Inditex & Zara – Supply Chain Analysis

Inditex & Zara – Supply Chain Analysis

Francisco Joyo

Introduction

Inditex Group was founded in Arteixo, Spain by Amancio Ortega in 1963. The very first Zara store opens twelve years later in Coruña, 1975, where its headquarters remains until today. A year later Zara’s business model focus on reduce the gap between fashion and the final consumer (Inditex Group, 2017). In 1977, GAO and Samlor, Zara’s first garment factories were built in the outskirts in Coruña (Inditex Group, 2017). In 1984, Inditex built his first logistic center with ten thousand square meters in Arteixo (Inditex Group, 2017). In 1985 Inditex is officially founded bringing all the companies under one banner, this included Zara. While moving forward, Zara went international (1988) in Europe and open a store in New York United-States (1989). By the year 1990 Zara enter the France fashion segment in Paris.

Inditex Group in numbers have 7,504 stores around the world and have presents in 94 markets (45 of them online) in all five continents (Inditex Group, 2017). Inditex have 1,805 suppliers and 6,959 factories (Inditex Group, 2017). Of the total of Inditex, Zara is considered the flagship brand with 2,266 stores (Inditex Group, 2017) and have a brand value of 11.3 billion of dollars and sales for about 17.2 billion been the quinquagesimo first in the Forbes ranking of most valuable brands (Forbes, 2017).

Zara product line focus on clothes for men and women and more recently for kids. In addition, they sell shoes, cosmetics and accessories, their entire line of products are fashionable and follow the consumer trends (Zara, 2017). As seen on its official website “The customer is at the heart of our unique business model, which includes design, production, distribution and sales through our extensive retail network.” (Zara, 2017)

Inditex Group can be taken as a case of study for fast fashion supply chain management. They figure out how to have a maximum of 48 hours delivery time with 10 logistic centers, all in spain. They use latest technology to minimize emissions of greenhouse gas (GHG) on their factories and distribution. They standardized all supplier packages and increase the packing density per shipment allowing to cut 2.3 million kilometers of road transport and 185,799 square meters of cardboard packaging in 2015 (Inditex Group, 2017)

Innovation is the key value of Inditex, the investment in innovation grew up from 800 thousand euro in 2013 to 1.5 million euro in 2014. Companies that work with large number of suppliers need to be agile (Popescu, 2015). In Inditex scenario, maintain their major production in Spain and Portugal gave them a competitive advantage by allowing the company to use the entire workforce within each season and have a flexible inventory “If companies were more careful in analyzing their supply chains and ensuring their agility and traceability, the sustainability of many supply chains would increase.” (Popescu, 2015). The risk associated with fast fashion apparel conclude that:

“…the supply chain risk in most sensitive is most sensitive to ALT scenarios in which the lead time of all SC levels changes at the same time. It was quantitatively shown that the higher the delays, the higher the risk of the SC. The delays at manufacturer’s level (MLT) also have a high impact on SC risk after the ALT cases.” (Mehrjoo & Zbigniew, 2016)

Current Business Model

First, at all, it is needed to know the definition of a business model of a company like “A business model can be viewed as a template of how a firm conducts business, how it delivers value to stakeholders, and how it links factor and product markets. The activity systems perspective addresses all these vital issues” (Zott & Amit, 2010).

Business Model Canvas is a way to show the business model of a company in a clear and easy way of understanding. It help to identify “what?” is your value proposition in terms of clients segment, relationship with clients, money sources and your value proposition (most important one). Been identify the value proposition, the second step is to make the same identifying the “how?” in terms of key partners, key activities, key resources and cost structure that are required in order to fulfill and deliver you value proposition(“what?”) to your final customers. (Weenk, 2017)

Analyzing the “WHAT?” we can see that Zara is a fashionable company that main value proposition is to provide consumers with fashionable garments and apparels with a wide range of affordable product with great design and the promise of low quantities of the same model make them almost unique pieces of art (Forbes, 2017). The segmentation of Zara’s products is focus women between 18yo to 36yo, mid-range income young professionals that are aware of prices and like the latest fashion trends (impulsive buyers) (Marketing91, 2017). The main sales channels are stores in strategic locations, online stores and make noise in the market with its Facebook official page that have more than 26 million followers (Facebook, 2017). The relationship with clients promote uniqueness of products and the desire of come back because of a high renewal life cycle that promotes sales, the client feel it’s needs are been fulfilled with great products and great design (Inditex Group, 2017). Finally, the revenue streams are mainly from the garment and apparel sales.

Analyzing the “HOW?” we can see that Zara and his parent Inditex have develop key activities in its Supply chain strategy that allow them to supply products on stores with a maximum delivery time of 48 hours (Inditex Group, 2017). In addition, a huge capacity of production in minimum time been like 3 weeks from the drawing table to stores and more than 50 thousands fashion creativities a year and renewing designs twice a week (Inditex Group, 2017). The key resources are based on the logistics chains that support the incredible short lead-time for each shipment, the production speed of its factories that follow the speed of the designers that are trend sentry. Another important aspects is to answer the questions “How can my products be desirable?”, well the answer is simply, like Zara does, made strategic alliances with artist that marketing your brand, make deals with franchise owners for entry in new location and open your own location when the time comes. Finally, the cost structure is based on Raw materials (fixed cost) for the production of each factory, human resources that hired people valuable for the organization, stores costs and sales commission. Their principal competitors are H&M and Forever21 in the fast fashion industry.

[pic 1]

Figure 1: Zara Business Model Canvas

Linking the “WHAT?” and the “HOW?” we find that for example:

• Change stock frequently have a direct impact in the uniqueness of the product and the desire to come back to see the new ones.
• The control of the supply chain and logistic have a direct impact in the wide range of products and the fast trend following scope.
• Collaborating with franchise owners have an impact in expanding the stores in new locations and help to increase the brand visibility of new design and its value proposition.

Sustainability

Inditex and Zara brand has acknowledged its role promoting the driver of climate change and started to push to enhance sustainability through its operations to mitigate the damage to the environment. The fast fashion product has pushing consumer to impulsively purchase new clothes that has been characterized by speed, affordability and newness rather than environmental responsible. That is why the fast fashion industry is considered as the second highest polluter reaching 400% more carbon emissions per year than regular clothes. (Harvard Business School, 2016).