School of Business

Department of Finance and Decision Scienes

Dr. Vincent Chow
BUS 3640 ERP and SCM

Supply Chain Management at Zara

09501606 Robert JENNRICH

09501258 Rebecca MELTON
07011490 SIN Wai Yin
07019025 CHAN Wai Hei
07018568 CHAN Ngai Kin
09501622 Olivier BRICLOT 11.11.2009
 Outline

1 Company overview

2 SCM & ERP activities

3 Performance analysis

4 Identifying weaknesses

5 Industry‘s best practices

6 Business Oportunities

7 Recommendations and Resistance

BUS 3640 - Group 1 11.11.2009 2 / 52

 Outline

1 Company overview

2 SCM & ERP activities

3 Performance analysis

4 Identifying weaknesses

5 Industry‘s best practices

6 Business Oportunities

7 Recommendations and Resistance

BUS 3640 - Group 1 11.11.2009 3 / 52

 Zara is a one of the largest international
companies with european roots
OVERVIEW

1975: first store in Spain

Part of Inditex one of the world’s largest fashion
groups

More than 1500 stores in 72 countries nowadays

Sales > € 6 billion

In 2003, become the world’s fastest-growing
volume garment retailer

Created “Zaramania” phenomenon

BUS 3640 - Group 1 11.11.2009 4 / 52

 Fashion evironment

OVERVIEW

Nowadays Fashion

Fashion is fast, complex and furious

It is always changing

The product life cycle of fashion is very short

New styles keeps emerging and old styles keeps re-occurring every in a
very short time

This trend called “ Fast fashion”

BUS 3640 - Group 1 11.11.2009 5 / 52

 Fashion evironment

OVERVIEW

Fast fashion Traditional fashion

Maximization of the revenue from each style

Stock out is a loss (loss of goodwill, loss of
sales).

Design and manufacture clothing quickly, and
in an affordable way

Allow the mainstream consumer to take
advantage of current clothing styles at a lower
price point

Do not aim at maximizing the revenue from
each particular style.

It is especially true for companies such as Zara
and hence the corresponding quantity available
for sales are both relatively small.

Stock out does incur a loss of sales but not a
loss of goodwill.

Supply chain management of fast fashion

company is important

The fast fashion supply chain will always

create new designs and apparel products to
satisfy the ever-changing taste of the market

BUS 3640 - Group 1 11.11.2009 6 / 52

 Fashion evironment

OVERVIEW

BUS 3640 - Group 1 11.11.2009 7 / 52

 Outline

1 Company overview

2 SCM & ERP activities

3 Performance analysis

4 Identifying weaknesses

5 Industry‘s best practices

6 Business Oportunities

7 Recommendations and Resistance

BUS 3640 - Group 1 11.11.2009 8 / 52

 Zara has very short Product Life Cycles

COMPARISON

BUS 3640 - Group 1 11.11.2009 9 / 52

 Customer segment

BUS 3640 - Group 1 11.11.2009 10 / 52

 Customer segment

BUS 3640 - Group 1 11.11.2009 11 / 52

 Zara’s 3 Keys for success

Short lead
more faschionnable clothes

time

Lower
scarce supply

quantity

more choice , more chance to hit it right

More style

BUS 3640 - Group 1 11.11.2009 12 / 52

 Zara’s supply chain

Supply Chain

Ownership and control of the production

Market research( observe fashion leader,daily feedback from store, sale

report)

React rather predict

Quick bake recipe

Information technology keep cost down

Vertical Supply Chain

Has total control of various business activities

There are four stages of supply chain at Zara: --Design

--Production
--Distribution
--Retailing

BUS 3640 - Group 1 11.11.2009 13 / 52

 Speed keep cost down

BUS 3640 - Group 1 11.11.2009 14 / 52

 Zara‘s SCM Objective

BUS 3640 - Group 1 11.11.2009 15 / 52

 Zara‘s Design
Design stage

Women’s , Men’s , Children’s garments

Produce designs for approximately 40,000 items
per year from which 10,000 are selected for
production

Has almost 300 people, including designers,
specialists and buyers
Design

Work in close contact with store managers to
discuss sales orders, new lines and other matters

Stores rely heavily on discussions with Market
Specialists before finalizing orders
Market Specialists
BUS 3640 - Group 1
Designers

The SC starts with designers

Draw out design sketches by hand

Discuss them with colleagues

The sketches are redrawn using a CAD system

Make a sample to determine whether the design
can be produced and sold at a profit

Final decisions concerning what products to
make, when, and in what volumes
Buyers
11.11.2009 16 / 52
 Zara‘s production

Suppliers Procurement and Production Planners

50 percent of products in its own network of 22
Make decisions

Spanish factories and use subcontractors for all
sewing operations
Required levels of speed and expertise, cost-
effectiveness, and availability of sufficient
capacity

Other half of its products are procured from
400 outside suppliers, 70 percent of which are
in Europe and most of the rest in Asia

Subcontractors

For all sewing operations

Use a sampling methodology to control the

incoming quality

BUS 3640 - Group 1 11.11.2009 17 / 52

 Zara‘s Distribution, Logistics and Retailing

Distribution Center Logistics (Contractors)

Orders for each store are packed into separate
Stores in Europe receive their orders in 24
boxes and racks (for hanging items) hours

Finished products are typically ready for
The United Sates in 48 hours
shipment 8 hours after they have been received

Japan in 48 to 72 hours

Shipments at Zara are almost flawless (98.9

percent accurate with less than 0.5%
Retailing
shrinkage)

Usually place orders and receive shipments
twice per week

The store is Zara’s main image vehicle, so Zara

concentrates the majority of its investment on
it

Encourage customers to revisit the store and

create a comfortable and inspiring atmosphere

BUS 3640 - Group 1 11.11.2009 18 / 52

 Value chain

OVERVIEW

BUS 3640 - Group 1 11.11.2009 19 / 52

 Outline

1 Company overview

2 SCM & ERP activities

3 Performance analysis

4 Identifying weaknesses

5 Industry‘s best practices

6 Business Oportunities

7 Recommendations and Resistance

BUS 3640 - Group 1 11.11.2009 20 / 52

 Performance of Supply Chain Management at Zara

• Order lead time

- Zara controls most of its supply chain, by managing all design,
warehousing, distribution, and logistics functions

• Operational level measures

-Make information and product transfer easy
- Produced in small quantities, provided on predictable schedules, and
displayed in the stores for only a short amount of time
- Customers visit Zara stores more frequently

BUS 3640 - Group 1 11.11.2009 21 / 52

 Performance of Supply Chain Management at Zara

• Effectiveness of Scheduling Techniques

- The scheduling techniques of Zara is very efficient
- Centrally Managed Inventory
- Reduced Design Cycle Time
- Strong IT System
- Logistics and Distribution

BUS 3640 - Group 1 11.11.2009 22 / 52

 Performance of Supply Chain Management at Zara

• Effectiveness of Scheduling Techniques

- The scheduling techniques of Zara is very efficient
- Centrally Managed Inventory
- Reduced Design Cycle Time
- Strong IT System
- Logistics and Distribution

BUS 3640 - Group 1 11.11.2009 23 / 52

 International strategy

BUS 3640 - Group 1 11.11.2009 24 / 52

 Market selection (suppliers)

BUS 3640 - Group 1 11.11.2009 25 / 52

 Market selection

BUS 3640 - Group 1 11.11.2009 26 / 52

 Market entry

• Characteristic or behavior of customers

• Income per capita of country : gaining the right consumer

BUS 3640 - Group 1 11.11.2009 27 / 52

 Performance of Supply Chain Management at Zara

BUS 3640 - Group 1 11.11.2009 28 / 52

 Marketing approach

BUS 3640 - Group 1 11.11.2009 29 / 52

 Outline

1 Company overview

2 SCM & ERP activities

3 Performance analysis

4 Identifying weaknesses

5 Industry‘s best practices

6 Business Oportunities

7 Recommendations and Resistance

BUS 3640 - Group 1 11.11.2009 30 / 52

 Due to Zara‘s Supply Chain Management approach there
are excisting weaknesses in their current activities

IDENTIFYING ZARA‘S WEAKNESSES 1/2

Centralized
one manufacturing and distribution center (Spain)

distribution
Potential risks: power shortage, strike or even a natural disaster
system

over saturation of Zara stores in Europe

Euro-Centric

strongest currency in the world
model

Inability to
has not been able to develop a strong supply chain strategy
penetrate
has not invested in distribution facilities
American market

BUS 3640 - Group 1 11.11.2009 31 / 52

 Due to Zara‘s Supply Chain Management approach there
are excisting weaknesses in their current activities

IDENTIFYING ZARA‘S WEAKNESSES 2/2

Limitation from
inability to acquire economies of scale

vertical
dependence on Inditex
integration

due to speedy and recurrent introduction of new products

Increased costs
Higher production changeover, R&D and Employee training costs

Issue of
multiple Zara stores – selling the exact merchandise to the same people
cannibalization

BUS 3640 - Group 1 11.11.2009 32 / 52

 Outline

1 Company overview

2 SCM & ERP activities

3 Performance analysis

4 Identifying weaknesses

5 Industry‘s best practices

6 Business Oportunities

7 Recommendations and Resistance

BUS 3640 - Group 1 11.11.2009 33 / 52

 The apparel industry consists of several big companies, who all have applied
different best practices

INDUSTRY‘S BEST PRACTICES 1/4

Decentralized structure World-wide production and sourcing

H&M, GAP
Sourcing, procurement and production in
different countries

Distribution channels

H&M: double- Supply Chain with focus on

Infrastructure which allows for ease Europe and Asia
of distribution nationally and internationally

Outsourcing

BUS 3640 - Group 1 11.11.2009 34 / 52

 The apparel industry consists of several big companies, who all have applied
different best practices

INDUSTRY‘S BEST PRACTICES 2/4

Intense advertising Strong Brand Name

H&M, GAP are using more advertising
GAP

may aid them in entering new markets
Very powerful brand in overseas countries,
successfully especially in eastern Asia region

the local customer is aware of
Stronger brand management

merchandise mix & marketing activities

BUS 3640 - Group 1 11.11.2009 35 / 52

 The apparel industry consists of several big companies, who all have applied
different best practices

INDUSTRY‘S BEST PRACTICES 3/4

Durability of products Discounts

GAP, H&M
Especially H&M

Longer Product Life Cycle
Higher number of units

Basic products
No return to warehouse

Lower R&D, market research costs

BUS 3640 - Group 1 11.11.2009 36 / 52

 The apparel industry consists of big companies, who
all have applied different best practices

INDUSTRY‘S BEST PRACTICES 4/4

Supplier relations - ERP International strategy

promote flow of information with suppliers
GAP, H&M

collaborative relations with suppliers
Tailored strategies for different countries

Suplier evaluation and development
Higher adaption of local customer needs

BUS 3640 - Group 1 11.11.2009 37 / 52

 Outline

1 Company overview

2 SCM & ERP activities

3 Performance analysis

4 Identifying weaknesses

5 Industry‘s best practices

6 Business Oportunities

7 Recommendations and Resistance

BUS 3640 - Group 1 11.11.2009 38 / 52

 Opportunities/Initiatives

INTERNAL

Relatively high costs for operation in complete vertical integration

High Costs  High supplier searching, production and distribution costs in Europe

 Resources used for more control over every process in the supply chain

BUS 3640 - Group 1 11.11.2009 39 39 / 52

 Opportunities/Initiatives

EXTERNAL

Emerging Asian apparel market with high potential

Asian Market  rapidly growing demand and purchasing power in developing Asian countries
 lower production costs
 Becoming the region with most potential growth and large demand

e-Business
e-Business  Faster and easier access to product information and more convenient ordering

required
 Shorter product life cycle

 Increasing acceptance of online shopping and transaction

BUS 3640 - Group 1 11.11.2009 40 40 / 52

 Outline

1 Company overview

2 SCM & ERP activities

3 Performance analysis

4 Identifying weaknesses

5 Industry‘s best practices

6 Business Oportunities

7 Recommendations and Resistance

BUS 3640 - Group 1 11.11.2009 41 / 52

 E-Procurement

SUGGESSTION

build a hub (maintains the catalogue data and is connected to the

suppliers)

allow to determine the performance measurement for suppliers

E-Procurement
• Leverage volume and major suppliers  control product costs

Provide real time information to the suppliers  Quick Response

BUS 3640 - Group 1 11.11.2009 42 42 / 52

 E-Procurement

SUGGESSTION

Supplier

Supplier Supplier

ZARA

Supplier Supplier

Supplier

BUS 3640 - Group 1 11.11.2009 43 43 / 52

 Collaborative Planning, Forecasting, and
Replenishment
SUGGESSTION

Enhance Supply Chain

enhance supply chain integration

by supporting and assisting joint
practices
 Control of SCM

supporting and assisting joint

practices

BUS 3640 - Group 1 11.11.2009 44 / 52

 Enterprise Resource Planning System Improvement
SUGGESSTION

A team of experts in Euro Headquarter who plan production,

design, distribution, retailing

With the expansion over the world:

Planning Production of Asian Factories in EU HQ
Designing Clothing for Asian Customers in EU HQ
Planning Logistic Issue of Non-EU markets in EU HQ

a more integrated, web-enabled and enterprise-wide ERP system

So that,
1. Teams in Euro HQ can have real time information of stores,
factories in Asia, US, etc.
2. Stores outside Euro can have information of the inventory,
producing progress, delivering progress, what goods other stores
are selling, etc.

BUS 3640 - Group 1 11.11.2009 45 / 52

 Resistance

More Resources
need to perform all feasibility study and get ready to
commitment to time, costs, and human resources

• Without top management commitment

• Process is long

• People management
need to allocate valuable staff from each department to ERP
team, that these people may not be returned to their position
very soon

• Uncertain and unpredictable outcome

BUS 3640 - Group 1 11.11.2009 46 / 52

 Second central distribution centre and production
base in Asia
SUGGESTION

expand supply chain network in Asia for higher logistic and

production

attain higher penetration by closer interaction with the Asian

customers
Aim
supply more retail stores in the region in response to great demand

provide specialized products for Asian market to stimulate demand

Suggested location – coastal cities in China

Reasons: Relatively low costs, rapidly growing demand and purchasing power

BUS 3640 - Group 1 11.11.2009 47 47 / 52

 Second central distribution centre and production
base in Asia (cont’d)
SUGGESTION

Higher
penetration and
popularity

Accurate Lower logistic

interpretation of and production
fashion trend costs
Benefits

Shared risk of Maximize

demand efficiency in the
fluctuation Asian market

BUS 3640 - Group 1 11.11.2009 48 / 52

 Second central distribution centre and production
base in Asia (cont’d)
SUGGESTION

• Insufficient initial knowledge of fashion in the Asian market

 higher search costs to completely understand customers’ needs

• Keen competition with (i) international retailers and (ii) local brands
 less competitve pricing tactics and comparatively low penetration

• Liquidity issue
 large amount of capital involved, long return period

• Political and legislation barriers

 extra operation costs

BUS 3640 - Group 1 11.11.2009 49 / 52

 Internet Retailing & stronger CRM

SUGGESTION

provide customers updated product information

develop more direct internet selling to reach more customers

establish platform for collection of feedbacks for

Aim
better understanding of customer behaviors inspiration for new and
specialized design

encourage online shopping

BUS 3640 - Group 1 11.11.2009 50 50 / 52

 INTERNET RETAILING & STRONGER CRM (cont’d)

RESISTANCE

Benefits:
• Reach wide variety of potential customers more instantly, easily and
directly through online promotion

• Gain knowledge of customers’ preferences and spending habits

• Save promotional costs and enhance advertising power through the

Internet

• Provide customized and comfortable service to customers by

displaying updated designs and allowing convenient online ordering
and transaction

• Reduce opertion costs unnecessary stores which lead to

cannibalization by replacing them with online services

BUS 3640 - Group 1 11.11.2009 51 / 52

 INTERNET RETAILING & STRONGER CRM (cont’d)

RESISTANCE

• Difficulty to display all of Zara’s ever-changing fachions online

 fast fashion model requires strong and responsive technical support
to maintain the provision of most updated product information.

• Impact on lower motivation for customers to visit the retail stores

 less face-to-face communication with customers to understand theirs
needs

• Relatively low acceptance and popularity of online shopping in

developing regions, e.g. Indonesia

BUS 3640 - Group 1 11.11.2009 52 / 52

 Q&A

???

BUS 3640 - Group 1 11.11.2009 53 / 52