(INS3021 03) - Global Supply Chain Management Analysis of ZARA company
Added on 2023-07-24
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Global supply chain
management
Group 12
Global Supply Chain Management Analysis of ZARA company
Lecturer: Dr. Trần Công Thành
Group members: Chu Ngọc Linh – 20070221
Phạm Thị Dịu – 19071327
Nguyễn Thu Hoài – 20070931
Nguyễn Thu Huyền – 20070937
HaNoi, December 2022
FINAL EXAMINATION – REPORT
INS3021-03
management
Group 12
Global Supply Chain Management Analysis of ZARA company
Lecturer: Dr. Trần Công Thành
Group members: Chu Ngọc Linh – 20070221
Phạm Thị Dịu – 19071327
Nguyễn Thu Hoài – 20070931
Nguyễn Thu Huyền – 20070937
HaNoi, December 2022
FINAL EXAMINATION – REPORT
INS3021-03
Group 12- INS3021.03 - International School (VNU-IS)
2
Table of Contents
EXECUTIVE SUMMARY .............................................................................................. 3
I. INTRODUCTION ........................................................................................................ 4
II. STRATEGIC PRIORITIES ....................................................................................... 4
1. Order Winners ............................................................................................................ 4
2. Order Qualifiers .......................................................................................................... 6
III. SUPPLY CHAIN DESIGN ....................................................................................... 8
1. Zara supply chain structure ......................................................................................... 8
2. Vertical Integration ....................................................................................................10
3. Outsourcing ...............................................................................................................12
4. IT ..............................................................................................................................13
5. Supply chain strategy.................................................................................................14
5.1. Lean strategy.......................................................................................................14
5.2. Agile strategy ......................................................................................................16
IV. SUPPLY CHAIN MANAGEMENT ISSUES ..........................................................17
1. Forecasting demand ...................................................................................................17
2. Logistics management ...............................................................................................19
V. RECOMMENDATION..............................................................................................21
1. Logistics ....................................................................................................................21
2. Forecasting demand planning ...................................................................................22
VI. CONCLUSION .........................................................................................................23
APPENDIX A: PRESENTATIONSLIDE......................................................................23
APPENDIX B: SELF- EVALUATION FORM .............................................................27
REFERENCES ...............................................................................................................29
2
Table of Contents
EXECUTIVE SUMMARY .............................................................................................. 3
I. INTRODUCTION ........................................................................................................ 4
II. STRATEGIC PRIORITIES ....................................................................................... 4
1. Order Winners ............................................................................................................ 4
2. Order Qualifiers .......................................................................................................... 6
III. SUPPLY CHAIN DESIGN ....................................................................................... 8
1. Zara supply chain structure ......................................................................................... 8
2. Vertical Integration ....................................................................................................10
3. Outsourcing ...............................................................................................................12
4. IT ..............................................................................................................................13
5. Supply chain strategy.................................................................................................14
5.1. Lean strategy.......................................................................................................14
5.2. Agile strategy ......................................................................................................16
IV. SUPPLY CHAIN MANAGEMENT ISSUES ..........................................................17
1. Forecasting demand ...................................................................................................17
2. Logistics management ...............................................................................................19
V. RECOMMENDATION..............................................................................................21
1. Logistics ....................................................................................................................21
2. Forecasting demand planning ...................................................................................22
VI. CONCLUSION .........................................................................................................23
APPENDIX A: PRESENTATIONSLIDE......................................................................23
APPENDIX B: SELF- EVALUATION FORM .............................................................27
REFERENCES ...............................................................................................................29
Group 12- INS3021.03 - International School (VNU-IS)
3
EXECUTIVE SUMMARY
This report's objective is to study on Zara's worldwide supply chain management. It has three
primary components that may be separated. To understand the industry drivers and the
criteria a business needs in order to remain competitive, we first took a look at the Zara order
winners and order qualifiers. Then, we go to discover the Zara supply chain design. Also, we
mentioned supply chain strategy in Zara with the name of supply chain “Leagile” including
“Lean strategy” and “Agile strategy”. We will research some management issues in supply
chain with question "What, and For what purposes and How to do?" and to show how each
stage represents its own goals. Finally, we give our recommendation for each issue at the end
of this report.
3
EXECUTIVE SUMMARY
This report's objective is to study on Zara's worldwide supply chain management. It has three
primary components that may be separated. To understand the industry drivers and the
criteria a business needs in order to remain competitive, we first took a look at the Zara order
winners and order qualifiers. Then, we go to discover the Zara supply chain design. Also, we
mentioned supply chain strategy in Zara with the name of supply chain “Leagile” including
“Lean strategy” and “Agile strategy”. We will research some management issues in supply
chain with question "What, and For what purposes and How to do?" and to show how each
stage represents its own goals. Finally, we give our recommendation for each issue at the end
of this report.
Group 12- INS3021.03 - International School (VNU-IS)
4
I. INTRODUCTION
A Spanish multinational chain of clothes stores is called ZARA. Amancio Ortega created it
in the year 1975. Currently, this corporation employs 75,000 people globally and has 2264
outlets throughout 96 nations. In the market, H&M, Forever 21, and Boohoo should be
included as some of Zara's rivals. According to Ross (2015), Zara has access to more than
1725 suppliers in more than 50 nations, with a 60% manufacturing capacity. The Zara supply
chain is dedicated to "Leagile" in order to carry out such quick fulfillment. In particular,
Naylor et al. (1997) invented the term "Leagile" to refer to hybrids of the lean and agile
techniques. Zara has built a flexible supply chain with elements of "lean" manufacturing. It
works with the intention of responding quickly to the customers' shifting demands. Low
stock, high efficiency, and high responsiveness define the supply chain strategy. As a
consequence, the system is adaptable enough to handle abrupt fluctuations in demand, even
while the stock is kept slightly below the demand to adhere to the lean-approach.
II. STRATEGIC PRIORITIES
1. Order Winners
At the beginning of its founding, Zara found a significant gap in the market that very few
fashion brands could effectively address. In the mid-1980s, Amancio created a new fashion
trend called "instant fashion" with changes in design and technology to meet customers' needs
and fashion trends.
Zara chooses to prioritize cost and responsiveness. This strategy combines the following two
components:
Short production and delivery times, allowing tight matching of supply with uncertain
demand. Zara's supply chain is capable of handling more than 450 million products
per year, and new models are launched twice a week. The stable production schedule
along with the fast delivery times of the Zara supply chain help it stay close to the
needs of its customers.
The high-fashion or trendy product designs that Zara chooses to cater to the general
mass market across the industry, creating inexpensive look-alikes of new fashion
trends best for customers. Based on the latest styles and trends, they create new
designs and put them in store in 1 or 2 weeks. And while high-fashion brands focus
4
I. INTRODUCTION
A Spanish multinational chain of clothes stores is called ZARA. Amancio Ortega created it
in the year 1975. Currently, this corporation employs 75,000 people globally and has 2264
outlets throughout 96 nations. In the market, H&M, Forever 21, and Boohoo should be
included as some of Zara's rivals. According to Ross (2015), Zara has access to more than
1725 suppliers in more than 50 nations, with a 60% manufacturing capacity. The Zara supply
chain is dedicated to "Leagile" in order to carry out such quick fulfillment. In particular,
Naylor et al. (1997) invented the term "Leagile" to refer to hybrids of the lean and agile
techniques. Zara has built a flexible supply chain with elements of "lean" manufacturing. It
works with the intention of responding quickly to the customers' shifting demands. Low
stock, high efficiency, and high responsiveness define the supply chain strategy. As a
consequence, the system is adaptable enough to handle abrupt fluctuations in demand, even
while the stock is kept slightly below the demand to adhere to the lean-approach.
II. STRATEGIC PRIORITIES
1. Order Winners
At the beginning of its founding, Zara found a significant gap in the market that very few
fashion brands could effectively address. In the mid-1980s, Amancio created a new fashion
trend called "instant fashion" with changes in design and technology to meet customers' needs
and fashion trends.
Zara chooses to prioritize cost and responsiveness. This strategy combines the following two
components:
Short production and delivery times, allowing tight matching of supply with uncertain
demand. Zara's supply chain is capable of handling more than 450 million products
per year, and new models are launched twice a week. The stable production schedule
along with the fast delivery times of the Zara supply chain help it stay close to the
needs of its customers.
The high-fashion or trendy product designs that Zara chooses to cater to the general
mass market across the industry, creating inexpensive look-alikes of new fashion
trends best for customers. Based on the latest styles and trends, they create new
designs and put them in store in 1 or 2 weeks. And while high-fashion brands focus
Group 12- INS3021.03 - International School (VNU-IS)
5
on creating trends, Zara takes the shorter route: simulating designs and surveying
consumer demand. One of the business strategies of the business is that instead of
producing many products for the same model, Zara focuses on creating many designs
and minimizing quantity.
Thanks to that, even if this model runs out of stock quickly, there are still many more models
waiting to be released. Zara has a relentless focus on the customer, the creation of a new
product and the needs and wants of customers are inextricably linked.
Figure 01: Leading 10 European fast fashion brands based on units sold per year
worldwide in the financial year 2018/2019*(in 1,000s) (Source: Statista 2022)
According to this figure, Zara takes the lead when it comes to the highest number of products
sold in a year in comparison to other competitors. As a result, Zara's success is largely due
to the speed at which fashion trends are constantly changing. Customers buy from Zara very
quickly because they don't last long on the shelves. By giving customers a sense of urgency,
the majority of transactions are done instantaneously. Zara products are constantly changing,
if you come to Zara a week late, you will not be able to find the previous designs. This is the
5
on creating trends, Zara takes the shorter route: simulating designs and surveying
consumer demand. One of the business strategies of the business is that instead of
producing many products for the same model, Zara focuses on creating many designs
and minimizing quantity.
Thanks to that, even if this model runs out of stock quickly, there are still many more models
waiting to be released. Zara has a relentless focus on the customer, the creation of a new
product and the needs and wants of customers are inextricably linked.
Figure 01: Leading 10 European fast fashion brands based on units sold per year
worldwide in the financial year 2018/2019*(in 1,000s) (Source: Statista 2022)
According to this figure, Zara takes the lead when it comes to the highest number of products
sold in a year in comparison to other competitors. As a result, Zara's success is largely due
to the speed at which fashion trends are constantly changing. Customers buy from Zara very
quickly because they don't last long on the shelves. By giving customers a sense of urgency,
the majority of transactions are done instantaneously. Zara products are constantly changing,
if you come to Zara a week late, you will not be able to find the previous designs. This is the
Group 12- INS3021.03 - International School (VNU-IS)
6
reason why Zara customers are urged to visit the store often. Since then, Zara beat other
fashion brands, becoming the most loved brand. With cheap products but following fashion
trends and famous brands, Zara has been successful since opening its first store. Currently,
Zara is under the management of Inditex group and has more than 2100 stores in 88 countries
worldwide (according to 2018 data). In 2017, Zara was ranked 24th for best global brand
(according to Interbrand's global brand consulting list). In Vietnam, in less than 4 months
since joining.
2. Order Qualifiers
Zara integrated supply chain management: To maximize efficiency, flexibility, and
synchronization across phases in order to reduce the "bullwhip effect" (more on that later)
and increase customer satisfaction. Creating significant earnings and shareholder value in the
short and long term at the same time. (Per Hillietofth and Olli-Pekka Hilmola, 2008).
Zara is shortening delivery times to stores to ensure low inventory and high responsiveness
to adapt and deliver products to stores according to the latest fashion trends and customer
feedback at a fast pace.
The above activities have helped Inditex-Zara significantly improve its competitiveness in
the industry and successfully combat the negative effects of short product life cycles, high
product variety, and uncertain demand and thus can closely match the supply of products to
the stores with the market demand. This contributes to a reduction in inventory backlogs,
avoiding loss or out of stock.
6
reason why Zara customers are urged to visit the store often. Since then, Zara beat other
fashion brands, becoming the most loved brand. With cheap products but following fashion
trends and famous brands, Zara has been successful since opening its first store. Currently,
Zara is under the management of Inditex group and has more than 2100 stores in 88 countries
worldwide (according to 2018 data). In 2017, Zara was ranked 24th for best global brand
(according to Interbrand's global brand consulting list). In Vietnam, in less than 4 months
since joining.
2. Order Qualifiers
Zara integrated supply chain management: To maximize efficiency, flexibility, and
synchronization across phases in order to reduce the "bullwhip effect" (more on that later)
and increase customer satisfaction. Creating significant earnings and shareholder value in the
short and long term at the same time. (Per Hillietofth and Olli-Pekka Hilmola, 2008).
Zara is shortening delivery times to stores to ensure low inventory and high responsiveness
to adapt and deliver products to stores according to the latest fashion trends and customer
feedback at a fast pace.
The above activities have helped Inditex-Zara significantly improve its competitiveness in
the industry and successfully combat the negative effects of short product life cycles, high
product variety, and uncertain demand and thus can closely match the supply of products to
the stores with the market demand. This contributes to a reduction in inventory backlogs,
avoiding loss or out of stock.
Group 12- INS3021.03 - International School (VNU-IS)
7
Figure 02: H&M and Zara’s new arrivals (based on the number of products arriving
online each month at te retailers’ UK stores (source: EDITED)
According to the picture, you can see that Zara's product arrival time is much earlier than
H&M. Zara has a focus on the customer, the creation of a new product and the needs and
wants of customers are inextricably linked. In particular, Zara trains and empowers its
employees and store managers. These employees are extremely sensitive to the needs of
customers. They listen attentively and take notes of customers' opinions and ideas about the
product. They closely observe the style that customers are wearing, thereby assessing the
ability to convert into a unique style with the Zara brand. Zara's customer segment is mainly
young people. However, they want products that are reasonably priced but still trendy.
Therefore, Zara's strategy has targeted this element and produced trendy and low-priced
designs. That doesn't mean Zara uses substandard components. Zara's customer positioning
strategy is aimed mainly at women. In addition, men occupy a smaller segment in the strategy
and the remaining segment is for children's fashion.
7
Figure 02: H&M and Zara’s new arrivals (based on the number of products arriving
online each month at te retailers’ UK stores (source: EDITED)
According to the picture, you can see that Zara's product arrival time is much earlier than
H&M. Zara has a focus on the customer, the creation of a new product and the needs and
wants of customers are inextricably linked. In particular, Zara trains and empowers its
employees and store managers. These employees are extremely sensitive to the needs of
customers. They listen attentively and take notes of customers' opinions and ideas about the
product. They closely observe the style that customers are wearing, thereby assessing the
ability to convert into a unique style with the Zara brand. Zara's customer segment is mainly
young people. However, they want products that are reasonably priced but still trendy.
Therefore, Zara's strategy has targeted this element and produced trendy and low-priced
designs. That doesn't mean Zara uses substandard components. Zara's customer positioning
strategy is aimed mainly at women. In addition, men occupy a smaller segment in the strategy
and the remaining segment is for children's fashion.
Group 12- INS3021.03 - International School (VNU-IS)
8
III. SUPPLY CHAIN DESIGN
1. Zara supply chain structure
Figure 03: Zara’s supply chain structure
This organizational structure states that Zara mostly sources its resources from Italy, Spain,
Portugal, and Greece. They only purchase textiles in 4 or 5 different color variations. The
manufacturer will get the textiles in 5 days. The possibility to meet specific consumer
demands arises using actual demand and the needs of existing customers, which boosts
customer loyalty. In 2015, according to Yang Daojian, Qi Ershi, and Li Yajiao, “The CUBE”
is the name of the distribution hub used by Zara. High-speed monorails run via underground
tunnels connecting the industries to "The CUBE". To get finished clothing, colored textiles,
and cut fabric to each factory, a monorail system is used. Then, 1000 new designs are
produced each month by Zara's design team. Every two weeks, Zara altered their collections.
The company designs new items and finishes them in its store in around four to five weeks.
(Mhugos, 2020).
Regarding the structure of Zara, the definitions of lean, agile, and decoupling at various
points in the Zara supply chain, and their implications:
Overview for lean stages:
8
III. SUPPLY CHAIN DESIGN
1. Zara supply chain structure
Figure 03: Zara’s supply chain structure
This organizational structure states that Zara mostly sources its resources from Italy, Spain,
Portugal, and Greece. They only purchase textiles in 4 or 5 different color variations. The
manufacturer will get the textiles in 5 days. The possibility to meet specific consumer
demands arises using actual demand and the needs of existing customers, which boosts
customer loyalty. In 2015, according to Yang Daojian, Qi Ershi, and Li Yajiao, “The CUBE”
is the name of the distribution hub used by Zara. High-speed monorails run via underground
tunnels connecting the industries to "The CUBE". To get finished clothing, colored textiles,
and cut fabric to each factory, a monorail system is used. Then, 1000 new designs are
produced each month by Zara's design team. Every two weeks, Zara altered their collections.
The company designs new items and finishes them in its store in around four to five weeks.
(Mhugos, 2020).
Regarding the structure of Zara, the definitions of lean, agile, and decoupling at various
points in the Zara supply chain, and their implications:
Overview for lean stages:
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