Zara is a fashion retailer founded by Amancio Ortega, in 1975 in Arteixo, Galicia, region

closed to A Coruña. The store became popular very quickly and international in 1988. The
company uses groups of designers instead of only one, in order to respond faster to the market
and new trends. Nowadays, there are 2,266 stores in almost 100 countries. Zara turned into one
of the largest apparel companies and the most important brand of the Inditex group (one of the
world`s largest distribution groups that still belongs to Ortega) which also owns other brands
(Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterque). The
group has a main distribution centre, called The Cube, in A Coruña where they concentrate the
creation, production and distribution. However, another 4 distribution centres (Zaragoza, Leon,
Madrid, Barcelona) were built to auxiliate the main one.

One of the main reasons for the success of a company is the right choice of its production
system. Zara uses the Just-in-Time production system (JIT). According to Yang and Pan (2004,
p.853), “the characteristics of JIT systems are consistent high quality, small lot sizes, frequent
delivery, short lead time, and close supplier ties”. Abdulnour et al (1995, p. 566) adds that the
objectives of JIT are “reducing inventory levels to an absolute minimum and producing higher
quality product”. Thus, the company controls all the process design, production, distribution and
retailing, characterising a Vertical Integration of the Supply Chain.

Vertical integration is a strategy where a company expands its business operations into
different steps on the same production path, such as when a manufacturer owns its supplier
and/or distributor. Vertical integration can help companies reduce costs and improve efficiencies
by decreasing transportation expenses and reducing turnaround time, among other advantages.
However, sometimes it is more effective for a company to rely on the established expertise and
economies of scale of other vendors rather than trying to become vertically integrated. (NEED
REFERENCE)
 Read more: Vertical Integration
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Zara buys large quantities of only a few types of fabric (just four or five types, but they
can change from year to year), and does the garment design and related cutting and dyeing in-
house. This way fabric manufacturers can make quick deliveries of bulk quantities of fabric
directly to the Zara DC – the Cube. The company purchases raw fabric from suppliers in Italy,
Spain, Portugal and Greece. And those suppliers deliver within 5 days of orders being placed.
Inbound logistics from suppliers are mostly by truck.

The Cube is 464,500 square meters (5 million square feet), and highly automated with
underground monorail links to 11 factories within a 16 km (10 mile ) radius of the Cube. All raw
materials pass through the cube and all finished goods also pass through on their way to stores.
The diagram below illustrates Zara’s supply chain model.

The screenshot below illustrates how the Zara supply chain is organized. Manufacturing
is centered in northwestern Spain where company headquarters and the Cube are located. But for
their main distribution and logistics hub they chose a more centrally located facility. That facility
is located in Zaragoza in a large logistics hub developed by the Spanish government. Raw
material is sent by suppliers to Zara’s manufacturing center. Then finished garments leave the
Cube and are transported to the Zara logistics hub in Zaragoza. And from there they are
delivered to stores around the world by truck and by plane.

Zara can deliver garments to stores worldwide in just a few days: China – 48 hrs; Europe
– 24 hrs; Japan – 72 hrs; United States – 48 hrs. It uses trucks to deliver to stores in Europe and
uses air freight to ship clothes to other markets. Zara can afford this increased shipping cost
because it does not need to do much discounting of clothes and it also does not spend much
money on advertising.

Factories can increase and decrease production quickly, thus there is less inventory in the
supply chain and less need to finance that inventory with working capital. They do only 50 – 60
percent of their manufacturing in advance versus the 80 – 90 percent done by competitors. So
Zara does not need to place big bets on yearly fashion trends. They can make many smaller bets
on short term trends that are easier to call correctly.

A Lean and Agile Supply Chain

Stores take deliveries twice per week, and they can get ordered inventory often within
two days after placing their orders. Items are shipped and arrive at stores already on hangers and
with tags and prices on them. So items come off delivery trucks and go directly onto the sales
floor. This makes it possible for store managers to order and receive the products customers want
when they want them, week by week.

Zara stores respond practically in real-time as customer preferences evolve. It is a great

business model for success in the high-change and hard to predict fashion industry. It means
about half of the clothing the company sells, most of its high margin fashion items (but not its
lower margin basic items), is manufactured based on highly accurate, short-term (2 – 6 week)
demand forecasts. Because this business model tracks so closely to real customer demand from
one month to the next, it frees the company to a large degree from getting caught in cyclical
market ups and downs that ensnare its competitors (those cycles are driven by boom-to-bust
gyrations generated by the bullwhip effect). Turbulence in the global economy since 2008 has
hurt sales at many competing fashion retailers, but Zara has seen steady, profitable growth during
this time.

However, a fast-moving and finely tuned supply chain like Zara’s requires constant
attention to keep it running smoothly. Supply chain planners and managers are always watching
customer demand and making adjustments to manufacturing and supply chain operations. The
screenshot below shows the result of one simulation using the supply chain model outlined
above. Adjustments need to be made to production rates, vehicles, and delivery routes and
schedules to get this supply chain to work well.

http://blog.scmglobe.com/?page_id=1513

The JIT system plays an important role in present supply chain management. One of the
major tasks of maintaining the competitive advantages of JIT production is to compress the lead
time needed to perform activities associated with delivering high-quality products to customers.
In the dynamic, competitive environment, successful companies have devoted considerable
attention to reducing inventory cost and lead time and improving quality simultaneously Yang
and Pan (2004)
Abdulnour, G.; Dudek, R.A.; Smith, M.L. Effect of maintenance policies on the just-in-time
production system. International Journal of Production Research. Feb1995, Vol. 33 Issue 2,
p565. 19p.

Yang, Jin-Shan; Pan, Jason Chao-Hsien. Just-in-time purchasing: an integrated inventory model
involving deterministic variable lead time and quality improvement investment. International
Journal of Production Research. 3/1/2004, Vol. 42 Issue 5, p853-863. 11p. 3 Charts.