Assignment-1: Prepared by - Ankit Kumar Roll No - 2K21/EMBA/05 Subject - Supply Chain Management (EMBA - 206)

ASSIGNMENT- 1
Prepared By- Ankit Kumar

Roll No- 2K21/EMBA/05
Subject- Supply Chain Management (EMBA- 206)
Zara: Apparel Manufacturing and Retail Zara is a chain of fashion stores owned by Inditex, Spain’s largest apparel
manufacturer and retailer. In 2012, Inditex reported sales of about 16 billion euros from more than 6,000 retail outlets in
about 86 countries. In an industry in which customer demand is fickle, Zara has grown rapidly with a strategy to be highly
responsive to changing trends with affordable prices. Whereas design-to-sales cycle times in the apparel industry have
traditionally averaged more than six months, Zara has achieved cycle times of four to six weeks. This speed allows Zara to
introduce new designs every week and to change 75 percent of its merchandise display every three to four weeks. Thus,
Zara’s products on display match customer preferences much more closely than do those of the competition. The result is
that Zara sells most of its products at full price and has about half the markdowns in its stores compared with the
competition. Zara manufactures its apparel using a combination of flexible and quick sources in Europe (mostly Portugal
and Spain) and low-cost sources in Asia. This contrasts with most apparel manufacturers, who have moved most of their
manufacturing to Asia. About 40 percent of the manufacturing capacity is owned by Inditex, with the rest outsourced.
Products with highly uncertain demand are sourced out of Europe, whereas products that are more predictable are sourced
from its Asian locations. More than 40 percent of its finished-goods purchases and most of its in-house production occur
after the sales season starts. This compares with less than 20 percent production after the start of a sales season for a
typical retailer. This responsiveness, along with the postponement of decisions until after trends are known, allow Zara to
reduce inventories and forecast error. Zara has also invested heavily in information technology to ensure that the latest
sales data are available to drive replenishment and production decisions. In 2012, Inditex distributed to stores all over the
world from eight distribution centers located in Spain. The group claimed an average delivery time of 24 to 36 hours for
European stores and up to a maximum of 48 hours for stores in America or Asia from the time the order was received in
the distribution center (DC) to the time it was delivered to the stores. Shipments from the DCs to stores were made several
times a week. This allowed store inventory to closely match customer demand.
Questions
The following questions raise supply chain issues that are central to Zara’s strategy and
success:
1. What advantage does Zara gain against the competition by having a very responsive
supply chain?
2. Why has Inditex chosen to have both in-house manufacturing and outsourced
manufacturing? Why has Inditex maintained manufacturing capacity in Europe even
though manufacturing in Asia is much cheaper?
3. Why does Zara source products with uncertain demand from local manufacturers and
products with predictable demand from Asian manufacturers?
4. What advantage does Zara gain from replenishing its stores multiple times a week
compared with a less frequent schedule?
5. Do you think Zara’s responsive replenishment infrastructure is better suited for online
sales or retail sales?
Que 1. What advantage does Zara gain against the competition by having a very
responsive supply chain ?
• They can introduce new design every week and thus change 75% display every 3-4
weeks.
• Reduce inventory overhead and forecast errors.
• Sell most products at full price and only half the markdowns in stores compared to
competition.
• Multiple weekly shipments allow close match to demand.
• By introducing new designs in a competitive time interval, they are able to retain
their customer base.
• As the design to sales duration is only 4 to 6 weeks as compared to competitive
market which is around 6 months, the profit return cycle also will be significantly
reduced with reduction in development time and cost.
Que 2. Why has Inditex chosen to have both in-house manufacturing and outsourced
manufacturing? Why has Inditex maintained manufacturing capacity in Europe even
though manufacturing in Asia is much cheaper?
• Outsourced manufacturing is for the production of products with predictable demand.
• In-house manufacturing is for the production of products with highly uncertain demand.
• 40% in-house production allows added responsiveness to trends and postponement of
decision until after trends.
• A strong IT department helps them make quick product decisions and drive replenishment.
The main reason behind keeping the manufacturing capacity in Europe even though
manufacturing in Asia is much cheaper are as follow:-
• Maintained large fraction of manufacturing capacity in Portugal and Spain (Europe), despite
the higher cost there, it allows Zara to respond quickly to changing fashion trends in Europe.
• For ZARA, speed and responsiveness are more important than cost. Manufacturing
Capacity in Europe helps manufacturers offer fast and flexible sourcing and such products
are to be delivered quick instead of at Asia.
• The above helps Zara reduce inventories and forecast error.
Que 3. Why does Zara source products with uncertain demand from local
manufacturers and products with predictable demand from Asian manufacturers?
• Products with uncertain demand will most likely be produced at a lower volume to
products with a certain demand and therefore sourcing from local manufacturers
provides ZARA the speed it needs to test and deliver these products before they
become obsolete and have to be sold at a discount. It is part of a responsive pull
strategy.
• Predictable demand products are made in Asia due to low labor costs and high volume
of products needed. It is more cost effective to manufacture in bulk due to the fact that
predictable demand products have a larger window with which to deliver products
without becoming obsolete. It also means that they can be made before the season
starts as part of a push strategy.
• This allows for multiple weekly shipments and close match to demand.
• they can easily manufacture in-house by responding quickly to trends and delivering in
less than 2 days on a global scale.
Que 4. What advantage does Zara gain from replenishing its stores multiple times a
week compared with a less frequent schedule?
• Frequent replenishment allows Zara to match supply and demand more effectively than
the competitors.
• This allows Zara to respond quickly to changing fashion trends in all over the globe.
• Sell most products at full price and only half the markdowns in stores compared to
competition.
• This enhances ZARA’s supply chain speed and responsiveness which reduce inventory
carrying cost also.
• The frequency of replenishment has made ZARA increase the size and also centralize its
distribution design by handling its global operations through 8 Distribution canters
based in Spain.
• This centralized structure means that products can be distributed rapidly from in house
manufacturing in order to meet worldwide demands in as little time as possible.
Que 5. Do you think Zara’s responsive replenishment infrastructure is better suited for
online sales or retail sales?
• Whilst its quick distribution system allows ZARA to respond to trends very quickly its
lack of decentralized distribution means that it is better suited to retail as online sales
tend to have more a diverse product demand and customers expect quicker delivery
times.
• Companies such as Amazon are able to respond quicker to online sales due to the fact
that they have distribution centers all around the world and can offer same day
delivery. ZARA’s 24 hour delivery times from Spain to outlets all around the world may
not be as efficient with online sales as it is with retail sales.
• Reiterating it in the online sales will be extremely challenging as the Point-of-Sale is
different
THANK YOU

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