University of Chicago
Type of paper: Thesis/Dissertation Chapter
Zara Amazing Logistics
Zara is the world’s largest apparel retailer. Its rapid growth is considered to be benefit from its strategy that can be highly responsive to changing trends with affordable price. It is claimed that design-to-sales cycle times is ten times less than traditionally averaged. At the following text, there is some report and analysis about Zara’s advantage in competition, why it choose to have both in-house and outsourced production, why produce the clothes with uncertain demand in local manufactures and the clothes with predicted demands in Asian manufacturers, what’s the advantage it gain from replenishing its stores multiple times a week and the technologies Zara need to operate its every processes in design-to-sales.
Contrast with the strategy of the other apparel retailers—“The first world fashion in the third world factory production”, Zara get the core advantage of 15-days lead-times by its rapid supply chain model. The rapid supply chain model brings Zara three main benefits:
It enhances customer satisfaction. Zara has such a short design-to-sales cycle time and every style has only little production that customer could be at ease that they will not wear the same dress with the stranger on the street. A research showed that every customer of Zara visits Zara averagely 17 times in a year, while that of other apparel retailer only have 4 times (Gallaugher J.M, 2008)
Zara’s rapid supply chain keep the whole supply chain in its control, eliminated the bullwhip effect caused by forecasting updating, limited supply and short-term game. In addition, it take the order way of “little quantity and frequent delivery “, and the order is made on the basis of the current sale and demands reported by store managers. This ordering method can eliminated the bullwhip caused by bulk supply. Reducing the bullwhip, on the hand, it helps Zara to predict customers’ demands more accurately. On the other hand, it decreases its inventory-level.
Zara has much more economic profit. Though ZARA will put most of the production process and logistics distribution in the Spain where labor cost is high, but ZARA’s quick response model captures the most important cost–time cost in the garment industry. ZARA’s lead time is only 15 days. Fashion apparel industry is changing rapidly, whether will put fashion elements into products quickly on sale in the quarter is closely related to the benefit of the clothing enterprises.
50% of the products ZARA sells are produced in-house, 26% in other countries in Europe and 24% in Asian countries (Sulisetiasih A et al, 2013). The most fashion clothes are made by ZARA in firm-owned factories in Spain, while low- cost basic clothes are outsourced to Asian countries. Zara choose to have both in-house manufacturing, which is depended on its rigid business-model.
People may say that manufacturing in Asian is less cost than in Europe. Although the labor cost is less but that does not mean its product total costs in retail is less.
Product total costs in retail = product manufacturing cost +logistic distribution cost +retail ownership cost
It can be assumed that ZARA’s current way is plan A, and the way that ZARA will outsource production in China, and then distribute to the retail outlets all over the world by China shipping as plan B. For visual contrast, the total cost of plan B is not as 1/5 as that of plan A. Only the “labor cost” is 1/5 less in “processing cost”, and in manufacturing cost , only the cost related to labor cost is less, while other costs such as machine depreciation cost, material cost are basically the same. In addition, in the developed countries “logistics cost” is less. Therefore, the cost of plan A will only be about 2 to 3 times more than that of plan B. But, the purpose of putting the production at its headquarters is to be able to realize fast process operation, only launch fashion faster than competitors, to guarantee the best-selling products, reduce the potential loss of drug. Therefore, in the overall, the profits brought by plan A are more than plan B.
We can have an overview of the differences between outsource and in-house production.
– Less investment in capital needed
-More focus on core business competencies
-Increasing company’s productivity
-Providing more quality control
-Speeding up time to market
-Faster information exchange
Higher risk of miscommunication
Which may lead to:
-Longer time to market
-Missed sales and thus huge losses
High costs to keep up with changes in :
From this table, it can be found that outsourcing will slow down the speed of responding to market and the quality will decreased ,which lead to missed sales and customers’ dissatisfactions. Thus, if ZARA outsourcing the complete production process in the third countries, it will lose its lead-time and destroy its rapid business model which is the critical factor to Zara’s considerable success. Clearly, it is not a wise decision.
( Orlova A, n.d)
This Fisher matrix approach showed that a company has to align its supply chain with its product characteristics if it wants to become truly successful (R.B Chase et al, 2001).Zara has functional products (casual wear), which demand a stable supply chain, but also innovative products (fashion wear), which require an efficient and responsive supply chain. Hence, ZARA made its innovative products (the most fashion clothes) in Spain, and at the same time, outsourcing its functional products (casual wears) in Asian.
It was mentioned that a company has to align its supply chain with its product characteristics if it wants to become truly successful. Next, talking more detailed about why does Zara source products with uncertain demand from local manufacturers and products with predictable demand from Asian manufacturers?
The products with uncertain demand actually means the most fashion designed clothes because they do not know how customer will respond to their new product and every time they launch the new product, the sales is uncertain. To meet the uncertain demand, ZARA need to response timely or it will miss the business opportunity.
For that, ZARA has its specialized fashion hunter to visit varieties of fashion show for collecting fashion information and continually feedback to the designer team that are at headquarters for reference so that they can speed up the design processing and follow the latest fashion all the time. Furthermore, designer need to ensure the effect of its design through the real templates .And there are all types of materials in warehouse so that ZARA spend a pretty short time on pattern making and designer can decide the product style and numbers as soon as possible. Reflecting on GAP, whose most factories are in China , it have to make pattern after the materials sending to China or collecting in China, that make the time between designing and ensuring product plan at least 2-3 months which is twice more than that of ZARA . Obviously, both in material supplying or logistic distribution, the local manufacturing has the advantage. Although the cost is slightly higher, the comprehensive profits are higher than that of Asian manufacturing.
The products with predicted demands means casual wears ,which do not need high responsiveness to the market. Both manufacturing and sales are stable. At that time , the request of quick manufacturing and logistics responding is lower so that the cost of production is considered firstly. It is known that the cost of production in Asia much cheaper so produce the casual wears in Asian countries is better.
The advantage Zara gain from replenishing its stores multiple times a week compared to a less frequent schedule can be listed as 4 points:
1) Build variety scarce, keep product freshness. It is known that ZARA’s speed of producing new product is fast, the number of each product is little and its main production is in Europe. The frequent delivery ensured the product can be put on the shelves timely. The frequent updating products will let customer feel if I do not buy this dress this time, I will never have the chance again. In fashion filed, people are always crazy for the scarce thing. Furthermore, the frequent updating will ensure that the product will always be related to the latest fashion. 2) Meet customers’ personal and diversified demands. It is hard to predict whether customer s’ changeable demands. And frequently deliveries give ZARA more time to respond to the changeable market. If a new product is not accept to the customer or hot sale, they can know immediately from the manager of retailer’s report then they will modify the design style or the quantity of products and let the product on shelves more fit to customers’ demands through the next delivery(update). 3) Reduce the inventory, and raise the stock turnover. As ZARA’s Cargo distribution center is operating rapidly and efficient, the DC actually are equal to a place for revolving the clothes instead of a warehouse.
The frequency of replenishment affects the design of its logistics systems a lot. First, it determined ZARA’s DC reaction mode that the main function of its DC is not storage but turnover. Second, it facilitated ZARA’s information technology building because the distribution system with high-level frequent and small number is set up at the basis of POS, EOS information system to achieve efficient and accurate information transaction of order. Third, it need ZARA improve its warehouse management system such as warehouse layout , warehouse procedures, input and output operation, stock account system to achieve the least unit inventory cost.
ZARA is regarded as the technology giant of the fashion world. Inditex uses a centralized, simplified IT infrastructure to drive a fast-to-market supply chain which matches a demand-driven business model (Knights M, 2007).
In the production chain, ZARA have a database of fashion information which the fashion hunter can update the latest fashion information to the database and the designers can search the fashion information easily any time. This IT advantage has shortened the time it takes to go from design conception to the time of arrival at the distribution centers and finally to the stores to be placed on racks. Information from headquarters to the stores is easily transmitted through the PDAs (Richard SJ). By means of CAD system, Zara reduce the raw material itself and give the sewing work to the subcontractor. Furthermore, they implement the bar code identification system in the production which made control of inventory and sale easier.
When collecting information, Zara’s information system focuses on the normalization of cloth information for support new product design and production. For a typical clothing retailer, the dimensions of the different or not completely effective information of different products usually takes several weeks t be added to their products in the design and approval process. But in the warehouse of ZARA, product information is common, standardized, which makes ZARA can quickly and accurately to design and make clear production order of tailor.
In the distribution process, Zara has developed its own EOS system for managing product information and inventory information, controlling the inventory of raw materials, and providing decision-making information for product design. Outstanding product information and inventory management system enables the ZARA’s team to manage thousands of fabrics, all kinds of adornment, design list and inventory goods. ZARA’s team also can design a dress through the information and existing inventory provided by system and don’t have to order the raw material and waste time for its arrival
In-store IT also has a large part to play in the smooth running of Inditex’s operations. Point of sale systems link only when needed to central operations and PDAs give managers the ability to update inventory (Knights M, 2007).
Almost of all production phases is owned by ZARA and, therefore, ZARA has a higher control over the production process. The more production phases that are owned in-house, the more control the firm has. ZARA has a high control over its production process and the firm has an overview of all the phases so that it is great flexible. ZARA’s flexibility is also shown in its short production runs which enable them to produce a high variety of items. Hence, the more flexible, the shorter production runs and the higher variety of items in small batches.
ZARA is also flexible due to its well developed distribution model and internal communication system. These two systems were developed on Ortega’s, the founder’s request. He had a new way of thinking that revolutionized the distribution model of ZARA and shortened its lead-times remarkably (Goransson S et al, 2007). The more well developed this model and these systems get, the faster the firm can answer to the market demand. This is also facilitated by a team of designers that constantly create after the latest demands. To answer to the market demand and take advantage of the modernized technology there need to be a high level of high skilled workforce to comprehend and create from the data coming from the advanced systems. A high skilled workforce produces more efficiently and items with higher quality then a low-skilled labor would do. Finally, higher quality items can be sold at a higher price (Goransson S et al, 2007).
Therefore, ZARA’s success is built on vertical integration to achieve control and flexibility, and managed through a developed distribution model and communication systems. ZARA focuses on a variety of items in small batches and will remain competitive through high skilled workforce which boosts productivity.
Gallaugher J.M, 2008,’ Zara Case: Fast Fashion from Savvy Systems’, viewed at 3th April 2014, < http://www.gallaugher.com/Zara%20Case.pdf>
Sulisetiasih A, Junardy K.W & Adam P .M.A, 2013, ‘The Strategic Management Analysis of ZARA (Relative to the Case in Developing Countries)’, viewed at 4th April 2014 ,
Orlova A, no date, ‘Make or Buy? The Zara dilemma’, viewed at 4th April 2014,
Knights M, 2007, ‘Fit-for-purpose IT breeds profits for clothing retailer’, viewed at 5th April 2014,
Goransson S, Jonsson A & Persson M, 2007, ‘Extreme Business-Models in the clothing industry – A Case Study of H&M and ZARA’, viewed at 5th April 2014, < http://hkr.diva-portal.org/smash/get/diva2:230949/FULLTEXT01.pdf >