BEST PRACTICES IN SUPPLY CHAIN MANAGEMENT AT ZARA
BY SIYU LIU, ALFONSO IZQUIERDO AND POORANAN MURUGESAN
Agenda
•
Historic development of the three companies – Facts and
Figures
•
Current state of Supply chain management organization
•
Current product strategy
•
Competitive situation
•
Assessment of the best practice in Supply Chain
Management
•
Prognosis of future development
•
Conclusion
HISTORIC
DEVELOPMENT
OF THE THREE
COMPANIES
FACTS AND FIGURES
BENETTON
COMPANY OVERVIEW
Founder
Giuliana Benetton, Luciano Benetton,
Gilberto Benetton, Carlo Benetton
Founded
1965 in Italy
Products
Shoes, Bags, Clothing,Accessories
Markets
120 Countries
Style and
Features
Casual, Fun, Colorful, Fresh
Mediterranean, Latin style
Employees
(2011)
9,557
Revenue
(2011)
2.032 Billion Euro
BENETTON
HISTORIC DEVELOPMENT
BENETTON
HISTORIC DEVELOPMENT
BENETTON
DUAL SUPPLY CHAIN SYSTEM
HENNES & MAURITZ
Founder
Erling Persson
Founded
1947 in Sweden
Products
Clothing,Accessories
Markets
25 Countries
Style and
Features
Wide range from party dresses, sport
shirts to suits and other formal wears
Employees
(2010)
59,440
Revenue
(2010)
14.24 Billion Euro
H&M
HISTORIC DEVELOPMENT
H&M
HISTORIC DEVELOPMENT
H&M
SUPPLY CHAIN SYSTEM
information
on sales and
stock
status
ZARA
Founder
Amancio Ortega
Founded
1975 in Spain
Products
Clothing, Accessories, Shoes, Bags
Markets
69 Countries
Style and
Features
Wide range from party dresses, sport
shirts to suits and other formal wears
Employees
(2012)
69,240
Revenue
(2012)
15.946 Billion Euro
ZARA
HISTORIC DEVELOPMENT
ZARA
HISTORIC DEVELOPMENT
CURRENT STATE
OF SUPPLY CHAIN
MANAGEMENT
ORGANIZATION OF
ZARA
SUPPLY CHAIN MANAGEMENT ORGANIZATION
SUPPLY CHAIN MANAGEMENT ORGANIZATION
ZAR
A
Other Retailers
Zara- Supply Chain Management
Zara- Supply Chain Management
• Fast Fashion- Manufactured quickly and Sold at
affordable prices
• Competitors like H&M, Forever 21 followed Zara’s
Fast Fashion model.
• Produce and deliver in 3 weeks model.
• In typical season, Zara produces 11000 different
items.
Zara- Product Lines
Women
• Woman
• Basic
• TRF
Children
Men
• At each Store, each product line has a Section Manager,
sales people and Cashiers.
Zara- Supply Chain Management
Zara – Supply chain
• Seasons-Autumn/winter and Spring/Summer
• First designs were presented 6 months before each
season
• During the season, Suppliers with short lead times
allowed it to introduce new designs
• For basic, easy to forecast Products, Zara used
cheaper suppliers with longer lead times
Zara – Supply Chain
• All products came to logistic centers in Spain.
•A Coruna - 50% of all Women and Men’s wear
•Zaragoza – 50% of all Women and Men’s wear
•Meco – All children’s wear
Zara – Order Cycle
• For Every season, new collections are sent to store
based on commercials.
•25000 units were sent to each store
•Replenishments was ordered by section managers
• Twice a week, Section manager receives offer in his
or her PDA.
• European stores received deliveries in 24 hours
•Asian stores received deliveries in 40 hours
Zara – Supply chain Improvements
• Consolidating Transport cost.
•100 Million Euro state of art logistics centre for
Children’s Merchandise in Madrid
• Unloading the merchandise were outsourced to
logistic providers.
• Attaching Alarm tags were shifted from Back room to
factories.
Zara – Supply chain Improvements
• Automatic replenishments of basic(10-15%) products.
• Algorithm for allocating Inventory at logistics centers
to stores.
•Commercials had the intelligence to find out if a
manager is making mistakes.
Zara – In Store Logistics
• Processing deliveries
• Managing product flow between backroom and selling
floor
• Managing display areas and fitting rooms
• Conducting physical audits.
Zara - Competitive Situation
COMPETITORS
•
American Forever 21, Swedish Hennes & Mauritz(H&M), Japanese
Uniqlo
ADVANTAGES
• Market Leader
• High cost Supply chain management with low inventory and higher
profit margins, which maximized revenues
• 18% of clothes were sold in Discount sales compared to industry
average of 36%
• Aggressive expansion strategy
ZARA OVERVIEW:
ASSESSMENT OF THE BEST
PRACTICE IN SUPPLY CHAIN
MANAGEMENT
System is designed for short production
cycles, quick response (QR) to demand,
and reduced number of markdowns
Manufacturing
ASIA
(20%)
Design
Low QR
Low Cost
INDITEX MANAGEMENT /
DESIGNERS
IN-HOUSE
(40%)
Determine apparel designs
and manufacturing
locations
High QR
High Cost
EUROPE /
N. AFRICA
(40%)
High QR
High cost
Distribution
Sale
DISTRIBUTION
CENTER
STORES
Increased shipment
frequency increases
QR
Small batch production
lowers cost of demand
uncertainty
Decentralized store
management supplements
QR
Managers determine
products to sell and return
Returns from stores either
rerouted or disposed of in local
stores near dist. center
IT SYSTEMS
Provides accurate
demand information
to determine
manufacturing
locations and
production levels
Zara’s Fast Track to Fashion
The key to the Spanish clothing
chain is efficiency – with a side
order of fashion sense.
•Spanish retailer Inditex, owner of cheap-chic clothing chain
Zara, pioneered the concept of fast fashion.
•While most of the retail industry takes months to bring new
merchandise to market, Zara is able to move from designer’s
drawing board to shop floor in as little as two weeks thanks to
its tight control over every step of the process.
Vertically Integrated
Supply Chain
Total control of the
production process
Tag Team
•In Arteixo, Spain, Zara’s 200 in-house designers work in teams
for the company’s women’s, men’s, and children’s clothing lines.
Zap It
•The design team electronically sends the patterns to Zara’s
factory across the street, where a prototype is made. The
patterns are optimized via computer so that no fabric is
wasted.
In the Bag
•Massive rolls of fabric are moved in the factory by lifting
equipment.
Press and Go
•Once the finished clothing is back at the Arteixo factory,
workers handle finishing touches, such as adding buttons
and detailing.
“Stores managers
feel like the owners
of the store”
Alarming Efficiency
•Next, labels for each country are attached. Zara used to rely
on store managers to do this once the product reached the
store.
Lonely Job
•Once tagged, the garments are sent to Zara’s nearby
distribution center via tunnel.
Short lead times
“Catching fashion
while it is hot”
Focus on
short time
response
Meet the
customer
expectation
on time
Quick Turnaround
Produce a
new style
•More than 2.6 million items move through the
in 2 – 4
distribution center each week, and most spend
weeks
little more than a few hours at the center.
Show Time
•Just two days after leaving Zara’s distribution center in Spain,
merchandise arrives in U.S. stores.
•Zara transports its merchandise to the U.S. and Asia by plane,
enabling it to arrive in 48 hours.
•Delivery time in Europe is even faster.
Example
Zara (Inditex) has delivered financially whilst achieving the most
aggressive growth of the industry
Amancio Ortega, Chairman, Inditex (Zara)
Design
“You need to have five fingers touching the factory and five touching the customer.“
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
Buy

Make
1. Close the communication loop.
Plan
Zara’s 3 guiding principles for supply chain
2. Stick to a rhythm across the entire chain.

Global sourcing
 Limited outsourcing
(simple products only)
Small production runs
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.
Move

Product launch<15
days
Fast customer
feedback
Short product life
cycle
300,000 new SKUs /
year
Collaborative planning
with POS data
Synchronised
planning framework

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,
HBR 11/04
Sell
3. Leverage your capital assets to increase supply chain flexibility.
Limited outsourcing
Real time product
tracking.
Oversized capacities
Integrated IT systems
Bi-Weekly
replenishment
Empowered sales
manager
Main Brands
Prognosis of future development
To step forward a business needs to
align each dimension
Processes
Supply Chain Optimisation
People
Integrate with Customers & Suppliers
Systems
Synchronisation of Supply with
Demand
Reliability &
Flexibility
Simplification &
Control
Performance
Measures
+
Leadership &
+
Vision
Program
Management
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
Automated Transactions & Smart Devices
Instrumented
• Use of sensors, actuators, RFID, & smart devices to automate
transactions: inventory location, shelf-level replenishment detection,
transportation locations & bottlenecks
• Supports real-time data collection & transparency from POS to
manufacturing to raw material
• Sense-and-respond demand/supply signals allow “predict and act”
Optimized Flows
Interconnected
• Multi-Tier system integration across the network. Standardized
data and processes.
• Collaborative decision making through decision support and
business intelligence – starting with the customer
• Networked risk management programs for integrated financial
controls with operational performance – monitored and measured
Networked Planning, Execution & Decision Analysis
Intelligent
• Simulation models to evaluate trade-offs of cost, time, quality,
service and carbon and other criteria
• Probability-based risk assessment & predictive analysis
• Networked planning/execution with optimized forecasts &
decision support
Prognosis of future development
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
Smart Supply
Chain
Future
External Collaboration &
Integration
Horizontal Process
Integration
Functional
Excellence
Networked
Planning,
Execution &
Decision Analysis
Intelligent
Optimized
Flows
Effectively driving
profitable growth
Balancing risk
and
performance
Interconnected
Integrated
Transactions
(ERP to ERP)
Static Supply
Chain
Flexibility &
stability
Instrumented
Automated
Transactions
(Sensors & Actuators)
Managing
complexity
Conclusion
•
•
Zara’s production system is pulled by demand
which allows a better alignment to customers’
expectations.
Zara’s vertically integrated supply chain
process is the keystone of its success since
its ensure the needed flexibility to be able to
react quickly to the market trends.