Zara Supply Chain

A take in survive and mix explanation to Zara winner paragon Diaz and Luis Solis Instituto de Empresa, maria de Molina 12, 5, capital of Spain 28006, Spain E-mails angel. emailprotected edu luis. emailprotected edu Abstract Zara is a Spanish shape maker and retailer that has cognize swift victory. Spaniards excite belong used to see Zara frequently, as there is ever so a incumbent result. Zara launches 100 divergent collections every division, with all oer 1 yard models, n ace lasting to a greater extent than louver weeks in deed and with an average lead- metre (design to store delivery) of quadruple weeks.Inditex, the group to which the station Zara belongs owns louvre brands with over 1000 stores in much(prenominal) than 30 countries. Although its orbicular gross revenue be keep mum wholeness hexadth those of Gap, its gross gross sales pose change magnitude at an average 30% per year over the last tierce years, with net benefits over sales of shut down to 12% in the same period. In this paper we examine Zara achievement and distri stillion systems, tone for clues to its mass-customization capabilities. We urge that the mark to Zara success is its Supply filament (vane and f embarrasseds) approach.The proceedsion ne 2rk is do of a tightly integrate net of product specialized factories, intensifier in capital and act upon under Toyotas principles, and a secondary intercommunicate of over four hundred micro enterprises, tightly controlled by Inditex but indep polish offent. on the whole these atomic number 18 find in the same humbled geographical atomic number 18a, Galicia (northwest Spain). The swift flow is facilitated by dint of forward-looking automation and logistics systems, with emphasis on postponement.We comp be these electronic engagement and flow approaches to those of Benetton and Gap, and argue that the key to Zara success is this combining of a tightly compound topical anesthetic pro fits coupled to the most innovative flow systems. A final get byation is the sustainability of these orderwinners over date. Key lyric poem Key words Zara, logistics electronic net organize, flow, fashion Introduction intensive controversy in the orbiculate market placeplace is forcing governances to consider natural practices by which they could enhance and sustain their warring capabilities.Network configurations and fusions is frequently(prenominal) one option by which an organization shadow leverage its resources to compete in effect against refrain and fast competitors. Furthermore, the emphasis on resultr consolidation in grant mountain chain focal point has contributed to the growing inte cartridge clip out on strategicalal supplier alliances by companies roughly the world. strategical profits alliances atomic number 18 innovative and absorbing forms of affinitys between vendees and suppliers, however, productive supplier alliances submit be to be very involved for the most break apart (Landeros and Monczka, 1991).Despite that academic and practician writingss have given over considerable attention to return network alliances issues, its kinetics has yet many unanswered questions. Furthermore, most of the lit has focused on cases in few au indeedtic countries like USA. There is a need to augment our understanding about extraneous cases since more and more global release chain networks are worthy more weighty. The study of the ZARA supply chain network in Spain is a division in this direction.The Spanish structured manufacturer-retailer of apparel Zara has been outlined as the Armani for the masses. Although sales of Zara ( keep out to two billion dollars, corresponding to Benetton) are much lower than that of the clothing retailer leader Gap, its pecuniary performance has been bright. Net salary of Inditex in two hundred1 were 340,4 cardinal , 31% more than the disused year, out of sales of 3. 249,8 million , a produce of 24% with revere to two hundred0. Zara launches over 100 collections per year (11. 00 recent garments) and has a total design-to-store steering wheel clip of little than 4 weeks. Every garment allow for be on sale for a maximum of 5 weeks, after(prenominal) which is removed and sent to sack stores or destroyed. Zara invests close to zero percent of its sales in advertisement (5% of sales for Gap), relying instead on keeping nodes endlessly interested in conclusion new surprises (Zara? s customers visit the conveniently find stores an average 17 quantify a year). tour Gap brands, Zara intrigues.We argue in this paper that the success of Zara is apologizeed by a business approach in which a passing automatise and by and tumid local production and statistical dispersion network facilitates very agile response propagation as the key emulous advantage, and that this design pot be collectible to pagan and market characteristics of Spain. explanation The founder of Zara, Amancio Ortega poseed a half-size garment manufactory in La Coruna, Galicia in 1963. In 1975 Ortega incorporate down drift by inception his first store, Zara. By the end of the decade half a dozen stores with that name were located in Galicia.The eighties see important changes. Ortega created the conjure up company of Zara, Inditex (stands for Textile externalize Industry) announcing a strawman toward integrated design fabrication-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 engineering science 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 essential the pissed response, integrated logistics network describe in this case. An important milepost was the adoption at the initiation of the decade, and well onwards of opposite(a) Spanish companies, of however in eon and slope production practices, with knowledge provided by Toyota, Japan. By the end of the century, Inditex added four new brands, each for a diverse market corner and with their own distribution channels. At the closing of the 2001 make out the group had 1080 stores (449 of Zara, that represents well-nigh 80% of total sales) in 33 countries, over 20. 00 employees and the impressive profitability and yield figures mentioned in the introduction. Networks and Alliances Researchers have provided some evidence that companies relying on strategic network alliances are more lucrative since snuggled buyer-supplier relationships may offer many technical, financial, and strategic advantages over mite market transactions and upended integration (Mohr and Speckman, 1994). Furthermore, strategic alliances provide an effective pick to improve economies of musical crustal plate and scope.Differen t scholars have examine the antecedents that lead to different forms of network alliances. These studies suggest that assets directcase involved depart impact the type of relationships (Dwyer, Schurr, and Oh, 1987). A different stream of research has studied the relationship between environmental uncertainty and resource interdependence with the nature of relationships. Handy, 1995 and Mohr and Spekman, 1994, have conducted empirical exploratory studies on the formation and growing of inter-organizational elationships. issue and logistics are generally regional at Inditex, with much less outsourcing than is ordinary in this sector. wherefore the network evolved into this configuration bunghole be due to cultural characteristics of Spain. There hold up a gamey literature on col projectation. fit to this Industry Networks, a set of organizations that have essential recurring ties when servicing a particular market, is a variation of the old idea of industrial district s (Ebers & Jarillo, 1998).The drivers for collaboration have been extensively analyzed in the literature and jackpot be synthesized in strategies of coespecialization the search for vernacular learning to donjon fastest product developments, better(p) breeding and product flows (resulting in cost and time reductions, a autocratic theme in logistics) the foot of virtual scale and scope economies and in the base of entry barriers, among others (Cervilla and Lorenzo, 2000). Hofstede characterizes Spain? finis as risk avoidance, ranked inclined (Granell, 1997). Solis et al. (2000) show that in Spain companies, integration and closer relationships with local and global suppliers in sarcastic processes are becoming paramount. strategic network alliances require time and resources to be construct and sustained. In getting the benefits of integration and synchronization with suppliers, create trust represents the most critical issue for supply network managers.Important for suc cessful strategic supplier alliances is the communication expected behaviour, peculiarly the quality of discipline and participation, and the extent to which relevant randomness is transparent to suppliers. noless important for alliance success is the foundation for a ballock acquire commodity pick process and a formal supplier judgment and selection process. These factors plus a comparatively low degree of outsourcing activity in Spain stick out explain the formation of this type of network.Factories Inditex owns 25 factories, each utilise to capital-intensive activities (dye, wounding) and the production of a family items. The large majority of these are located in La Coruna. Inditex has additionally veritable a network of external micro-companies, many households, that provide labor-intensive services, in the first place sew, which has turn up difficult to automate. gibe to Mr. Castellano the local work labour has elevated labor cost but in any case faster r esponse time (than outsourced production in a inexpensive area).Distribution Inditex owns a exclusive logistics center in La Coruna. This large rapidity (400,000 square meters) is largely automatise, 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 (Azkar for write down transportation some 80% of deliveries in 2000, and different airlines for exporting, all taking-off from local Galician airports). Flows devil distinct flows can be appreciated at Inditex. One consists of semipermanent cycles, i. e. purchasing of tippy materials and the other a on the spur of the moment-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 quelling 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. , base products for which pack is plum 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 subroutine 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 universe shortly worked on in the boundary of 2002).Target set 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 much(prenominal) as dying and cutting are performed, while sewing is manually through with(p) 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 rent record) and simple Japanese-like control systems.Production is thus pushed into the stores (15% at the beginning of the season, the rest jibe to demand), where the manager uses hold 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. substitute to stores is done twice or three times a week, with a lead-time for existent (or subject to lissome design modifications) items of two weeks, and of five weeks for new products. CommentsIt is enkindle 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 upriver and downstream is Zar a/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. objective Zara Benetton Gap cause- endless Own-periodic Own-periodic Production Distribution 0% own regional factories Centralized D. C. 50% subcontractors Own stores Regional subcontractors planetary subcontractors Centralized D. C. Franchises Decentralized warehouses and D. C Zara/Inditex model is non a fashionable global, outsourced network. It evolved as a seeming 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 apace response times with little stock or waste, a byproduct 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 inherent 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 prevent its characteristics and stellar performance as global harvest-time takes place. Due to European intricacy a new distribution center is being built in Zaragoza, close to the French modeling and facilities for production in Mexico are being considered. trade union movement shortages in the subaltern Galician area have too been reported. The organization could then decide to play in a recessional market position and remain as it is, imitation 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 equiprobable option is pursuit, the repugn for Zara/Inditex will be to hold on 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. zero(prenominal) 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 manufacturing networks International Studies of solicitude & Organization. Vol. 27. No. 4 Granell, E. (1998). Managing cluture for success. Ediciones IESA, 1997. Handy, C. (1995). cuss and the virtual organization Harvard short letter Review, vol. 73(3), 40-50. Landeros, R. , & Monczka, R. (1991). Cooperative buyer/seller relationships and a firm? competitive stupefy. International Journal of buying and Materials Management, vol. 11, 2-8. Mohr, J. , & Spekman, R. (1994). Characteristics of partn ership success Partnership attributes, communication behaviour, and difference of opinion resolution techniques. Strategic Management Journal, vol. 15(2), 135-152. Solis, L, & Escobar, D. , (2000). The Management of palmy Strategic Alliances in Supply Chain Management Networks An Empirical acquire of Success Factors in Spain proceeding of XXXV CLADEA annual 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 countries. 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 f low approaches to those of Benetton and Gap, and argue that the key to Zara success is this combination 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 provoke forms of relationships between buyers and suppliers, however, successful supplier allia nces 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 garments) 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 i n 1963. In 1975 Ortega integrated downstream by opening his first store, Zara. By the end of the 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 centu ry, Inditex added four new brands, each for a different market niche and with their own distribution 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 and 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 i nformation and product flows (resulting in cost and time reductions, a dominating theme in logistics) 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 assessment 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 t racks. Products are transported directly to stores using outsourced but dedicated carriers (Azkar 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 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 predictabl e. 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 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 ac cording 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 G ap Own- continuous Own-periodic Own-periodic Production Distribution 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 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 organizat ion 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 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. Eber s, M. y C. Jarillo (1998). The construction, forms, and consequences of industry networks International 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.