GLOBAL SUPPLY CHAIN

MANAGEMENT
Inventory Management under
conditions of Certainty and
Uncertainty
Submitted by :Group 2
Abhay Kanwar
Upasna Handa
Gaurav Lochab
Aank Dhanda

INTRODUCTION
Launched

in 1975 as a local store,

Zara is now the world's third largest clothing retailer.
The parent company, Inditex, has two dozen manufacturing
plants in Spain and more than 1,160 stores in 34 countries from
the United States to Japan.
Zara developed a business model that incorporated the following
three goals for operations:
1. Develop a system the requires short lead times,
2. Decrease quantities produced to decrease inventory risk
3. Increase the number of available styles and/or choice.
Thus, combining moderate prices with the ability to
offer new clothing styles faster than its competitors.

SUPPLY CHAIN ADVANTAGE

The brand is renowned for its ability to deliver new
clothes to stores quickly and in small batches. Twice
a week, at precise times, store managers order
clothes, and twice a week, on schedule, new
garments arrive.
The company produces about 450 million items a
year for its 1,770 stores in 86 countries.
To
achieve this, Zara controls more of its
manufacturing and supply chain than do most
retailers.
For Zara, its supply chain is its competitive
advantage.

SYNERGY BETWEEN BUSINESS AND OPERATIONS STRATEGY

Zaras overarching strategy is achieving growth

through
diversification
with
and
vertical
integrations.
It adapts couture designs, manufactures, distributes,
and retails clothes within 2 weeks of the original
design first appearing on catwalks.
The company owns its supply chain and competes on
its speed to market, literally embodying the idea of
fast fashion

JUST IN TIME PRODUCTION

The retail giant delivers fashionable and trendy numbers
catered for different tastes through a controlled and integrated
process just in time.
Zara keeps a significant amount of its production in-house and
makes sure that its own factories reserve 85 percent of their
capacity for in-season adjustments.
In-house production allows the organization to be flexible in the
amount, frequency, and variety of new products to be launched.
The company often relies heavily on sophisticated fabric
sourcing, cutting, and sewing facilities nearer to its design
headquarters in Spain.
Zara also commits six months in advance to only 15 to 25
percent of a seasons line. And it only locks in 50 to 60 percent of
its line by the start of the season, meaning that up to 50 percent
of its clothes are designed and manufactured smack in the
middle of the season.

JUST-IN-TIME PRODUCTION

QUICK REACTIONS

If a certain style or design suddenly become the rage, Zara reacts

quickly, designs new styles, and gets them into stores while the trend is
still peaking.
Store managers communicate customer feedback on what shoppers
like, what they dislike, and what theyre looking for. That data is
instantly funnelled back to Zaras designers who begin sketching on the
spot.
Zara also has extra capacity on hand to respond to demand as it
develops and changes. For example, it operates typically 4.5 days per
week around the clock on full capacity, leaving some flexibility for extra
shifts and temporary labour to be added when needed.
This then translates to frequent shipments and higher numbers of
customer visits to the stores, creating an environment of shortage and
opportunity.
This strategy allows Zara to sell more items at full price because of the
sense of scarcity and exclusiveness the company exudes. Zaras total
cost is minimized because merchandise that is marked down is reduced
dramatically as compared to competitors.

CENTRALIZED LOGISTICS
Zara sticks to a deep, predictable and fast rhythm,
based around order fulfilment to stores.
Each Zara outlet sends in two orders per week on
specific days and timing.
Trucks leave at specific times and shipments arrive in
stores at specific times. Garments are already
labelled and priced upon destination.
The
secret to their success has been
centralization

SOLID DISTRIBUTION NETWORK

Zaras strong distribution network enables the
company to deliver goods to its European stores
within 24 hours, and to its American and Asian
outlets in less than 40 hours.
Zara, the retail giant can get a product out from
concept to store in just 15 days, while the industry
standard is 6 months.


ZARAS BUSINESS MODEL
Zaras business model can be broken down into three basic
components:
1.

2.

Concept: To maintain design, production, and

distribution processes that will enable Zara to respond
quickly to shifts in consumer demands.
Capabilities: It maintains tight control over their
production processes keeping design and manufacturing
in-house or with some strategic partnerships located
nearby . They have strategic agreements with local
manufacturers that ensure timely delivery and service.
Thus, maintaining the flexibility necessary to design and
produce over 12000 new items annually.

3. Value drivers: Zara offers both tangible and

intangible benefits that are passed on to all the
stakeholders.

WINNING FORMULAE

Zara which contributes around 80% of group sales, concentrates

on three winning formulae to bake its fresh fashions:
Short Lead Times More fashionable clothes
Lower Quantities Scarce supply
More Styles More choices, and more chances of getting it right

50% of the products Zara sells are

manufactured in Spain, 26% in the
rest of Europe, and 24% in Asian
and African countries and the rest
of the world.
The company can design a new
product and have finished goods in
its stores in four to five weeks.
It can modify existing items in as
little as two weeks. Shortening the
product life cycle means greater
success in meeting consumer
preferences.
Zara maintains a design team of
200 people, all of which produce
approximately 12,000 new styles
per year for Zara.

ZARAS INVENTORY MODEL

Inventory in
store

Demand
Forecast

Optimization Model

Shipments

Warehouse
Inventory

INVENTORY OPTIMIZATION
MODEL
Zara is fully aware of the saying, inventory =
death. It avoids piling up inventory in any part of
its supply chain from raw materials to finished
products.
Inventory optimization models are put in place to
help the company to determine the quantity that
should be delivered to every single one of its retail
stores via shipments that go out twice every week.
The stock delivered is strictly limited, ensuring that
each store only receives just want they need. This
goes towards the brand image of being exclusive
while avoiding the build up of unpopular stock.

REASONS FOR EFFICIENT

INVENTORY MANAGEMENT
Extensive Market research providing a constant
stream of inputs into the product development
process, rather in batches or discrete seasons
Communication and Information Technology
are absolutely vital to managing the constant
interface of various functions and management of
huge variety of product information
Locating various business functions in close
proximity of the headquarters, and tight control,
allows the various functions to coordinate and take
joint-decisions very quickly

ZARA VS OTHERS

KEY FEATURES IN THE INVENTORY &

COMPETITIVE ADVANTAGES:
Proximity

to suppliers
The proximity of these suppliers
gives Zara great flexibility in
adapting their product lines based
on up to date market trends and
consumer
behaviour.
It
also
decreases costs of holding inventory.

Competition
Zaras

competitors,
through
outsourcing to Asian countries such
as China, sacrifice the benefits of
proximity for low labour and
production costs.

Cost advantage
Though there is a cost advantage in their approach in regards to
labour, the lack of flexibility in changing orders based on current
trends hinders their operational efficiencies.

Higher inventory costs of competitors

Inventory costs are higher for competitors because orders are
placed for a whole season well in advance and then held in
distribution facilities until periodic shipment to stores.

Proximity and flexibility

This proximity effect and the flexibility that it gives Zara is
fundamental to their basic concept to respond quickly to shifts in
consumer demand and has provided them with a competitive
edge in comparison to their peers.

COMPETITIVE ADVANTAGE

COMPETITIVE EDGE

Zara controls and coordinates perfectly all the process and

allows reducing the time to minimum.

Zara provided a considerable number of products, which

were more than rival corporations in the fashion industry. It
produced approximately 11,000 different products per year, while
its major rivals only produce 2,000 to 4,000.

Zara spent four to five weeks on the process of designing a new

product and getting finished products in its stores .

So, Zara already was the leading brand in `fast fashion. Zara
could redesign existing products in no more than two weeks.

Zara is indeed an unique brand that, instead of creating an

exclusive brand, has created an excellent shopping
experience and a new process.

CONCLUSION

Zara has an extraordinary supply chain, which gives them a

highly competitive advantage.
Zara has successfully introduced a new, unique business
model into the apparel manufacturing and retail industry.
Zara chose to handle design, production, and distribution inhouse and concentrate the whole production close to their
headquarters in Spain.
By the entire process, Zara can react much faster than its
competitors do to both the ephemeral trends in the world of
fashion and the capricious tastes of its customers.
Zara has achieved their success by thinking out of the box.
Their success is directly related to their ability to understand
their customers most innate needs and desires and tie these to
successful innovation strategies, which ultimately lead to these
new and unique approaches to their business.

REFERENCES
http://www.zara.com/
www.3isite.com/articles/ImagesFashion_Zara_Part_I
.pdf
www.3isite.com/articles/ImagesFashion_Zara_Part_I
I.pdf
http://hbswk.hbs.edu/archive/4652.html
Harvard Business Review, Vol. 82, No.11,
November 2004
http://en.wikipedia.org/wiki/Fast_fashion
http://www.torex.com/english/news/whitepapers/pdf/F
astFashion-en-WP.pdf

Thank you!!