Supply chain performance in the apparel industry – ZARA
Placed at number #41 in the Forbes ranking of The World’s Most Valuable Brands, there is no doubt that Zara came a long way from when it was founded in 1974, becoming one of the world’s best known fashion brands and the flagship brand of the £2.5 billion holding group Inditex. But what’s the secret behind Zara’s meteoric ascension on the retail market?
A unique approach to supply chain management
The apparel industry is one of the most dynamic and fast changing industries where, with ever-changing trends, it is hard to predict market shifts or forecast the required supplies and raw materials.
While in the past the so called “push” strategy was associated with this industry, since most retailers were pushing new styles and outfits on the market, nowadays it has shifted to a more customer-centric approach. The major fashion brands have taken in the fact that in order to keep their competitive advantage, in an environment where there are new competitors at every corner, the importance of recognizing what a consumer wants and responding quickly, is crucial.
Moreover, when it comes to international brands, they also have to tackle the issue of geographic locations, different spending patterns and different demands that exist in every market.
So how does Zara do it? First off, it concentrated on speed. Over the past years Zara has perfected their “Fast Fashion” model, meaning that even though the average fashion retailers take 6 months to produce garments, Zara manages to do it in 3 weeks.
That is achieved by maintaining a strict control over their supply chain, and manages to fit the entire production process into a 10-to-15-day time frame. They use an impressive number of automated factories located in Spain, as well as a vast network of over 300 small finishing shops throughout Spain, North Africa and Turkey. The process starts in the factories that constantly create “grey goods”, which then, as soon a new design is about to be launched, are sent to the finishing shops and turned into products ready to be shipped all over the world.
Basically Zara placed their bets on the impulses of trend-chasing shoppers, acquiring a regular clientele base that knows what it wants and when it wants something new, allowing the company to maximize their profits compared to other retailers in the industry.
The “Fast Fashion” system that Zara uses is heavily dependent on a constant exchange of information throughout every part of the supply chain. That is why, by avoiding unnecessary layers of bureaucracy, Zara has designed its organizational and operational procedures as well as their performance measures to enable the free flow of information. To add to this, other retailers such as IKEA or H&M have also concluded that fostering an open, integrative approach is key to maximizing results and profitability.
Inventory and centralized logistics
Inventory management and centralized logistics are also an important part of Zara’s unique supply chain system. The speed at which raw materials are turned into clothing allows the company to ship more often and in small batches, limiting the distribution for every shop to the bare necessity. The quantity that should be delivered to each of the owned retail stores is determined by using inventory optimization models and while it helps avoiding the piling of unwanted stock, it also contributes to building the brand’s exclusive image.
The pace that Zara has imposed goes even further than having an effective supply chain system. Sticking to a fast-paced predictable rhythm that’s based around order fulfillment for their stores, everyone involved, from design to retail, knows the process and knows how their actions contribute to the outcome. As a result, this extends to Zara customers, who know exactly when to visit their stores for brand-new merchandise.
Zara has managed to implement a cross-functional operations strategy, along with its vertically-integrated supply chain that enables mass production under push control, leading to lower markdowns, higher profitability and value creation for shareholders in the short and long term.
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