CASESTUDYCONCEPT:TheZarasupplychaindrivesitssuccessful businessmodel.

Zarachangesitsclothingdesignsevery twoweeksonaverage,whilecompetitorschangetheirdesignsevery two or three months. It carries about 11,000 distinct items per year in thousands of storesworldwide compared to competitors that carry 2,000 to 4,000 items per year in their stores. Zara'shighly responsive supply chain is central to its business success. The heart of the Zara supply chain is ahuge, highly automated distribution center (DC) called "The Cube". The screenshot below shows acloseupsatelliteviewofthis facility.

The company was founded in Spain in 1974 by Amancio Ortega and his wife Rosala Mera. It is theflagship 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 2019 Zara was ranked as the46thmostvaluablebrandintheworldbyForbes.

CompanyBusinessModel

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 theCube. New items can be designed and out to the stores in 4 - 6 weeks, and existing items can bemodifiedin2weeks.

The company's core market is women 24 - 35 years old. They reach this market by locating their storesin town centers and places with high concentrations of women in this age range. Short production runscreate scarcity of given designs and that generates a sense of urgency and reason to buy while supplieslast. As a consequence, Zara does not have lots of excess inventory, nor does it need to do big mark-downsonitsclothingitems.

Zara has 12 inventory turns per year compared to 3 - 4 per year for competitors. Stores place orderstwice a week and this drives factory scheduling. Such short term focused order cycles make forecastsvery accurate,muchmoreaccuratethancompetitorswhomayordereverytwoweeksor everymonth.

Clothing items are priced based on market demand, not on cost of manufacture. The short lead timesfor delivery of unique fashion items combined with short production runs enable Zara to offercustomers more styles and choices, and yet still create sense of urgency to buy because items oftensell out quickly. And that particular item or style may not be available again after it sells out. Zara sells85 percent of its items at full price compared to the industry average of selling only 60 percent of itemsat full price. Annually there is 10 percent of inventory unsold compared to industry averages of 17 - 20percent.

In Spain customers visit Zara stores 17 times per year on average compared to 3 times per year forcompetitors. Because their clothing designs change often, it is harder for people to see them clearly onthe Internet and thus they are encouraged to come into the stores instead and try on the uniquefashionsthatZaraoffers.

PeopleenteringaZarastoreinMadrid

Zara spends its money on opening new stores instead of spending a lot on ad campaigns. Estimates varyon 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. Anarticle in Forbes simply states there are "more nearly 3,000 stores" (June 2019, "The World's MostValuable Brands - #46 Zara"). Annual sales for 2018 were estimated by Forbes to be $21.3 billion. Theholding company, Inditex SA, is a public company and Inditex provides annual statements, but it doesnotbreakoutZarasalesfromsalesofthe otherbrandsownedbyInditex.

Bershka, Stradivarius, Oysho, Zara Home and Uterqe). Zara also uses a flexible business model whereits stores can be owned, franchised, or co-owned with partners. So it is not always possible to find exactnumbersfor Zara's business operationsandfinances.

ManufacturingandSupplyChainOperationsMakeZaraUnique

Zara buys large quantities of only a few types of fabric (just four or five types, but they can change fromyear to year), and does the garment design and related cutting and dyeing in-house. This way fabricmanufacturers 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 thosesuppliers deliver within 5 days of orders being placed. Inbound logistics from suppliers are mostly bytruck.

The Cube is 464,500 square meters (5 million square feet), and highly automated with undergroundmonorail links to 11 Zara-owned clothing factories within a 16 km (10 mile ) radius of the Cube. All rawmaterials pass through the Cube on their way to the clothing factories, and all finished goods also passthroughontheirwayouttothestores.The diagram belowillustratesZara'ssupply chainmodel.

Zara's factories can quickly increase and decrease production rates, so there is less inventory in thesupply chain and less need to finance that inventory with working capital. They do only 50 - 60 percentof their manufacturing in advance versus the 80 - 90 percent done by competitors. Zara does not needto place big bets on yearly fashion trends. They can make many smaller bets on short term trends thatare easier tocall correctly.

The Zara factories are connected to the Cube by underground tunnels with high speed monorails (about200kilometersor124milesofrails)tomovecutfabrictothesefactoriesfordyeingandassemblyinto.

clothing items. The monorail system then returns finished products to the Cube for shipment to stores.Here aresomefactsaboutthecompany'smanufacturingoperations:

Zara competes on flexibility and agility instead of low cost and cheap labor. They employ about 3,000workers in manufacturing operations in Spain at an average cost of 8.00 euros per hour compared toaveragelaborcostinAsiaof about0.40euros per hour.

Zara factories in Spain use flexible manufacturing systems for quick change over operations.50% ofall items aremanufacturedinSpain

26% in the rest of Europe24% inAsia andAfrica

The screenshot below illustrates how the Zara supply chain is organized. Manufacturing is centered innorthwestern Spain where company headquarters and the Cube are located. But for their maindistribution and logistics hub they chose a more centrally located facility. That facility is located inZaragoza in a large logistics hub developed by the Spanish government. Raw material is sent by suppliersto Zara's manufacturing center. Then finished garments leave the Cube and are transported to the Zaralogistics hub in Zaragoza. And from there they are delivered to stores around the world by truck and byplane.

Zara candelivergarments tostoresworldwidein just a fewdays:China

- 48hrs;

Europe - 24hrs; Japan -72 hrs;UnitedStates-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 clothesanditalsodoes notspendmuchmoneyonadvertising.

Zara'sSupplyChainisLeanandAgile

Stores take deliveries twice per week, and they can get ordered inventory often within two days afterplacing their orders. Items are shipped and arrive at stores already on hangers and with tags and priceson them. So items come off delivery trucks and go directly onto the sales floor. This makes it possible forstoremanagers to order and receive theproducts customerswant whentheywantthem, weekbyweek.

Zara stores respond practically in real-time as styles and customer preferences evolve. It is a greatbusiness model for success in the high-change and hard to predict fashion industry. It means about halfof the clothing the company sells, which includes most of its high margin and unique fashion items (butnot 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 onemonth to the next, it frees the company to a large degree from getting caught in cyclical market ups anddowns that ensnare its competitors (those cycles are driven by boom-to-bust gyrations generated by thebullwhip effect). Turbulence in the global economy since 2008 has hurt sales at many competing fashionretailers,butZarahas seensteady, profitable growthduringthis time.

A fast-moving and finely tuned supply chain like Zara's requires constant attention to keep it runningsmoothly. Supply chain planners and managers are always watching customer demand and makingadjustments to manufacturing and supply chain operations. The screenshot below shows the result ofone simulation using the supply chain model outlined above. Continuous adjustments need to be madetoproductionrates,vehicles,anddelivery routesandschedulestokeepthissupplychainworkingwell.

AmapofEuropewithrouteshighlightedingreenandcomputergeneratedimagesofsemi-trucks.

Zara is a clothing and fashion retailer that uses its supply chain to significantly change the way itoperates in a very traditional industry. No other competitor can copy its business model until it firstcopies its supply chain. And since supply chains are composed of people, process, and technology, eventhe latest and greatest technology is not a competitive advantage all by itself. People must be welltrained, and processes must be put in place that enable people to apply their training and theirtechnologytobesteffect.

Zara has spent more than 30 years building its unique real-time supply chain and training its people. Socompetitors have a lot of learning to do to create the mental models, and roll out the operatingproceduresneededtodowhatZaradoes sowell.

The screenshot below shows a closeup of the Zara Logistics Hub in Zaragoza, Spain. Product deliveriesaremadetostores byairplane andtruckfromthis facilityevery day.

OVERVIEW

Imagine you are in charge of Zara's supply chain operations and since the COVID pandemic hit in 2020the fashion industry has been hit hard. The changed consumer environment has resulted in loss sales(including hundreds of stores being shuttered), supply chain and logistical challenges which hasshowcased fast fashion's need to focus on their supply operations and technology integration. The CEOofZarahasrequestedyouprovidearecommendationfornewtechnologyintegrationthat thecompanyshouldexploreutilizing/implementingwithintheirsupplychainwithinthenextone(1)totwo(2)years.

Although Zara has historically been seen as a leader in supply chain management, the company needs toexplore further technology-based integration to maintain their competitive position in the fast fashionmarket. You will provide a minimum of two (2) technology-based recommended solutions to integrateinto their supply chain operations that can assist the organization in mitigating their supply chain andlogisticalissuesusingacasestudyapproachtotheresponse.

Youwillutilize acasestudyapproachutilizingthefollowingformat:

ExecutiveSummary

Background

CaseEvaluation

ProposedSolutions

Conclusion

Implementation

References

Referto'WritingaCaseStudy Analysis'whichprovideskeydetailswhichshouldbe includedineachsectionofthecaseresponse.

WebsiteResource:https://writingcenter.uagc.edu/writing-case-study-analysis