Homework 1 - ZARA

Company Overview ZARA is a Spanish clothing and accessories retailer based in Arteixo, Galicia ZARA needs just two weeks to develop a new product and get it to stores, compared to the six-month industry average, and launches around 10,000 new designs each year. ZARA has continually maintain its mission to provide fast and affordable fashionable items. ZARA’s approach to design is closely linked to their customers.

Problems 1) What advantage does Zara gain against the Competition by having a very responsive supply Chain? 2) Why has Inditex chosen both In-house and outsourced mfg.? Why mfg. both in Europe and Asia? 3) Why does Zara source products with uncertain demand from local mfg. and predictable from Asian mfg.? 4) What advantage form replenishing stores multiple times a week? How does it affect design of its distribution system. 5) Responsive replenishment structure better for online or Retail Sales?

1) What advantage does Zara gain against the Competition by having a very responsive supply Chain? They can introduce new design every week and thus change 75% display every 3-4 weeks. Reduce inventory overhead and forecast errors. Sell most products at full price and only half the markdowns in stores compared to competition. Multiple weekly shipments allow close match to demand.

1) What advantage does Zara gain against the Competition by having a very responsive supply Chain? Introduce New Fast Match Demand Low Inventory and Higher Price More Profits

2a) Why has Inditex chosen both In-house and outsourced manufacturing? Outsourced manufacturing is for the production of products with predictable demand In-house manufacturing is for the production of products with highly uncertain demand. 40% in-house production allows added responsiveness to trends and postponement of decision until after trends. A strong IT department helps them make quick product decisions and drive replenishment.

2b) Why has Inditex maintained manufacturing capacity in Europe even though manufacturing in Asia is much cheaper Maintained large fraction of manufacturing capacity in Portugal and Spain (Europe), despite the higher cost there, it allows Zara to respond quickly to changing fashion trends in Europe. For ZARA, speed and responsiveness are more important than cost. Manufacturing Capacity in Europe helps manufacturers offer fast and flexible sourcing and such products are to be delivered quick instead of at Asia The above helps Zara reduce inventories and forecast error.

3), Why does ZARA source products with uncertain demand from local manufacturers and products with predictable demand from Asian manufacturers? Products with uncertain demand will most likely be produced at a lower volume to products with a certain demand and therefore sourcing from local manufacturers provides ZARA the speed it needs to test and deliver these products before they become obsolete and have to be sold at a discount. It is part of a responsive pull strategy. Predictable demand products are made in Asia due to low labor costs and high volume of products needed. It is more cost effective to manufacture in bulk due to the fact that predictable demand products have a larger window with which to deliver products without becoming obsolete. It also means that they can be made before the season starts as part of a push strategy This allows for multiple weekly shipments and close match to demand.

3. Why does Zara source products with uncertain demand from local manufacturers and products with predictable demand from Asian manufacturers? they can easily manufacture in-house by responding quickly to trends and delivering in less than 2 days on a global scale. Local Quick Uncertain Asian Cheap Predictable Optimize More Profits

4a),What advantage form replenishing stores multiple times a week? Frequent replenishment allows Zara to match supply and demand more effectively than the competitors.  This allows Zara to respond quickly to changing fashion trends in Europe Sell most products at full price and only half the markdowns in stores compared to competition. This enhances ZARA’s supply chain speed and responsiveness

4b) How does the frequency of replenishment affect the design of its distribution system? The frequency of replenishment has made ZARA increase the size and also centralize its distribution design by handling its global operations through 8 Distribution canters based in Spain.  This centralized structure means that products can be distributed rapidly from in house manufacturing in order to meet worldwide demands in as little time as possible.

5), Do you think Zara’s responsive replenishment infrastructure is better suited for online sales or retail sales? Whilst its quick distribution system allows ZARA to respond to trends very quickly its lack of decentralized distribution means that it is better suited to retail as online sales tend to have more a diverse product demand and customers expect quicker delivery times.  Companies such as Amazon are able to respond quicker to online sales due to the fact that they have distribution centers all around the world and can offer same day delivery. ZARA’s 24 hour delivery times from Spain to outlets all around the world may not be as efficient with online sales as it is with retail sales. Reiterating it in the online sales will be extremely challenging as the Point-of-Sale is different