Fraiman
- 1. International Conference on Industrial Logistics
- 4. Zara’s mission: To produce a fashion forward product for the masses
- 5. Zara Tidbits • Amancio Ortega quit his sales job to start the business with just 5,000 pesetas ($83) • Founded in 1963 as a maker of ladies’ lingerie in the Galician town of La Coruña • Today, 70-year-old chairman and majority shareholder, Mr Ortega, is Spain’s richest man.
- 6. Zara • Flagship enterprise of Inditex (2001 IPO) • Sales of 3.2 billion €, EBIT of 476.1 million € in 2003 and EBIT margin of 14.8%. • HQ and central distribution in La Coruña (Galicia – northwestern corner of Spain) • Women’s, men’s and children’s wear • Over 724 stores in 56 countries
- 7. Zara and Mango • Spanish apparel retailers • Both tap into global fashion trends: – Global appeal of catwalk fashion – International youth and fashion culture – Value proposition in rich countries; aspirational fashion in poorer countries – the unserved tier combining middle- market pricing with high fashion content and novelty
- 9. Production Commitment and Markdown 6-month Sales% Not at Pre-season Start of season In-season full price Traditional Industry 45-60% 80-100% + 0-20% 30-40% Model Advertisement Advertisement + Markdowns Zara 15-25% 50-60% + 40-50% 15-20% Fresh items
- 10. The Zara Model….. • Design-driven; 11,000 styles per year • Partial vertical integration, with owned factories; owned factory production is reserved 85% for IN-SEASON production • Tight coupling of market data and production decisions in-season; cycle CAN be as short as 2 weeks from design to store delivery of the completed garment
- 11. …..The Zara Model…. • Twice-weekly shipments of new product to all stores from central distribution • In-season production in response to demand is limited by fabric on hand • Small batch production creates a scarcity premium and encourages impulse purchase • Customers expect rapid inventory turnover, learn to shop frequently (17 times per year)
- 12. ……The Zara Model….. • Store design is uniform and upscale; stores are located on premium shopping streets • Pricing is market-based, not cost-based – premium pricing in higher cost markets • Powerful word of mouth supports store growth without advertising (usually about 3-4% of sales) • Growth has been organic from Spain and EU, outward
- 13. Distribution and logistics • Individual distribution centers for each concept • Enables continuous and speedy deliveries to stores: 2-6 times a week
- 14. …but with full flexibility in-season Stores: Design: Daily analysis of Contact product sales modification of performance/ initial collection customer based on demand feedback • New, fashion-attuned designs twice a week • Constant replenishment/ refreshment in-season Sourcing/ Manufacturing: Small production batches
- 15. Sourcing and manufacturing - overview Sourcing/fabrics Manufacturing In-house fabrics In-house Sourcing-Comditel 40% manufacturing 50% 60% External External fabrics Manufacturing sourcing 50%
- 16. In-house fabrics sourcing-Comditel • 100% owned company, based in Barcelona • Supplies Inditex with finished fabrics • Inditex is sole customer - Zara 89% - Other concepts 11% • Key benefits for Inditex - Unique flexibility: ability to change collection in-season - Full quality control - Increased speed and unmatched responsiveness to market • Stake in Fibracolor ensures optimum service and flexibility
- 17. External fabrics sourcing – key elements Scale Diversification 43 MM metres 260 suppliers, with Purchased in 2000 #1 less than 4% of total Speed/Quality Flexibility 95% of fabrics Over 50% of fabrics are purchased in Europe purchased undyed to facilitate quick in- season updates + Comditel/Fibracolor
- 18. In-house manufacturing - process Purchasing of Receipt of fabrics accessories Cutting (e.g. buttons) Finishing Receipt of finished Shipment to (ironing, labeling, garments subcontracted quality control) workshop for sewing Transfer to Zara’s distribution centers
- 19. External manufacturing – key elements Geographic proximity Close monitoring • Other • Quality 4% • Service • Asia 33% • Flexibility in production • Europe programming 65% • Working conditions
- 20. Own logistics – key elements •Sophisticated facilities with sufficient capacity to meet expansion plans • Average utilization rate: 50% • Shipment to all stores, twice a week in two shifts Rapid response,orders to stores in 24-48 hours
- 21. Relative Wage Levels: Textile & Clothing $30.00 $25.00 Hourly Wage (US$) 13.6 $20.00 10.12 $15.00 6.79 $10.00 15.81 3.7 12.97 $5.00 2.12 8.49 $0.39 1.36 4.51 0.43 2.98 1.76 1.89 $0.60 0.62 $0.00 India China Tunisia Morocco Hungary Portugal Spain USA Italy Textiles Clothing
- 22. "No queremos competir en el segmento de gama baja del mercado, ofrecemos moda con un alto contenido de diseño. Si intentase fabricar mis colecciones en Asia, no sería capaz de traerlas a las tiendas con la velocidad suficiente. Al fabricarlas cerca de casa puedo descartar colecciones cuando no se están vendiendo y sin esta rápida respuesta no sería capaz de obtener una buena relación entre calidad, precio y moda, que es lo que nuestros clientes esperan", subrayó..” José María Castellano, Febrero 3, 2005
- 23. Pricing Strategy Pricing Strategy 200 150 170 200 140 100 110 100 50 0 Spain Rest of Northern Americas Japan Europe Europe
- 24. Zara’s Strategy • A Passion for Fashion • Flexibility • Global Reach – Volume, design, fabric, color, manufacturing • Vertical Integration • Economics of Scarcity – Backward Integration • Efficient Knowledge • Design, Fabric, Coloring Management – Forward Integration • No advertising • Retailing, market research • Uniformity of Store • Supply Chain at the Format core of their strategy • Two-pronged manufacturing strategy
- 25. … Lessons from Zara • Rethink the entire supply chain – Reduction in mark-down can more than make up for the increase in labor cost – Planned shortages can induce more future demand – Good store location, layout and product display can be a substitute for advertising – Faster response eliminates inventory risks – Excess capacity pays for itself by faster response
- 26. Inventory, Information and Speed , Sp ste ry Fa to ee r r en d ea i nv ca ct Speed n s io n ds ub sp rs she ory llin cks goo st y iet no ove fini ent itu no re ira to d gv , ar no tle inv te nee spo fo d nd lit for ca r I fo n e nf r fo n “r ut or t io t it ma rec al-t ac bs n tio ast ime re s u i n ing ” er ca n e Fa eed Inventory Information Sp st , Information can substitute for inventory Better forecasting less safety stock, Faster information updates reduced overreaction
- 27. Economics of Scarcity • Highten the sense of now-or-never – Supply only handful of dresses at a time – Rapid design changes (11,000/yr) – Don’t over-saturate the market – Typical shelf life– couple of weeks – Change the location of key items • Stores are not flooded with garments • A typical Zara customer visits the store 17 times/yr (compared to 4-5 for The Gap) • Friends don’t tell friends about Zara
- 28. JIT, really • Most JIT system (even Toyota’s) focus on manufacturing • Zara has a true just-in-time system – From customer to design, production, and fabric manufacturing – Customer’s pull not designer’s push drives the system
- 29. Inventory to Sales Ratio Zara Matalan H&M Gap 6 8 10 12 14
- 30. Working Capital as a percentage of sales 40% 38% 30% 20% 10% 7% 4% 0% -10% -7% Benetton Hennes & Gap Inditex Mauritz
- 31. No advertising? • Why? – Don’t need to. Why spoil a good thing? – We do advertise, but don’t like to pay for them (free press is plenty) – High speed fashion not amenable to ad campaigns • by the time an ad reaches audience, dress may be sold-out or obsolete
- 32. Zara – In Sum • By taking a new and aggressive approach to fashion risk management through current, small batch production of fashion items, Zara not only achieved high margins –NOTWITHSTANDING higher local labor costs – but turned the production design into a compelling marketing story: limited edition cachet.
- 33. Questions for Zara • How to continue to manage the sourcing/distribution/fashion equation as Zara grows • Related: growth, pricing and marketing strategies • Can others duplicate their models or improve on them? Does the formula dilute?
- 35. Competitive pressures • Will other specialty retailers learn to go global? • The euro and pricing transparency in the EU? • China enters the WTO; trade barriers and quotas come down; further deflationary pressures in the sector? • Increased acceptance of global hypermarket operators as design leaders and purveyors of fashion? (Target? Carrefour?)
- 36. Summary • As of the moment, Zara has got it right • Supply chain and logistics management in support of a winning, design-based marketing strategy.
- 37. Conclusion What did we learn which can apply in Mercosur? • Look for products where you can increase fashion conscience. • Build global brand name • Think of mass customization applications
- 38. Elements of mass production control • Demand forecasting • Inventory tracking • Production scheduling • Make-to-stock processing inventory market
- 39. Elements of mass customization • Information elicitation • Communication network • Flexible technology elicitation • Tracking system communication • Make-to-order tracking inventory processing market
- 40. Some mass customization examples
- 43. A shift in the traditional product- process frontier High variety Job Shop Mass customization Batch Process new frontier Product old frontier Production Line Continuous Flow Low variety Low efficiency Low volume Process High efficiency High volume
- 44. What did we learn which can apply in Mercosur? (continued) • Pay attention to logistics • Leverage income disparity in Latin America • Know when to stop growing