Springer Texts in Business and Economics

Dmitry Ivanov
Alexander Tsipoulanidis
Jörn Schönberger

Global Supply
Chain and
Operations
Management
A Decision-Oriented Introduction to
the Creation of Value
Operations and Supply Chain Strategy
4

Learning Objectives for This Chapter

• Operations strategies and “strategic fit”

• Efficient and effective supply chain strategies
• Bullwhip-effect
• Vendor-managed Inventory (VMI)
• Collaborative Planning, Forecasting, and Replenishment (CPFR)
• Supply chain resilience and sustainability
• Ripple effect

4.1 Introductory Case-Study “Quick and Affordable”: Zara,

UNIQLO & Primark

Zara’s Three Success Factors: Speed, Speed, and Speed

Zara is a global fashion retailer selling its goods around the world. The retailer’s
international footprint proves that national borders are no hindrance to a shared
fashion culture. Founded in 1975, the Spanish retailer Zara presently has over 2100
stores strategically located in leading cities across 88 countries (https://www.
inditex.com/brands/zara), launches more than 10,000 new designs each year, and
is recognized as one of the world’s principal fashion retailers. It belongs to the
INDITEX Group, which also holds common brand names like Pull&Bear, Bershka
and Stradivarius. In 2012 net sales of INDITEX were equal to 15,946 million euros,
making it the fifth largest and fastest growing fashion retailer worldwide.

Find additional case-studies, Excel spreadsheet templates, and video streams in the E-Supplement
to this book on www.global-supply-chain-management.de!

# Springer International Publishing Switzerland 2017 69

D. Ivanov et al., Global Supply Chain and Operations Management, Springer Texts
in Business and Economics, DOI 10.1007/978-3-319-24217-0_4
70 4 Operations and Supply Chain Strategy

Zara is commonly known for its always up-to-the minute styles and products. The
main key to their corporate strategy is their SC strategy. The following statement by
INDITEX gives a first hint towards this exclusive strategy: “Our approach to
fashion—creativity, quality design and rapid turnaround to adjust to changing
market demands—has allowed us to expand internationally at a fast pace and has
generated an excellent public response to our retailers’ collections” (Inditex 2014).
While many retailers design and produce around 80 % of their season’s inven-
tory, Zara keeps back 50 % to be produced in the middle of the season. This way
they can react if hot trends of the current season are for example skinny instead of
boot-cut jeans. A full team of fashion experts keeps an eye on upcoming trends in
each country on university campuses, night clubs and fashion shows. All research
and design activities are steered from Zara’s headquarters in La Coru~na in Spain.
For production Zara has its own high tech factories and a number of subcontractors.
However, Zara keeps outsourcing to a minimum level and produces mainly in
developed countries to provide better quality control. To keep responsiveness at
the highest level many garments are kept in a generic unprinted stage. This
approach is called postponement strategy, as products can be modified from generic
to finish according to customer demand.
Procurement offices in the UK, China and the Netherlands deal with all purchas-
ing activities. In manufacturing Zara links the two sites of SC strategies. On one site
they import 40 % of their products as finished goods from low-cost countries. This
strategy is used for “basics” products that are unchanged by fashion trends such as
white and black T-shirts. All other materials are bought from Mauritius,
New Zealand, Australia, Morocco, China, India, Turkey, Korea, Italy and
Germany. Zara tries to source local instead of global, thus reducing transportation
costs.
Short lead times are another key factor for Zara. Where other fashion companies
supply every three months, Zara replenishes its stores twice a week. The company
provides the necessary fundamentals for subcontractors to accomplish their agreed
delivery times.
To implement its SC strategy ZARA redesigned inventory management corre-
spondingly. Previously, goods were shipped from two central warehouses to each of
the stores, based on requests from individual store managers. These local decisions,
when assessed on a global scale, inevitably led to inefficient warehouse, shipping
and logistics operations. Production overruns, inefficient SCs, and an ever-changing
marketplace (to say the least) caused Zara to tackle this problem.
A variety of SCOM models was used in redesigning and implementing an
entirely new inventory management system. The new centralized decision-making
system replaced all store-level inventory decisions, thus providing results that were
more globally optimal. Since implementation, having the right products in the right
places at the right time for customers has increased sales from 3 to 4 %.
Inventory at Zara is kept a smidge under the estimated sales levels. For example,
if demand increases immensely for clutch purses, they can assign emergency
orders. Hence, the company is commonly able to deal with sudden demand
changes. However, when the opposite was the case, Zara’s management evaluated
4.1 Introductory Case-Study “Quick and Affordable”: Zara, UNIQLO & Primark 71

potentially lost customers as less costly than slow moving or last season’s products.
Speed is Zara’s key strategy. All products are to leave the warehouse after a
maximum of 3 days. At the end of each season Zara reduces its products up to
30 % to sell remaining stocks.
All items arrive at the stores ironed, on hangers and with price tags, saving
valuable time for staff. Zara’s pricing is based not on the classical cost plus margin
principle, but on setting prices according to comparable items in the local market.
This way it is possible that the same product has a different price in each European
country. To make price tagging easier Zara previously attached a tag on its goods
showing all prices. In this way goods could easily be shifted from one country to
another with reduced complexity. Nowadays, bar codes are used to tag the products,
and these can be read via a scanner, showing the local price in the local store. This
also enables Zara to keep up-to-date information when and where goods are sold.
All information is analysed at headquarters so that particular strategies can be
adapted if necessary.
Marketing is minimized, as Zara sees all promotion activities as distracting for
the customer. The company has managed to present itself as a fashion retailer with
ever-changing and up-to-date styles with good quality at affordable price levels.
Customers value exactly these assets—making all additional marketing efforts
unnecessary.

UNIQLO: Basic, Casual Wear at Top Quality

UNIQLO does the exact opposite of Zara but is no less successful. UNIQLO is one
of the largest and fastest growing Japanese companies and ranks third among
fashion retailers worldwide following Gap and Marks & Spencer. The mother
company, FAST RETAILING CO. LTD, which also owns brand names GU and
Theory, was founded in 1963 in Japan, where it still has its head office in
Yamaguchi-City. High-quality and affordable products are valued more highly
than chasing the newest trend.

Products are rather casual and basic, making them occasion- and age-less but
still stylish, using various colours and cuts. This way UNIQLO meets customer
demand independently from clothes being presented on the catwalk at the moment.
UNIQLO has multiple production and purchasing offices in Asia which look
after more than 100 suppliers each week. In this way the company is able to
maintain good quality control over their outsourced partners. If issues concerning
quality arise they are instantly taken to the production units where means for
improvements are found. Currently, UNIQLO is seeking to expand their purchasing
and production facilities to meet demand in the United Kingdom and the United
States.
UNIQLO controls its inventory carefully trying to maintain optimum inventory
levels each week. At the end of each season products are sold for 20–30 % less than
the initial price to get rid of inventory.
Additionally, the fashion retailer has found a new place for selling clothes:
railway stations. The concept works fabulously for UNIQLO. Shinjuku Station is
Tokyo’s biggest rail station where the UNIQLO store meanwhile ranks 6 from all