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Case Study: Zara’s Supply Chain Success Story

Zara is a Spanish fashion clothing manufacturer and retailer, formed in the 1970’s It is known that only two weeks are required for Zara to complete the development and shipment of a new product to its stores , which outweighs the average of fashion industry of six months, thanks to the collaborative relationship with customers and suppliers. Zara mainly targets on young and urban female customers and acceptable prices are offered. There are always new products in Zara stores. Even though usually Zara stores are spacious but the stock is displayed in limited quantity. This kind of strategy gives customers a sense of originality and exclusivity. Most of the stores display clothes only when they have a full set of major sizes, so customers would not be upset to find out that the needed size is not available. As shoppers enter the stores, reaction between Zara and customers starts with creating a sense of “buy now since you won’t see it next time” because of the rapid turnover environment. Customer relationship between Zara and shoppers is then strengthened by, instead of offering VIP services and discounts, showing a sense of scarcity by displaying unfilled shelves, limited offer notes on certain items and deliberate undersupply impression to encourage customers to run to the counter.

Zara is not a world leader in cloth designs, but it is a high sensitive and flexible fashion trend follower. Zara has design staffs that glen fashion inspiration by interaction with potential customers from competitors’ stores, clubs, fashion shows, university campuses and any other events or venues related to the lifestyles of the target customers. Zara’s networked business designs enable the frequent digital communication from stores to designers, and centralized distribution allow the within-15-day deliveries to ensure the satisfaction of consumers, comparing with the average length of 9 months for the competitors.

Zara’s Supply Chain

Zara’s single, centralized design and production center is attached to Inditex (Zara’s parent company). Inditex Chief Executive Jose Maria Castellano says, “This business is all about reducing response time. In fashion, stock is like food, it goes bad quick.” To maintain a healthy reaction with customers, keeping up with fashion has become one of the main strategies of Zara.

Market-driven supply chain (linking customer value to supply chain strategy ) was then applied instead of the traditional supply chain which only designed to optimize the internal operations. The company uses “value net” business design to support the networked operation in order to allow connect customers with the company and its key suppliers. Zara’s “value net” includes: digital customer input provided by Zara stores , Zara designers’ sketch pads of the required styles, globally sourced textiles , hi-tech cutting plant and local workshops sewing/assembly, single distribution system. Based on the “value net”, customer value management is a key issue to obtain a regular group of buyers. Opportunities from current and potential customers can be created by understanding the customers’ hobbies, purchase frequency, behaviors and needs. Further actions hence can be taken including contacts of multi-channel customers and campaigns promotional targeting , offers designed to attract and serve different customers according on their potential and existing values. The current shoppers are frequent and loyal customers who visit 17 times on average to a Zara store per year. Their interest is retained by regularly updating and varying of stocks on shelves.

The design and production center consists of three halls – men’s, women’s, children’s. Unlike most of the companies, especially after Global Finance Crisis has started, which try to reduce labor costs, Zara makes a point of running three parallel, but operationally distinct, product families. Separate sales, production planning , design staffs are responsible for each clothing (men, women, children) line. Any Zara store may receive three different calls from centralized headquarter in one week from a market specialist in each channel, a factory making shirts may deal simultaneously with two Zara managers, one for men’s shirts and another for children’s shirts. Even though it’s more expensive to operate three different and separate channels, the information stream from management to each separate channel is direct, fast and not disturbed by problems of other channels which makes the overall supply chain more responsive. This sort of physical and organisational proximity of all three channels allows increasing productivity , the speed of new customer desired designs and the whole design process and the quality of that process. Zara’s drafting machines can produce a corresponding style or modification to specific requests within 2 to 4 weeks after a requirement is placed and samples would be released shortly throughout varies of medias and further manufacturing may be proceeded upon to the market reactions.

Efficient communication between the company and suppliers is essential in order to reduce production cost and quality maintenance. Comparing with Zara’s competitor United Colors of Benetton which uses Asian resources, about 40% of Zara’s merchandise are internally manufactured, 66% of raw materials are imported from Europe and north Africa, and only a small amount of basic items (items with the broadest and least transient appeal) are outsourced from Asia. The global sourced strategy provides a large range of possible selection of fashion fabrics and reduces the dependence on any particular suppliers. More than half of the material is purchased in gray color and is dyed in one of Inditex’s facilities. Only one week is required for this process to complete which shows the benefit of proximity and domestic control.

Domestic production incurs extra cost of approximately 20% comparing if the garments were produced in Asia, yet Zara does not really suffer from it due to the efficient operation with the Europe manufacturer. The suppliers provide Zara flexibility to postpone the printing and dyeing procedures to adapt product lines according to updated market fashion trend. Holding inventories costs are reduced as well because orders do not have to be placed for a season in advance and kept in the storerooms before the periodic shipment arrives and Zara is able to react and respond quickly to changes of customer demands which also reduces the risk when final demand gets amplified as they are fulfilled quickly by transferring new designs to the supply line.

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Supply Chain Management Design & Simulation Online

Zara Clothing Company Supply Chain

January 4, 2020 By mhugos

CASE STUDY CONCEPT: The Zara supply chain drives its successful business model. Run simulations of the Zara supply chain to see how it works, and how to improve it.

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 highly responsive supply chain is central to its business success. The heart of the Zara supply chain is a huge, highly automated distribution center (DC) called “The Cube”. The screenshot below shows a closeup satellite view of this facility.

The company was founded in Spain in 1974 by Amancio Ortega and his wife Rosalía Mera. It is the flagship business unit of a holding company called Inditex Corporation with headquarters in Arteixo, Galicia, a city in northwestern Spain near where Mr. Ortega was born. In 2020 Zara was ranked as the 41st most valuable brand in the world by Forbes (see bibliography below).

NOTE: This is an advanced case . Work through the three challenges of the beginning case, “ Cincinnati Seasonings ” before taking on the challenges in this case.

[ Instructors, students and professionals can request a  free SCM Globe trial demo ]

Company Business Model

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.

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.

In Spain customers visit Zara stores 17 times per year on average compared to 3 times per year for competitors. Because their clothing designs change often, it is harder for people to see them clearly online. So they are encouraged to come into the stores instead and try on the unique fashions that Zara offers (screenshot below shows people at a Zara store in Madrid, Spain).

Zara spends its money on opening and growing its 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 “), placed the store count at around 5,900. An article in Forbes simply states there are “more nearly 3,000 stores” (2020, “ The World’s Most Valuable Brands – #41 Zara “). Annual sales for 2019 were estimated by Forbes to be $21.9 billion . The holding company, Inditex SA, is a public company and Inditex provides annual statements , but it does not break out Zara sales from sales of the other brands owned by Inditex (Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home, and Uterqüe). Zara uses a flexible business model where its stores can be owned, franchised, or co-owned with partners. So it is not always possible to find exact numbers for Zara’s business operations and finances.

Manufacturing and Supply Chain Operations Make Zara Unique

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 Zara-owned clothing factories within a 16 km (10 mile ) radius of the Cube. All raw materials pass through the Cube on their way to the clothing factories, and all finished goods also pass through on their way out to the stores. The diagram below illustrates Zara’s supply chain model.

Zara’s factories can quickly increase and decrease production rates, so 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. 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.

The Zara 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 monorail system then returns 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 11.00 euros per hour compared to average labor cost in Asia of about 0.80 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.

[ Instructors, students and professionals can request a  free SCM Globe trial demo — NOTE: This is an advanced case . Work through the three online challenges of the beginning case, “ Cincinnati Seasonings ” before working with this case. ]

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.

Zara’s Supply Chain is Lean and Agile

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 styles and 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, which includes most of its high margin and unique 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.

[ Editor’s Note: During 2020 Inditex, owner of Zara and other fashion brands closed more than 1,000 stores worldwide in response to the Covid pandemic and increased its focus on online sales. Then in 2021 store business rebounded and surpassed pre-pandemic levels .  Can you think of some ways these changes in Zara’s business model affected Zara’s supply chain? ]

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. Continuous adjustments need to be made to factory production rates, vehicles, delivery routes, and schedules to keep this supply chain working well.

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 effectively, 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 FIRST SUPPLY CHAIN CHALLENGE  

Get this supply chain to run for 15+ days and keep inventory and operating costs as low as you can.  

Imagine you are in charge of Zara’s supply chain operations. This case study and supply chain simulation will give you an appreciation 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 see the continuous adjustments that need to be made to keep the supply chain working and to keep operating expenses and inventory levels under control.

Load a copy of the Zara supply chain model from the online library into your account. Then start running simulations to see how the supply chain works. Start by doing whatever seems necessary to keep the supply chain running without stock-outs or over-stocks for 15 days. When you run the first simulation you will see a problem occurs on day 5. As with all cases, there are many possible ways to respond to this problem. And depending on how you respond, other problems will appear as you work toward getting your supply chain to run for 15 days. Do whatever seems necessary to get the supply chain 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.

Its agile and responsive supply chain enables Zara to work on a short sales and operations planning (S&OP) cycle. Let’s assume Zara works on a 15 day cycle where its competitors work on 30-day or even 60-day planning cycles. So you are creating a 15-day supply plan to meet the 15-day demand plan which is already entered into the model in the form of product demand at the different stores. To get this supply chain to meet demand and run for 15+ days you need to make adjustments to elements of your supply plan:

• Store delivery amounts and frequencies
• Delivery amounts and frequencies on air freight routes
• Product manufacturing rates at Zara clothing factories
• Movement of products between Zara Cube, Zara factories, and Logistics Hub in Zaragoza
• Supplier delivery amounts and frequencies for delivering bulk fabric to the Cube

The screenshot below shows a closeup of the Zara Logistics Hub in Zaragoza, Spain. Product deliveries are made to stores by airplane and truck from this facility every day.

When you have questions about how to work with this case, the answer is always to ask yourself, “What would I do if this were the real world and I was the person in charge?” Model and simulate different ideas. Make reasonable assumptions and estimates. Then add/change/delete products, facilities, vehicles and routes as called for in your supply chain model to reflect your ideas. When you run simulations you will see how well different ideas work. Go with the ideas that work best to find the solutions you need.

Look in the online guide for useful tips and techniques that will help as you work with this case. Here are some places to look:

• Analyzing Simulation Data
• Tips for Building Supply Chain Models
• Cutting Inventory and Operating Costs

ZARA SUPPLY CHAIN REPORTING TEMPLATE: Import your simulation data into this template to create 15-DAY P&L REPORTS and key performance indicators.  Zara’s agile supply chain enables it to use shorter planning cycles (15-days instead of 30-days). The reporting template is designed for use with the supply chain model in the online library titled “Zara Clothing Company Ver4”.  If you add more products, facilities, or vehicles to the model you will need to expand the spreadsheet to accommodate those additions. A sample P&L report created from simulation data is shown below: D ownload a copy of the Zara Clothing Company P&L Reporting Template here

[ If you are using SCM Globe Professional version, these reports can be generated automatically by clicking on the “ Generate P&L Report ” button on the Simulate Screen ]

CREATE AN EXECUTIVE BRIEFING — a 3 to 5 page report or a short deck of presentation slides. Use screenshots and data produced by simulations to illustrate what you learned about how the Zara supply chain operates. Explain what were the main problems you encountered in getting your simulation to run for 15+ days. Show what you did to address those problems. Present the three or four main things you learned about this supply chain. Explain why these things make this supply chain such a competitive advantage for Zara.

SAVE BACKUP COPIES  of your supply chain model from time to time as you make changes.  Click “Save” button  next to your model in  Account Management  screen. There is no “undo”, but if a change doesn’t work out, you can  restore from a saved copy . And sometimes supply chain model files (json files) become damaged and they no longer work, so you want backup copies of your supply chain to restore from when that happens.

NOTE : An earlier bug that displayed some routes times and distances as ONE-WAY has been fixed. All routes now show  ROUND-TRIP times and distances. Simulations use ROUND-TRIP times and distances.

YOUR SECOND CHALLENGE  

Expand this supply chain to support more stores, and keep inventory and operating costs under control.

Do some research on store rental costs, labor rates, transportation costs and product demand in different markets, then use your research to update and expand your model of Zara’s supply chain:

• Go to websites of commercial real estate brokers in cities of interest and see what you can find out about rents (for cities in North America start with www.cityfeet.com and for cities in other parts of the world start with www.knightfrank.com ).
• Research salary levels and median incomes in different cities. New stores open in cities with median incomes high enough to be profitable markets for Zara. Store rent and operating costs will also be set by market rates in those cities.
• Go to 3PL and logistics services company websites to find out about transportation costs. Assume air freight rates from Zaragoza remain the same to any city, but truck transportation costs will be different in different cities.
• Consider subdividing the two high level product categories (Zara Basics Pack, Zara Fashion Pack) into lower level product categories to get more insight and into how this supply chain operates. What are some lower level product categories that make up the Fashion Pack, or the Basics Pack?
• Do searches to find fashion industry demand forecasts for clothing in different cities around the world. Use that research to set the product demand levels in the new stores. You can also update product demand levels at existing stores based on this research.
• You can measure the carbon footprint of different supply chain designs. There are default estimates of carbon generation already entered for facilities and vehicles, and the simulations use this to calculate the supply chain carbon footprint. You can enter your own estimates for carbon generation for the facilities and vehicles if you wish.

Do the best you can with the time available! — 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 for this case study; our assumptions and sources are listed below). If you can’t find the exact numbers you are looking for, then estimate numbers you need based on other numbers you find in your research (please read “ All Supply Chain Models are Approximations “). 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.

Update and expand the Zara supply chain model using your research data.   Update product prices and demand at the existing stores based on your research. Also experiment with adding new stores in other cities in Europe, Asia, North America, South America or Africa (represent all stores in a single city with just one or two stores and keep the total number of facilities in your model to between 15 – 20).

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 the 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 as shown in the screenshot above. Use this 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. This adds an extra layer of realism and shows how dependent this supply chain is on tight scheduling and just-in-time (JIT) delivery of products.

Adjust your supply chain model to support these new stores and still run for 15+ days . Once you get it running for 15+ days, then make adjustments to your model to lower transportation and operating costs and on-hand inventory amounts.

CREATE A FINAL PRESENTATION showing your expanded supply chain model and describing the supply chain challenges you encountered. Explain 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. What were your biggest challenges and how did you solve them?
• Identify places in your expanded supply chain model (facilities, vehicles and routes) where you used new technology such as that explained in the blog article “ Five New Supply Chain Technologies and How to Use Them “. How do these technologies produce the performance capabilities you show  in your simulation results?
• Show how a supply chain with these capabilities makes it possible for Zara to use its fast fashion business model. If Zara competitors were to emulate Zara’s business model, what supply chain capabilities would they need?
• What can you do to lower the carbon footprint of your supply chain?
• Use screenshots and data from your simulations to illustrate your report.

NOTE: This is an ADVANCED LEVEL case study – work through a beginning level case such as Cincinnati Seasonings before attempting to work with this case.

Working on this case will be challenging… but the skills and insights you develop here will be the same skills and insights you use to manage a real supply chain like Zara’s.

FIND USEFUL IDEAS in the Online Guide to help you expand and improve your Zara supply chain model. There is a lot going on in this case so check out these ideas:

• See techniques for expanding this supply chain model in “ Tips for Building Supply Chain Models ”
• Reduce on-hand inventory and calculate optimum delivery amounts and schedules in “ Cutting Inventory and Operating Costs “
• Make sure you are familiar with the techniques presented in “ Analyzing Simulation Data “
• Consider using the S&OP process as a framework to organize your work , S&OP is explained in a case called “ Java Furniture Company ” — scroll down to the heading “ Sales & Operations Planning (S&OP) is a Best Practice “
• If you use same size shipping containers for all your products, the beta test reporting template can help identify opportunities to improve performance, see “ Supply Chain Optimizing & Reporting Template “
• Look through the Table of Contents of the Online Guide to find other useful information

ZARA SUPPLY CHAIN REPORTING TEMPLATE: Import your simulation data into this template to create 15-DAY P&L REPORTS and key performance indicators.  D ownload a copy of the Zara Clothing Company P&L Reporting Template here

To share your changes and improvements to this model (json file) with other SCM Globe users see “ Download and Share Supply Chain Models ”

Assumptions and Simplifications Used in this Model

Because Zara operations and financial reporting is combined with the other retail brands owned by Inditex, 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
• 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.
• 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.
• All specifications for Products, Facilities, Vehicles and Routes in this supply chain model can be edited and changed if you have better data
• New products, facilities, vehicles and routes can be added to this model and you can simulate the results as you expand your model

Bibliography: 

A web search on “Zara supply chain” will yield many results; this case study is based on information from some of those results listed below:

The World’s Most Valuable Brands – #41 Zara   A ranking and brief profile of the 100 most valuable and recognized brand name companies – Forbes, 2020

We went inside one of the sprawling factories where Zara makes its clothes https://www.businessinsider.nl/how-zara-makes-its-clothes-2018-10?international=true&r=US – By Mary Hanbury, Business Insider, 2018

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

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

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

We found the following slide presentations were also informative:

Register on  SCM Globe  to gain access  to this and  other supply chain simulations . Click the blue “ Register ” button on the app login page , and buy an account with a credit card (unless you have an account already). Scan the “ Getting Started ” section, and you are ready to start. Go to the SCM Globe library and click the “Import” button next to this or any other supply chain model.

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• September 23, 2023
• AI Case Studies

Case Study: Zara’s Comprehensive Approach to AI and Supply Chain Management

Zara, an international fashion retailer based in Spain, has integrated artificial intelligence (AI) into various aspects of its business operations to enhance efficiency, responsiveness, and customer engagement. Unlike many competitors, Zara’s use of AI is not limited to consumer behavior analytics but extends throughout its supply chain and inventory management systems. By embracing cutting-edge technologies like RFID tagging, real-time analytics, and machine learning, Zara aims to maintain its competitive edge in the fast-paced fashion industry.

Key Takeaways

• Zara employs a comprehensive use of AI across multiple facets of its operations, ranging from supply chain management to customer engagement.
• Unlike many competitors, Zara minimizes outsourcing, enabling them to exercise greater control and gather data at every stage of the business process.
• The company utilizes an advanced Just-In-telligent supply chain system, allowing for real-time optimization of inventory levels and logistics.
• Zara can rapidly respond to market trends and consumer demands, boasting a turnaround time for new designs that is as quick as one week.
• Their strategic use of AI has led to improved customer satisfaction and loyalty, as well as high rankings in global online fashion sales.

Deep Dive: Zara’s Comprehensive Approach to AI and Supply Chain Management

Zara’s approach to AI is holistic, involving every segment of its business operations. The company combines the principles of just-in-time inventory management with AI and real-time data analytics, creating a Just-In-telligent supply chain system. By doing this, Zara can closely monitor inventory levels, supplier performance, and even consumer behavior.

Implementation

Zara has collaborated with several technology partners to implement AI in its operations. For instance, it partnered with Tyco to embed microchips into its clothing’s security tags, enhancing inventory visibility. The firm also collaborates with Jetlore to predict customer behavior based on structured predictive attributes like size, color, fit, and style. RFID tags and sophisticated logistics systems further allow Zara to optimize transportation and inventory, reducing waste and ensuring that popular items are always available.

The results have been substantial. Zara’s turnaround time for new designs is as little as one week, far below the industry average of three to six months. It enjoys a loyal customer base and ranks among the top in global online fashion sales. The company’s unique approach to using AI for real-time monitoring and forecasting has also led to reduced lead times, improved delivery accuracy, and minimized inventory carrying costs.

Challenges and Barriers

While Zara’s adoption of AI has been overwhelmingly positive, challenges remain. Managing the immense amount of data generated can be a monumental task. The integration of AI into existing systems and processes can also be complex and requires ongoing fine-tuning. Moreover, the reliance on sophisticated AI and machine learning models necessitates skilled human resources to maintain and optimize these systems.

Future Outlook

As AI and machine learning technologies continue to advance, Zara is well-positioned to further refine its algorithms for improved forecasting, supplier management, and customer engagement. Future plans may include even more robust machine learning algorithms for trend prediction and potential integration of blockchain for more transparent and efficient supply chain management.

Zara’s application of artificial intelligence in its operations serves as a benchmark for the retail industry. From supply chain optimization to personalizing customer experience, the company’s comprehensive AI strategy has yielded tangible benefits in efficiency, cost reduction, and customer satisfaction. As technology continues to evolve, Zara seems poised to remain a step ahead of its competitors, setting a precedent for what is achievable with the intelligent use of data and automation.

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Sources: H&M, Zara, Fast Fashion Turn to Artificial Intelligence to Transform the Supply Chain Zara’s Just-In-telligent Supply Chain Zara: Revolutionizing Fashion Retail with AI

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Fashion at the Speed of Light: Delving into Zara Supply Chain Strategy

Fashion at the Speed of Light: Delving into Zara Supply Chain Strategy – DFreight

The fashion industry is fast-paced and ever-evolving, so supply chain strategies need to keep up with the times to keep up with the competition. Zara, one of the top players in the fashion market, is continuously looking for new ways to enhance their supply chain to provide fast and easy access to fashionable products to their customers.  Digital freight forwarder  DFreight can assist with this process, providing quick, accurate, and dependable solutions to the fashion sector. With dynamic and ever-changing case-by-case services, DFreight is the right partner to help fashion brands remain competitive in an ever-increasing international market.

Read this article to learn more about how ZARA is leveraging supply chain strategies to remain the fashion industry leader.

Table of Contents

Zara’s Rise as a Fast Fashion Powerhouse

Zara , a Spanish fashion powerhouse, has revolutionized the fashion industry. With its fast fashion business model, Zara has become one of the world’s most powerful brands, providing customers with a wide selection of fashionable products at reasonable prices. Zara’s stores still offer seasonal pieces, but the company now provides online shopping for the international market.

With its innovative marketing, production, and logistics system, Zara is able to quickly refresh collections with new products and move merchandise from production to store shelves in record time. It has also focused on creating unique collaborations with designers and artists to appeal to a broader base of shoppers. Thanks to its combination of style, speed, and  innovation , Zara has become one of the most talked-about names in fashion.

Understanding Zara’s Fast Fashion Model

Zara has revolutionized the fashion industry by successfully implementing its fast fashion model, allowing customers to stay on the cutting edge of fashion trends without requiring a hefty investment.

The Concept of Fast Fashion and its Significance

Fast fashion is the process of rapidly producing fashionable items to meet current trends and demands while delivering them quickly and cost-effectively. This allows customers to stay on the cutting edge of fashion at a fraction of the cost.

Zara’s Unique Approach to Fast Fashion and its Benefits

Zara has taken the concept of fast fashion to a new level by having two to three collections a season, enabling it to have the latest styles on the market faster than any other company. In addition, its supply chain strategy enables faster market speed, allowing them to bring items from design to stores in as little as four weeks. Furthermore, it allows for a high level of customization and leveraging of economies of scale, resulting in increased profitability.

How Zara’s Supply Chain Strategy Enables Rapid Production and Distribution

Zara’s supply chain strategy gives them greater control over its production process, allowing for faster speed to market that brings items from design to stores in as little as four weeks. Additionally, it allows for a high level of customization and leveraging of economies of scale, resulting in increased profitability.

In the previous blogs, we looked into the supply chains of famous and leading companies, which you can read about each of them in the section below.

The Role of Vertical Integration in Zara Supply Chain strategy

Zara’s vertically integrated business model has enabled the successful international fashion retailer to gain a competitive edge in the industry by reducing inventory costs, increasing production speed, and continuously offering customers the latest trends.

Exploring Zara’s Vertically Integrated B usiness Model

Zara’s vertically integrated business model is based on owning and controlling each element of the supply chain from production to the finished product. This includes producing raw materials, manufacturing, warehousing, distribution, advertising, retailing, and logistics. By taking control of the entire supply chain, Zara is able to reduce inventory costs, speed up the production process, and provide customers with constantly updated fashion trends that are on-trend with current styles.

The Advantages of Owning the Entire Supply Chain Process

With Zara’s vertically integrated business model, they are able to reap many advantages, including reduction of inventory costs, increased speed of production, and the ability to bring customers the latest trends, as well as price flexibility. With complete control of its supply chain, Zara is able to produce new styles faster than their competitors can and offer them at competitive prices. Furthermore, Zara is able to adjust production levels to better meet customer demand, thus saving money on inventory costs.

How Vertical Integration Contributes to Zara’s Speed and Flexibility

Vertical integration has enabled Zara to have a speed-to-market strategy, offering customers twice-weekly drops of new store items. Zara can provide customers with a constant flow of current fashion trends without worrying about inventory costs or long production times. Furthermore, vertical integration allows Zara to be flexible in their production – quickly adjust their factory output to meet customer demand. This combination of speed and flexibility will enable Zara to remain competitive in the ever-changing fashion industry.

Just-in-Time Manufacturing: Zara’s Agile Supply Chain

Just-in-time manufacturing is an efficient and cost-effective way of managing a supply chain. Zara’s supply chain incorporates this approach, allowing them to quickly produce and deliver small batches of clothes that respond to changing fashion trends and customer needs. While this approach provides many benefits, there can also be challenges associated with it.

An Explanation of the Just-in-Time M anufacturing Concept

Just-in-time (JIT) manufacturing is an efficient and cost-effective way of managing a supply chain. It is a management system involving the close coordination of procurement and production processes to produce the correct item, at the right quantity, at the right time, and in the right place to meet customer demand. This approach is based on the Japanese lean manufacturing concept of creating value with less waste by making needed items only when they are required and no more. The idea is to reduce inventory, streamline production, and improve resource utilization.

How Zara’s Supply Chain Incorporates Just-in-Time Manufacturing

Zara’s supply chain incorporates just-in-time manufacturing principles to improve efficiency. Zara is able to get clothes designed, manufactured, and delivered to stores within just two weeks. They use a network of manufacturers worldwide to produce and deliver the small batches that Zara orders quickly. This gives Zara an advantage over competitors with longer lead times, allowing them to respond rapidly to changing fashion trends and customer needs.

The Benefits and Challenges Associated with this Approach

Just-in-time manufacturing provides many benefits, such as reducing inventory costs and space requirements, streamlining production, and delivering a product that is exactly what customers want. However, it can also come with challenges, such as increased pressure on suppliers to meet tight production timelines and the need for strong communication between different parts of the supply chain to coordinate effectively. Additionally, there is always the risk that unexpected events, such as natural disasters or pandemics, could disrupt the supply chain .

Dynamic Inventory Management: The Secret Weapon

Dynamic inventory management helps retailers stay updated with the latest fashion trends, allowing them to maintain relevancy and profitability in the dynamic fashion industry.

Zara’s Dynamic Inventory Management System

Zara’s dynamic inventory management system is considered pioneering in the fashion industry. It allows Zara to respond quickly to the ever-changing fashion trends and demands of consumers. The quick turnaround helps Zara maintain relevance and profitability in the dynamic industry. The system provides real-time data and consumer behavior insights, enabling Zara to replicate and update consumer preferences. This allows Zara to keep up with the latest fashion trends and choose the right quantities and items to stock in their stores.

The Use of Real-Time Data and Consumer Insights

Real-time data and insights from consumers can be used to make informed decisions about product inventories. Retailers can plan ahead and optimize merchandise stocking by understanding consumer behavior, such as preferred trends, sizes, and colors. Utilizing this information also helps retailers identify potential risks regarding inventory. This helps retailers minimize wasted stock risk and decrease inventory costs.

Strategies for Efficiently Managing Inventory While Minimizing Waste

To successfully manage inventory, retailers need to adopt strategies that help minimize waste. One such strategy is to practice continuous inventory review. This ensures timely identification of slow or discontinued items that do not meet consumer demand or have become outdated. Another effective strategy is to focus on cyclicality. This involves forecasting demand for seasonal items and stocking them based on past sales data. This helps optimize stocking decisions and minimize the risk of wasting time or money on overstocking or understocking items.

Efficient Distribution Network: From Factory to Store

Zara has implemented advanced logistics and transportation strategies to optimize the speed and accuracy of product distribution for their customers worldwide. This allows them to ensure the timely arrival of products and keep up with ever-changing fashion trends. Through careful inventory management , shipments, and pacing, Zara can ensure that their customers get their orders quickly and accurately.

Additionally, they have gone to great lengths to reduce costs, driving their profitability. Through direct connection with suppliers and providing detailed logistics planning and oversight of the entire distribution process, they have been successful in achieving their goal of a reliable and efficiently managed worldwide supply chain network.

Sustainability in Zara’s Supply Chain Strategy

Zara has demonstrated its commitment to sustainability by implementing initiatives and strategies to reduce their environmental impact while offering fashionable and affordable products.

Zara’s Initiatives towards Sustainability and Ethical Sourcing

Zara is one of the largest fashion retailers in the world, and they have implemented a range of initiatives to promote sustainability and ethical sourcing in their supply chain strategy. These include utilizing organic fabrics and natural fibers, limiting the impact of harmful chemicals, and increasing the monitoring of ethical standards within the supply chain. With each new product release, they strive to reduce their environmental impact while still being able to offer their consumers fashionable and affordable products.

Balancing Fast Fashion with Environmental and Social Responsibility

Zara balances the need for fast fashion with environmental and social responsibility. They have put strategies in place to reduce the amount of water used in manufacturing processes while encouraging people to reduce their consumption of fast fashion by creating pieces that can withstand multiple trends, seasons, and occasions. Additionally, Zara incorporates fair wages and safer working conditions as a standard in their production process.

The Challenges and Future Prospects of Sustainable Fashion

While there has been a lot of progress towards green and sustainable fashion over the past few years, there are still many challenges ahead. Suppliers need help to keep up as the demand for ethical and sustainable products grows. Moreover, the production process from raw materials to finished products is complex. It often involves a long supply chain, which can be daunting to track and monitor for sustainable practices. Looking towards the future, companies are turning towards more transparent and efficient supply chains, as well as renewable materials and innovative technologies to reduce their environmental impact.

Implications for other Fashion Brands and the Industry as a Whole

For other fashion brands to remain competitive, they must take Zara’s lead and develop effective supply chain strategies. This involves creating a production system responsive to trends, investing heavily in research and design teams to create unique products, and utilizing agile forecasting. It’s important to note, however, that both Zara’s success and the strategies of other fashion brands may also be shaped by the emergence of technologies in the fashion supply chain—such as predictive analytics, robotics , blockchain , and artificial intelligence like chat GPT . As these technologies grow in sophistication, it will be essential for fashion brands to keep up with the changing landscape and adjust their supply chain strategies to remain competitive.

The Future Direction of Supply Chain Strategies in the Fashion Industry

Looking to the future, it’s clear that supply chain strategies in the fashion industry will need to keep pace with consumers’ rapidly changing consumer preferences. The challenge for fashion brands will be maintaining agility and flexibility while mitigating cost and risk. Zara’s success offers key lessons for the industry, and for fashion brands to succeed, they must learn from Zara’s example and leverage the same strategies to remain competitive.

Zara’s supply chain strategy is a valuable case study for businesses across industries. We have summarized the key takeaways and lessons that can be learned from Zara’s success, including the importance of agility, responsiveness, and customer-centricity in supply chain management. By understanding and applying these lessons, other companies can adapt and thrive in today’s rapidly changing business landscape.

What is Zara’s supply chain strategy?

Zara’s supply chain strategy is based on a vertical integration business model, where the company controls the entire production process, from design and manufacturing to distribution and retail. By having control over every aspect of the supply chain, Zara is able to quickly analyze trends, come out with new styles and get them into stores faster, enabling it to stay ahead in the fashion industry.

What makes Zara’s supply chain unique?

Zara’s supply chain is unique because it is built on a short, agile production cycle that allows them to keep up with fast fashion trends and respond quickly to changing market needs. From design to delivery, the process takes only a few weeks, enabling Zara to introduce new styles for its customers continuously.

How does Zara use technology to remain competitive?

Zara uses several innovative technological solutions to remain competitive. These include a barcode system for tracking and monitoring in-store inventory, RFID technology to track products in warehouses and stores, and AI-driven algorithms for forecasting sales and optimizing production. Zara has also implemented a cloud-based platform, allowing it to collaborate with its global suppliers easily.

How does Zara’s supply chain enable it to offer lower prices?

Zara’s vertical integration model and agile production cycle allow them to save time and money, which they can pass on to their customers. Additionally, due to the reduced lead times in their supply chain, Zara can minimize the costs associated with inventory and warehousing, resulting in lower customer prices.

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