Baki USLU Barış BOZOĞLU ZARA Baki USLU Barış BOZOĞLU

Outline History of Zara The Textile and Apparel Industry The Zara Model The Problem (outsourcing benefits and risks) Questions

History of ZARA 1963 The founder of Zara, Amancio Ortega Ganoa Started his career as a clerk 1975 First Zara store opened in La Coruna, Spain 1989 There were 82 Zara stores in Spain Ortega began international expansion in Portugal, Paris, New York

In 2001 Zara was a world brand with 1200 stores in all around the world Most of the products were produced in Spain

The Textile and Apparel Industry Global textile and apparel industry was 5.7% of the whole manufacturing output of the world.(1999) The clothing market in the major countries $580 bilion 40% labor cost in textile 60% labor cost in apparel Apparel production is related to the fabric

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The Textile and Apparel Industry in the E.U and Spain Textile and apparel workers consist of 7.6% percent of total E.U manufacturing workers Italy 31% U.K 15% Germany 14% France 13% Spain 9% Portugal 6%

Spain E.U is the second textile exporter in the world Spanish textile and apparel industry was comprimised mostly of many very small firms and had not been strong in R&D. Wages increase

THE ZARA MODEL Zara’s Planning and Design Cycle Designers start to work on designing collection a year ago for initial collection There are 200 designers They made 11.000 designs every year

Patterns and Samples In some cases designs made by 3rd party suppliers

Production Sourcing and Scheduling 50% of the garments are outsourced Garments with fashion styling manufactured in Spain basics and knits are outsourced Zara’s season inventory In the beginning of the season 60% of the collection is ready while others are 80% 25% of the season’s collection is stored in stores in the beginning of the season 85% of the inhouse production is that season’s production

In-house Manufacture

In-house Manufacture 40% of fabric produced in-house Cutting Sewing

In Season Production Modified in response to market demand If an item was not selling If an item sells If a product sell very well If a product’s sale is not satisfactory

Distribution Zara’s distribution center in Arteixo New distribution center in Zaragoza Shipment

Retailing Store managers decide for the items from the distribution center Stores receive new inventory several times a week Sale

Pricing Strategy Pricing strategy= cost + target margin Single Tag to Bar Code

Growth Strategy Stores operated by Zara, franchise, alliances USA market

Sourcing Dilemma? Increase outsourcing vs. keeping current model

Benefits and Risks of Outsourcing Economies of Scale; Manufacturing costs is reduced with outsourcing by aggregating orders from different buyers Focus on Core Competency; A careful decide on what to outsource helps the buyer to focus on its core competency Zara has the ability to give a quick response

Increased Flexibility; Ability to better react to changes in customer demand Ability to use the supplier’s technical knowledge to accelerate product development cycle time Conflicting Objectives; Flexibility vs. cost reduction

Questions?

Thank You