Presentation on theme: "BEST PRACTICES IN SUPPLY CHAIN MANAGEMENT AT ZARA"— Presentation transcript:
1 BEST PRACTICES IN SUPPLY CHAIN MANAGEMENT AT ZARA
BY SIYU LIU, ALFONSO IZQUIERDO AND POORANAN MURUGESAN
2 Agenda Historic development of the three companies – Facts and Figures
Current state of Supply chain management organizationCurrent product strategyCompetitive situationAssessment of the best practice in Supply Chain ManagementPrognosis of future developmentConclusion
3 HISTORIC DEVELOPMENT OF THE THREE COMPANIES
FACTS AND FIGURES
4 BENETTON COMPANY OVERVIEW
FounderGilberto Benetton, Carlo BenettonFounded1965 in ItalyProductsShoes, Bags, Clothing,AccessoriesMarkets120 CountriesStyle and FeaturesCasual, Fun, Colorful, Fresh Mediterranean, Latin style(2011)9,557(2011)2.032 Billion Euro
5 BENETTONHISTORIC DEVELOPMENT
6 BENETTONHISTORIC DEVELOPMENT
7 BENETTONDUAL SUPPLY CHAIN SYSTEM
8 HENNES & MAURITZ 25 Countries Founder Erling Persson Founded Products
1947 in SwedenProductsClothing,AccessoriesMarkets25 CountriesStyle and FeaturesWide range from party dresses, sport shirts to suits and other formal wears(2010)59,440(2010)14.24 Billion Euro
9 H&MHISTORIC DEVELOPMENT
10 H&MHISTORIC DEVELOPMENT
11 information on sales and stock
H&MSUPPLY CHAIN SYSTEMinformation on sales and stockstatus
12 Clothing, Accessories, Shoes, Bags
ZARAFounderAmancio OrtegaFounded1975 in SpainProductsClothing, Accessories, Shoes, BagsMarkets69 CountriesStyle and FeaturesWide range from party dresses, sport shirts to suits and other formal wears(2012)69,240(2012)Billion Euro
13 ZARAHISTORIC DEVELOPMENT
14 ZARAHISTORIC DEVELOPMENTReduce transportation cost
15 CURRENT STATE OF SUPPLY CHAIN MANAGEMENT ORGANIZATION OF ZARA
16 SUPPLY CHAIN MANAGEMENT ORGANIZATION
17 SUPPLY CHAIN MANAGEMENT ORGANIZATION
18 Zara- Supply Chain Management
19 Zara- Supply Chain Management
Fast Fashion- Manufactured quickly and Sold at affordable pricesCompetitors like H&M, Forever 21 followed Zara’s Fast Fashion model.Produce and deliver in 3 weeks model.In typical season, Zara produces different items.
20 Zara- Product LinesWomenWomanBasicTRFChildrenMenAt each Store, each product line has a Section Manager, sales people and Cashiers.
21 Zara- Supply Chain Management
CommercialsDireccion de TiendasStore Managers
22 Zara – Supply chain Seasons-Autumn/winter and Spring/Summer
First designs were presented 6 months before each seasonDuring the season, Suppliers with short lead times allowed it to introduce new designsFor basic, easy to forecast Products, Zara used cheaper suppliers with longer lead times
23 Zara – Supply Chain All products came to logistic centers in Spain.
A Coruna - 50% of all Women and Men’s wearZaragoza – 50% of all Women and Men’s wearMeco – All children’s wear
24 Zara – Order CycleFor Every season, new collections are sent to store based on commercials.25000 units were sent to each storeReplenishments was ordered by section managersTwice a week, Section manager receives offer in his or her PDA.European stores received deliveries in 24 hoursAsian stores received deliveries in 40 hours
25 Zara – Supply chain Improvements
Consolidating Transport cost.100 Million Euro state of art logistics centre for Children’s Merchandise in MadridUnloading the merchandise were outsourced to logistic providers.Attaching Alarm tags were shifted from Back room to factories.
26 Zara – Supply chain Improvements
Automatic replenishments of basic(10-15%) products.Algorithm for allocating Inventory at logistics centers to stores.Commercials had the intelligence to find out if a manager is making mistakes.
27 Zara – In Store Logistics
Processing deliveriesManaging product flow between backroom and selling floorManaging display areas and fitting roomsConducting physical audits.
28 Zara - Competitive Situation
COMPETITORSAmerican Forever 21, Swedish Hennes & Mauritz(H&M), Japanese UniqloADVANTAGESMarket LeaderHigh cost Supply chain management with low inventory and higher profit margins, which maximized revenues18% of clothes were sold in Discount sales compared to industry average of 36%Aggressive expansion strategy
29 ZARA OVERVIEW: ASSESSMENT OF THE BEST PRACTICE IN SUPPLY CHAIN MANAGEMENT
System is designed for short productioncycles, quick response (QR) to demand,and reduced number of markdownsManufacturingASIA (20%)Low QR Low CostDesignDistributionSaleDISTRIBUTION CENTER Increased shipment frequency increases QRSmall batch production lowers cost of demand uncertaintySTORES Decentralized store management supplements QRManagers determine products to sell and returnINDITEX MANAGEMENT / DESIGNERS Determine apparel designs and manufacturing locationsIN-HOUSE (40%)High QR High CostEUROPE / N. AFRICA (40%)High QR High costReturns from stores either rerouted or disposed of in local stores near dist. centerIT SYSTEMS Provides accurate demand information to determine manufacturing locations and production levels
31 Zara’s Fast Track to Fashion
The key to the Spanish clothing chain is efficiency – with a side order of fashion sense.Instead of setting the trends, Zara follows them. It relies on a combination of fashion reconnaissance -- spotting trends everywhere from the street to movies to couture fashion shows -- and information from its customers to keep its merchandise fresh.Spanish retailer Inditex, owner of cheap-chic clothing chain Zara, pioneered the concept of fast fashion.While most of the retail industry takes months to bring new merchandise to market, Zara is able to move from designer’s drawing board to shop floor in as little as two weeks thanks to its tight control over every step of the process.
32 Vertically Integrated Supply Chain
Total control of the production processFrom their perch in the massive 11,000 sq.-ft. hall, they work with Zara’s “commercials” (Zara’s term for the folks who act as liaisons among the chain’s 2,800 global store managers, designers, and production planners). The designers sketch out new styles and determine which fabrics offer the best combination of fashion and price.Tag TeamIn Arteixo, Spain, Zara’s 200 in-house designers work in teams for the company’s women’s, men’s, and children’s clothing lines.
33 Zap ItThe design team electronically sends the patterns to Zara’s factory across the street, where a prototype is made. The patterns are optimized via computer so that no fabric is wasted.
34 The fabric is rolled out on a large table and covered tightly in plastic before a laser-guided machine cuts it according to the pattern. The fabric is then bagged and distributed to local sewing cooperatives, which return the finished garments to the factory within a week.In the BagMassive rolls of fabric are moved in the factory by lifting equipment.
35 Each garment is checked for quality
Each garment is checked for quality. Those that do not pass the test are cast aside. Once the checks are complete, the garments are individually pressed.Press and GoOnce the finished clothing is back at the Arteixo factory, workers handle finishing touches, such as adding buttons and detailing.
36 “Stores managers feel like the owners of the store”
But management realized labeling all garments and applying security alarms at the factory saved both time and money. The less time management spends on tasks such as tagging merchandise, the more time it can spend selling.Alarming EfficiencyNext, labels for each country are attached. Zara used to rely on store managers to do this once the product reached the store.
37 At the massive 500,000 sq.-ft. center, all merchandise is allocated first by country, then by individual store using a moving carousel of hanging rails. Although more than 60,000 items move in and out of the center each hour, only a handful of workers are needed to monitor the process.Lonely JobOnce tagged, the garments are sent to Zara’s nearby distribution center via tunnel.
38 “Catching fashion while it is hot”
Short lead times“Catching fashion while it is hot”Focus on short time responseMeet the customer expectation on timeUsing electronic bar codes, each shop’s orders are carefully placed onto the appropriate moving rail, ensuring each store gets exactly the right twice-weekly shipment.Quick TurnaroundMore than 2.6 million items move through the distribution center each week, and most spend little more than a few hours at the center.Produce a new style in 2 – 4 weeks
39 Garments are trucked from the distribution center to stores within a day. Instead of advertising, Zara lets its elegant, spacious stores in the world’s ritziest shopping locations do the talking.Show TimeJust two days after leaving Zara’s distribution center in Spain, merchandise arrives in U.S. stores.Zara transports its merchandise to the U.S. and Asia by plane, enabling it to arrive in 48 hours.Delivery time in Europe is even faster.
41 Zara (Inditex) has delivered financially whilst achieving the most aggressive growth of the industry
“You need to have five fingers touching the factory and five touching the customer.“Amancio Ortega, Chairman, Inditex (Zara)Product launch<15 daysFast customer feedbackShort product life cycle300,000 new SKUs / yearCollaborative planning with POS dataSynchronised planning frameworkGlobal sourcingLimited outsourcing (simple products only)Small production runsLimited outsourcingReal time product tracking.Oversized capacitiesIntegrated IT systemsBi-Weekly replenishmentEmpowered sales managerDesignZara’s 3 guiding principles for supply chainClose the communication loop.Transfer data and anecdotal information from shops to designers and productionTrack materials and products real time every step of the way, including in stores.Close the information loop between the end users and the upstream operations of design, procurement, production, and distribution quickly and directlyStick to a rhythm across the entire chain.Rapid timing and synchronicity are paramount.Spend money on anything that helps to increase and enforce the speed and responsiveness of the chain as a whole.Leverage your capital assets to increase supply chain flexibility.Major capital investments in production and distribution facilities to increase supply chain's responsiveness to new and fluctuating demands.Produce complicated products in-house and outsource the simple ones.PlanBuyMakeMoveSellSource: Kasra Ferdows; Michael A. Lewis; Jose A.D. Machuca,HBR 11/04
42 Main Brands
44 Prognosis of future development
To step forward a business needs to align each dimensionProcessesSupply Chain OptimisationIntegrate with Customers & SuppliersPeopleSystemsVirtual Supply ChainSynchronisation of Supply with DemandAdvanced Decision SupportInter-business WorkingExternal CollaborationReliability & FlexibilityCross-functional workingInternal CommunicationsFunctional WorkingTransaction ProcessingSimplification & ControlSkills & disciplinesData AccuracyPerformance MeasuresLeadership & VisionProgram Management++Establishing the starting point focuses the action plans
45 Prognosis of future development
The Supply Chain of the Future must be SMARTER...It will be Instrumented, Interconnected & IntelligentAutomated Transactions & Smart DevicesUse of sensors, actuators, RFID, & smart devices to automate transactions: inventory location, shelf-level replenishment detection, transportation locations & bottlenecksSupports real-time data collection & transparency from POS to manufacturing to raw materialSense-and-respond demand/supply signals allow “predict and act”InstrumentedOptimized FlowsMulti-Tier system integration across the network. Standardized data and processes.Collaborative decision making through decision support and business intelligence – starting with the customerNetworked risk management programs for integrated financial controls with operational performance – monitored and measuredInterconnectedNetworked Planning, Execution & Decision AnalysisSimulation models to evaluate trade-offs of cost, time, quality, service and carbon and other criteriaProbability-based risk assessment & predictive analysisNetworked planning/execution with optimized forecasts & decision supportIntelligent
46 Prognosis of future development
How can it be so very difficult when we have the ability to use all these assets: Our Point of View on the Progression of Supply Chain Management to a Smarter FutureSmart Supply ChainFutureExternal Collaboration &IntegrationNetworkedPlanning,Flexibility & stabilityExecution &Decision AnalysisIntelligentEffectively driving profitable growthHorizontal Process IntegrationOptimizedFlowsBalancing risk and performanceInterconnectedFunctional ExcellenceIntegratedStatic Supply ChainTransactions(ERP to ERP)InstrumentedManaging complexityAutomatedTransactions(Sensors & Actuators)
47 ConclusionZara’s production system is pulled by demand which allows a better alignment to customers’ expectations.Zara’s vertically integrated supply chain process is the keystone of its success since its ensure the needed flexibility to be able to react quickly to the market trends.
Zara changes its clothing designs every two weeks on average, while competitors change their designs every two or three months. It carries about 11,000 distinct items per year in thousands of stores worldwide compared to competitors that carry 2,000 to 4,000 items per year in their stores. Zara’s supply chain is absolutely critical to its business success (Zara website – http://www.zara.com).
(click on screenshot for larger image)
The company was founded in Spain in 1975. It is the flagship business unit of a holding company called Inditex Corporation with headquarters in Arteixo, Galicia, Spain. The heart of the company and its supply chain is a huge, highly automated distribution center (DC) called “The Cube”. The screenshot above shows a closeup satellite view of this facility.
CASE STUDY CONCEPT: Zara’s Business Model is Driven by Its Supply Chain Capabilities
Agents for the company are always scouting out new fashion trends at clubs and social gatherings. When they see inspiring examples they quickly send design sketches to the garment designers at the Cube. New items can be designed and out to the stores in 4 – 6 weeks, and existing items can be modified in 2 weeks.
The company’s core market is women 24 – 35 years old. They reach this market by locating their stores in town centers and places with high concentrations of women in this age range. Short production runs create scarcity of given designs and that generates a sense of urgency and reason to buy while supplies last. As a consequence, Zara does not have lots of excess inventory, nor does it need to do big mark-downs on its clothing items.
In Spain customers visit Zara stores 17 times per year compared to 3 times per year for competitors. Since their clothes are unique and not standard, it is harder for people to see them clearly on the Internet and thus they are encouraged to come into the stores instead and try on the unique fashions that Zara offers.
Zara has 12 inventory turns per year compared to 3 – 4 per year for competitors. Stores place orders twice a week and this drives factory scheduling. Such short term focused order cycles make forecasts very accurate, much more accurate than competitors who may order every two weeks or every month.
Clothing items are priced based on market demand, not on cost of manufacture. The short lead times for delivery of unique fashion items combined with short production runs enable Zara to offer customers more styles and choices, and yet still create a sense of urgency to buy because items often sell out quickly. And that particular item or style may not be available again after it sells out. Zara sells 85 percent of its items at full price compared to the industry average of selling only 60 percent of items at full price. Annually there is 10 percent of inventory unsold compared to industry averages of 17 – 20 percent.
Zara spends its money on opening new stores instead of spending a lot on ad campaigns. Estimates vary on the number of Zara stores worldwide. An article in the New York Times Magazine (November 2012, “How Zara Grew into the World’s Largest Fashion Retailer” see reference in bibliography below), places the store count at around 5,900. An article in Forbes simply states there are more than 2,100 stores (May 2016, “The World’s Most Valuable Brands – #53 Zara”, see bibliography below). Annual sales at the end of 2015 were estimated by Forbes to be $15.9 billion. Because Zara is a privately owned company, it is not required to disclose information routinely released by public companies. Zara uses a flexible business model where its stores can be owned, franchised or co-owned with partners.
Manufacturing and Supply Chain Operations Make Zara Unique in Its Industry
Factories can increase and decrease production quickly, thus there is less inventory in the supply chain and less need to finance that inventory with working capital. They do only 50 – 60 percent of their manufacturing in advance versus the 80 – 90 percent done by competitors. So Zara does not need to place big bets on yearly fashion trends. They can make many smaller bets on short term trends that are easier to call correctly.
Zara buys large quantities of only a few types of fabric (just four or five types, but they can change from year to year), and does the garment design and related cutting and dyeing in-house. This way fabric manufacturers can make quick deliveries of bulk quantities of fabric directly to the Zara DC – the Cube. The company purchases raw fabric from suppliers in Italy, Spain, Portugal and Greece. And those suppliers deliver within 5 days of orders being placed. Inbound logistics from suppliers are mostly by truck.
The Cube is 464,500 square meters (5 million square feet), and highly automated with underground monorail links to 11 factories within a 16 km (10 mile ) radius of the Cube. All raw materials pass through the cube and all finished goods also pass through on their way to stores. The diagram below illustrates Zara’s supply chain model.
(click on diagram for larger image)
The 11 Zara owned factories are connected to the Cube by underground tunnels with high speed monorails (about 200 kilometers or 124 miles of rails) to move cut fabric to these factories for dyeing and assembly into clothing items. The factories also use the monorail system to return finished products to the Cube for shipment to stores. Here are some facts about the company’s manufacturing operations:
- Zara competes on flexibility and agility instead of low cost and cheap labor. They employ about 3,000 workers in manufacturing operations in Spain at an average cost of 8.00 euros per hour compared to average labor cost in Asia of about 0.40 euros per hour.
- Zara factories in Spain use flexible manufacturing systems for quick change over operations.
- 50% of all items are manufactured in Spain
- 26% in the rest of Europe
- 24% in Asia and Africa
The screenshot below illustrates how the Zara supply chain is organized. Manufacturing is centered in northwestern Spain where company headquarters and the Cube are located. But for their main distribution and logistics hub they chose a more centrally located facility. That facility is located in Zaragoza in a large logistics hub developed by the Spanish government. Raw material is sent by suppliers to Zara’s manufacturing center. Then finished garments leave the Cube and are transported to the Zara logistics hub in Zaragoza. And from there they are delivered to stores around the world by truck and by plane.
(click on screenshot for larger image)
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Zara can deliver garments to stores worldwide in just a few days: China – 48 hrs; Europe – 24 hrs; Japan – 72 hrs; United States – 48 hrs. It uses trucks to deliver to stores in Europe and uses air freight to ship clothes to other markets. Zara can afford this increased shipping cost because it does not need to do much discounting of clothes and it also does not spend much money on advertising.
A Lean and Agile Supply Chain
Stores take deliveries twice per week, and they can get ordered inventory often within two days after placing their orders. Items are shipped and arrive at stores already on hangers and with tags and prices on them. So items come off delivery trucks and go directly onto the sales floor. This makes it possible for store managers to order and receive the products customers want when they want them, week by week.
Zara stores respond practically in real-time as customer preferences evolve. It is a great business model for success in the high-change and hard to predict fashion industry. It means about half of the clothing the company sells, most of its high margin fashion items (but not its lower margin basic items), is manufactured based on highly accurate, short-term (2 – 6 week) demand forecasts. Because this business model tracks so closely to real customer demand from one month to the next, it frees the company to a large degree from getting caught in cyclical market ups and downs that ensnare its competitors (those cycles are driven by boom-to-bust gyrations generated by the bullwhip effect). Turbulence in the global economy since 2008 has hurt sales at many competing fashion retailers, but Zara has seen steady, profitable growth during this time.
However, a fast-moving and finely tuned supply chain like Zara’s requires constant attention to keep it running smoothly. Supply chain planners and managers are always watching customer demand and making adjustments to manufacturing and supply chain operations. The screenshot below shows the result of one simulation using the supply chain model outlined above. Adjustments need to be made to production rates, vehicles, and delivery routes and schedules to get this supply chain to work well.
(click on screenshot for larger image)
Zara is a clothing and fashion retailer that uses its supply chain to significantly change the way it operates in a very traditional industry. No other competitor can copy its business model until it first copies its supply chain. And since supply chains are composed of people, process, and technology, even the latest and greatest technology is not a competitive advantage all by itself. People must be well trained, and processes must be put in place that enable people to apply their training and their technology to best effect.
Buying technology similar to that used by Zara is easy. But for the technology to be used profitably, competitors must learn about the mental models and the operating procedures used by Zara. Good mental models enable people to understand the potentials and see the opportunities that a real-time supply chain offers. Effective operating procedures enable people to act on what they see and capitalize on the competitive advantages their technology gives them.
Zara has spent more than 30 years building its unique real-time supply chain and training its people. So competitors have a lot of learning to do to create the mental models, and roll out the operating procedures needed to do what Zara does so well.
[ See our blog article “Five New Supply Chain Technologies and How to Use Them” for more about new technologies and how they can be used to improve supply chain operations and create competitive advantages for companies.]
YOUR CHALLENGE – Imagine you are in charge of Zara’s supply chain operations. This case study and supply chain simulation will give you an understanding of what that job is like. In this exercise your mental model of Zara’s supply chain will expand and your understanding of how this supply chain works will deepen. You will appreciate the continuous adjustments that need to be made to keep the supply working and keep operating expenses and inventory levels under control.
First, get this supply chain to run for 15 days.Start by doing whatever seems necessary to keep the supply chain running without stock-outs or over-stocks for 15 days. When you load the Zara supply chain model from the library and run the simulation you will see a problem occurs on day 5. There will be other problems after you address this one. Work first on just getting the supply chain model to run for 15 days, then refine your solutions to get the supply chain to run at lower costs in transportation, facility operations and on-hand inventory across the supply chain.
Because of its agile supply chain, Zara works on a short sales and operations planning cycle (let’s assume Zara works on a 15 day cycle where its competitors work on 30-day or even 60-day planning cycles). That 15-day operations planning cycle is what we are simulating in this case study. You will need to adjust store delivery frequencies and amounts, and adjust manufacturing rates and supplier deliveries also. As you work on getting the supply chain to run for 15 days, you will form a picture in your mind of how this supply chain operates – a mental model that shows you how the products, facilities, vehicles and routes in this supply chain interact.
Next do some research on store rental costs, labor rates, transportation costs and product demand in different markets.Go to websites of commercial real estate brokers in cities of interest and see what you can find out about rents. Research salaries and median income in different cities to find out about labor rates. Go to 3PL and logistics services company websites to find out about transportation costs. Search for fashion industry clothing demand forecasts around the world. Consider subdividing the two high level products (Zara Basics Pack and Zara Fashion Pack) into lower level product categories to get more insight and accuracy. What are some lower level product categories that make up the Fashion Pack, or the Basics Pack?
NOTE: Do the best you can with the time you have available for this research. Do internet searches on relevant key words and phrases. See what comes up and select sources that seem the most trustworthy and accurate (that’s what we did when we created this case study; our assumptions and sources are shown below). If you can’t find the exact numbers you are looking for, then estimate numbers you need based on other numbers you do find in your research. Do not spend more than your allocated time doing research. As the saying goes, “Good is good enough.” Document your sources, make your best estimates, and move on.
Then update and expand the Zara supply chain model using your research data.Update product prices and demand at the stores based on your research. Experiment with adding new stores in other cities in Europe and overseas in North America, South America, Africa or Asia (represent all stores in a single city with just one or two stores and keep total number of facilities in your model about 25 or less). For added realism see how stores in New York and Shanghai are located in the existing supply chain model in the SCM Globe library. Stores can be on actual Zara store locations or can be placed in the middle of a cluster of actual Zara stores; enter collective demand, costs and on-hand inventory for all actual stores represented by a single store in your model. Note in the existing model how flights from the logistics hub in Spain land at nearby airports for stores in New York and Shanghai, then delivery trucks move garments from those airports to the stores. Use that same approach as you expand into other countries outside of Europe.
Add new vehicles and create delivery routes for them to deliver products to the new stores. Now adjust your supply chain model to support these new stores and still run for 15 days. Then make adjustments to lower transportation and operating costs and on-hand inventory.
TIP:Save backup copies of your supply chain model from time to time as you make changes. Then if a change doesn’t work out, you can restore from a saved copy.
NOTE: Find useful ideas for reducing inventory and for calculating optimum product delivery amounts and schedules by reading “Cutting Inventory and Operating Costs” in the online guide. For ideas on how to expand this supply chain see “Tips for Building Supply Chain Models” for useful techniques.
Create a presentation describing the supply chain challenges you encountered and why successful solutions to those challenges provides such a competitive advantage for Zara. Explain the supply chain principles and best practices you used to solve the challenges you encountered while expanding the supply chain and finding a way to keep it running efficiently for 15 days. Show how this supply chain makes it possible for Zara to use its fast fashion business model, and why it provides a competitive advantage over other fashion retailers. If Zara competitors were to emulate Zara’s business model, what supply chain capabilities would they need? Use screenshots and data from your simulations to illustrate your report.
Assumptions and Simplifications Used in this Model
Because Zara is a private company, specific details of the Zara business model and supply chain can be difficult to verify. Yet the supply chain model presented here is still a useful picture of the Zara supply chain and illustrates its operations and its capabilities (see more about this in “Supply Chain Modeling and Simulation Logic“). This case study and supply chain model is based on data from articles listed in the bibliography below. The assumptions and specifications listed here are built into the model, and you can easily change them as better data becomes available. New products, facilities, vehicles and routes can also be added to this model to further explore how Zara’s supply chain operates.
- Zara finished goods garments are combined into two categories of products, Zara Fashion Pack represents in-house manufactured high fashion items, Zara Basics Pack represents basic items contract manufactured by others
- Zara Fashion Pack = 100 garments; price of 5,000 euros; weight of 40 Kg; volume of 1 cubic meter;
- Zara Basics Pack = 200 garments; price of 3,000 euros; weight of 60 Kg; volume of 0.5 cubic meters
- The Cube employs 3,000 people at average rate of 8 euros per hour = 64 euros per day
- Automated warehouse in Zaragoza employs 800 people at avg of 64 euros per day and other facility operating costs for utilities, insurance, etc. cost additional 15,000 euros daily
- Raw fabric costs per case: Fabric 1 = 1 cubic meter; price of 1,000 euros; Fabric 2 = 0.5 cubic meter; price of 800 euros; Fabric 3 = 0.6 cubic meter, price of 1,200 euros
- Zara factories need mix of raw fabrics to create their finished goods; see the definition of these facilities to see individual requirements and production
- The Cube has 1.6 million cubic meters of product storage space
- 150 million items pass through Cube annually or 411,000 per day
- 11 actual Zara factories are represented by 5 factories in the model
- Monorail shipping containers are 50 cubic meters in volume, can carry 10,000 kilograms of weight, and travel at average speed including loading and unloading of 60 kilometers per hour
- Zara stores in a single city are represented by a single store that combines the demand of all stores in that city – not all cities are included and more cities can be added to this model
- All specifications for Products, Facilities, Vehicles and Routes in this supply chain model can be edited and changed
- New products, facilities, vehicles and routes can be added to this model
- Vehicle operating costs per km are set to be just half the normal cost for trucks and airplanes. This more accurately models the process where Zara pays for one-way shipping containers to move products from one facility to another without paying the full round-trip cost (carbon per km was also adjusted to half of normal for the same reason). This compensates for the model logic which calculates vehicle costs based on the round trip distance instead of the one-way distance. However, full operating cost per km is used for the monorail vehicles that move products between the Cube DC and the Zara garment factories because Zara owns those vehicles and pays for full round-trip costs.
REMEMBER — There is a spreadsheet reporting template you can use to analyze downloaded simulation data. Import your simulation data into the template and create monthly profit & loss reports as well as generate key performance indicators. See more about this in the online guide section “Analyzing Simulation Data” – scroll down to the heading titled “Download Simulation Data to Spreadsheet Reporting Templates”. The sample template is set up for the Cincinnati Seasonings company, but look at how the reports read the simulation data and you will see how to change the spreadsheet as needed to accommodate this case study.
To share your changes and improvements to this model with other SCM Globe users see “Download and Share Supply Chain Models”
Register onSCM Globeto gain access to this and all other case studies. Click the blue “Register” button on the home page (www.scmglobe.com) and buy a subscription (if you haven’t already) with a credit card or PayPal account. Then go to the SCM Globe library and click the “Import” button next to this case study. Scan the “Getting Started” section (if you haven’t already), and you are ready to go.
A web search on Zara supply chain operations done in October 2016 yielded many results; this case study is based on information found in the articles listed below:
Agile Supply Chain
Analysis of Zara’s supply chain practices – By Galin Zhelyazkov – Design, Manufacture & Engineering Management; Strathclyde University Glasgow, 2011
How Zara Grew Into the World’s Largest Fashion Retailer
History and business model of Zara – By Suzy Hansen, The New York Times Magazine, 9 Nov 2012
Logistics Clustering for Competitive Advantage
Zara’s global logistics hub outside Spanish city of Zaragoza – By Yossi Sheffi, Dir MIT Center for Transportation & Logistics, CSCMPs Supply Chain Quarterly, Quarter 3 2012
Polka Dots Are In? Polka Dots It Is!
How Zara gets fresh styles to stores insanely fast—within weeks. – By Seth Stevenson – Slate.com, 21 Jun 2012
The World’s Most Valuable Brands – #53 Zara
A ranking and brief profile of the 100 most valuable and recognized brand name companies – Forbes, May 2016 –
Zara’s Fast Fashion Edge
Speed and responsiveness to customer demand drives Zara’s business model
– By Susan Berfield and Manuel Baigorri – Bloomberg Business, 14 Nov 2013
Zara Uses Supply Chain to Win Again
In face of flat or declining retail industry sales, Zara stands out – By Kevin O’Marah – Forbes, 9 Mar 2016
We found the following slide presentations were also informative:
Zara Supply Chain from Dimple Ramani
Supply Chain Management of ZARA from Sai Praveen Chettupalli
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