Universität Duisburg-Essen

Campus Duisburg

Faculty of Engineering Sciences

Technical Logistics

Case Study on

Agile supply chain in fashion industry:Zara

Author:
Arpit Jodhani(3105351)
Ankit Mandanka(3098652)
Hardik Vekariya(3104953)
Dharmesh Sudani(3100604)

August 14, 2022

Supervisor
M.Sc. Ahmed Kassem
Duisburg-Essen Universität
Duisburg campus, Germany
Contents

Table of Contents i

1 Introduction 1
1.1 The nature of fashion markets . . . . . . . . . . . . . . . . . . . . . . 2

2 The agile supply chain 4

2.1 Market sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Virtual integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Network-based . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Process alignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

3 ZARA case study 8

3.1 Inditex: The Beginning . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Zara: fast fashion pioneer . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 The Secret of Zara’s success: Their Supply Chain . . . . . . . . . . . 9
3.3.1 Design department . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3.2 Commercial department . . . . . . . . . . . . . . . . . . . . . 12
3.3.3 Supplier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3.4 Manufacturing and distribution . . . . . . . . . . . . . . . . . 13
3.3.5 Sales and Feedback . . . . . . . . . . . . . . . . . . . . . . . . 16

4 Results of agile supply chain 17

4.1 Consumer-driven process . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.2 Agility- impact on the supply chain . . . . . . . . . . . . . . . . . . . 17
4.3 Retailer power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 Suppliers under increased pressure . . . . . . . . . . . . . . . . . . . . 18
4.5 Elimination of stages in the supply chain . . . . . . . . . . . . . . . . 18

5 Conclusion 19

i
List of Figures

ii
List of Tables

iii
Chapter 1

Introduction

Fashion industries have long piqued the interest of academics. More frequently, the
psychology and sociology of fashion and the process by which fashions were adopted
across populations were the focus of their work.1 Parallel to this, a body of work
has emerged attempting to identify fashion cycles.2 Much of the earlier work was
intended to generate insights and even tools to help improve fashion product demand
forecasting. However, the reality that is progressively being accepted by those who
work in the industry as well as those who study it is that demand for fashion products
cannot be predicted. Instead, we must acknowledge that fashion markets are complex
open systems with high levels of ”chaos.” In such cases, the managerial effort may be
better spent devising strategies and structures that allow products to be created,
manufactured, and delivered in ”real-time.” This is the context that has given rise to
the emerging domain of the agile supply chain,3 And the fast reaction philosophy.4

It is now becoming clear that the changing conditions in the global marketplace
necessitate a much more agile response from organizations and their supply chain
partners. The era of shifting production overseas to take advantage of cheap labor is
coming to an end, as fast fashion begins to compete not only on price but also on
time.5 predicts that product and technology life cycles will continue to shorten, while
demand will become increasingly difficult to forecast. Raw material decisions must
be made months in advance and are still the riskiest part of the agile supply chain.

Customer behavior has shifted, and buyers now expect to see new styles on a
regular basis.6 This is clearly a result of new buyer behaviour; clothes are no longer
used to keep the body warm but to accompany a persona style and support the
desired personality appearance.7 These facts are crucial in the new relationship
between retailers, suppliers, and customers. Supply Chain Management is a critical
1
wills1973fashion.
2
carman1966fate.
3
alan1999creating.
4
lowson1999quick.
5
liCaifeng.
6
bruce2006buyer.
7
liCaifeng.

1
1.1. THE NATURE OF FASHION MARKETS

success factor in the fast fashion industry. It works with suppliers, suppliers’ suppliers,
customers, and occasionally customers’ customers. It examines the entire process,
from raw material extraction to customer consumption. The supply chain’s output
is not just a physical product, but a combination of time, place, form, and function
of a product/service.8

The demand for new skills is increasing in the fashion industry, where companies
compete on time (time-to-market). Agility is the ability to respond quickly to unex-
pected changes in demand. According to,9 Agile Supply Chain (ASC) is a network’s
ability to consistently identify and capture business opportunities faster than its
competitors. Barnes and Greenwood define ASC as a ”quick response, describe
shorter, more flexible, demand-driven supply chains.10 ” ASC is driven by information
such as market data and information sharing among supply chain businesses. The
visibility of information in agile supply chains enables the supply chain to become
more responsive to changes in market demand.”

Agile manufacturing is a component of the ASC process.11 Le Kaifeng identifies

four key goals of agile manufacturing: customer enrichment ahead of competitors,12
mass customization at the cost of mass production, mastering change and uncertainty
through routinely flexible structures, and leveraging the impact of people across
enterprises via information technology.

1.1 The nature of fashion markets

Fashion is a broad term that typically refers to any product or market that contains
an element of style that is likely to be temporary. We have classified fashion markets
as having the following characteristics:13

Short life-cycles:Because the product is often ephemeral, designed to capture the

mood of the moment, the duration in which it will be available for purchase is likely
to be very short and seasonal, assessed in months or even weeks.

High volatility:These products’ demand is rarely stable or linear. It’s possible

that it’s influenced by weather, films, or even pop stars and football players.

Low predictability: Because of the fluctuation of demand, forecasting total de-

mand within a period, let alone week-by-week or item-by-item demand, is extremely
difficult.

8
liCaifeng.
9
liCaifeng.
10
barnes2006fast.
11
liCaifeng.
12
liCaifeng.
13
christopher2004creating.

2
1.1. THE NATURE OF FASHION MARKETS

High impulse purchasing: many consumers make purchasing decisions for these
products at the point of purchase. In other words, when confronted with the product,
the shopper is prompted to purchase it, thus the critical need for ”availability.”

The combined effect of these pressures clearly poses a logistical challenge. Tradi-
tional methods of responding to customer demand have been forecast-based, with
the risk of overstocking or under stocking.

Recently, another trend has arisen that has added complexity and difficulty to
the management of fashion logistics. The growing trend of sourcing products and
materials from other countries, results in significantly longer lead times. While there
is usually a significant cost advantage to be gained, especially in manufacturing, by
sourcing in low labor cost areas, the impact on lead times can be severe. Global
sourcing replenishment lead times are lengthening due to factors other than dis-
tance. It is caused by internal processes at both ends of the chain, as well as the
import/export procedures in between. The end result is longer ”pipelines” with more
inventory, with the associated risks of obsolescence.

Retailers have put a lot of pressure on manufacturers to find low-cost manufactur-

ing solutions. At the same time, many apparel retailers have made moves to reduce
the number of suppliers with whom they do business significantly. This supply-based
rationalization has been driven by a number of factors, the most important of which
is the need to develop more responsive replenishment systems, which is impossible
when sourcing is spread across hundreds, if not thousands, of suppliers.

3
Chapter 2

The agile supply chain

There has been a surge in interest in the design and implementation of agile supply
chain strategies in recent years1 christopher2001integrated.

In the context of supply chain management, the concept of agility revolves around
”responsiveness.” Traditional supply chains have been long and have long lead times,
forcing them to be forecast-driven. Agile supply chains, on the other hand, are
shorter and aim to be demand-driven.

Another distinction is that traditional supply chains are inventory-based because

they are forecast-driven. Agile supply chains are more likely to be data-driven.
Fashion markets are volatile and difficult to predict by definition. As a result, agility
is required.

Image

According to Harrison, an agile supply chain has a number of characteristics.2

The agile supply chain, in particular, is:

• Market sensitive: It is inextricably linked to end-user trends.

• Virtual: It is based on information shared by all supply chain partners.
• Network-based: It gains flexibility by leveraging the expertise of specialized
players.
• Process aligned: It has a high level of process inter connectivity among network
members

Image
Image
Figure 2 depicts a number of practical ways in which these four key dimensions
can be used to create an agile supply chain for organizations competing in the fashion
industry.

1
“autocite .
2
alan1999creating.

4
2.1. MARKET SENSITIVITY

A number of observations can be made by considering each of these four dimen-

sions in turn.

2.1 Market sensitivity

Being close to the customer has always been a goal of any market-oriented business,
but it is critical in fashion retailing. Successful fashion retailers use a variety of
methods to capture trends as they emerge. Point-of-sale data is analyzed daily
and used to determine replenishment requirements in cases where the product will
continue to be available. Although the selling season is frequently intended to be
brief and the product will not be replenished, data is still used to analyze trends in
such cases.

Real consumers exist beyond point-of-sale data, and identifying their preferences
and changing needs should be a continuous priority.

Zara, a Spanish fashion retailer, has teams of fashion ”scouts” who look for new
ideas and trends in the markets in which they operate.

2.2 Virtual integration

The agile supply chain is virtual in the sense that it is linked and integrated through
shared information on real demand, so that all of the chain’s players, from fabric
manufacturers to garment makers to retailers, are all working to the same set of
numbers.

Retailers and their suppliers must be more closely connected than in the past
through shared information. Until recently, very few retailers in any industry shared
point-of-sale data with their suppliers. However, there is a growing recognition
that shared information can allow for higher levels of on-the-shelf availability with
less inventory. All at the same, transaction costs can be reduced, especially if the
cooperating parties are willing to transition to co-managed inventory(CMI).

CMI is a process in which the supplier and the retailer work together to manage
the flow of products into the customer’s distribution system. The desired stock levels
that must be maintained in the retailer’s operation are agreed upon jointly by the
supplier and the customer. The supplier receives the customer feedback sales data
on a regular basis and uses it to plan replenishment. Typically, such arrangements
work best when product demand is relatively stable and replenishment can be made
within the season.

5
2.3. NETWORK-BASED

2.3 Network-based
The use of flexible arrangements with a diverse supply base is a distinguishing feature
of agile businesses. Zara and Benetton are two fashion brands that have achieved
high levels of customer responsiveness by collaborating closely with specialized,
often small-scale manufacturers. Zara’s strategy is to conduct only those operations
in-house that improve cost efficiency through economies of scale (such as dyeing,
cutting, labeling, and packaging). All other manufacturing activities, including
the labor-intensive finishing stages, are completed by networks of over 300 small
subcontractors, each specializing in a specific part of the manufacturing process or
garment type. These subcontractors only work for Zara’s parent company, Inditex
S.A. In exchange, they receive the necessary technological, financial, and logistical
support to meet strict time and budget constraints. The system is adaptable enough
to deal with unexpected changes in demand.

Similarly, Benetton has long relied on a plethora of small manufacturers to sup-

plement their capacity in activities such as knitting and final assembly. In some
ways, the principle underlying an agile network contradicts the widely held belief
that organizations should work with fewer suppliers over a longer period of time.
Instead, in an agile network, the focal firm acts as the ”orchestrator” of the network,
the membership of which changes according to requirements. A great analogy is
the director of a theater play. The director will work closely with a relatively small
group of actors and actresses during the specific season in which the play is being
performed. He or she most likely chose this team from a much larger pool of players
with whom he or she has previously worked. That team, however, will be disbanded
for the next game or season, and a new one will be formed from the pool. These are
close relationships, despite the fact that they are not permanent.

2.4 Process alignment

Responsive supply chains necessitate a high level of process alignment both internally
and with upstream and downstream partners. The ability to create ”seamless” or
”boundary less” connections, in other words, no delays caused by hand-offs or buffers
between the various stages in the chain, and transactions are likely to be paperless,
is referred to as process alignment. The underlying processes will most likely be
managed by ”horizontal” and cross-functional teams as well.

Process alignment is critical in an agile network, and it is enabled by a new

generation of Web-based software that allows different entities to be connected even
if their internal systems are quite different.

Organizations that are geographically distributed and independent of each other

in terms of ownership can now act as if they are one business.

6
2.4. PROCESS ALIGNMENT

In the fashion industry, many different entities are frequently involved in the
process that begins with product design and ends with the physical placement of
the product on the retailer’s shelf. Coordination and integration of information and
material flow are critical for quick response to changing fashion.

Product design to final sale in traditional fashion supply chains can take up to
12 months. In contrast, a much higher degree of synchronisation can be achieved by
establishing ”virtual teams” across the network where information is shared in real
time.3

We now switch to a method that has grown in popularity in the fashion industry
as a means of achieving agility and speed of response. It is also a strategy that has
begun to call into question the conventional wisdom of sourcing goods and other
inputs from less developed economies.

3
johnson2002product.

7
Chapter 3

ZARA case study

Zara has always been an intriguing case study for many retailers and fashion brands
worldwide. The fashion apparel industry is constantly changing, and a fashion retailer
must be able to follow new trends as quickly as possible. Zara has been a success
from the beginning because, when the subject is following trends quickly, it is always
one step ahead of its counterparts.

Zara has used an innovative approach that many people would not consider
successful from the beginning. They were, however, incorrect. Their strategy was not
only successful, but it also established Zara as the leader of the fast fashion concept.

Aside from following trends, it is critical to study and comprehend each market
in order to determine which products will do better than others. As a result, they
must adapt to each culture and nation in order to achieve global success.

3.1 Inditex: The Beginning

Inditex, established in 1963 by Amancio Ortega and his ex-wife Rosalia Mera, began
as a dressmaker. It was founded in 1985 as the Group’s holding company.

The Group formed a distribution system that is capable of quickly responding to

changes in market dynamics, and the emphasis was always on closely listening to
their customers and offering them the fashions they desired. Because the customer
was always the priority, the group established an organizational structure that en-
compassed all stages of the fashion value chain (design, manufacturing, distribution,
and sale).1

Today, it is one of the world’s biggest fashion retailers, with nine distinct brands:
Zara (1975), Pull and Bear and Massimo Dutti (1991), Bershka (1998), Stradivarius
(1999), Oysho (2001), Zara Home (2003), Uterqüe (2008), and, most recently, Lefties.

1
Annual.

8
3.2. ZARA: FAST FASHION PIONEER

In 2015, the Group included over 7000 stores in 91 markets, had already achieved
29 online markets and was valued at more than 100 billion Dollars at the end of the
same year, which made it the most valuable company in Spain.2

3.2 Zara: fast fashion pioneer

Zara is regarded as the father of Fast Fashion. That is, they look for new and
innovative trends on the streets of the world. They then take the new ideas to the
designers, who can produce them in a matter of weeks.

Zara can identify trends, produce them, and put new products on the market
in as little as two to three weeks. Other brands and retailers require at least two
months. Zara is estimated to launch 12000 products per year. Amancio Ortega
transformed the fashion industry as we know it. People nowadays say that fashion
history is divided into two periods: before and after Ortega.

Zara’s current success can be attributed to its ability to respond quickly to

market demands. This is only possible because they build and keep shared situation
awareness, which is defined as ”a team’s ability to recognize a pattern in a fluid
situation and use it to anticipate what might happen next”.3

Store managers all over the world are in constant contact with their sales staff,
keeping them up to date on what is selling and what is not.

Designers can identify what they like and what they are looking for based on
customer feedback. Furthermore, with daily data feeds, fashion teams can begin
developing fashion that will be released in the coming weeks.

3.3 The Secret of Zara’s success: Their Supply

Chain
Zara’s Supply Chain enabled the brand to become the Fast Fashion Pioneer due to
its ability to follow new trends and respond to changes in demand.

”The initial business concept was very simple. Connect customer demand with
manufacturing, and manufacturing with the distribution. That is the principle we
still adhere to.” Inditex CEO José Maria Castellano Rı́os.

In its operations, the Inditex group has committed to the vertical integration
model. When a company’s supply chain is vertically integrated, it means that
2
Indvik˙2015.
3
sull2008fast.

9
3.3. THE SECRET OF ZARA’S SUCCESS: THEIR SUPPLY CHAIN

certain stages of production are integrated within the company. They manufacture a
significant portion of their products in their own factories, which are more capital-
intensive and value-added-intensive (purchase raw materials, design, cut, dye, quality
control, iron, packaging, labeling, distribution, and logistics); and they outsource the
labor-intensive and less value-added-intensive production stages (sewing).4

Image
Image
Zara, unlike most retailers, does not replenish their stores on a weekly basis. Zara
makes regular and small deliveries twice a week to all of its stores worldwide. The
store managers order clothes at specific times and new garments arrive on time.5
Zara gets the credit to be the pioneer in Agile Supply Chain and most researchers
explain its success with its efficient ASC678 .9 The whole process of the supply chain
of Zara is described below:

3.3.1 Design department

According to Zhang “the main duty of ZARA’s designers is not for product innova-
tion, but for reorganizing fashion elements of the existed products on their purpose,
transferring them into new kinds of products. They work to interpret the fashion
instead of creating fashion”.10

The samples are gathered from various sources, such as pret-a-porters and haute
couture,11 and are shaped by culture, such as what is happening on the street, in
clubs, lifestyle hotspots, and fashion ”flashpoints,” rather than a mood board or a
trend prediction agency 12 months before a selling season.12

Inditex designers attend fashion shows in fashion capitals, photograph runway

models, and send the photos to headquarters. They also look through fashion mag-
azines, go to clubs and colleges, and walk down the street to see what people are
wearing and spot potential new trends.13

Next to its unique models, the majority of Zara’s items are the imitation of
high-end brands. When a fashion brand presents its collection for the next season
on the runway, because Zara is capable of producing new products in a short time,
similar products are already in Zara’s stores before that brand launches its products
4
crofton2007zara.
5
Berfield˙2013.
6
dutta2003retail.
7
zhelyazkov2011agile.
8
sull2008fast.
9
zhang2008analysis.
10
zhang2008analysis.
11
dutta2003retail.
12
barnes2006fast.
13
crofton2007zara.

10
3.3. THE SECRET OF ZARA’S SUCCESS: THEIR SUPPLY CHAIN

in their stores.

The design team is located in the heart of the production and works alongside
market specialists, procurement, and production planners. The meetings take place
at large circular tables where they discuss ideas and analyze the latest fashion maga-
zines.14

According to Ferdows et al, bringing these three groups together speeds up and
improves the design process: designers create and analyze the initial sketches, market
specialists are always in contact with store managers, receiving information about
what is selling and what is not and discussing market prices, and procurement and
production planners assess and estimate the cost of manufacturing.15

Store managers are responsible for deciding which products will be sold in their
stores and ordering the products they believe will sell the best.16

They must collect information from a variety of sources, identify patterns, forecast
which models will sell and which will not, and begin developing new fashion for the
coming weeks.17

Around 1000 people are responsible for design and development tasks at the
company headquarters in La Coruña and Barcelona.18

Zara’s is the only place where they are heavily anticipating fabric orders. Fabrics
are considered raw materials and, due to long lead times, must be present before the
season begins. In any case, there is still efficiency in this process. The fabrics are
ordered uncolored, which allows for color changes based on current trends. Accord-
ing to Caifeng, the majority of stock is ”work-in-process,” awaiting configuration
instructions.19

Zara is balancing its internal and external activities. Heavy labor tasks, such as
sewing and coloring, are often outsourced to companies close to their headquarters,
which have a bad reputation for mistreating their employees and providing inadequate
compensation.20 Design, prototyping, and computer-aided fabric cuts, on the other
hand, are done in-house to improve agility. Clothing is distributed to Zara stores
after it has been assembled and returned from the sewing factories. To ensure that
each order arrives on time, laser bar-code scanners capable of picking and sorting
over 80 000 pieces of clothing with an error rate of less than 0.5 percent will be used
14
ferdows2005zara.
15
ferdows2005zara.
16
mcafee2004zara.
17
sull2008fast.
18
orcao2014global.
19
liCaifeng.
20
dutta2003retail.

11
3.3. THE SECRET OF ZARA’S SUCCESS: THEIR SUPPLY CHAIN

to sort the finished products.21

3.3.2 Commercial department

After the fashion experts have decided on the new designs, they send them to
the commercial department for final approval before production. The commercial
managers evaluate the commercial viability of the proposed items, and if they agree,
the items will be manufactured.
Collections are produced, then extended and modified over time by commercial
teams, each one focusing on a particular store section (Women, Men, Children) and
collection.22
According to Mcafee et al., store product managers travel a lot to see what
people around the world are wearing, and they try to figure out what kind of clothes
would sell if Zara made them, They are constantly communicating with the design
department in order to help them respond to the rapid changes in demand.23
Zara’s designers typically create 40000 designs per year, 10000 of which are chosen
for production.24

3.3.3 Supplier
When the designs are accepted by the commercial managers, the next step is to
negotiate with the suppliers, decide on purchase prices, analyze costs, and set a price
for the garment. They also determine the size of the production and the launch
dates, which vary by country.
Inditex established a strategy of creating supplier clusters in order to provide
the widest possible selection of fashion fabrics while avoiding reliance on any single
source or supplier. A supplier cluster is defined as a geographical concentration
that allows a company to increase productivity and collaboration among the various
agents involved.
Inditex had 1725 direct suppliers and 6298 factories in 2015, with suppliers in
the various clusters accounting for 91 percent of total production.25

Every organization buys items, which means that every organization needs to
buy supplies, such as raw materials, components, sub-assemblies, spares, equipment,
services, and consumables. These are obtained by either purchasing or leasing.
Because procurement interacts with every unit in the organization, from marketing
and sales to engineering, design, and manufacturing, it is critical to the organization.

Procurement is critical to the company for several reasons:

21
zhang2008analysis.
22
mcafee2004zara.
23
mcafee2004zara.
24
ferdows2005zara.
25
Indvik˙2015.

12
3.3. THE SECRET OF ZARA’S SUCCESS: THEIR SUPPLY CHAIN

• Materials change - Global markets and agile supply can provide a variety of
materials at varying prices very quickly. This has a direct impact on the final
product, making it more competitive, potentially cheaper, and more appealing
to customers.
• Customer demand - Recently, there has been an increase in company product
mix while shortening the product life cycle. Zara’s design is a good example;
they produce small quantities and a wide variety, which allows them to update
the shop’s appearance every week while reducing promotions and reductions.
• Price variation - Because of new technologies, a product’s price can change sev-
eral times per day, depending on supply and demand. Those same technologies
enable monitoring of the process.
• Price variation - Because of new technologies, a product’s price can change sev-
eral times per day, depending on supply and demand. Those same technologies
enable monitoring of the process.
• Procurement is a value-added process, not a cost center.
• Manufacturing - Manufacturing materials must be delivered on time, with the
correct quality, to the correct location, in the correct condition, and at the
correct total cost.
• SCM - Supply chain management focuses heavily on procurement.
• Outsourcing and subcontracting - become more cost-effective.

Procurement is directly related to company profit. Every penny saved on purchases

results in a profit, whereas every sale results in a cost of sales.

Purchasing activities play a critical role in fast fashion through supplier selection
and product decision-making, and buying is arguably shifting from purely operational
to much more strategic.26 In the table below, Bititci distinguishes between strategic
and operational procurement.27

Table

3.3.4 Manufacturing and distribution

Zara integrated clothing manufacturing with distribution to be able to respond to
changes in customer demand and preferences.
A rise in costs can compensate if it leads to an increase in productivity, and
product quality, and allows the company to gain faster access to markets.
Inditex manufactures a significant portion of its products in-house. The rest is
made by their suppliers. However, production is divided into specialized activities,
and each activity takes place where it adds the most value to the end product. The
location of production is determined by availability, punctuality, and the quality of
26
bruce2006buyer.
27
bititci2012performance.

13
3.3. THE SECRET OF ZARA’S SUCCESS: THEIR SUPPLY CHAIN

the service provided.28

According to Lu, every store in the world receives new products (clothing, shoes)
twice a week in small batches.29

Zara’s seasonal collection is constantly evolving. At the start of the season, only
50 to 60 percent of the products are finished. Others are designed and manufactured
in the midst of the season. If Zara recognizes that a particular style or design
has become the new must-have on the streets, they immediately begin to produce
that new product in order to have it available in stores while the trend is still strong.30

Supply Chain Operations (SCO) manages three distinct aspects: maximize re-
source utilization, minimize inventory, and lead times. These three have a direct
impact on pricing, customer satisfaction, and overall business values such as profit,
turnover, and sales.31 Zhang claims that Zara production lots should be kept as
small as possible,32 leaving extra capacity for the products that are most needed in
manufacturing. He claims that large orders will result in an increase in inventory.
Tiplady, on the other hand, highlights the growing issue that, with the increased
number of Zara stores around the world, lead times cannot be kept as short.33
Complexity and uncertainty are two factors in product manufacturing. Products are
classified into four categories based on these two factors:34

Table
Zara creates fashion outfits, which have a low level of complexity but a high
level of uncertainty. According to Cai-feng, uncertainty is a feature of organizational
competition and will increase in the future supply chain environment due to a com-
bination of factors.35 Zara, on the other hand, minimizes its uncertainty by focusing
on a limited range of and basic shapes, resulting in a rather narrow product range.
Even if a product does not sell well, a small number has been shipped, and it will be
marked down and replaced with a new one soon.

According to Bruce and Daly, ”fast fashion does not apply to the entire range
in stores, and as much as 80 Percentage of goods may be core and basic lines, with
fast fashion accounting for up to 20 Percentage.” Zara is no exception; it has its own
runners and repeaters.36 The Zara basic label consists of daily commodities with
no shelf life, such as underwear, basic t-shirts, socks, and so on, and is primarily
produced in China, implying lower production costs and longer lead times. On the
other hand, high-end trendy Zara labels such as Zara RTF, which primarily consist
28
orcao2014global.
29
lu2014zara.
30
lu2014zara.
31
bititci2012performance.
32
zhang2008analysis.
33
tiplady2006zara.
34
bititci2012performance.
35
liCaifeng.
36
bruce2006buyer.

14
3.3. THE SECRET OF ZARA’S SUCCESS: THEIR SUPPLY CHAIN

of current fashion outfits, are produced in Portugal and Spain, implying higher
production costs and shorter lead times, but allowing for faster response to demand.

According to Cai-feng , ”marketing success was built on strong brands and inno-
vative technologies.” Nowadays, we can place ASC next to them, which is capable of
responding faster to changing demand.37 This new addition alters the business to
improve competition on time through an efficient supply chain (SC). The business
can influence the SC in a variety of ways. The delivery time has an impact on the
company’s image. When a company’s product is not on the shelf, customers switch
to a competitor’s product, and approximately 20 Percentage never return. Short
delivery times, in other words, can increase market share.38

Zara is widely regarded as the pioneer of fast fashion, with new fashion items
arriving in its stores twice a week. In comparison, the typical time frame for the
far east clothing industry is six to nine months,39 four months for an international
brand, and one week for Zara.40 Zara can react quickly to changes in demand, and
even if an item is not sellable, there are only a few of it in stock. People return to
the store every week to find new items to purchase. It aids in keeping the stores
”fresh” and reduces the risk of incorrect forecasting.41

ASC is critical to the success of the fashion industry. To properly manage the
supply chain, retailers must consider all potential variables. Weather conditions, spe-
cific customer requirements, shelf life, raw material supply lead times, sales forecasts,
market-specific requirements, and so on are examples.42

Zara’s success can be attributed to a variety of factors, including an efficient

supply chain, effective organizational management, and, most importantly, customer
orientation. When the film Marie Antoinette was released in theaters in October
2006 and became an instant hit in the EU and the US, Zara’s stores were flooded
with puffy ball gowns and velvet jackets with gold buttons.43 Another example of a
company listening to its customers was after the 9/11 attacks in New York. Zara’s
stores replaced the colorful outfits with back and dark-colored clothes for a week.

Another important factor is that rapid turnover eliminates the need for working
capital, reducing the number of short-term loans. In that sense, Zara’s efficiency
stems from its small scale of operation, small batch of production and transportation,
and frequent distribution in small quantities. When an order is large, inventory
increases, and the ability to meet customer demand decreases.44
37
liCaifeng.
38
bititci2012performance.
39
bruce2006buyer.
40
zhang2008analysis.
41
dutta2003retail.
42
bititci2012performance.
43
sull2008fast.
44
zhang2008analysis.

15
3.3. THE SECRET OF ZARA’S SUCCESS: THEIR SUPPLY CHAIN

3.3.5 Sales and Feedback

Early and consistent communication between customer and supplier can lead to
improved SCM. Another rule is that if a customer treats his suppliers well, inform
them that being involved in their process is likely to result in fewer issues and is
usually a guarantee for a long-term partnership. Zara is well aware of these facts and
employs them in its daily operations. Zara’s designers collect sales and inventory
data from each of its stores on a daily basis and use it to inform their assessment
of the situation. Sull and Turnocni call this process Shared Situation Awareness.
It consists of three steps: observing raw data, interpreting raw data, and testing
hypotheses.45

The raw data is derived from quantitative and qualitative methods. Zara’s
store managers review sales and replenishment reports hourly. Store managers, on
the other hand, order items themselves rather than relying on what is sent from
headquarters. Their compensation is affected by the accuracy of their forecasting,
which makes them more responsible. Direct customer feedback given to shop as-
sistants on a daily basis is part of the qualitative data collection process. Another
example is that after the store closes, the store manager and assistants turn to a
recovery team to try to recall what happened that day, as well as sort tried but un-
sold items in fitting rooms and try to find a pattern that can be fed to the design team.

The raw data collected is analyzed at Zara’s headquarters, where the design team,
fast prototyping team, market specialists, and buyers work in tightly coupled teams.
The discussions take place in three open-plan halls: one for men’s, one for women’s,
and one for children’s clothing. The team creates, prototypes, and rates new designs
based on feedback. Depending on the outcome, they are either trowed or sent to a
store to see if customers will buy them.

Zara’s headquarters has a facility called Fashion Street where items can be tested
to see if they match the overall collection in terms of materials, colors, fabrics, and
so on. It is an underground floor that resembles the high streets of Milan or London,
with modern windows, interior design, lighting, and even background music. All of
this is meticulously planned by architects, visual merchandisers, and designers.

45
sull2008fast.

16
Chapter 4

Results of agile supply chain

4.1 Consumer-driven process

Customers are more important to agile businesses.1 Knowing is typical of agile
organizations. Who is the customer? What is his requirement? Does the product
meet the needs of the customer? How satisfied is he?2 Agile businesses have also
been found to use technology to boost productivity, new product development, and
customer satisfaction.

Zara can be classified as a typical agile company in this regard. Its success is
built on a close relationship between customers and designers. Zara is gathering
information through internal interfaces, such as sales, staff, leftover analysis, and
complaints, and is thus aware of all answers to the questions listed above.

4.2 Agility- impact on the supply chain

Agility is introduced in response to volatile markets and customer demand.3 It has a
direct impact on the supply chain, which is one of the reasons concepts like agile
supply chain and fast fashion have emerged. The need to reduce lead times and be
flexible in fast fashion introduced supplier involvement in the process as critical to
their ability to achieve high levels of customer satisfaction4 ).
According to Prater, speed and flexibility are two concepts that are inherent in
the majority of the 12 attributes that define an agile firm.5 Although the speed and
flexibility of the supply chain have an impact on a firm’s agility, agile manufacturing
remains an important component of it.6
To respond to the rapid change in consumer demand, Zara has developed an
efficient agile supply chain, with all designers, buyer experts, and management in
1
power2001critical.
2
bititci2012performance.
3
prater2001international.
4
power2001critical.
5
prater2001international.
6
prater2001international.

17
4.3. RETAILER POWER

one location and production facilities close by, ensuring full flexibility and agility.

4.3 Retailer power

While fast fashion can be heaven for its target consumers, it can also be hell for
traditional retailers.7 Retailers nowadays prefer to work with agile suppliers in order
to avoid carrying stock and increasing inventory. Retailers’ competitiveness and
market position improve as a result of this.

Zara owns its store chain and does not franchise in order to avoid common issues.
However, its agile supply chain provides all of the benefits listed above. The stores
are meticulously organized, and the items differ from one another based on the shop
manager’s forecast.

4.4 Suppliers under increased pressure

Consumer requirements are shifting at a much faster rate, which has an impact
on the entire supply chain by putting pressure on suppliers. The modern fashion
industry is still highly competitive, with added pressure on fashion companies to
compete not only on price but also on their ability to deliver newness and ”refresh”
products.8 While most retailers are struggling with this new situation, Zara has
proven to be the pioneer in fast fashion by supplying its stores twice a week, keeping
them fresh and interesting for its customers. On the other hand, throughout the year,
small quantities of a variety of outfits are produced. These two factors contribute to
one of the lowest markdowns, sales, and outlets in the industry, compared to the old
fashion retailers.

4.5 Elimination of stages in the supply chain

Clothes shopping traditionally occurs at specific times of the year to coincide with
events such as trade fairs, fashion shows, fabric events, and so on and is organized
around a two-season approach to product ranges, with product range planning
beginning as much as a year in advance of the selling season.9 In response to
consumer demand for novelty, the number of planned seasons has significantly
increased, resulting in as many as 20 ”seasons” per year;10 for example, in Zara’s case,
more than 40 000 items are designed per year. These are continuously supplied to
its stores, radically increasing the number of ”seasons” and upending the traditional
two-season model.

7
sull2008fast.
8
barnes2006fast.
9
barnes2006fast.
10
dutta2003retail.

18
Chapter 5

Conclusion

Zara pioneered the agile supply chain (ASC) in the fast fashion industry and rose to
third place in the world retailer rankings in recent decades. This resulted from close
communication between customers and its designers, as well as the ability to ship the
desired items within a week, capturing the sales moment. All of this demonstrates
that ASC is a factor that boosts organizational competition. Another lesson is that
an efficient production organization with a good balance of in-house and outsourced
tasks leads to shorter lead times and an increase in Zara’s market share. The supply
chain is not an isolated agile process of Zara, but the entire organization is agile and
efficient.

Zara aims to reduce both excess stock holding in the supply chain and the risk
associated with forecasting by utilizing quick response, as product specifications are
not finalized until closer to delivery.1

From Zara’s success in terms of speed, it can be concluded that being fast can
provide several benefits such as improved customer satisfaction, increased market
opportunity, decreased overall risks, and lower total costs.2

1
bruce2006buyer.
2
liCaifeng.

19