Managing Supply Chain of Zara. It defines what a supply chain is and outlines the steps that makes up the chain. It Explain the factors that affect its design and understands the processes of designing and managing the supply chain. It outline the benefits of effectively managing supply chains

1. MANAGING THE SUPPLY
CHAIN
[Zara Case Study 13: Alex Hill and Terry Hill]
Miranda Nasasara
Nathan Williams
Subhi Pradhan

2. Learning Outcome
• Define what a supply chain is and outline the
steps that make up the chain.
• Explain the factors that affect its design
• Understand the processes of designing and
managing the supply chain and
• Outline the benefits of effectively managing supply
chains

3. Presentation Outline
• Case Study Questions
• Case Study Summary
• Definition of Supply Chain
• Managing the Supply Chain
• Question 1
• Question 2
• Question 3
• Critical Reflection
• References

4. • What underpins the success
of Zara in its chosen markets?
• Outline Zara’s production and
distribution systems.
• How do Zara’s production and distribution
systems meet the needs of the market? What
features of the company’s supply chain contribute
to its success?
Case Study Questions

5. Case Study Summary
• Zara’s Production and Supply chain management.
• Zara’s Mission :
“To produce a fashion forward product for the
masses”.
• Founded 1975 by Amancio Ortega in La
Coruna,Spain.
• Flagship enterprise of Inditex (2001 IPO).

6. Contd..
• Over 724 stores in 56 countries.
• Design driven, 11,000 styles per year.
• Partial vertical integration i.e. Owned factories
and production

7. What is Supply Chain?
• A supply of a service or a product involves a
number of steps known as supply chain.
• Supply Chain Management is the integration of
key business processes from end user through
original suppliers that provides products,
services, and information that add value for
customers and other stakeholders.
- ( Lambert and Cooper, 2000)

8. Supply Chain Management
(SCM)
• Keys to effective SCM
– Information
– Communication
– Cooperation
– Trust
• One goal in SCM:
Respond to uncertainty in customer demand
without creating costly excess inventory.

9. Supply Chain for a Manufacturer of
Consumer Goods

10. Important Activities of SCM
• Integrated Behaviour
• Mutually Sharing Information
• Mutually Sharing Risks and Rewards Cooperation
• The Same Goal and the Same Focus on Serving
Customers.
• Integration of Processes
• Partners to Build and Maintain Long-Term
Relationships
- (Mentzer, et. al., 2001)

11. The Make-or-Buy Decision
• Supporting market order-winners and qualifiers
• Creating barriers to entry
• Maintaining the supply chain resources
• Understanding customer requirements.
• Retaining core capabilities

12. Q1: What underpins the success
of Zara in its chosen markets?

13. INDUSTRY OVERVIEW:
COMPETITION
Gap, Inc. H&M Benetton Zara
Production Outsourced Outsourced In-House
40% In-House
60% Outsourced
Production
Lead Times
High High High Low
Net Margins -.06% 9.6% 7.05% 10.47%

14. INDUSTRY OVERVIEW:
POSITIONING
Fashion - Fashion +
Price -
Price +

15. INDUSTRY OVERVIEW:
POSITIONING
Fashion - Fashion +
Price -
Price +
Benetton

16. INDUSTRY OVERVIEW:
POSITIONING
Fashion - Fashion +
Price -
Price +
Gap
Benetton

17. INDUSTRY OVERVIEW:
POSITIONING
Fashion - Fashion +
Price -
Price +
H&M
Gap
Benetton

18. INDUSTRY OVERVIEW:
POSITIONING
Fashion - Fashion +
Price -
Price +
ZARA
H&M
Gap
Benetton

19. a) Nature of Products
• Fashionable
• Short product life cycle
• Uncertain demand
• Relatively high margin
b) Nature of its market
• Order-winners
- Design specification
- Design exclusivity
- Delivery speed
- Delivery reliability
- Price
• Qualifiers
- Quality conformance
- Brand name

20. Is Zara successful?
• Rapid overall expansion:
a) 1975: opened an average of 20 stores
b) 2009:opened 1425 stores worldwide.
• International expansion:
a) Successfully exported its formula internationally.
b) Presence in Europe, Americas, Middle East, Asia-
Pacific and other regions.
• Profitability
a) Operating income is 18% of net sales.
b) Increased its average profitability at a 30% annual
rate.

21. International Expansion: Zara
Stores by Regions: Zara
Hill and Hill (2011)

22. What makes Zara successful?
• Vertical integrated business
• Design and production delivery speed
• Design specification
• Single global design
• New product introduction
.

23. Q2: Outline Zara’s production
and distribution systems

24. Production
a) Real time information
Head office sniff out new fashions
Store managers send ideas to H/O
determine orders they want on
new designs
Designers decide what is appealing and
come up with new designs
Factories lean production
Average of4-6 weeks for new
designs
In house manufacturing plants

25. Operating system
• Lean operations
• Production is in house except sewing
• Computerised New designs
• Cuttings using electronically controlled machine
• Fabrics sourced from global suppliers.
• Only dye fabric that is cut
• Minimise use of dye and cut costs
• Uncut and undyed fabric is held in inventory
• Sewing and Assembly by local workshops.

26. Distribution
• Store managers select the type and quantity of
products.
• Uses fabric in inventory to cut fabrics
• Small in-house units dye fabric
• Local workshops do the final sewing
• Orders of new products by stores twice a week
• Despatch from distribution within 2-3 days to
stores

27. How do Zara’s production and
distribution systems meet the
needs of the market?
What features of the company’s
supply chain contribute to its
success?

28. • Product designs being correct:
Designs based on local knowledge.
• New products being introduced:
New designs being introduced constantly.
• Management of demand uncertainty:
Less production % committed.
• New products being created swiftly:
Can be created in as little as 2 weeks.
• Current inventory being replaced rapidly:
2/3 days for stock to arrive.

29. • Low finished goods inventory:
All inventory on display in stores.
• Low fabric inventories
Minimises mark downs.

30. Critical reflection
• Increased outsourcing is creating more complex
supply networks
• Businesses are at the heart of materials networks
and information flows.
• Supply chain management in businesses are
becoming more complex.
• Suppliers and customers relationship are key
• Benefits are required.

31. Quiz Time

32. Quiz Question 1
What is the first decision while designing
the supply chain?
a) Make-or-Buy
b) The best suppliers to use
c) The management of the suppliers

33. Quiz Question 1
What is the first decision while designing
the supply chain?
a) Make-or-Buy
b) The best suppliers to use
c) The management of the suppliers

34. Quiz Question 2
• What are the benefits of making in-
house decision?
a) Increased control
b) Increased focus on core issues
c) Both

35. Quiz Question 2
• What are the benefits of making in-
house decision?
a) Increased control
b) Increased focus on core issues
c) Both

36. Quiz Question 3
• Why should an organization develop
an integrated supply chain
a) Moving from being a supply chain to a
demand chain.
b) Competing as a chain rather than as an
individual organisation
c) Both a) and b)

37. Quiz Question 3
• Why should an organization develop
an integrated supply chain
a) Moving from being a supply chain to a
demand chain.
b) Competing as a chain rather than as an
individual organisation
c) Both a) and b)

38. Does Zara experience
disadvantages from its “fast-
fashion” distribution
system? Are these
disadvantages offset by the
advantages?

39. References
• Dutta D. (2002) Retail at the speed of fashion part 1. [Online] via
www.thirdeyesight.in. [Accessed on 24th March, 2012].
• Ghemawat, P., and Nueno, J. L. (2003) "Zara: Fast Fashion," Harvard
Business School Case (9- 703-497), pp. 1-35.
• Hill, A. and Hill, T. (2011) Essential Operations Management.
London: Palgrave MacMillan.
• Lambert, D M. & Cooper M. C, (2000), “Issues in Supply Chain
Management,” Industrial Marketing Management, Vol.29, No. 1 ,pp.
65-83.
• Locke, R M., Romis M. (2007). “Improving Work Conditions in a
Global Supply Chain.” MIT Sloan Management Review, Vol. 48, No. 2
(Winter), pp. 54–62
• Mentzer, J. T., DeWitt, W., Keebler, J. S., Min, S., Nix, N. W., Smith,
C. D. and Zacharia, Z. G. (2001), DEFINING SUPPLY CHAIN
MANAGEMENT. JOURNAL OF BUSINESS LOGISTICS, 22: 1–25.

40. ANY QUESTIONS