group 3

ZARA
1 Introduction

Motivation to establish a
2

Agenda
global supply chain

3 Affecting factors/drivers

Global supply chain

4
management activities

5 Recommendations

6 Bonus question
 01
INTRODUCTION
 Vision
"To contribute to the sustainable
development of society and that of
the environment with which we
interact"
 Main
product
Clothing, accessories, shoes, swimwear,
beauty and perfumes

→ We choose to focus on Zara's core

product line: clothing line
 Busi
KEY PARTNERS KEY ACTIVITIES VALUE CUSTOMER CUSTOMER


PROPOSITIONS RELATIONSHIPS SEGMENTS

ness
Providers Design

Manufacturing Fashionable Salesperson at Men

Holding Retail process clothes store
company (point of sale & Great Brand through Women

m odel
(Inditex) 3rd party eCommerce social media
management) exprience Sentimental Children
Distribution Flagship store attrachment to
channels and experience clothing
logistics Fast-fashion

KEY RESOURCES CHANNELS

Stocks Direct store

Large network
of stores Online
Strong brand
Logistic and Social media
supply chain
ỉnastructure

COST REVENUE STREMS

Fixed (rent, payroll, etc...) Sales of clothing

Variables associated with sale of goods
Fast fashion

Value P
Zara adds new clothes and designs to its collections every
2-3 weeks, both in its stores and online. It keeps the brand

roposition
updated, fresh, and modern while maintaining its all-
important medium price point

Great eCommerce experience

The customer segments are visible on the left navigation bar
with a search tab to further aid customers with their online
experience.

Localized stores
You can find a store in nearly all major retail locations
(shopping malls, retail outlets, airports, etc..)

Flagship stores
Zara demonstrates its aesthetic evolution to customers
through its flagship stores.
Customers shop around its vivid, minimalist layout offering
them an experience aligned with the brand’s deeper, eco-
friendly values.
 02
Motivation to
establish a global
supply chain
 ast ion
F ash
F
Items inspired by the latest fashion
trends, which are produced very
quickly to be shipped to stores and
sold to consumers

Allows consumers to purchase striking,

new, on-trend designs at affordable
prices that are affordable for the
majority of people
Motivation
Meet customer demand
Customers don't have to spend too much money to get
the new design they want.
Customers who have a preference for constantly
changing their appearance will often buy more clothes.
→ Only Fast Fashion can meet their needs.

Reasons to establish fast-fashion global supply chain:

- Fast fashion's global supply chain focuses on speed and
fashion
- The global supply chain has a mass customization strategy
to deal with changing customer needs
Motivation
Create competitive advantage
- Effective global supply chains can offer a competitive
edge by achieving and maintaining the status that offers
supremacy over competitors pertaining to customer
preference.
- The competitive trend of the industry is to create a lot
of different product designs in a short period of time.
- Combined with the development of the Supply Chain,
the fast fashion industry is always committed to
producing at the lowest cost and launching new models
as quickly as possible.
 ation
iot v
M Reduce costs
Fast Fashion increases revenue &
saves production cost for
manufacturers:
- Ensures the safety of profits for
manufacturers
- With low production costs, fast
fashion products are also sold at
extremely competitive prices.
 Fast-fashion global supply
Must be able to
react in near
real-time to
Tight process
chain requirements
Short lead time
supply chain
control needed
changing model
customer tastes

Required
Strong quality
greater Fast-cycle
control and
flexibility and manufacturing
real-time
shorter turn processes
visibility
around time

→ The focus of this model is to shorten the time from idea to

market and maximize forecast accuracy to reduce market costs.
 03
Affecting
drivers/ factors
 a r k e t
3 . 1 .M a. Geographic:
Europe contributes approximately 66%, Asia
provides about 20%, and America contributes
about 14% of the total sales.
In recent years, with the rapid increase in
spending levels in the US market and
emerging market Asia, the customer database
in these countries is also increasing.

=> Zara expands its distribution network, opening

more stores around the world.
In order to supply goods quickly to the target
market - Europe, Zara use suppliers and
manufactures nearby target market.
 b.
Demographic
Behaviour
Age Customers want a fast-
changing wardrobe in keeping
Income
Young to middle-aged adults, with the very latest fashion. Middle income, they demand
company’s core market is => Zara desgin a supply chain affordable pricing product
women 24 – 35 years old with short production and => Zara cut down costs,
=> Zara distributes products in short lead times for delivery to including raw materials and
town centers and places with meet the constant needs of production costs to reduce
high concentrations of target customers product costs in total.
customer.

 3.2
Government
.
a. Home country (Spain)

Zara is a Spanish brand, so it enjoys all of the

benefits of operating a business out of the
European Union thanks to the EU’s extensive
trade agreements.
=> Not only does this make it incredibly easy to
import raw materials and export finished products
within the European Union, but it also means that
Zara can send its merchandise across the world
with little effort and for a low cost.
3.2. Government
b. Host countries

The political disruptions in the countries near the EU

or where Zara operates can disrupt the supply chain
affecting the smooth flow of the business
Government policies can affect the supply chain in
term of distribution. For example, Zara doing business
in China and India can be difficult due to red tapism.
The brand caters to offering clothes of the latest trend
for their customers, and this is when they may get
penalized due to copyright issues and trademarks.
There can be accusations of stealing designs or
concepts on them. Previously, they were accused by
Balenciaga and Adidas of copying their designs.
Thanks to the EVFTA, Zara chose Vietnamese
companies as suppliers to enjoy the 0 per cent tariff
rate of the EU.
3.3. Competitiveness
About ZARA
a. Customers:
Perceptual Mapping against its competitors

Zara appeal customer by perceiving itself as a brand

with a low price but with high fashion taste. Zara
focuses on price as its competitive advantage other
than quality since the fast fashion industry aims to
provide low-cost, low-quality, trend-based clothing
to consumers at unprecedented speeds

=> In order to achieve lower price compare to

market, Zara created a vertical integration supply
chain that allow the company to reduce cost in every
stage: from purchasing to production to distribution.
And as a trendy fashion brand, Zara builds a flexible
design department that responds quickly to
customer needs and new designs in the market.
Materials

b. Resources
The quality and price of raw materials are carefully considered by fast-fashion companies
before choosing a supplier.
=> Zara mainly purchases main materials from many European suppliers in Barcelona ,
Portugal and Morocco to ensure quality. For less important raw materials, Zara imports
from Asian countries to save costs.

Labor
Most fast-fashion companies outsources to produce their clothes in places where there
are lower working wages so the cost of making the products is cheaper. However, it comes
with a cost that company does not have control of quality of the product. And since these
countries have labor laws that aren’t as good as developed countries, companies can easily
get involved in lawsuits that greatly affect the brand name.
=> Zara competes on flexibility and agility. They employ mostly workers in manufacturing
operations in Spain at an average cost of 8.00 euros per hour compared to average labor
cost in Asia of about 0.40 euros per hour.

Technology
The fast fashion industry has always been technologically advanced, constantly innovating
to keep up with consumer demand and increase profits. Technology has become integral
to the very existence of fast fashion, with AI and trend forecasting software allowing
companies to copy designs from the runway and produce them at high speed.
⇒ Zara is really focus on technology development strategy including assessment tools like
their PDA (Personal Digital Assistance) software to connect the whole supply chain.
 a. Direct costs:

Logistic cost
The geographic driver lowers the total cost of logistics between the source of raw
materials, factories, shipping centers, and the main market of Zara - Europe.
The need for items to be transported by air from the distribution hub in Europe to
third-world nations like America and Asia drives up the overall cost due to logistics.
Due to the customer's demand for a quick delivery time, Zara has to choose a

3.4. Cost
shorter route and air transportation, which raises the overall cost

Material cost
Due to the low market standards for product quality, Zara often buy fabric from
suppliers who sell it inexpensively and abundantly, which lowers overall costs.

Labor cost
Zara chooses to manufacture right in the European market, which increases the total
cost compared to competitors that outsource to nations with cheap labor such as China,
India, Vietnam ...

Design cost
Zara has to invest heavily in design costs since consumer demands for product designs
are always changing, which raises the overall cost.
 b.
Indirect costs
Cost of doing business Technology cost
Thanks to the preferential tariff policies Zara must invest in new
of the EU, the cost of doing business in technology since the supply
the home country and main market- chain demands close
Europe reduces the total cost. However, coordination between all of
Zara is increasingly expanding its the many operations, which
business to countries where there are raises the overall cost.
tariff barriers and stricter regulations,
which raises the total cost.
c.
Cost structure
The most important cost include:
1. Design cost
2. Operation cost
3. Product cost
4. Logistics cost

Zara spends heavily amount on design costs as company put a lot

of emphasis on researching for latest fashion trends and
designing for updating collections. Operation cost and product
cost account for a large amount in cost structure as products
produce primarily in Europe. Logistics cost account less in cost
structure since the company still focuses on the Europe market.

Zara only spends about 0.3 percent of sales on advertising, and

uses that money to open new stores
 04
Zara's supply chain
OVERVIEW

Zara created a supply chain model of its own,

different from its competitors in the fast fashion
industry. The company combines the “fast” chain
and the “agile” chain, creating a supply chain that is
both efficient and responsive.
In contrast to its competitors, Zara does not
outsource its core business: clothes production.
They own the whole process – full stack company-
from the design, and the production to the retail
store
Zara structured its supply chain in vertical
integration where design, product, distribution, and
retailing were integrated.
OVERVIEW 200 fashion designers are in charge of the
clothing line and among those, they select the
most cost-effective fabrics for designs.
Designs will be made into models when sent to
factories. The computer then designs how to
shear fabrics in order to waste as little as
possible
Fabrics will be sent to the factories
After sewing, products will be sent back to the
factory for button nailing, ironing, and
inspection
Underground transmission channels connect all
processes
Label trademarks for different countries
And the heart of the company’s supply chain is a
huge, highly automated distribution center (DC)
called “The Cube”
PURCHASING
RAW MATERIAL SUPPLIERS

Zara mostly works with “proximity” suppliers - mainly Spain, Portugal, and Morocco -
for important raw materials such as tissue, Asian suppliers are in charge of basic
supply as button and zipper
⇒ Zara choose nearby suppliers to minimize the risk in term of logistics, able to
control quality, and speed up production.

Zara buys large quantities of Zara prefers buying fabric from

only a few types of fabric, suppliers who sell it
does the garment design inexpensively and abundantly.
,cutting, and dyeing in-house. ⇒ Keep the competitive
⇒Quick deliveries of bulk price compared to
quantities of fabric competitors

⇒ However, Zara has a number of suppliers; speed and accuracy is the prime concern of Zara to decrease lead time. The complex
supplier networks have posed difficult challenges for the purchasing teams that are charged with ensuring that goods are made at
the right price, are delivered on time, and meet the right ethical and quality standards (1)
OPERATION
The Cube: The “heart" of Zara's supply chain operation, also the heart of the company’s supply chain is the
Cube. The cube is a “hub”, the distribution platform where raw materials, final goods, and information transit,
but never have stock.
=> Make the supply chain of Zara highly responsive to the market, which is central to its business
success
OPERATION

Design Production

Zara has a strong marketing and design team Zara apply just in time strategy to reduce flow
that constantly source the market to fit the need times within the production system as well as
of customers response times from suppliers and customers
⇒ Products are always associated with the ⇒ Give Zara a competitive advantage to quickly
new trend in the industry which meet the respond to the demands of the market and
high demand of customers. feedback from other departments.
OPERATION

Quality control Store operation

The products which are more expensive are sent The store manager constantly updates the design
back to their own factory for individual quality teams about customer feedback and accordingly,
checks. Items that have been created in external designers start working on the updated trends in
factories and are not considered to be "fashion- order to prepare for the next assignment.
forward" but more straightforward designs are Customer feedback is of utmost importance to the
sent directly to the distribution center. Zara relies store managers to find the exact requirements of
on external factories to do quality-control checks customers so that the next order sales increase by
on these items. providing the exact item that the customer
requires.
OPERATION
Invetory management
Zara uses no stock strategy. Zara’s procurement team
predict the amount of product needed before placing
orders with the company’s suppliers. And every collection
is produced in a limited batch.
⇒ Zara can avoid overstocking unpopular products and
is able to get full control over the wear housing, logistic
function, and distribution.
Twice a week stores are delivered by trucks with new
stock and new collections. The trucks take the unsold
item and take them back to the cube or Zaragoza. Those
items will be shipped to other locations all over the world
where the design will be more adapted or the seasonality
fit to the items.
OPERATION
Information system
Information is the key driver that coordinates all activities of
Zara. They keep their whole supply chain connected
through a flow of data and information from store
managers to headquarters and backward. They made gross
investments in IT before major expansions to produce
some assessment tools like their PDA to keep the supply
chain well-informed with data from sales and distribution
⇒ The technology allows Zara to respond fast to market
changes, lower the cycle time and reduce the error of
production and stock. However, due to the increasingly
complex and changing supply chain, Zara needs to focus on
developing technology to increase the accuracy and speed
of forecasting and information flow (3)
MARKET CHANNELS
Distribution: Zara currently has 1,865 outlets in 86 nations, including Europe, the United States, the Middle
East, and Asia. Each retail chain has its own centralized distribution system. The distribution center is located
in Arteixo. Zara's warehouses serve as a place to transfer merchandise rather than to store them so that its
stores are refreshed with new merchandise every two weeks.

⇒ Zara's distribution
currently brings many
competitive advantages to
the company when
distributing in nearby
markets. However, Zara’s
international expansion
required constant
adjustments in distribution(4)
MARKET CHANNELS
Market channels: Zara locates their stores in prime town-center locations and uses online stores.

Localized stores Flagship stores Online stores

Customers can find a store in Zara demonstrates its aesthetic Zara like many retailers is doubling
nearly all major retail locations evolution to customers through its down on its digital business. Since
(shopping malls, retail outlets, flagship stores. Customers shop 2019, Zara invests heavily in the e-
airports, etc.) meaning around its vivid layout offering them commerce channel, in specific 1
accessibility is not an issue for an experience aligned with the billion euros, to keep up with the
the majority of consumers. brand’s deeper, eco-friendly values. rising online shopping trend.

⇒ However, although growing quickly, e-commerce remains a small portion of Zara’s business, just 14% of
net sales, compared to ultra-fast fashion competitors like Shein, Boohoo, and Fashion Nova (5)
MARKET CHANNELS

Order management: Store managers use PDAs to

check on the latest clothes designs and place their
orders twice a week in accordance with the demand
they observe in their stores. If a product is not selling
in certain stores, the company stops production of
that product.
⇒ Zara can produce products that are closest to
market demand, reduce inventory and serve as an
input for Zara's forecasting.
 LOGISTICS
Location
Manufacturing is centered in northwestern Spain
where company headquarters and the Cube are
located.
The supply centers are also located near the
headquarters help Zara ship necessary materials
quickly
For their main distribution and logistics hub, they
chose a more centrally located facility. This allows
Zara to deliver garments to stores worldwide in
just a few days: China – 48 hrs; Europe – 24 hrs;
Japan – 72 hrs; United States – 48 hrs.
⇒ The location gives Zara a competitive advantage to quickly respond to any changes. However, since
Zara owned all the channels of the supply chain, it becomes difficult to expand to far locations as it is very
expensive to distribute such products. (5)
 05
Recommendation
 RECOMMENDATION
PROBLEMS (3) AND (5) PROBLEMS (1)
Zara should open another distribution center to eliminate Zara should focus on the standardization of products, which
possible risks that a vertical integration system of supply can be reached by indicating more standardized processes,
presents This will diminish the logistics level and delivery and facilitating the reuse of documentation. Moreover, the
fashionable clothes in a timely manner. At this point, it is company can enhance communication with suppliers
possible to develop smaller distribution centers located in through increased training in business processes, systems,
Brazil, Argentina, or Mexico, which enhances the possibility and products, emphasizing multidisciplinary and
of meeting the demands of American customers. department-specific aspects.

PROBLEMS (2) PROBLEMS (4)

Zara should go further in the deep learning machine and the As e-commerce is a rapidly growing channel, Zara only has
AI to collect data and exploit them in a better way. With an online stores in twenty-seven out of ninety-three of the
improvement of the software of demand forecast, Zara will markets that they operate in. It is recommended for Zara to
be able to analyze at a long-term the demand. Artificial expand online stores to some growing countries like the
intelligence can enable Zara to improve its trend radar to South African and Asian markets. In addition, the company
maintain a distance from its competitors and ultra-fast should invest in technology development to enhance
fashion’s new entrants. IoT could improve the data collection customer experience on online platforms.
on the forecast and on the store delivery twice a week.
 06
Bonus question
Advantageous
conditions in VN
Vietnam has a stable political status and has become a lucrative market for
foreign companies to invest in.
Vietnam and Spain, home country of Zara have signed the EU-Vietnam Free
Trade Agreement (EVFTA)
⇒ Zara will enjoy tax incentives when moving manufactories to Vietnam.
Human resources: Labor resources in Vietnam are abundant with low-cost.
Also, Vietnam is a destination of Foreign fashion brands for garment
processing like Nike
Legal procedures: Reforming administrative procedures in tax, customs,
import and export to simplify procedures and create a favorable environment
for investors, strengthen inspection and inspection market, anti-piracy and tax.
Location: Vietnam is located next to China which is one of the main raw
materials suppliers of Zara.
⇒ Zara can save logistics time and expense spending for delivering materials
to factories.
Recommendations
if ZARA move their
manufactories to Vietnam

1. Labor resources need to be trained carefully so as to meet

the requirements of fast-fashion systems: speed, accuracy,
and quality. Zara‘s supply chain management system is very
complicated and requires strict follows.

2. Investment projects in the garment industry are

encouraged in some industrial zones in Ho Chi Minh City,
Dong Nai, and especially in Long An and Binh Duong provinces
with advantages in labor and infrastructure systems. Also,
these locations have advantages of transportation routines,
which helps Zara to optimize logistics spending to send
finished products to the Cube.

3. Technology level in Vietnam is lacking innovation.

Meanwhile, Zara requires information transferation systems
strictly. It is suggested that Zara should invest in technology
development to improve infrastructures and operations.
T h a nk y o u
Group 3