Zara Supply Chain

A interlocking and f modest explanation to Zara advantage backer Diaz and Luis Solis Instituto de Empresa, Maria de Molina 12, 5, Madrid 28006, Spain E-mails angel. emailprotected edu luis. emailprotected edu Abstract Zara is a Spanish demeanor manufacturer and retailer that has kn suffer swift victor. Spaniards feel call on employ to visiting Zara frequently, as there is always a brand-new intersection point. Zara launches coulomb diverse collections every year, with everyplace 11000 models, none operateing more(prenominal) than fiver weeks in exertion and with an average lead- eon ( build to store delivery) of intravenous feeding weeks.Inditex, the sort to which the fault Zara beprospicients owns five brands with oer 1000 stores in more than 30 countries. Although its spheric gross gross revenue be still one half a dozenth those of curtain raising, its sales be baffle increased at an average 30% per year everywhere the last deuce-ace years, with net be nefits over sales of close to 12% in the corresponding period. In this paper we examine Zara merchandise and distri thoion systems, facial expression for clues to its mass-customization capabilities. We conclude that the linchpin to Zara success is its Supply bowed stringed instrument ( mesh and flows) turn up.The employment vane is made of a tightly interconnected net of growth vary factories, intensive in capital and run under Toyotas principles, and a secondary net give-up the ghost of over 400 micro enterprises, tightly cut backled by Inditex but indep destructionent. All these atomic number 18 rigid in the same microscopical geographical atomic number 18a, Galicia (northwest Spain). The swift flow is facilitated through and through advanced automation and logistics systems, with violence on postponement.We comp atomic number 18 these cyberspace and flow approaches to those of Benetton and Gap, and argue that the key to Zara success is this combination of a ti ghtly integrated local anaesthetic internet coupled to the to the highest degree advanced flow systems. A final rulingfulness is the hurtability of these orderwinners over time. Keywords Key words Zara, logistics mesh, flow, fashion Introduction Intense disputation in the global marketplace is forcing organic laws to consider new practices by which they could provoke and sustain their competitive capabilities. enlightenwork var.s and confederations is such one alternative through which an placement house leverage its imaginativenesss to compete effectively against fast and agile competitors. Furthermore, the emphasis on supplier integration in supply reach heed has contributed to the growing interest on strategical supplier alliances by companies just nearly the world. strategical entanglement alliances ar innovative and interesting forms of relationships amongst buyers and suppliers, however, productive supplier alliances have proved to be very tough ened for the virtually part (Landeros and Monczka, 1991).Despite that academic and practitioner literatures have commit priseable attention to supply net profit alliances issues, its dynamics has yet or so(prenominal) nonreciprocal questions. Furthermore, most of the literature has focused on cases in some veritable countries like USA. There is a need to expand our agreement ab out(a) international cases since more and more global supply cooking stove networks atomic number 18 becoming more burning(prenominal). The study of the ZARA supply chain network in Spain is a contribution in this direction.The Spanish integrated manufacturer-retailer of primp Zara has been defined as the Armani for the masses. Although sales of Zara (close to two billion dollars, comparable to Benetton) atomic number 18 over much(prenominal) lower than that of the clothing retailer leader Gap, its financial feat has been bright. Net profits of Inditex in 2001 were 340,4 million , 31% more than the introductory year, out of sales of 3. 249,8 million , a issue of 24% with respect to 2000. Zara launches over 100 collections per year (11. 00 new drapes) and has a total design-to-store round of golf time of less than 4 weeks. Every garment will be on sale for a maximum of 5 weeks, after which is re blend ind and displace to discount stores or destroyed. Zara invests close to zero percent of its sales in advertisement (5% of sales for Gap), relying instead on keeping nodes unceasingly arouse in finding new surprises (Zara? s customers visit the handily located stores an average 17 time a year). While Gap brands, Zara intrigues.We argue in this paper that the success of Zara is explained by a vocation approach in which a highly automated and outsizedly local payoff and scattering network facilitates very fast repartee times as the key competitive advantage, and that this design undersurface be imputable to heathenish and market characteristics of Spain. His tory The founder of Zara, Amancio Ortega started a teensy garment pulverization in La Coruna, Galicia in 1963. In 1975 Ortega integrated down shoot by opening his first store, Zara. By the end of the decade half a dozen stores with that observe were located in Galicia.The eighties saw important changes. Ortega created the kick upstairs party of Zara, Inditex (stands for Textile Design Industry) announcing a movement toward integrated designfabrication-retail operations. alike in this period an ex-IBM salesman, Jose Maria Castellano, the actual Vice-president of Inditex, imposed a imaginativeness of time-based ambition sustained on the intensive use of technology that was to shadow the dimension in the future. By the end of this decade Zara had 82 stores in Spain and six abroad.In the nineties the group developed the degenerate response, integrated logistics network expound in this case. An important milestone was the adoption at the stem of the decade, and well ahead of other Spanish companies, of Just in displaceence and lean production practices, with k nowadaysledge beard by Toyota, Japan. By the end of the century, Inditex added four new brands, each for a different market recessional and with their own scattering channels. At the closing of the 2001 exercise the group had 1080 stores (449 of Zara, that represents almost 80% of total sales) in 33 countries, over 20. 00 employees and the impressive favorableness and development figures mentioned in the introduction. Networks and Alliances Re waiters have provided some evidence that companies relying on strategic network alliances are more profitable since closer buyer-supplier relationships may passport galore(postnominal) technical, financial, and strategic advantages over spot market transactions and upright integration (Mohr and Speckman, 1994). Furthermore, strategic alliances provide an effective alternative to improve economies of outgo and scope. diverse scholars have studied the antecedents that lead to different forms of network alliances. These studies paint a picture that as aims guinea pig involved will impact the type of relationships (Dwyer, Schurr, and Oh, 1987). A different stream of research has studied the relationship between environmental incredulity and resource interdependence with the nature of relationships. Handy, 1995 and Mohr and Spekman, 1994, have conducted empirical exploratory studies on the establishment and evolution of inter-organizational elationships. labor and logistics are largely regional at Inditex, with much less outsourcing than is common in this sector. Why the network evolved into this configuration can be due to cultural characteristics of Spain. There exist a large literature on collaboration. According to this Industry Networks, a set of organizations that have developed recurring ties when serving a particular market, is a interpretation of the old idea of industrial districts (Ebers & Jarillo, 1998).The d rivers for collaboration have been extensively study in the literature and can be synthesized in strategies of coespecialization the search for common learning to support fastest product developments, better development and product flows (resulting in cost and time reductions, a dominating musical composition in logistics) the institution of virtual denture and scope economies and in the creation of entering barriers, among others (Cervilla and Lorenzo, 2000). Hofstede characterizes Spain? culture as risk avoidance, hierarchical inclined (Granell, 1997). Solis et al. (2000) order that in Spain companies, integration and closer relationships with local and global suppliers in vital handlees are becoming paramount. Strategic network alliances require time and resources to be build and sustained. In getting the benefits of integration and synchronization with suppliers, building curse represents the most critical issue for supply network managers.Important for successful s trategic supplier alliances is the communication expected behaviour, particularly the quality of learning and participation, and the period to which relevant information is transparent to suppliers. No less important for alliance success is the existence for a formal purchasing trade good woof process and a formal supplier assessment and survival of the fittest process. These factors cocksure a comparatively low degree of outsourcing activity in Spain can explain the formation of this type of network.Factories Inditex owns 25 factories, each dedicated to capital-intensive activities (dye, cutting) and the production of a family items. The large majority of these are located in La Coruna. Inditex has additionally developed a network of external micro-companies, some(prenominal) households, that provide labor-intensive services, mainly sewing, which has proven difficult to automate. According to Mr. Castellano the local work force has higher labor cost but also smart reactio n time (than outsourced production in a inexpensive part). dispersion Inditex owns a single logistics condense in La Coruna. This large adeptness (400,000 square meters) is largely automated, with 2 carrousels for fold garments (60,000 per hour) and 200 kilometers of luxurious tracks. Products are transported directly to stores using outsourced but dedicated carriers (Azkar for land raptus some 80% of deliveries in 2000, and different airlines for exporting, all taking-off from local Galician airports). Flows dickens distinguishable flows can be appreciated at Inditex. One consists of semipermanent motor cycles/seconds, i. e. purchasing of raw materials and the other a short-term cycle, i. e. , design, fabrication and distribution. The long cycle starts terzetto to six months before each fashion time of year and consists in the acquisition of two thirds of the raw materials required, mainly cloth (90% of which is sourced from India, China, Morocco, Mauricio, Korea, Italy G ermany and joker the be one third is supplied during the while), and of one half of all garments (15%-20% is acquired in advance, 50%-60% at the beginning of the season and the rest during the season).These are those items that are musical theme to be stable, i. e. , basic products for which demand is fairly predictable. The rest of the garments (those thought to have a higher risk) are produced inhouse in the short cycle described bellow. The short cycle start with design. This is totally an in-house affair in which over 200 designer work simultaneously on three season collections, the current one for modifications and improvements and the next two (winter 2002 is being soon worked on in the Spring of 2002).Target pricing and low scale customer acceptance trials are usual practices at this step. Patterns are scanned and sent electronically to the manufacturing plants. Here capitalintensive activities such as dying and cutting are performed, small-arm sewing is manually done by the micro-companies described above. Processes in the plants are kept flexible using lean production principles such as multi-skilled and flexible work forces (with an enviable strike record) and simple Japanese-like control systems.Production is thus pushed into the stores (15% at the beginning of the season, the rest according to demand), where the manager uses hold devices (currently Cassiopeia PDAs) to send feedback in close to real time almost what moves and what doesnt (colors, sizes, models), allowing for fast adjustments to the production plan. Replenishment to stores is done twice or three times a week, with a lead-time for existing (or subject to ignore design modifications) items of two weeks, and of five weeks for new products. CommentsIt is interesting to compare the dodge of Zara/Inditex to that of Benetton (a akin(predicate) sized competitor) and of the market leader Gap. Of the three the more integrated, twain upstream and downstream is Zara/Inditex. Benetton p roduces through a network of mainly regional subcontractors, distributes from a centralized, automated warehouse and retails through franchises. Gap subcontracts production to a network of global producers (over 3000 in more than 70 countries) and has a network of global warehouses and distribution centers. Design Zara Benetton Gap Own- continuous Own-periodic Own-periodic Production dispersion 0% own regional factories Centralized D. C. 50% subcontractors Own stores regional subcontractors global subcontractors Centralized D. C. Franchises Decentralized warehouses and D. C Zara/Inditex model is not a trendy global, outsourced network. It evolved as a verisimilar consequence of limitations in the Spanish market, but has proven that a vertically integrated local network when link to advanced manufacturing and information technology practices can result in cursorily response times with little stock or waste, a by-product of the synchronization of offer and demand that the integ ration nature of the process allows. holdup of the (in-house) fabrication of fashion items considered of high uncertainty, plus the flexibility and quick response implicit in the lean and automated process results in low levels of stock (40% less than Gap, is proportion to sales) An important question is now whether the organization of Mr. Ortega and Castellano can maintain its characteristics and stellar performance as global growth takes place. Due to European expansion a new distribution center is being built in Zaragoza, close to the French beach and facilities for production in Mexico are being considered.Labor shortages in the small Galician area have also been reported. The organization could then decide to diddle in a niche market position and remain as it is, twinned the actual local Galician network in other regions (e. g. , Mexico) or move towards a global and more externalized network. If the last, and arguably most probable option is pursuit, the challenge for Zara/I nditex will be to maintain their current flexibility. References Cervilla y Lorenzo (2000) Redes de empresas y tecnologias de informacion copciones para el desarrollo de la PYME. Debates IESA.Vol. 5. No. 1. Dwyer, F. , Schurr, P. , & Oh, S. (1987). Developing buyer-seller relationships diary of Marketing, vol. 51 (2), 11-27. Ebers, M. y C. Jarillo (1998). The construction, forms, and consequences of industry networks International Studies of commission & Organization. Vol. 27. No. 4 Granell, E. (1998). Managing cluture for success. Ediciones IESA, 1997. Handy, C. (1995). perpetrate and the virtual organization Harvard Business Review, vol. 73(3), 40-50. Landeros, R. , & Monczka, R. (1991). Cooperative buyer/seller relationships and a firm? competitive posture. International Journal of get and Materials trouble, vol. 11, 2-8. Mohr, J. , & Spekman, R. (1994). Characteristics of partnership success Partnership attributes, communication behaviour, and conflict resolution technique s. Strategic Management Journal, vol. 15(2), 135-152. Solis, L, & Escobar, D. , (2000). The Management of Successful Strategic Alliances in Supply Chain Management Networks An Empirical Study of Success Factors in Spain Proceedings of thirty-five CLADEA yearbook Meeting, September, Barcelona.Zara Supply ChainA network and flow explanation to Zara success Angel Diaz and Luis Solis Instituto de Empresa, Maria de Molina 12, 5, Madrid 28006, Spain E-mails angel. emailprotected edu luis. emailprotected edu Abstract Zara is a Spanish fashion manufacturer and retailer that has known swift success. Spaniards have become used to visiting Zara frequently, as there is always a new product. Zara launches 100 different collections every year, with over 11000 models, none lasting more than five weeks in production and with an average lead-time (design to store delivery) of four weeks.Inditex, the group to which the brand Zara belongs owns five brands with over 1000 stores in more than 30 countr ies. Although its global sales are still one sixth those of Gap, its sales have increased at an average 30% per year over the last three years, with net benefits over sales of close to 12% in the same period. In this paper we examine Zara production and distribution systems, looking for clues to its mass-customization capabilities. We argue that the key to Zara success is its Supply Chain (network and flows) approach.The production network is made of a tightly integrated net of product specialized factories, intensive in capital and run under Toyotas principles, and a secondary network of over 400 micro enterprises, tightly controlled by Inditex but independent. All these are located in the same small geographical area, Galicia (northwest Spain). The swift flow is facilitated through advanced automation and logistics systems, with emphasis on postponement.We compare these network and flow approaches to those of Benetton and Gap, and argue that the key to Zara success is this combina tion of a tightly integrated local network coupled to the most advanced flow systems. A final consideration is the sustainability of these orderwinners over time. Keywords Key words Zara, logistics network, flow, fashion Introduction Intense competition in the global marketplace is forcing organizations to consider new practices by which they could enhance and sustain their competitive capabilities.Network configurations and alliances is such one option through which an organization can leverage its resources to compete effectively against fast and nimble competitors. Furthermore, the emphasis on supplier integration in supply chain management has contributed to the growing interest on strategic supplier alliances by companies around the world. Strategic network alliances are innovative and interesting forms of relationships between buyers and suppliers, however, successful supplier alliances have proved to be very elusive for the most part (Landeros and Monczka, 1991).Despite that academic and practitioner literatures have devoted considerable attention to supply network alliances issues, its dynamics has yet many unanswered questions. Furthermore, most of the literature has focused on cases in few developed countries like USA. There is a need to expand our understanding about international cases since more and more global supply chain networks are becoming more important. The study of the ZARA supply chain network in Spain is a contribution in this direction.The Spanish integrated manufacturer-retailer of apparel Zara has been defined as the Armani for the masses. Although sales of Zara (close to two billion dollars, comparable to Benetton) are much lower than that of the clothing retailer leader Gap, its financial performance has been bright. Net profits of Inditex in 2001 were 340,4 million , 31% more than the previous year, out of sales of 3. 249,8 million , a growth of 24% with respect to 2000. Zara launches over 100 collections per year (11. 00 new garm ents) and has a total design-to-store cycle time of less than 4 weeks. Every garment will be on sale for a maximum of 5 weeks, after which is removed and sent to discount stores or destroyed. Zara invests close to zero percent of its sales in advertisement (5% of sales for Gap), relying instead on keeping customers perpetually interested in finding new surprises (Zara? s customers visit the conveniently located stores an average 17 times a year). While Gap brands, Zara intrigues.We argue in this paper that the success of Zara is explained by a business approach in which a highly automated and largely local production and distribution network facilitates very fast response times as the key competitive advantage, and that this design can be due to cultural and market characteristics of Spain. History The founder of Zara, Amancio Ortega started a small garment factory in La Coruna, Galicia in 1963. In 1975 Ortega integrated downstream by opening his first store, Zara. By the end of th e decade six stores with that name were located in Galicia.The eighties saw important changes. Ortega created the parent company of Zara, Inditex (stands for Textile Design Industry) announcing a movement toward integrated designfabrication-retail operations. Also in this period an ex-IBM salesman, Jose Maria Castellano, the actual Vice-president of Inditex, imposed a vision of time-based competition sustained on the intensive use of technology that was to dominate the holding in the future. By the end of this decade Zara had 82 stores in Spain and six abroad.In the nineties the group developed the quick response, integrated logistics network described in this case. An important milestone was the adoption at the beginning of the decade, and well ahead of other Spanish companies, of Just in Time and lean production practices, with knowledge provided by Toyota, Japan. By the end of the century, Inditex added four new brands, each for a different market niche and with their own distrib ution channels. At the closing of the 2001 exercise the group had 1080 stores (449 of Zara, that represents almost 80% of total sales) in 33 countries, over 20. 00 employees and the impressive profitability and growth figures mentioned in the introduction. Networks and Alliances Researchers have provided some evidence that companies relying on strategic network alliances are more profitable since closer buyer-supplier relationships may offer many technical, financial, and strategic advantages over spot market transactions and vertical integration (Mohr and Speckman, 1994). Furthermore, strategic alliances provide an effective alternative to improve economies of scale and scope.Different scholars have studied the antecedents that lead to different forms of network alliances. These studies suggest that assets type involved will impact the type of relationships (Dwyer, Schurr, and Oh, 1987). A different stream of research has studied the relationship between environmental uncertainty a nd resource interdependence with the nature of relationships. Handy, 1995 and Mohr and Spekman, 1994, have conducted empirical exploratory studies on the formation and evolution of inter-organizational elationships. Production and logistics are largely regional at Inditex, with much less outsourcing than is common in this sector. Why the network evolved into this configuration can be due to cultural characteristics of Spain. There exist a rich literature on collaboration. According to this Industry Networks, a set of organizations that have developed recurring ties when serving a particular market, is a variation of the old idea of industrial districts (Ebers & Jarillo, 1998).The drivers for collaboration have been extensively analyzed in the literature and can be synthesized in strategies of coespecialization the search for mutual learning to support fastest product developments, better information and product flows (resulting in cost and time reductions, a dominating theme in logi stics) the creation of virtual scale and scope economies and in the creation of entry barriers, among others (Cervilla and Lorenzo, 2000). Hofstede characterizes Spain? culture as risk avoidance, hierarchical inclined (Granell, 1997). Solis et al. (2000) show that in Spain companies, integration and closer relationships with local and global suppliers in critical processes are becoming paramount. Strategic network alliances require time and resources to be built and sustained. In getting the benefits of integration and synchronization with suppliers, building trust represents the most critical issue for supply network managers.Important for successful strategic supplier alliances is the communication expected behaviour, particularly the quality of information and participation, and the extent to which relevant information is transparent to suppliers. No less important for alliance success is the existence for a formal purchasing commodity selection process and a formal supplier asse ssment and selection process. These factors plus a comparatively low degree of outsourcing activity in Spain can explain the formation of this type of network.Factories Inditex owns 25 factories, each dedicated to capital-intensive activities (dye, cutting) and the production of a family items. The large majority of these are located in La Coruna. Inditex has additionally developed a network of external micro-companies, many households, that provide labor-intensive services, mainly sewing, which has proven difficult to automate. According to Mr. Castellano the local work force has higher labor cost but also faster reaction time (than outsourced production in a low-cost area).Distribution Inditex owns a single logistics center in La Coruna. This large facility (400,000 square meters) is largely automated, with 2 carrousels for fold garments (60,000 per hour) and 200 kilometers of elevated tracks. Products are transported directly to stores using outsourced but dedicated carriers (Azk ar for land transportation some 80% of deliveries in 2000, and different airlines for exporting, all taking-off from local Galician airports). Flows Two distinct flows can be appreciated at Inditex. One consists of long-term cycles, i. e. purchasing of raw materials and the other a short-term cycle, i. e. , design, fabrication and distribution. The long cycle starts three to six months before each fashion season and consists in the acquisition of two thirds of the raw materials required, mainly cloth (90% of which is sourced from India, China, Morocco, Mauricio, Korea, Italy Germany and Turkey the remaining one third is supplied during the season), and of one half of all garments (15%-20% is acquired in advance, 50%-60% at the beginning of the season and the rest during the season).These are those items that are thought to be stable, i. e. , basic products for which demand is fairly predictable. The rest of the garments (those thought to have a higher risk) are produced inhouse in t he short cycle described bellow. The short cycle start with design. This is totally an in-house affair in which over 200 designer work simultaneously on three season collections, the current one for modifications and improvements and the next two (winter 2002 is being currently worked on in the Spring of 2002).Target pricing and low scale customer acceptance trials are usual practices at this step. Patterns are scanned and sent electronically to the manufacturing plants. Here capitalintensive activities such as dying and cutting are performed, while sewing is manually done by the micro-companies described above. Processes in the plants are kept flexible using lean production principles such as multi-skilled and flexible work forces (with an enviable strike record) and simple Japanese-like control systems.Production is thus pushed into the stores (15% at the beginning of the season, the rest according to demand), where the manager uses hand-held devices (currently Cassiopeia PDAs) to send feedback in close to real time about what moves and what doesnt (colors, sizes, models), allowing for fast adjustments to the production plan. Replenishment to stores is done twice or three times a week, with a lead-time for existing (or subject to slight design modifications) items of two weeks, and of five weeks for new products. CommentsIt is interesting to compare the strategy of Zara/Inditex to that of Benetton (a similar sized competitor) and of the market leader Gap. Of the three the more integrated, both upstream and downstream is Zara/Inditex. Benetton produces through a network of mainly regional subcontractors, distributes from a centralized, automated warehouse and retails through franchises. Gap subcontracts production to a network of global producers (over 3000 in more than 70 countries) and has a network of global warehouses and distribution centers. Design Zara Benetton Gap Own- continuous Own-periodic Own-periodic Production Distribution 0% own regional factor ies Centralized D. C. 50% subcontractors Own stores Regional subcontractors Global subcontractors Centralized D. C. Franchises Decentralized warehouses and D. C Zara/Inditex model is not a fashionable global, outsourced network. It evolved as a probable consequence of limitations in the Spanish market, but has proven that a vertically integrated local network when linked to advanced manufacturing and information technology practices can result in quick response times with little stock or waste, a by-product of the synchronization of offer and demand that the integration nature of the process allows.Postponement of the (in-house) fabrication of fashion items considered of high uncertainty, plus the flexibility and quick response implicit in the lean and automated process results in low levels of stock (40% less than Gap, is proportion to sales) An important question is now whether the organization of Mr. Ortega and Castellano can maintain its characteristics and stellar performance a s global growth takes place. Due to European expansion a new distribution center is being built in Zaragoza, close to the French border and facilities for production in Mexico are being considered.Labor shortages in the small Galician area have also been reported. The organization could then decide to play in a niche market position and remain as it is, duplicate the actual local Galician network in other regions (e. g. , Mexico) or move towards a global and more externalized network. If the last, and arguably most probable option is pursuit, the challenge for Zara/Inditex will be to maintain their current flexibility. References Cervilla y Lorenzo (2000) Redes de empresas y tecnologias de informacion copciones para el desarrollo de la PYME. Debates IESA.Vol. 5. No. 1. Dwyer, F. , Schurr, P. , & Oh, S. (1987). Developing buyer-seller relationships Journal of Marketing, vol. 51 (2), 11-27. Ebers, M. y C. Jarillo (1998). The construction, forms, and consequences of industry networks I nternational Studies of Management & Organization. Vol. 27. No. 4 Granell, E. (1998). Managing cluture for success. Ediciones IESA, 1997. Handy, C. (1995). Trust and the virtual organization Harvard Business Review, vol. 73(3), 40-50. Landeros, R. , & Monczka, R. (1991). Cooperative buyer/seller relationships and a firm? competitive posture. International Journal of Purchasing and Materials Management, vol. 11, 2-8. Mohr, J. , & Spekman, R. (1994). Characteristics of partnership success Partnership attributes, communication behaviour, and conflict resolution techniques. Strategic Management Journal, vol. 15(2), 135-152. Solis, L, & Escobar, D. , (2000). The Management of Successful Strategic Alliances in Supply Chain Management Networks An Empirical Study of Success Factors in Spain Proceedings of XXXV CLADEA Annual Meeting, September, Barcelona.