Kevin Chan n9216120QUT  Gary Mortimer

Case Study

“Rapid Fire Fulfilment”

Assessment 3Word Count: 1070

Executive summary

This case study aims to examine the logistics of Zara as a fast fashion chain and

their owners Inditex as a whole. Being one of the most successful retailers in the

world, their procurement strategies, production cycle and global distribution is

explained throughout. The study shows that the company has a unique vertical

integrated system in place which makes the flow of production faster through short

lead times and high flexibility for adjustments. The successful implementation of

Zaras’ supply chain management means that fewer garments are sold at reduced

prices, leading to maximized profits because of the exclusivity of the small frequent

batches. However, being one of the largest players in the fast fashion market, Zara

must consider to continue strengthening its channels. Especially in avoiding “chain

liability” which seems to be one of the company’s largest criticisms for providing poor

labor resources. All in all, Zara still has areas to improve within the supply chain,

long term sustainable growth for the future will rely on positive social innovation.

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Table of Contents

1.0 Introduction ......................................................................................................................4

2.0 Supply Chain Management ..............................................................................................5

2.1 Procurement Strategy.......................................................................................................5

2.2 Production Cycle................................................................................................................6

2.3 Global Distribution............................................................................................................7

3.0 Summary............................................................................................................................8

4.0 Reference List....................................................................................................................9

5.0 Appendices...................................................................................................................... 12

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1.0 Introduction Zara is internationally known for its cutting edge in-trend apparel, with a staggering

sales network across 88 countries. The Spanish label is run by the biggest fashion

group in the world Inditex, who has played a large part in the enhancement of the

apparel industry in recent years (Cortez, Ng, Tu, Van Anh, Vegafria, 2014). Being

the powerhouse of fast fashion, the company requires solid structuring in its logistics

channels. Through displaying a responsive yet flexible design, production and

distribution processes allow Zara to capitalize on demand trends as they are

detected (Gallien, Garro, Martín, Mersereau, 2015). This paper aims to outline the

differentiation in Zaras’ logistic channels that makes the firm successful. This will be

done by specifically taking a look into procurement, production and distribution

channels, before summarizing how the firm will be able to maximize resource usage

for the future.

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2.0 Supply Chain Management 2.1 Procurement StrategyZara broke the traditional two campaign paradigm commonly used in the clothing

industry which was Spring-Summer and Fall-Winter collections, they developed a

super responsive and quick supply chain also known in the industry as ‘Pronto Moda’

or ‘Rapid-Fire Fulfilment’ (Errasti, Martinez, Rudberg, 2015). Causing many retailers

to also rethink their supply chain strategy. Procurement is the initial phase of

success for Zaras’ supply chain, through small yet frequent batches right in the

middle of the season, the company is able to deliver the latest consumer trends in

fashion (Sardar, Young, 2015). Although there is a loss in economies of scale, this

strategy is able to lead directly to reduced overstock. Furthermore, to accommodate

these fast fashion product complexities raw materials are purchased from low cost

countries from all around the world such as Turkey and Mexico, or far east Asia as a

trade-off. Purchasing materials for large initial shipments reduces lost sales in the

critical first days of the product life cycle, and by maintaining stock at the warehouse

allows restocking flexibility once initial sales are observed (Gallien, et al., 2015).

Inditex aims to continue in operating in its large number of stores worldwide, so that

through the information infrastructure they can connect consumer demand through

the upstream of design, aiding procurement decisions (Moreno, Carrasco, 2015).

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2.2 Production Cycle Zara produces each particular design only once; its production concept and designs

have to be flexible so that it can switch from producing one product to the next

without incurring significant set-up time or set-up costs, this can also be referred to

as a job shop process (Fan, Lopez, 2009). The company therefore displays a lean

and agile production system through a vertical integrated design. Zaras’ logistic

channels emphasize on delivery and sales, low inventory, quick response policies

and advanced information technology which enable a flexible structure to adapt to

customer's changing demands (Robinson, 2015). Zara breaks the fashion supply

chain rules by holding low stock and updating its collections continuously.

Furthermore, product categories are manufactured locally through medium-cost

countries, where an office would be located close to the production site; Zaras designers, textile manufacturers and laborers are all combined at one location

(Errasti, et al., 2014). Having closer network relations within the companies own

supply chain enables collaboration between different departments. Therefore, lead

times are shortened whilst offering a wide range of quality products to the market.

Results show that 85 per cent of stock achieves to sell at full ticket price, against an

industry norm of around 60-70 per cent (Strategic Direction, 2015). With vertical

integration, combined with the balance of using both low-cost procurement and

medium-cost manufacturing allows higher flexible adjustments closer to the market

with shorter replenishment times, therefore reducing the bullwhip effect (Jiang, Lin,

Lui, Wang, 2013).

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2.3 Global Distribution

Zara has developed a long term competitive advantage through a unique distribution

channel with vertically integrated sell points and stores, possessing a tightly

coordinated supply chain (Filieri, 2014). As seen in appendix A, the company is able

to distribute new products into shop floors within 10-15 days from the initial designing

process (Moreno, Carrasco, 2015). To distribute at such incredible speed Fan &

Lopez (2009) states that it requires rapid feedback about what customers actually

buy, Inditex owns all their shops and uses a unified information system to track

global sales to allow this information to be processed, they are also able to locate

manufacturing for fashion lines closer to the market. As mentioned in section 2.1, to

avoid excess inventory only a small number of items of each garment is distributed.

Implying that new designs will not be available for long, this cycle often creates an

attitude of “buy now” within stores that encourage customers to come back more

often (Moreno, Carrasco, 2015). Evidently, Google search trends have also shown

that Zara hold more searches than main competitors H&M and GAP respectively

(See appendix B).

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3.0 Summary With 2015 sales and profits both up by 15% over 2014, these figures show that

Inditexs’ Zara convention is going towards the right strategic direction (O’Marah,

2016). Using a vertically integrated system allows the company ability to cut out

costs of outsourcing to third parties, whilst improving organisational efficiency. Zara

was designed from day-one to be responsive and agile. Rather than outsourcing

completely to Asia, Zara uses a network of automated factories in Spain and over

300 small finishing factories across the world to constantly create unfinished

products. Dr. Warren Hausman of Stanford University says that this innovative way

of working allows Zara to reduce unwanted markdowns and lost sales (Denning,

2015).

However, for further maximization of sustainable growth the company must consider

strengthening its logistics approach. Especially in avoiding “chain liability” which

seems to have caught the media’s attention in recent years (Hartmann, Moeller,

2014). According to Catalan (2014), Zaras’ factories in South America, with the likes

of Brazil and Chile, have been associated with abuse of labor resources. These

actions do not support Zaras’ corporate social image nor does it align with modern

day supply chain practices. Additionally, Zara was also blamed for toxic chemicals

usage to dye apparel (Hartmann, Moeller, 2014). These irresponsible acts represent

unsustainable behavior as they lead to severe negative consequences for the

environment and local inhabitants. By minimizing these actions from the supply

chain, this will not only reduce bottle necks but add to the long term success as

social innovation continues to prove of great importance in society and businesses to

improving economic growth (Dohndt, Korver, Oeij, 2011).

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4.0 Reference List

Catalan, B. (2014, April 10). The exploitation of Zara workers in Chile. Retrieved

October 25, 2016, from https://www.equaltimes.org/the-exploitation-of-zara-

workers-in-chile?lang=en#.WBH5kbflh-V

Cortez, M. A., Tu, N. T., Van Anh, D., Ng, B. Z., & Vegafria, E. (2014). FAST

FASHION QUADRANGLE: AN ANALYSIS. Academy of Marketing Studies

Journal, 18(1), 1-18. Retrieved from http://gateway.library.qut.edu.au/login?

url=http://search.proquest.com.ezp01.library.qut.edu.au/docview/

1645849518?accountid=13380

Denning, S. (2015, March 13). Forbes. Retrieved October 27, 2016, from

http://www.forbes.com/sites/stevedenning/2015/03/13/how-agile-and-zara-

are-transforming-the-us-fashion-industry/

Errasti, A., Martinez, S., & Rudberg, M. (2015). Adapting Zara’s ‘Pronto Moda’ to a

value brand retailer. Production Planning and Control, 26, 723-737.

http://dx.doi.org.ezp01.library.qut.edu.au/10.1080/09537287.2014.971526

Filieri, R. (2014). From market-driving to market-driven. Marketing Intelligence &

Planning, 33(3), 238-257. doi:10.1108/mip-02-2014-0037

Gallien, J., Garro, A., Mora, A. D., Vidal, M. N., & Mersereau, A. (2015, February 20).

Initial Shipment Decisions for New Products at Zara. Operations Research,

63(2), 269-283. doi:10.2139/ssrn.2378859

Google trends. (2016). Compare Trends. Retrieved October 27, 2016, from

https://www.google.com.au/trends/explore?q=Gap,Zara,H&M

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Hartmann, J., & Moeller, S. (2014). Chain liability in multitier supply chains?

Responsibility attributions for unsustainable supplier behavior. Journal of

Operations Management, 32(5), 281-294. doi:10.1016/j.jom.2014.01.005

Jiang, Z., Lin, W., Liu, R., & Wang, L. (2014). The bullwhip effect in hybrid supply

chain. International Journal of Production Research, 52(1), 2062-2084.

http://dx.doi.org.ezp01.library.qut.edu.au/10.1080/00207543.2013.849013

Lopez, C., & Fan, Y. (2009). Internationalisation of the Spanish fashion brand Zara.

Journal of Fashion Marketing and Management: An International Journal,

13(2), 279-296.

http://dx.doi.org.ezp01.library.qut.edu.au/10.1108/13612020910957770

Moreno, J. D., & Carrasco, O. R. (2015). Efficiency, internationalization and market

positioning in textiles fast fashion. International Journal of Retail & Distribution

Management, 44(4), 397-425. doi:10.1108/ijrdm-04-2015-0064

Dhondt, S., Oeij, P., & Korver, T. (2011). Workplace innovation, social innovation,

and social quality. The International Journal of Social Quality, 1(2), 31-49. doi:

10.3167/IJSQ.2011.010204

O'Marah, K. (2016). Zara Uses Supply Chain To Win Again. Retrieved October 27,

2016, from http://www.forbes.com/sites/kevinomarah/2016/03/09/zara-uses-

supply-chain-to-win-again/

Robinson, N. (2015). How Zara used Lean to Become the Largest Fashion Retailer.

Retrieved October 25, 2016, from

https://theleadershipnetwork.com/article/lean-manufacturing/zara-lean-

fashion-retail

Sardar, S., & Young, H. L. (2015). Analysis of product complexity considering

disruption cost in fast fashion supply chain. Mathematical Problems in

Engineering,

doi:http://dx.doi.org.ezp01.library.qut.edu.au/10.1155/2015/670831

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Strategic Direction. (2015). Fast fashion goes global: Benetton’s changing strategy.

Strategic Direction, 31(11), 17-20. Retrieved from

http://www.emeraldinsight.com.ezp01.library.qut.edu.au/doi/full/10.1108/SD-

09-2015-0131

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5.0 Appendices

Appendix A: The typical distribution timeline of a Zara articleSourced from: Gallien, et al., 2015.

Appendix B: Google search trends for Zara, GAP and H&M from 2011-2016Sourced from: Google Trends, 2016.

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