by Natalya Ugarova 6 years ago
1785
How Zara leverages technology to enhance its supply chain
by Natalya Ugarova 6 years ago
1785
Welcome! The reason behind my choice of Zara as a company is the fact that I have been a loyal customer of this brand and have always admired the speed with which they manage to bring new items to the stores (it was like every time I went to a Zara store they would have a new collection out). After the OM&SCM course it became clear to me that the secret to this has to lie within Zara's supply chain and its operational efficiency which would be explored in this mind map.
In the following map I would present an analysis as well as some key facts about ZARA's supply chain. Following that, the unique aspects of the company's SC will be outlined as well as the ways in which ZARA follows the principles of Lean Manufacturing. Finally, the use of technology in the company's SC will be analysed and demonstrated using several examples. Finally, the impact of the integration of the technology in the SC will be discussed.
On the demand-sensing side, Zara was a pioneer in using technology, including PDAs (personal digital assistants) to capture real-time consumer data not only on transactions, but also on preferences underlying perceptions of value. Stores are also directly linked backwards to internally-controlled production and fulfillment systems, which means demand data flows unimpeded to the supply chain.
On the supply-sensing side, IoT, GPS and cloud computing platforms offer new ways to know what is happening upstream. As with demand sensing, the role of advanced analytics is critical if supply chain leaders want to digest all this data for better decision making.
Zara headquarters consolidates customer feedback from across the globe, assesses patterns, and makes changes to clothing designs in as little as two weeks—a feat only possible thanks to the scale, scope, and speed of data transmitted via the Internet. Customers can now get the latest fashions at lower prices.
The data about the sale of each SKU, inventory levels in each store, and the speed at which a particular SKU moves from the shelf to the POS is sent on a real time basis to Inditex’s central data processing center. This center is open 24 hours a day and collects information from all 6000+ Inditex stores across 80+ countries and is used by teams for inventory management, distribution, design and customer service improvements.
When the apparel arrives in store, RFID enables the stockist to determine which items need replenishing and where they are located, which has made their inventory and stock takes 80% faster than before. If a customer needs a particular SKU, salespeople are able to serve them better by locating it immediately in store or at a nearby location. Moreover, every Zara location receives inventory replenishments twice a week, which is tailored to that stores real-time updates on SKU-level inventory data.
Thank you very much for following my journey through Zara's supply chain and its digitisation attempts, I hope you enjoyed it!
To sum it all up, It is obvious that Zara is becoming increasingly focused on digitalization of every aspect of a consumer’s shopping experience. Examples of this include the “click and collect” in its key flagship stores which allows customers to order items online and pick them up in-store, providing a win-win for the customer and Zara. From the customer’s perspective, it is incredibly convenient, and for Zara it provides even more immediate knowledge about inventory management and consumer preferences for individual SKUs. The implementation of "location intelligence" through the use of DFID tags which track the journey of the items from the warehouse to the store further improves the agility of Zara's supply chain and shortens the response time to demand. On top of that, Zara makes use of the immense amount of data it collects to predict future trends, analyse the success and failures of certain designs and therefore adjust its inventory and production accordingly in a timely matter through its solid distribution network. It is possible that in the future if Zara stays focused on further integration of technology into its SC and the company is able to quickly analyze and process the data, the channel could operate as a just-in-time supply chain. The Company could manufacture and distribute only the guaranteed number of items to be sold at specific locations, reducing its inventory to effectively zero.
There are, however, a number of challenging questions Zara should, in my opinion, consider in order to maintain its dominance. With the incredible pace of technological advances and the rate other retailers adopt new technologies, could Zara’s supply chain strategy be easily replicated by competitors ? Is it only a matter of time before other major retailers, such as Gap or Michael Kors, would be able to successfully catch up and put pressure on Zara? Or does Zara, as one of the first movers in the space, have enough experience and expertise in developing and refining its supply chain that the learning curve is too steep for larger, more established and less nimble companies to truly catch up?
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 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, 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)
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.
In order to maintain an agile supply chain the company purchase fabrics of only four colors. Moreover, it also cuts and designs all of the fabrics in house. In addition to that, the suppliers are kept very close to the production house so that the company can order the materials according to their requirement. The company stores their cloths ironed and packed with price tags in advance so that the cloths can be used for manufacturing any time. The company emphasizes on starting the delivery of the products to the various stores around the world in overnight fashion (Khan 2012). This controlled and integrated process is known by just in time inventory management. It assists the company to provide fashionable garments to the customers within a very short period of time.
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.
It is commonly believed among business leaders and experts that the secret to Zara's success and the key to its competitive advantage is the company's supply chain. Some general, yet intriguing facts about the way Zara organises its operations and supply chain include:
The heart of Zara’s supply chain is its huge, highly automated distribution center called “The Cube"
Zara carries about 11,000 distinct items per year in its stores worldwide compared to competitors that carry 2,000 to 4,000 items per year
Time - to - market for the new items in Zara is 4 – 6 weeks, and existing items can be modified in 2 weeks.
Zara has 12 inventory turns per year versus 3 – 4 per year for competitors.
Zara sells 85% of its items at full price compared to the industry average of 60%.
Annual proportion of unsold inventory is 10% while the industry average is 17% – 20%.
Zara only manufactures 50% – 60% of their inventory in advance versus the 80% – 90% done by competitors, allowing it the flexibility and freedom not to be too dependent on yearly fashion trends. This way, the company can make many smaller bets on short term trends that are easier to predict and, thus, modify their inventory
accordingly.
1963 - The birth of Zara in A Coruña. The company starts as Confecciones GOA, a modest workshop making dresses and dressing gowns for distribution.
1975 - The first Zara store opens - After 12 years of making textiles, Amancio Ortega, founder of Inditex, opens the business’s first store in A Coruña.
1976 - Zara’s approach to fashion is a success - Zara’s business model shrinks the gap between fashion creation and the customer at an affordable price.
1977 - the headquarters are established in Arteixo, Spain. Zara’s first garment factories, are constructed on the outskirts of A Coruña.
1983 - Zara expands across Spain - The company has nine stores in Spain’s biggest cities.
1984 - A state-of-the-art logistics centre is built, spanning 10,000 square metres in Arteixo.
1985 - Inditex is officially founded to bring all companies together under one banner. A distribution system is put in place which is able to react to shifting market trends in a quick manner
1988 - Zara enters Porto, Portugal
1989 - First Zara store is opened in the US on Lexington Avenue, New York.
1990 - first French Zara store opens on Rue Halévy in Paris.
1992 - Zara store is opened on Calle Madero, one of the most prestigious shopping streets in Mexico City.
1993 - Greece becomes the sixth international market when Zara arrives to Athens.
1994 - Zara comes to Belgium and Sweden
1995 - Operations begin in Malta - Zara also launches its casual Trafaluc line for women.
1996 - Zara enters the Cypriot market
2003 - Zara Home is created
2006 - INDITEX develops the Environmental Strategic Plan to ensure their business operations are environmentally responsible and sustainable.
2007 - Zarahome.com becomes the first online store of the group
2014 - New logistics centre in Cabanillas (Spain) is built
watch until 3:59
