1. BEST PRACTICES IN SUPPLY CHAIN MANAGEMENT AT ZARA
BY SIYU LIU, ALFONSO IZQUIERDO AND POORANAN MURUGESAN

2. 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

3. HISTORIC DEVELOPMENT OF THE THREE COMPANIES
FACTS AND FIGURES

4. BENETTON COMPANY OVERVIEW
Founder
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
(2011)
9,557
(2011)
2.032 Billion Euro

5. BENETTON
HISTORIC DEVELOPMENT

6. BENETTON
HISTORIC DEVELOPMENT

7. BENETTON
DUAL SUPPLY CHAIN SYSTEM

8. HENNES & MAURITZ 25 Countries Founder Erling Persson Founded Products
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
(2010)
59,440
(2010)
14.24 Billion Euro

9. H&M
HISTORIC DEVELOPMENT

10. H&M
HISTORIC DEVELOPMENT

11. information on sales and stock
H&M
SUPPLY CHAIN SYSTEM
information on sales and stock
status

12. Clothing, Accessories, Shoes, Bags
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
(2012)
69,240
(2012)
Billion Euro

13. ZARA
HISTORIC DEVELOPMENT

14. ZARA
HISTORIC DEVELOPMENT
Reduce transportation cost

15. CURRENT STATE OF SUPPLY CHAIN MANAGEMENT ORGANIZATION OF ZARA

16. SUPPLY CHAIN MANAGEMENT ORGANIZATION

17. SUPPLY CHAIN MANAGEMENT ORGANIZATION
ZARA
Other Retailers

18. Zara- Supply Chain Management

19. 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 different items.

20. Zara- Product Lines
Women
Woman
Basic
TRF
Children
Men
At each Store, each product line has a Section Manager, sales people and Cashiers.

21. Zara- Supply Chain Management
Commercials
Direccion de Tiendas
Store Managers

22. 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

23. 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

24. 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

25. 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.

26. 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.

27. Zara – In Store Logistics
Processing deliveries
Managing product flow between backroom and selling floor
Managing display areas and fitting rooms
Conducting physical audits.

28. 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

29. 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%)
Low QR Low Cost
Design
Distribution
Sale
DISTRIBUTION CENTER Increased shipment frequency increases QR
Small batch production lowers cost of demand uncertainty
STORES Decentralized store management supplements QR
Managers determine products to sell and return
INDITEX MANAGEMENT / DESIGNERS Determine apparel designs and manufacturing locations
IN-HOUSE (40%)
High QR High Cost
EUROPE / N. AFRICA (40%)
High QR High cost
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

31. Zara’s Fast Track to Fashion
The key to the Spanish clothing chain is efficiency – with a side order of fashion sense.
Instead of setting the trends, Zara follows them. It relies on a combination of fashion reconnaissance -- spotting trends everywhere from the street to movies to couture fashion shows -- and information from its customers to keep its merchandise fresh.
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.

32. Vertically Integrated Supply Chain
Total control of the production process
From their perch in the massive 11,000 sq.-ft. hall, they work with Zara’s “commercials” (Zara’s term for the folks who act as liaisons among the chain’s 2,800 global store managers, designers, and production planners). The designers sketch out new styles and determine which fabrics offer the best combination of fashion and price.
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.

33. 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.

34. The fabric is rolled out on a large table and covered tightly in plastic before a laser-guided machine cuts it according to the pattern. The fabric is then bagged and distributed to local sewing cooperatives, which return the finished garments to the factory within a week.
In the Bag
Massive rolls of fabric are moved in the factory by lifting equipment.

35. Each garment is checked for quality
Each garment is checked for quality. Those that do not pass the test are cast aside. Once the checks are complete, the garments are individually pressed.
Press and Go
Once the finished clothing is back at the Arteixo factory, workers handle finishing touches, such as adding buttons and detailing.

36. “Stores managers feel like the owners of the store”
But management realized labeling all garments and applying security alarms at the factory saved both time and money. The less time management spends on tasks such as tagging merchandise, the more time it can spend selling.
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.

37. At the massive 500,000 sq.-ft. center, all merchandise is allocated first by country, then by individual store using a moving carousel of hanging rails. Although more than 60,000 items move in and out of the center each hour, only a handful of workers are needed to monitor the process.
Lonely Job
Once tagged, the garments are sent to Zara’s nearby distribution center via tunnel.

38. “Catching fashion while it is hot”
Short lead times
“Catching fashion while it is hot”
Focus on short time response
Meet the customer expectation on time
Using electronic bar codes, each shop’s orders are carefully placed onto the appropriate moving rail, ensuring each store gets exactly the right twice-weekly shipment.
Quick Turnaround
More than 2.6 million items move through the distribution center each week, and most spend little more than a few hours at the center.
Produce a new style in 2 – 4 weeks

39. Garments are trucked from the distribution center to stores within a day. Instead of advertising, Zara lets its elegant, spacious stores in the world’s ritziest shopping locations do the talking.
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.

40. Example

41. Zara (Inditex) has delivered financially whilst achieving the most aggressive growth of the industry
“You need to have five fingers touching the factory and five touching the customer.“
Amancio Ortega, Chairman, Inditex (Zara)
Product launch<15 days
Fast customer feedback
Short product life cycle
300,000 new SKUs / year
Collaborative planning with POS data
Synchronised planning framework
Global sourcing
Limited outsourcing (simple products only)
Small production runs
Limited outsourcing
Real time product tracking.
Oversized capacities
Integrated IT systems
Bi-Weekly replenishment
Empowered sales manager
Design
Zara’s 3 guiding principles for supply chain
Close the communication loop.
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
Stick to a rhythm across the entire chain.
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.
Leverage your capital assets to increase supply chain flexibility.
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.
Plan
Buy
Make
Move
Sell
Source: Kasra Ferdows; Michael A. Lewis; Jose A.D. Machuca,
HBR 11/04

42. Main Brands

44. Prognosis of future development
To step forward a business needs to align each dimension
Processes
Supply Chain Optimisation
Integrate with Customers & Suppliers
People
Systems
Virtual Supply Chain
Synchronisation of Supply with Demand
Advanced Decision Support
Inter-business Working
External Collaboration
Reliability & Flexibility
Cross-functional working
Internal Communications
Functional Working
Transaction Processing
Simplification & Control
Skills & disciplines
Data Accuracy
Performance Measures
Leadership & Vision
Program Management + +
Establishing the starting point focuses the action plans

45. Prognosis of future development
The Supply Chain of the Future must be SMARTER...It will be Instrumented, Interconnected & Intelligent
Automated Transactions & Smart Devices
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”
Instrumented
Optimized Flows
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
Interconnected
Networked Planning, Execution & Decision Analysis
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
Intelligent

46. 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
Networked
Planning,
Flexibility & stability
Execution &
Decision Analysis
Intelligent
Effectively driving profitable growth
Horizontal Process Integration
Optimized
Flows
Balancing risk and performance
Interconnected
Functional Excellence
Integrated
Static Supply Chain
Transactions
(ERP to ERP)
Instrumented
Managing complexity
Automated
Transactions
(Sensors & Actuators)

47. 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.