Zara Case Analysis

Supply Chain Management

ContentContent Case Assignment Case Assignment

Zara’s Facts & Figures Zara’s Facts & Figures

Textile and Apparel Industry : Key PointsTextile and Apparel Industry : Key Points

Zara’s Supply Chain ModelZara’s Supply Chain Model

Zara’s SCM : Key PointsZara’s SCM : Key Points

Strategic challenge 1 Strategic challenge 1

Strategic challenge 2Strategic challenge 2

Solution Summary Solution Summary

The Strategic challenges faced by Zara:

After having a rapid growth in Spain, where to grow further, After having a rapid growth in Spain, where to grow further, andand

What should be its outsourcing strategy? Should it continue to What should be its outsourcing strategy? Should it continue to follow the same outsourcing strategy as discussed in the case or follow the same outsourcing strategy as discussed in the case or revisit it? revisit it?

Case Assignment :Case Assignment :

Zara’s Facts & Figures:Zara’s Facts & Figures:

Opened first Zara store in 1975 in La Coruna by Amancio Ortega GaonaOpened first Zara store in 1975 in La Coruna by Amancio Ortega Gaona

There were 82 stores by 1989 in SpainThere were 82 stores by 1989 in Spain

Zara’s Parent company is InditexZara’s Parent company is Inditex

Zara does not believe in Marketing, whereas believe on Word of mouthZara does not believe in Marketing, whereas believe on Word of mouth

Spends only 0.3% for advertisement compared to 3-4% of retain advertisementSpends only 0.3% for advertisement compared to 3-4% of retain advertisement

62% origin of Production is either in Spain or in Europe : Year 2000.62% origin of Production is either in Spain or in Europe : Year 2000.

Zara had about 450 stores in 33 countries : Year 2000Zara had about 450 stores in 33 countries : Year 2000

Textile and Apparel Industry : Key PointsTextile and Apparel Industry : Key Points

Apparel Production is strongly coupled with Fabric ProcurementApparel Production is strongly coupled with Fabric Procurement

Segmented into High, Medium and Low quality .Segmented into High, Medium and Low quality .

Low wage counties mostly dominant in Medium and Low quality segmentLow wage counties mostly dominant in Medium and Low quality segment

Outsourcing decision is based uponOutsourcing decision is based upon

Relative wage levelRelative wage level

Raw material quality and availabilityRaw material quality and availability

Political and Foreign exchange RiskPolitical and Foreign exchange Risk

Skills requirement and worker’s ProductivitySkills requirement and worker’s Productivity

Zara’s Supply chain modelZara’s Supply chain model

(Vertical Integration)(Vertical Integration)

Planning & Design :Planning & Design : Major releases for 2 seasons: Spring/Summer and Fall/winter.Major releases for 2 seasons: Spring/Summer and Fall/winter. 200 Designers on staff200 Designers on staff Produces 11000 styles each year (5 times more than comparable retailers)Produces 11000 styles each year (5 times more than comparable retailers) Use CAD System to illustrate the designUse CAD System to illustrate the design

Purchasing (Procurement):Purchasing (Procurement): Fabric procurement and production planning starts after approval of initial Fabric procurement and production planning starts after approval of initial

collectioncollection About 50% of garment production is sourced to third partiesAbout 50% of garment production is sourced to third parties 60% outsourcing to European firms, 30% to Asian firms and 10% rest of the 60% outsourcing to European firms, 30% to Asian firms and 10% rest of the

worldworld Inditex owned 21 Zara factoriesInditex owned 21 Zara factories

Zara’s SCM : Key PointsZara’s SCM : Key Points

Production:Production: Fabric cutting is highly automated and employed high skilled people for layout Fabric cutting is highly automated and employed high skilled people for layout

optimization and waste reductionoptimization and waste reduction 50-60% Production in advance of the season50-60% Production in advance of the season Sufficient In-house capability is available Sufficient In-house capability is available

Distribution:Distribution: Centralized distribution center at Arteixo, which was utilized up to 50% of its Centralized distribution center at Arteixo, which was utilized up to 50% of its

capacity: by 2001 end.capacity: by 2001 end. Practice of Automation and Bra-code ReadingPractice of Automation and Bra-code Reading Shipments were made twice a weekShipments were made twice a week No central InventoryNo central Inventory Almost no Inventory at the storesAlmost no Inventory at the stores

Retailing:Retailing: Central allocation of inventory for retail storesCentral allocation of inventory for retail stores No advertisementNo advertisement

Zara’s SCM : Key PointsZara’s SCM : Key Points

Zara should invest in developing countries like India, China etc where Zara should invest in developing countries like India, China etc where large Population and changing socio economic condition will provide them large Population and changing socio economic condition will provide them potential market.potential market.

USA : Concentrate more on consumer behavior rather only on Fashion.USA : Concentrate more on consumer behavior rather only on Fashion.

Middle East: by 2000, they don’t have a single company owned store.Middle East: by 2000, they don’t have a single company owned store.

Strategic challenge 1: After having a rapid growth in Strategic challenge 1: After having a rapid growth in Spain, where to grow further?Spain, where to grow further?

Need to change the current outsourcing strategy.Need to change the current outsourcing strategy.

They should outsource Low and Medium quality segment items from low They should outsource Low and Medium quality segment items from low wage countries.wage countries.

Currently, sewing is subcontracted to smaller firms based out of Portugal, Currently, sewing is subcontracted to smaller firms based out of Portugal, where wages per hour is relatively higher than India and China.where wages per hour is relatively higher than India and China.

To minimize the Risk of Outsourcing, first they need to enter into new To minimize the Risk of Outsourcing, first they need to enter into new market with Partnership model or sub-contracting model.market with Partnership model or sub-contracting model.

Strategic challenge 2: What should be it’s outsourcing Strategic challenge 2: What should be it’s outsourcing strategy. Should it continue to follow the same strategy or strategy. Should it continue to follow the same strategy or revisit it?revisit it?

Zara might not be able to continue for a very long time with the current

Supply Chain.

It’s Manufacturing Plants needs to be shifted to low labor countries or

needs to be outsourced Low or Medium segment Items.

Zara need to concentrate on the Potential Market, e.g. Developing

countries like China, India etc.

They need to focus more on Consumer Behavior rather concentrating

only on Fashion.

Solution Summary:Solution Summary: