Zara’s supply chain success: BTS

In a time where there are many impressive supply chains, Zara’s supply chain seems to stand out quite effortlessly.

While fashion companies have improved their supply chain speed and efficiency considerably in recent years, Zara is one of the few companies that has taken speed to a new level. The New York Times aptly tagged it mind-spinningly supersonic. It’s quite the term, but can you blame them though? While businesses are bending over backwards to improve their production and delivery (lead time) and reduce the cost of their supply chain, Zara seems to do the same effortlessly.

It is clear that the company is heads and shoulders above most of the fashion retailers. 

Founded in 1975, Zara, which is a part of the distribution conglomerate INDITEX, contributes over 60% of the company’s revenue.  It is the pioneer of fast fashion and was built on offering consumers high-end fashion products at modest prices.

What are The Principles Behind Zara’s Supply Chain Strategy?

In 2021 alone, Zara sold $13 billion.

An impressive feat for a supply chain. Especially coming off the back of the devastating impact of the pandemic. The secret to its supply chain success is down to its supply chain management. Zara’s supply chain strategy is governed by four foundational principles 

Limited Raw Materials

Unlike most competitors, Zara purchases a few fabrics in large quantities and in different colours. 

Where the average fashion company may invest in twelve to fifteen fabrics, Zara focuses on just 4 or 5.  Focusing on a few materials in large quantities allows the fashion behemoth to eliminate complexities, reducing lead times in its supply chain.

Quick Response to Market Trends

The fast fashion world is about producing the latest trendy items as fast as possible. 

With the help of fashion agents and technological tools like PDA (personal digital assistance), Zara can keep a pulse on global fashion trends. By monitoring trends in the fashion industry, Zara can quickly analyze and respond immediately.

Short Production Runs

You will quickly learn that style is ever-changing in the fashion industry.

Sometimes, this leaves fashion supply chains holding a lot of inventories. On average most fashion stores only sell about 60% of their inventory. However, Zara sells about 85% of its inventory. The company can accomplish this by producing only short amounts per time, which has been immensely successful. Talk about good business.

Keep the Focus on The Key Consumers.

While the fashion giant caters to everyone, its chief demographics are  24 to 35-year-old females. They try to ensure these demographics have more store options and that their products never run out of stock. 

Five Strategies of Zara’s Supply Chain

Although the principles show a framework, it is Zara’s supply chain strategy that is the real MVP here.

The company’s supply chain strategy is what has propelled it to become a market leader. The company leverages them to remain competitive across several markets and ensures that customers know they can always trust the quality and cheap price of the Zara brand.

Vertical Integration

A vertical Integration strategy is the practice of keeping one or more aspects of the supply chain in-house.

The trend in the fashion industry is to outsource production or use a combination of in-house and outsourcing. Zara chose to do the opposite, centralizing its design and production. The company improved its supply chain by investing in capital assets, such as distribution centres and trucks. This has helped Zara’s supply chain transport its goods seamlessly.

Now, with the exception of raw materials, the supply chain can handle almost all the inbound and outbound processes in-house. 

The strategy has paid off. Although the method seems daunting from the outside looking in, It has greatly helped the company reduce costs and improve its supply chain efficiency.

Information Structure

The major problem with vertical integration is that all those parts working together under one house can get too much for any supply chain manager. 

One way to combat this is by ensuring collaboration of all parts of the supply chain but, more importantly, free-flowing information. Zara’s supply chain has managed to do both well. Communication is key to any supply chain, but bureaucracy seems to get in the way today. With Zara, Information is free-flowing all through the supply chain. 

Example: Sales and inventory data are shared between stores, distribution, and production centres.

This way, the demand forecast is more accurate. And since lead time has been cut short, they can quickly supply stores that are running low on their inventory. This level of information circulation and prompt actions has helped Zara maintain visibility and agility in their supply chain.

Automotive Supply Chain

Because Zara understands that they are in an industry that strives for time-based competition, it made sense for the company to invest heavily in automating its supply chain process. Besides saving the company time, automation also makes their supply chain more efficient, eliminating mistakes and saving costs.

Mixed Inventory Management Strategy

There are three types of inventory management strategies: Push, Just-in-time, and pull. 

Zara’s inventory management system is the perfect blend between the Just-in-time inventory strategy and the pull inventory strategy. How do they pull this off? Pull inventory strategy entails designing an inventory system to react to the demands, while a just-in-time inventory system entails producing only on demand. Reacting to market trends, Zara’s supply chain starts producing what they think consumers would need, but only in the short run to gauge consumer reaction. They maintain this short production until demand changes.

This mixture of inventory management creates fast turnovers, creating a sense of scarcity.

Centralized Distribution

Zara has four major distribution centres, all located in Spain. Every item of clothing the company makes passes through one of those facilities. 

Centralizing their distribution is important because it allows Zara to consolidate orders, which makes sense considering their strict scheduling and distribution process, which they supply to every store twice a week.

Wrap Up

Through careful planning, ss well as taking a page from Toyota and the Japanese, Zara’s supply chain has created a lean and effective supply chain.

All in all, it has been great for the Zara business model. Zara’s competitors are having difficulty understanding the type of consumer data Zara has. However, with the rise of digitization and its promotion of supply chain awareness, other fashion companies may be able to compete on an equal footing.