Homework 1

- ZARA
 Company Overview
• ZARA is a Spanish clothing and accessories retailer based in Arteixo,
Galicia
• ZARA needs just two weeks to develop a new product and get it to
stores, compared to the six-month industry average, and launches
around 10,000 new designs each year.
• ZARA has continually maintain its mission to provide fast and
affordable fashionable items.
• ZARA’s approach to design is closely linked to their customers.
 Problems
• 1) What advantage does Zara gain against the Competition by having
a very responsive supply Chain?
• 2) Why has Inditex chosen both In-house and outsourced mfg.? Why
mfg. both in Europe and Asia?
• 3) Why does Zara source products with uncertain demand from local
mfg. and predictable from Asian mfg.?
• 4) What advantage form replenishing stores multiple times a week?
How does it affect design of its distribution system.
• 5) Responsive replenishment structure better for online or Retail
Sales?
1) What advantage does Zara gain against the
Competition by having a very responsive supply
Chain?
• They can introduce new design every week and thus change 75%
display every 3-4 weeks.
• Reduce inventory overhead and forecast errors.
• Sell most products at full price and only half the markdowns in stores
compared to competition.
• Multiple weekly shipments allow close match to demand.
1) What advantage does Zara gain against the Competition
by having a very responsive supply Chain?

More
Low Profits
Inventory
Match and Higher
Demand Price

Introduce
New Fast
2a) Why has Inditex chosen both In-house and
outsourced manufacturing?

• Outsourced manufacturing is for the production of products with

predictable demand
• In-house manufacturing is for the production of products with highly
uncertain demand.
• 40% in-house production allows added responsiveness to trends and
postponement of decision until after trends.
• A strong IT department helps them make quick product decisions and
drive replenishment.
2b) Why has Inditex maintained manufacturing
capacity in Europe even though manufacturing in Asia
is much cheaper
• Maintained large fraction of manufacturing capacity in Portugal and
Spain (Europe), despite the higher cost there, it allows Zara to
respond quickly to changing fashion trends in Europe.
• For ZARA, speed and responsiveness are more important than cost.
Manufacturing Capacity in Europe helps manufacturers offer fast and
flexible sourcing and such products are to be delivered quick instead
of at Asia
• The above helps Zara reduce inventories and forecast error.
 3), Why does ZARA source products with uncertain
demand from local manufacturers and products with
predictable demand from Asian manufacturers?
• Products with uncertain demand will most likely be produced at a lower
volume to products with a certain demand and therefore sourcing from
local manufacturers provides ZARA the speed it needs to test and deliver
these products before they become obsolete and have to be sold at a
discount. It is part of a responsive pull strategy.
• Predictable demand products are made in Asia due to low labor costs
and high volume of products needed. It is more cost effective to
manufacture in bulk due to the fact that predictable demand products have
a larger window with which to deliver products without becoming
obsolete. It also means that they can be made before the season starts as
part of a push strategy
• This allows for multiple weekly shipments and close match to demand.
3. Why does Zara source products with uncertain
demand from local manufacturers and products with
predictable demand from Asian manufacturers?
• they can easily manufacture in-house by responding quickly to trends
and delivering in less than 2 days on a global scale.

Local Asian Optimize

Quick Cheap

Uncertain Predictable More Profits

4a),What advantage form replenishing stores
multiple times a week?
• Frequent replenishment allows Zara to match supply and demand
more effectively than the competitors.
• This allows Zara to respond quickly to changing fashion trends in
Europe
• Sell most products at full price and only half the markdowns in stores
compared to competition.
• This enhances ZARA’s supply chain speed and responsiveness
4b) How does the frequency of replenishment affect
the design of its distribution system?

• The frequency of replenishment has made ZARA increase the size and
also centralize its distribution design by handling its global operations
through 8 Distribution canters based in Spain.
• This centralized structure means that products can be distributed
rapidly from in house manufacturing in order to meet worldwide
demands in as little time as possible.
5), Do you think Zara’s responsive replenishment
infrastructure is better suited for online
sales or retail sales?
• Whilst its quick distribution system allows ZARA to respond to trends
very quickly its lack of decentralized distribution means that it is
better suited to retail as online sales tend to have more a diverse
product demand and customers expect quicker delivery times.
• Companies such as Amazon are able to respond quicker to online
sales due to the fact that they have distribution centers all around the
world and can offer same day delivery. ZARA’s 24 hour delivery times
from Spain to outlets all around the world may not be as efficient
with online sales as it is with retail sales.
• Reiterating it in the online sales will be extremely challenging as the
Point-of-Sale is different