When a German wholesaler suddenly canceled a big lingerie order in 1975, Amancio Ortega thought his fledgling clothing company might go bankrupt. All his capital was tied up in the order. There were no other buyers. In desperation, he opened a shop near his factory in La Coruña, in the far northwest corner of Spain, and sold the goods himself. He called the shop Zara.
Today, over 650 Zara stores in some 50 countries attract well-heeled customers in luxury shopping districts around the world, and Senor Ortega is arguably the richest man in Spain. The clothing company he founded, called Inditex, has been growing ever since he opened that first Zara shop. From 1991 to 2003, Inditex’s sales—70% of which spring from Zara—grew more than 12-fold from €367 million to €4.6 billion, and net profits ballooned 14-fold from €31 million to €447 million. In May 2001, a particularly tough period for initial public offerings, Inditex sold 25% of its shares to the public for €2.3 billion. While many of its competitors have exhibited poor financial results over the last three years, Zara’s sales and net income have continued to grow at an annual rate of over 20%.
The lesson Ortega learned from his early scare was this: To be successful, “you need to have five fingers touching the factory and five touching the customer.” Translation: Control what happens to your product until the customer buys it. In adhering to this philosophy, Zara has developed a superresponsive supply chain. The company can design, produce, and deliver a new garment and put it on display in its stores worldwide in a mere 15 days. Such a pace is unheard-of in the fashion business, where designers typically spend months planning for the next season. Because Zara can offer a large variety of the latest designs quickly and in limited quantities, it collects 85% of the full ticket price on its retail clothing, while the industry average is 60% to 70%. As a result, it achieves a higher net margin on sales than its competitors; in 2001, for example, when Inditex’s net margin was 10.5%, Benetton’s was only 7%, H&M’s was 9.5%, and Gap’s was near zero.
Zara defies most of the current conventional wisdom about how supply chains should be run. In fact, some of Zara’s practices may seem questionable, if not downright crazy, when taken individually. Unlike so many of its peers in retail clothing that rush to outsource, Zara keeps almost half of its production in-house. Far from pushing its factories to maximize their output, the company intentionally leaves extra capacity. Rather than chase economies of scale, Zara manufactures and distributes products in small batches. Instead of relying on outside partners, the company manages all design, warehousing, distribution, and logistics functions itself. Even many of its day-to-day operational procedures differ from the norm. It holds its retail stores to a rigid timetable for placing orders and receiving stock. It puts price tags on items before they’re shipped, rather than at each store. It leaves large areas empty in its expensive retail shops. And it tolerates, even encourages, occasional stock-outs.
During the last three years, we’ve tried to discover just how Zara designs and manages its rapid-fire supply chain. We conducted a series of interviews with senior managers at Inditex and examined company documents and a wide range of other sources. We were particularly curious to see if Zara had discovered any groundbreaking innovations. We didn’t find any. Instead, we found a self-reinforcing system built on three principles:
Close the communication loop.
Zara’s supply chain is organized to transfer both hard data and anecdotal information quickly and easily from shoppers to designers and production staff. It’s also set up to track materials and products in real time every step of the way, including inventory on display in the stores. The goal is to close the information loop between the end users and the upstream operations of
FILLING JOBS WISELY How companies use Talent Supply Chain Management to link human capital to business needs. By DOUG ARMS AND TONY BERCIK ILLUSTRATION BY ROBERT PIZZO/WWW.ROBERTPIZZO.COM June 2015 / STRATEGIC FINANCE / 39 W hat do building an airplane and finding finance and accounting talent have in common? In the case of Boeing’s 787 Dreamliner, more than you’d imagine. Boeing uses more than 1,000 suppliers to deliver this airplane’s specific parts—a number that’s so high because the company…
integrate their supply chain, modeling themselves after Dell’s approach to supply chain management. Ford’s current supply chain is going through a time of change whereby new management feels that adapting to virtual integration could bring large benefits to the entire supply chain that could substantially reduce amount of inventory on hold. Ford have historically engaged in a push system, which is defined as having a pre-existing schedule that allows goods to move down the supply chain according to…
these changed conditions is through “agility,” in particular by the creation of responsive supply chains. Agile or lean? Figure 1 Agility be defined as the ability of an organization to respond rapidly to changes in demand, both in terms of volume and variety. The market conditions in which many companies find themselves are characterized by volatile and unpredictable demand; The agile supply chain Hybrid strategies are often appropriate Market sensitive : Zara’s designs reflect…
A supply chain is very important to an organization. It can and should show the relationship between suppliers, distributors, managers and consumers. This paper would detail how important suppliers and distributions are to an organization’s success. And how important a supply chain is within an organization and how managers can utilize the supply chain. It is important that companies such as Target Corporations utilize the supply chain and gain competitive advantages. Target is one of the world’s…
Auckland 13 Assignment one ISCM-International Supply Chain Management Content Introduction Page3 What is customer value proposition? How do the supply chains support this value to be realized? Page 3 Variety Page4 Assortment Page4 Brands Page5 Availability Page5 What are the four types of supply chain alliances? What is the role they play in the supply chain efficiency improvement? Page5 Join Venture Page6 Equity…
Fundamental principle of supply chain management to the success and failure of UK construction industry 1. Introduction Over the past few years, the UK construction industry has been situated in a difficult period due to the effect of recent recession nationally and globally. “Output in the industry fell at a faster rate than total GDP. (Construction industry, Lucinda Maer, 2011)” Despite the return of growth in economy, the progress has been seemingly sluggish at time. Nevertheless, the future…
managed.This posting discusses lean as a philosophy and the involvement of people in lean operations. It explains how a pull system works and the key concepts in the Toyota Production System. It examines the attributes of a lean supply chain and the principles of supply chain design. We will also look at the application of lean operations concepts in a service operations context. Scientific Management Operations management in most industrialised countries has been predominantly based on the principles…
Eliminating Waste In Supply Chain Processes Tue, 03/24/2009 - 7:30am Stacy Lee Bersbach, Marketing Manager, Direct EDI, Inc. Get today's manufacturing headlines and news - Sign up now! In this era of economic difficulty it is important to make every penny and minute count, as time is money. Waste within a company’s supply chain -- either internal or external -- through inefficient processes, ordering errors and mistakes, lack of responsiveness and breakdowns in communications are an enormous…
We know that Fashion industry chain from design start. When Zara The style of a newly installed finalized After the relevant data is entered computer to guide the crop. In addition, Zara Timeliness requirements for outsourcing work Very high, Third-party products, Shipped to the store needs 6 Months ago to complete, Own production capacity Product from design to clothing usually just 10 Of days. Although the clothing manufacturing industry, cheap labor costs in Asia have a strong temptation, but…
Supply-Chain Management Supply-chain management consists of developing a strategy to organize, control, and motivate the resources involved in the flow of services and materials within the supply chain. A supply chain strategy, an essential aspect of supply chain management, seeks to design a firm’s supply chain to meet the competitive priorities of the firm’s operations strategy. 1 Supply Chain Strategy Across the Organization Supply chains must be managed to coordinate the inputs…