversations or visits headquarters (only key store
managers) to continuously communicate the detected patterns with a group of
commercials known as store product managers or commercial-sales specialists.
These commercials have great acumen in determining what clothes would be
designed and manufactured and decide possible price points for products.
Commercials could also create, extend and modify collections. Each team of
commercials is dedicated to a section of the store (Men, Women, or Children). These
commercials serve as headquarters main interface with network of retail stores
worldwide by working in proximate office spaces to the product teams. Product teams
usually consist of two designers, one procurement planner responsible for purchasing
material and one production planner responsible to place production orders with the
factories. Primary estimation of production costs and available production capacity are
done by procurement and production planners.The cross-functional teams can
scrutinize prototypes in the hall, select a design, and commit resources for its
production and introduction in a few hours, if needed.
Each commercial-sales specialist has regional expertise, as they are able to dissect
tastes and customer habits through analysis of quantitative data (i.e. twice weekly
order data and daily point of sales (POS) data from stores) and qualitative information
communicated via voice call/meetings by store managers regarding customer
reactions towards new products and customer needs i.e. desires regarding styles,
materials, colors, and silhouettes requirements. Designers combine the
comprehensive information (i.e. POS data, order data and qualitative data) along with
the emerging fashion trend they perceive from discotheques, streets, movies,
surveillance of clothing designs and styles chosen by opinion leaders or on successful
television serials, competitor’s stores, couture fashion shows，trade fairs and
magazines to create new design sketch by hand and computer aided design (CAD)
system. Using CAD system designers can make further modifications for improved
matching of weaves, textures, and colors etc..
Zara’s design team at its headquarter creates 40,000 items a year from which 12,000
are selected for production while key competitors would typically produce 2,000-4,000.
The generation of huge variety of products is possible because Zara utilizes process

2. Material Procurement

Zara buys fabrics in undyed and uncut form. Zara stores 50% of its fabrics in a ‘gray’
undyed state and the fabrics are later adapted into different colours by dyeing in own
manufacturing facilities, after precise customer order specifications have been
received.
This strategy enhances responsiveness by enabling them to react faster to midseason
colour changes. This also reduces risk since numerous styles of clothes may often be
manufactured from a specific fabric type.
Much of this volume is channelled via Comditel with offices located in Barcelona and
Hong Kong, a 100%-owned subsidiary of Inditex (Zara’s parent company group) that
manages over 932 independent suppliers of fabric and other raw materials located in
Italy, Spain, Germany, Portugal, Greece and Far East. None of these suppliers
account for more than 4% of Zara’s total fabric requirement in order to minimize any
dependency on single suppliers and encourage maximum responsiveness from them.
Fabrics are delivered directly to distribution centre within 5 days of orders being
placed.
Comditel handles the dyeing, patterning, and finishing of gray fabric/cloth for all of
Inditex’s brands, not just Zara, and supplies finished fabric to external as well as in-
house manufacturers, a process that typically takes a week. Two of the other
subsidiaries of Inditex that source fabric for Zara are both located in Hong Kong
namely Inditex Asia, Ltd. and Zara Asia, Ltd. These two subsidiaries principally
purchase the synthetic and fashion fabrics from suppliers located in Asia. Zara also
collaborates with Fibracolor (a dyestuff producer part owned by Inditex and Zara
purchases 20% of its output) to facilitate rapid changes in its printing and dyeing
operations.

Inditex’s Supplier Portfolio

Inditex works with a total of 1805 supplier situated in 53 countries.
59% of the 6959 factories Inditex works with, in total are in proximity to their
headquarters in Arteixo (A Coruña, Spain), mainly in Spain, Portugal, Turkey and
Morocco which also form among major production centres. The fashion category
apparel products are sourced from these proximate factories. The rest 41 % factories
are located in Asian regions (e.g. China, Bangladesh, India, Pakistan, Cambodia,
Vietnam) and South-American region (e.g. Brazil and Argentina) from where basic
category apparel is sourced. 50% of all items are manufactured in its own network of
Spanish factories, 26% from Europe (e.g. Portugal, Bulgaria, Lithuania, Romania) and
24% in Asia (e.g. China, India, Pakistan, Bangladesh, Cambodia, Vietnam) and Africa
(e.g. Turkey and Morocco).
Inditex currently has 12 local dialogue platforms or geographic ‘clusters’ located in
their sourcing regions i.e. Spain, Portugal, Morocco, Turkey, India, Pakistan,
Bangladesh, Vietnam, Cambodia, China, Brazil and Argentina. These clusters
encompass over 95% of Inditex’s production chain. Each cluster is a group of
stakeholders based in the same geographical region comprising of suppliers,
manufacturers, trade unions, international purchasers and local Inditex CSR teams.
Cluster strategy spurs collaboration between the different agents involved, significantly
enhance the productivity of local manufacturers, and enable Inditex to share
technology with them as a source of competitive advantage. Additionally, these
clusters offer opportunities for cooperation with suppliers and are devised to advocate
a more sustainable supply chain and production environment within a core geographic
region.
As such Inditex is successfully able to deploy strict social compliance and labor
standards which ought to be followed by its suppliers locally and thus makes sure its
suppliers' business activities have a positive impact on their communities. Inditex also
joins forces with governments, non-governmental organizations (NGOs) and
worker/civilian associations in order to foster engagement with its suppliers and
manufacturers.
Since Zara has a very wide network across the world, hence delivery of raw materials
becomes crucial within the define time period. In order to deliver the raw materials on
time, the transport logistics should be strong and reliable. Zara makes sure the order
of raw material is placed before start of season in order to avoid any last minute rush.
Moreover, Zara has a very strong and flexible transport system that ensures timely
delivery of raw materials. Also, majority of the fabric suppliers are based in Europe
and Spain, hence the delivery of raw materials is speedy. The raw materials that have
cost constraint and no money constraint are usually delivered from across the world
mainly HongKong and rest part of Asia.

3. Manufacturing and sourcing

Zara manufacture approximately 50% of its product in its own store in Spain but uses
external suppliers for all its sewing operations.
Due to the vertical integration of Zara, it makes around 40% of its own fabric and
purses rest of the dyes from its own subsidiary. After cutting and dyeing, the items are
stitched with help of many local cooperatives. Since Zara manufactures around 60%
of its own product, hence it is more flexible in variety, amount and frequency of new
style that are produced.
Fifty percent of the items that are sold by Zara are being manufactured in Spain, 28 %
in Europe, and 24% in Asia and rest of the world.
Zara has centralized manufacturing and production system which functions as follows:

o There is more risk involved in most fashionable item hence these types of items
are produced on small scale and if the customer response is positive then these
items are reordered depending upon the demand. The items that are price
sensitive rather than time sensitive are been outsourced to Asia as the
manufacturing cost in Europe is 15-20% higher as compared to Asia. Zara has
the ability to create rapid product turnover due to limited stock production and
controlled inventory. This creates opportunities in retail stores of Zara.
o The quick response system of Zara is unique which consists of human
resources and Information technology. Zara focuses on ultimate customers and
emphasizes on the use of quick backward vertical integration rather than
manufacturing efficiencies. It becomes crucial for Zara to speed up the
information flow from consumer desires to apparel designers. The combination
of vertical integration, technology-orchestrated coordination of suppliers, fined
tuned logistics and just in time manufacturing makes Zara so much competitive.
Inventory optimization helps the firm determine the exact requirement of items
that needs to be delivered twice a week and how much stock needs to kept to
fulfil the requirement of retail stores. The average time taken by Zara to
implement an idea into a final product is maximum 15 days as compare to other
 firms which takes four to five months. Zara is twelve times faster than its
competitors in delivering a product.
o Generally, there is a lead time of about four to five weeks for new garments and
two weeks to restock. In this period, Zara is able to find the response of fashion
items that are selling well and items that are to be discontinued.

o The procedure of design and procurement starts five to six months prior to the
selling season in order to find the requirement of approximately 65% of the
fabric needs, rest depends on the latest trends of market. Zara manufactures
about 15-20% of the items before the season in order to check the response of
customers towards the newly designed items, it later manufactures 50-60% at
start of season and rest is manufactured in the season.
o The production commitment of the company is different from other apparel
industries. The inventory of Zara is regulated and the items are been revealed
on different stages as per modified designs to maintain curiosity among the
customers and not unlike other industries where the designs are revealed in
one stage and the same stock is repeated throughout the season, thereby
creating monotony among customers.
 4. Distribution

The distribution center in which apparel merchandise for Zara is processed is located
in Arteixo, A Coruña, Spain. The distribution center of Inditex-Zara called “The Cube”
is huge at 464,500 square meters (5 million square feet) and highly automated located
in Arteixo, Northwestern Spain, along with company headquarter and 11
manufacturing facilities.
These 11 Zara owned factories are located within a 16 km (10 mile) radius and in
addition is also connected to the distribution center with underground monorail links.
These underground tunnels with high speed monorails (about 200- 211 km of rails)
are used to transport cut fabric to these plants for dyeing and assembly into clothing
items. The manufacturing plants also use the monorail system to return finished
products (approximately 50,000 garments/week from each factory) to the distribution
center for shipment to stores.
Every Inditex product regardless of its origin or destination is delivered to the allocated
distribution centers of each brand in Spain, where it is picked, sorted, packed and
freight loaded to be sent on to the company’s global store network of those brands
.The clothes stay in the Distribution Centre from a couple of hours to a maximum of
three days since the distribution center is a point to move the merchandise rather than
to store it. The objective is to manufacture and deliver only what and when the stores
needed those specific items. At the distribution center, shipping of garments of exact
sizes and styles as per ordered by retail stores is organized within 8 hours of a store
placing an order.
Inditex usually reserves 100% excess capacity in its distribution centers so as to be
able to react to demand surges during the beginning of the two selling seasons in
January and July or even to unexpected demand surges by boosting utilization rates
of its unutilized capacity.
The garment pieces move along the carousel until they reach and fill in their allocated
boxes and racks (for hanging items). These barcode marked boxes containing finished
garments and each designated for individual stores are grouped and stored on the
network and is called by the system when needed.
These boxes leave the distribution center and are transported to a Zara’s state-of-the-
art logistics center (120,000-square-meter) located in Zaragoza, Northeast of Madrid,
and Central Spain. This logistic center is situated in proximity to the local airport and
has direct connection to the railway and road network. And from there they are
delivered by trucks to retail stores in Europe and by air freight to deliver clothes to
distant markets twice a week.
o 20%-25% of Zara’s products are air shipped and the rest is transported by sea
freight and truck.
o About 65% of Zara’s garments shipped are folded and 35% are shipped hung.
Hung garments are expensive to ship compared to the folded garments since
they take up more volume, but this is done so that the merchandise can be
delivered to the stores floor-ready.
o The transportation and distribution of Inditex’s products to stores is undertaken
entirely by external contractors.
o The deliveries reach destined stores around the world in delivery times as
follows: Europe – 24 hrs. United States-48 hrs.; China-48 hrs.; Japan-72 hrs.
Since all the items that are shipped to stores have already been pre-priced and
tagged, store managers can put them on display the moment they come off
delivery trucks, without having to iron them. The requirement for monitoring at
this stage is reduced because the shipments are 98.9% accurate with less than
0.5% shrinkage. It is obvious that for Zara, speed is a paramount concern and
distance is not measured in kilometers, but in time. Stores place orders and
receive deliveries twice a week. Guided by inventory optimization models, each
retail store gets a tailored assortment of products exactly as par ordered twice
a week often within 2-4 days after order placement, depending on store
location.
 5. Retailing operations

To rapidly match changing customer’s needs, Zara practices a total control of the
retail-chain through forward integration and retaining ownership of 90% of its stores.
Zara uses franchise only in risky countries or in countries where wholly owned stores
are not allowed to operate. However Zara’s franchise agreements are usually
designed as a 5-year contract with fees of 5-10% of total sales and Zara always
reserves the right to either buy out the franchisee or open wholly owned stores during
that contract period. This arrangement allows Zara to experiment markets in new
countries without bearing significant financial risk.
During the first half of year 2017, Zara’s global reach in total of 96 markets
encompassed 2,200+ physical stores. This allows Zara to expand its direct connection
to the critical last step in the supply chain which is its customers. It is possible to install
unified (POS) systems in the stores that can track real-time global sales information
which gives an accurate picture of true customer demand; evolving and fast-changing
customer preferences and constantly changing fashion trends in real time. Multiple
POS terminals installed in a typical store transfer their respective comprehensive sales
information for all SKUs performed in a typical business day to a mother POS terminal
in the store. This mother POS terminal transfers the aggregated data to head quarter
connected via modem. Thus Zara is able to track real-time information on status of
inventory at the precise SKU level from stores and can quickly transfer to the upstream
operations of design, procurement, production, and distribution on a constant basis.
This helps to mitigate the so-called ‘bullwhip effect’-the tendency for fluctuations in
market demand information to get exaggerated as they are transmitted back up the
supply chain.
A modest change in retail orders, for instance, can result in wide variation in orders as
it reaches the factory while being transmitted through wholesalers and distributors.
Additionally it gives Zara more sway over retail inventories in terms of product mix,
pricing and quantity offered and other factors. The level of control achieved allows
Zara to set the pace at which products and information flow. Stores are at the core of
Zara’s business model and it is where Zara constantly takes the pulse of its customer
demand.
Zara places the stores in prime locations that attract voluminous flow of upscale
shoppers in the most high-profile commercial areas, often including landmark buildings
in the premier shopping streets and upscale shopping centers around the world. The
average size of the stores is 12000-11,376 square meters and carries about 40,000
units of inventory. Shop floors are designed to be spacious and therefore the product
density of a typical Zara store is 28 units of inventory per square meter while traditional
retailers usually have between 32 and 43 units of inventory per square meter.
Researchers found that most of the selling space in a typical Zara store is left empty
in order to create a pleasant, spacious and uncluttered shopping environment and let
customers explore the products for themselves.
Additionally offering fashion forward apparel in fewer quantities creates a feeling of
desperation among customers. Thus when shoppers find something they like they
impulsively make a purchase because the item would likely be sold out a week later.
Only 70 percent of inventory is put on display at sales floor while rest 30 percent of
inventory is kept in backroom. It is stated that designs for store displays (i.e. looks for
windows and interiors in terms of themes, color schemes, and product presentation)
are centrally- designed and prototyped by teams of merchandiser sat an indoor street
containing model store windows located within the Arteixo headquarter.
The reason for significant centralization of store layout and interior presentations of
store window displays is to promote its same market image worldwide. These ideas
are carried to the stores by regional teams of window dressers and interior
coordinators.
The shop windows are updated every 3-4 weeks. Butler stated that Zara spends more
heavily and more frequently than key competitors in renovating and updating the
layout and decor of its store base for each of its brands with new designs every 18
months.
300-400 stores are renovated per year at a cost of €1.4bn/year and thus add to one
of the main areas of capital expenditure for Inditex. Attractive interior and exterior of
stores provides customers with a sense of luxury and a special store experience. All
of this is important for Zara as brand recognition is dependent upon store visibility.
Additionally, these retail stores and word-of-mouth of customers do the advertising to
draw in new shoppers. Zara spends relatively little on advertising (0.3% of sales
turnover compared with 3.5%-5.4% by its competitors in 2001) and even does not
exhibit its new merchandise at the ready-to-wear fashion shows rather are first
displayed in its stores. Rather Zara spends its money on opening new stores instead
of spending huge sum of money on advertising campaigns. The little ads that are
undertaken are to only publicize its twice yearly sales and to announce the opening of
a new store. Inditex has taken a number of important initiatives to streamline
customer’s purchase process, reducing their waiting times and offer new options for
buying, exchanging or returning products all of which are aimed at offering a satisfying
shopping experience to consumers.
o Firstly, Inditex finished implementing Radio frequency identification (RFID)
technology at all its Zara stores in 2016, and aims to install it in all the stores of
its other brands 2020. RFID technology allows garments to be individually
identified and located quickly and with precision and increases product security
from the moment they are fitted with microprocessor-based security tags at
logistic platforms until the point of sale. Therefore, the items and sizes that have
been sold out on the shop floor but stock is available in the back room can be
quickly detected and re-stocked in the sales floor in real time thus avoiding lost
sales and maximize profits which otherwise used to be a time consuming
process. RFID also forms the backbone of many other projects to improve the
quality of shopping experience by customers. Inditex launched digital tags and
interactive fitting rooms which are based upon radio frequency identification
(RFID) technology. Digital tags help the sales staff in stores to match items and
recommend complete outfits. This initiative also provides consumers with
information about the quantity of items available in a more visual and attractive
way. Interactive fitting room is installed with touch screens that offer consumers
a complete shopping experience by giving them information about the products
 available in-store or catering the option to purchase them online. The objective
of interactive fitting rooms is to reduce customers’ waiting time while sales staff
brings them other sizes, colors or styles when trying on the clothes. With this
system, users would no longer have to leave the fitting room to find the items.
o Secondly, in order to offer quick and convenient access to their merchandise,
Inditex is fully integrating their sales channel i.e. both brick-and-mortar and
online. Under this model, customers have the choice to request in-store
collection of their online purchases for free or home delivery for a fee. In cases
when customers do not own a credit card, they are still able to purchase online,
pay in cash and collect the merchandize from their pre-selected stores during
online purchase.
o Finally, to aid in integration of all the sales channels i.e. shopping online and in-
store, Inditex worked to develop several technologies including mobile
payments, quick check-out registers and mobile checkout systems. In the year
of 2016, all of Inditex Group’s brands implemented mobile payment system
which is available from each of Inditex’s eight brands’ online mobile apps, as
well as from Group-wide app called “In Wallet” which consolidates customer’s
purchases made at all of Inditex’s brands. This initiative is devised to enhance
customers’ shopping experience, simplifying the activation process, as well as
efficient handling of purchases or returns. With this system, customers simply
link their bank cards to their login accounts in order to make payments by mobile
phone using a highly secured QR code. Payment by mobile phones has an
additional benefit in that the integrated management of online and off-line
purchase receipts which are automatically saved to each customer’s account
are readily accessible at all times and thus simplifies the process of returning
items. The system thus helps eliminate paper receipts of purchases made in
stores or online. Inditex also introduced quick checkout registers which aids
customers to speedily perform their purchases by themselves through
streamlining the entire purchasing process. Items first need to be scanned and
shown on the screen for affirmation. Customers can then pay by bank card or
with their mobile device. The system can print out coupons or the original
purchase receipt, which can also be saved on their phones. Inditex has also
developed a mobile checkout system which allows customers to pay by mobile
phone without having to go to the check-out registers.
 Competitors Analysis

Zara H&M Vero Moda

Zara’s collections are H&M does not own Bestseller does not
centrally planned and any factories instead have its own factories
the company follows of outsourcing from but works with
Vertical Integration. All 800 independent suppliers who are
the production, suppliers, willing to meet the
manufacturing, approximately 40% in commitments of its
logistics, sourcing, Europe and 60% in code of conduct and
distribution systems Asia. In addition, H&M chemical restrictions.
are carried out by the has set up 21
company instead of production office
outsourcing it. outside Sweden, 50%
of them are based in
Asia and 50% of them
are based in Europe.

Production process is Production process is Produce most of their

carried out in Spain, carried out in mostly in products in Asian
leading to higher Asia and Europe. In countries like China,
labour cost. The Asia most of the India and Bangladesh
company mainly relies clothes are made in where labour force is
on its own design China and low. 70% of the
team, complex fabric Bangladesh. production is carried
sourcing, cutting, However, the out in Asian countries
dying and sewing disadvantage of this and rest 30% in
facilities at the method is that it lacks Europe.
headquarter in Spain. the flexibility in the
production process
because it is forced to
place production
orders to
manufacturers
overseas at least 6
months in advance of
the season.
Zara also commits six H&M produces 80% of Vero Moda also
months in advance to its products in produces 70-80% of
only 15 to 20 per cent advance and the lead its products in
of a season’s line. And time of producing the advance and lead time
it only locks in 50 to 60 remaining 20% may is 3-4 months.
per cent of its line by vary, generally from Sometimes the trends
the start of the two weeks to six follow Vero Moda
season, meaning that months. H&M also market almost a
up to 50 per cent of its develops its season later than
clothes are designed production plan six to others.
and manufactured twelve months in
smack in the middle of advance, coordinating
the season. with the purchasing
process accordingly.

Instead of more H&M basically Vero Moda launches

quantities per style, launches two four seasonal
Zara produces more seasonal collections collections, producing
styles, roughly 12000 each year, producing approximately 2000-
a year. By Reducing approximately 3000- 4000 items on an
the quantity 5000 items on average.
manufactured in each average.
style, Zara not only
reduces its exposure
to any single product
but also creates an
artificial scarcity. As
with all things
fashionable, the less
its availability, the
more desirable the
object becomes.

Zara discounts only H&M discounts 40-50 Vero Moda discounts

about 18% of its per cent of its 30-40 per cent of its
products, roughly half products. total products.
the level of it’s
competitor.
Zara uses mostly air H&M uses ships and Ocean carriers are
carriers and ships and trains to transport over mostly by Bestseller
to transport most of 90% of their total for transport from
their products to products from the Asian countries to
different stores all suppliers to their European countries.
over the world. Zara warehouses. They And in European
also own one of the don’t own any states, bus travel is
most state-of-the-art distribution system mostly used for
distribution systems unlike Zara. transportation. They
across the globe, with don’t own any
minimal human distribution system
intervention. unlike Zara.

Zara holds 6 days H&M holds 52 days Vero Moda holds 94

worth of inventory on worth of inventory on days worth of
an average. an average. Inventory on an
average.

It has a pull system. It has a push system. It also has a push

Produces according to 80% of their products system. Mass
the latest trends and are produced in future, production is done
fashion in the market thus leading to which leads to unsold
and works problems like backlog products and then
accordingly. inventories and poor eventually sold at a
sales. discount.
 INFORMATION SYSTEM AND TECHNOLOGY

The goal of the information system at Zara is to discover the best design trends.
Designers estimate what sells well by collecting vital information such as daily sales
numbers. The real-time information helps designers to decide about fabric, cut and
colors when modifying existing clothes or designing new ones. IT has shortened the
time from design conception to the arrival of clothes at the distribution centers and
finally to the stores to be placed on racks.
Managers at the stores and the market survey done by the employees, form the human
intelligence while IT intelligence consists of the PDA devices used to send information
collected by the managers and other employees carrying the PDAs. An order form is
transmitted to each manager’s PDA asking for information such as availability of
garments and patterns of garment sales. The managers of each retail outlets then
divide this order form into sections and these sections are transmitted to the PDAs of
each employee to fill up, based on customers’ feedback and the kind of designs sold.
Employees then transmit back their respective sections to the manager’s PDA, after
entering the customer’s requirements. The managers of each store are given total
authority to determine and identify which sections are to be retained in the order form.
The edited order form is then sent back to headquarters where the designing teams
start working on the basis of the order forms. This unique hybrid of humans &
technology helps in managing the inventories efficiently and quick and efficient link
between demand and supply, thus successfully helping in their own doctrine of ‘fast
fashion’.

Zara use IS to track customer preferences and sales. Store managers lead the
intelligence gathering effort. This helps to determine what ends up on each store’s
racks. Personal Digital assistants (PDAs) or handheld PCs are used to gather
customer input. Staffs talk to customers to gain feedback on their preferences and
issues. The valuable data gathered helps the firm to plan styles and issue re-buy
orders based on feedback. Zara uses software like C-Design and Corel Draw. C-
Design and Corel Draw Graphics Suite allows Zara to create and market its collections
quickly and efficiently.

Zara has its own centralized distribution system. It keeps almost half of its
production in-house and uses smart technologies to have a competitive advantage.
Instead of relying on outsourcing, the company manages all design, logistics,
warehousing and distribution functions itself. It uses latest technologies to keep up
with latest trends. The company manufactures and distributes products in small
batches. Using the computerized system, the company has reduced its design to
distribution process to just 10 to 15 days.

The IT implementation of the operation research requires establishing dynamic access

to compute several large live databases (store inventory, sales, and warehouse
inventory) under very strict time constraints. This helps Zara to change about three-
quarters of the merchandise on display every three to four weeks and customer’s
average time between visits to its stores is more than its competitors at 17 times a
year.

Pricing is market-based. Zara uses information systems for customer profiling, to

analyze the purchase patterns and direct targeting. The company quickly respond to
fluctuating customer demands in fashion trends.

Four critical information-related areas that give Zara its speed include:

Collecting information on consumer needs: Trend information flows daily, and is

fed into a database at head office. Designers check the database for these
dispatches as well as daily numbers, using the information to create new lines and
modify existing ones thus, designers have access to real-time information when
deciding with the commercial team on the fabric, cut, and price points of new
garment.
Standardization of product information different or incomplete specifications, and
varying product information availability typically and several weeks to a typical
retailer’s product design and approval process, but Zara “warehouses” the product
information with common definitions, allowing it to quickly and accurately prepare
designs, with clear cut manufacturing instructions.
Product information and inventory management being able to manage
thousands of fabric and trim specifications, design specifications as well as their
physical inventory, gives Zara’s team the capability to design a garment with
available stocks, rather than having to order and wait for the material to come in
Distribution management: it’s State –of-the-art distribution facility functions with
minimal human intervention. Approximately 200 kilometers of underground tracks
move merchandise from Zara’s manufacturing plants to the 400+ chutes that ensure
each order reaches its right destination. Optical reading devices sort out and
distribute more than 60,000 items of clothing an hour. Zara’s merchandise does not
waste time waiting for human sorting.

Advantages of such an Innovative System

o Vertical integration of supply chain and short turnaround time lead to High
turnover of product.
o Quick and efficient distribution helps to eliminate warehouse requirement,
saving on additional storage costs.
o Searching the market for latest fashion trends and responding quickly to the
consumer requirements with the help of hand-held PDAs.
o Complete autonomy and flexibility to the employees and managers who are in
direct contact with the customers.
o POS terminals run on DOS operating system, which is cheap and easy to
maintain and operate.
 References

 https://www.forbes.com/companies/zara/#3896c0487487
 https://beeketing.com/blog/zara-growth-story/
 https://www.businessinsider.in
 https://sourcingjournal.com/topics/business-news/push-pull-supply-chain-
management-zara-71002/
 https://www.ukessays.com/essays/business/hm-supply-chain-logistics-
management-6182.php
 https://www.supplychaindive.com/news/HM-turnaround-runs-through-supply-
chain/520495/

 https://www.digitalistmag.com/digital-supply-networks/2016/03/30/zaras-agile-
supply-chain-is-source-of-competitive-advantage-04083335

 https://sourcingjournal.com/topics/business-news/push-pull-supply-chain-
management-zara-71002/
 https://adataanalyst.com/information-systems-management/case-study-
information-systems-information-technology-zara/

 Inditex annual report