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 ZARA Value Network Design
Abstract:

The main purpose of retail businesses in general and fashion enterprise in particular is to
constantly keep the responsiveness to compete the volatile market by launching fresh and
affordable collections that are appropriate for all consumers. Thus, the importance of supply
chain network design has appeared. In addition to vertical integrated operational strategies
of make-and-buy, postponement, solid distribution network and tranquil product rollover,
Zara is found to be designed an efficient supply chain network using two key approaches of
agile and lean modes that decrease its lead time and hence take the responsibility of high
response to rapidly changing in customers’ expectation as well as minimizing the risks in
fashion industry. It also suggested that streamline of Zara cross-functional strategy coupled
with supply chain design strategies enables the company to build enough capacity to satisfy
sudden changes in market demand and beat other fashion designers in sales and profit
amounts. On the other hand, the research indicates that the high level of information
integration technology would boost Zara data sources’ accuracy and validity about consuming
behaviour, favourite and the latest fashion lines.

Introduction:

In today’s globally competitive market, supply chain emergence forces firms to become more
conscious of huge benefits gained from improving the overall business process including
inventory reduction, lower costs, high responsiveness and strategic improvement in aspect of
design, implementation and resource investment. These factors focus on capabilities across
the supply chain and a connection with suppliers and customers (Melnyk, Narasimhan &
DeCampos 2014). Supply chain design is thus a significant aspect of supply chain management
against make-buy issues, upstream-downstream relationships, or being vertically integrated.
It plays an indispensable role in each investment decision.

In the last five years, the erupting nature of digital technology has affected the way businesses
function and has led to emerging markets increasing the need for supply and demand (Glas
& Kleemann, 2016). Terms such as “Big Data”, “Internet of Things (IoT)” have resulted in the
fourth industrial revolution – “Industry 4.0” (Bunse, et al., 2013). Thus, the use of IT boosts
data collection and processing, and forecasting abilities of the business thereby providing
greater stability to the company’s operations (Michael 2018).

This paper aims to firstly research on ZARA apparel enterprise’s types of supply chain network
design and how the company can deal with various risks that other fashion brands are facing.
Until now, Zara supply chain design strategies has not been fruitfully replicated by its rivals to
any significant degree. Spain-based company owns the sufficient capacity to penetrate other
garment marketplaces at will and run its business effectively inside more traditional clothing
retailers’ cycle time of shipment (CBINSIGHTS 2018). Zara’s speed and high responsiveness to
the cutting-edge fashion are the key to its competitive advantage. The map of Zara’s supply
chain network is drawn to explain the map corresponding to the underpinning rationale for
the strategies.

Additionally, this report also indicates Zara’s organizational strategy in reference to supply
chain design strategies. It is explained that every employee member engages in the value
chain from designing to procurement, manufacturing, distribution and retailing and have a
deep understanding about the schedules and how their activities influence other functions
and contribute to achieving Zara’s success. This also expands to Zara shoppers who recognize
when to go to stores for fresh clothing items. Furthermore, it will figure out why Zara choose
a particular design as well as analyse bright and dark side in Spanish fashion supply chain,
comparing with traditional fashion companies and existing literature.

Literature:

In a rapidly changing business environment, pursuing market share will be insufficient to

guarantee profitability, hence, firms put more emphasis on redefining their competitively
advantage of space and profit area. Most businesses today not only focus on supply chain
configuration to minimize the total cost or maximize their overall profit but also take
advantages of supply chain network design to become fully flexible and responsive to the
environmental changes such as disruption of environment or rivals of the marketplace
(Farahani et al. 2014). Additionally, businesses recently have made the shift from strategically
price-driven to value-driven supply chain (Melnyk et al. 2010). This is the outcome of
management actions on the purpose and strategic investment collaboration attending to
procurement, expand and design the value chain resource that enable the company to
succeed in the intensely competitive market. Gattorna (2015) indicates that a value
proposition for a comprehensive supply chain is to derive value through providing customers
a consistent, low-cost response to mostly predictable demand. Where network optimization
can cut the cost, it is important to have the process start by designing the right supply chain
network aligned well with firm’s competitive strategy, otherwise the cost cutting can be
limited. Supply chain network design, thus, is a strategic decision lying at the very heart of
supply chain management that ultimately affects other different investment decisions
including location of facilities, supplier selection, inventory level, distribution planning as well
as information technology and system application (Melnyk, Narasimhan & DeCampos 2014).
These decisions play indispensable roles on performance as they determine the supply chain
configurations and form physical constraints that the network must be managed due to
market volatility. Appropriate network design decision would boost supply chain profit.

Supply chain would be configured in many types to gain alternative results like responsiveness
increase, innovation-driven outcome or sustainability improvement, overall maximising
performance (Farahani et al 2014). Five most common generic types of supply chain designs
are identified consisting of collaborative, lean, agile, campaign and fully flexible.

To keep up with today’s rapid market changing, agile supply chain design becomes the key
driver drawing on flexible processes to enable faster response at a cost-effective service
manner to unplanned and unforeseen supply and demand conditions. A proper agile
response almost encompasses redundant capacities building across the chain in term of
human resources, inventory level, purchasing, manufacturing capacity and transportation
assets (Christopher 2000). All aspects of the firm such as flexibility, cost, time dependability
and quality are embedded in agility (Saleeshya & Sachin 2015). It is considered as an
interaction of a collaborative network with key partners, information technology and systems
as well as knowledge management (Power, Sohal & Rahman 2001). That is the reason why
this type of supply chain design would have challenge with external disruption risk and system
risk in the supply chain network (Table 1).

Lean supply chain is employed an incremental improvement process to eliminate added non-
value resources or activities and primarily take economies of scale into account, focusing on
efficiency (Gattorna 2015). Various tools of lean management such as value stream mapping,
pull production technique and the support from reducing time setup enable the economical
manufacturing of small quantities and waste reduction, hence, achieving high internal
responsiveness, low cost production and delivery, flexibility and products’ continuous
improvement (Vonderembse et al. 2006). The challenge that lean practices can face is
unanticipated disruptions such as natural disaster disrupting the primary components’ supply
or a fire occurring in the factory of key supplier (Table 1).

Thirdly, Collaborative supply chain design highlights the retention of customer relationships
with trustworthy service for mutual gain. This is easily managed through enhancing tight
collaboration with customers thanks to very predictable demands from known customers.
However, in some case, this configuration confronts with receivable risks occurred from its
users (Table 1).

The next type is Campaign supply chain design that creates a value proposition by managing
the stage and shipment of fully items, components and equipment to demanding sites at a
predetermined time (Gattorna 2015) . As a result, campaign design must cope with the risks
of delay (Table 1).

Finally, the configuration of fully flexible supply chain is designed to indicate that the supply-
side always leads the marketplace in term of breakthrough innovative approaches for
premium price and the end users can count on them for this (Farahani et al 2014). Due to
unknown end users, sometimes exceptional and emergency situations, it seems to be a task
of challenge for fully flexible configuration in unpredictable demand. They must become
creative firms that can offer innovative solutions to crisis scenarios whether it may a
disruption to the enterprise or a like natural disaster and emergency. In this case, there is a
very high level of reputational risk (Table 1).
Table 1: Risk associated with different types of supply chain designs
Case study:

Zara is one of eight brands of Inditex Corporation being well-known as the largest garment
manufactures in the world. The company was established in Spain by Amancio Ortega Gaona
and Rosalia Mera in 1974, owning globally 3000 stores in 96 countries. According to Forbes,
Zara was evaluated as the 46th most globally valuable brand (Forbes 2019).

Zara’s vision is to satisfy its customers’ desires through continuously put more emphasis on
innovation business model as well as provide up-to-date designs produced from quality
materials which are affordable for all customers. Aiming to on-time delivery and improving
customer satisfaction, Spanish fashion company’s mission is to give its customers the golden
chance to gain sense of exclusivity in fashion choice through a new stock’s quicker turnover
than other fashion businesses. Besides, Zara set the goals to make contribution to the
sustainability development in term of society and environment.

The Spanish-based organization has established a multi-functional strategy that pulls

individuals from various departments to contribute to its long-term goals. Employees are
empowered from making decision on which following apparel ranges should be released in
order to figure out innovative business models and support high responsiveness. The
functional teams are engaged throughout the chain for specific fashion lines for women, men
and children breeding the efforts of designing, manufacturing, logistics, sales and marketing
to achieve a phase of ‘collaborative individualism’.

Figure 1: Zara’s supply chain strategic objectives

There are special supply chain strategies recognising Zara from its rivals. The company’s
embracing strategy is attaining progression through diversification with vertical integration
to adapt objectives shown in Figure 1. Zara integrates forward for researching market and
running its business whereas backward for designing, fabric purchasing and dyeing process.
Spanish company implements make-and-buy strategy through producing its clothing items at
in-house manufactories while outsourcing other products to other suppliers (Ghemawat
2003). Suzy Hansen (2012) indicated in The New York Times magazine that the fashion retailer
Zara tends to invest in launching new physical stores as a substitute for spending its budget
on advertising campaigns. Besides, Zara integrates postponement strategy into its supply
chain operation to achieve a variety of product proliferation in control. The enterprise is well
known for keeping itself with the most updated fashion trends and introducing new items in
an incredible short time while maintaining an extremely efficient operation. With silent
product rollover, Zara’s former production run for clothing designs is not usually replicated
by the later. Hence, shoppers are conscious of instant purchasing Zara’s new items launched
(Tang 2006). Regard to managing information system, Zara has made use of Radio-frequency
identification (RFID) technology to track tags attached to garment and identify garments’
location immediately, facilitating integration of stock information between physical stores
and online platform and allowing these stores accomplish online orders (Kang & Sung 2010).
Fast fashion manufacturer-retailer relies on centralized order fulfilment to keep efficient
workflows from first design to finished clothing products on the shelves of stores (Figure 2).
Additionally, the company build up a solid distribution network that put distribution centre
at the heart of its supply chain shown in Figure 3. This centralized distribution facilities allows
fast fashion enterprise to ship out products within 24 hours to outlets in Europe and
approximately 40 hours to stores in America and Asia (CBINSIGHT 2018).
 Figure 2: Zara’s supply chain workflow

Figure 3: Zara’s supply chain model – solid distribution network

Zara has applied flexibility in its business model that is possible for its stores to be possessed,
co-operated or franchised with Zara’s partners. It is clearly seen from Figure 2 that agile and
lean designs are the world covering all Zara’s processes. The model of lean inventory
management is implemented to enable Spanish retailer to make decision amount that should
be shipped to each store avoid the pile up of unpopular inventory. Zara has been successful
in utilization of Just-In-Time management tool. The design of rapid in-season turnaround via
in-house production that location of clothing factories of raw material sourcing, cutting and
sewing are set up close to Zara headquarter centre helps Zara to deliver more frequently and
in small batches that significantly reduce unsold stock, and if the newest fashion line does not
sell well, it will be inconsequential to Zara and the company still will have chance to try other
style quickly. Zara is best known for its possibility to replenish its global stores within a 15-day
cycle with fresh fashion designs. These highly demonstrate a case of agile supply chain design
on the demand-side and lean-driven process on the supply-side (Figure 4).

Figure 4: Zara’s supply chain network design

Figure 4 presents Zara’s supply chain network applying combination of lean and agile
approaches for inbound, internal operation and outbound activities with the assistance of IT
system, storage planning, handling and distribution arrangement.

Zara owns two different fashion ranges that are Basis and Trendy, and its retail chain
configurations are designed to respond to each category on the demand-side and supply-side.
The key factory of Zara locates in La coruna, Spain whose facilities have the lowest labour
cost. Fabrics procurement from international suppliers are carried out by the lean mode for
the Basic fashion items and agile for Trendy collections. Due to up-to-date of fashion, Trendy
line owns a shorter life cycle than Basic line. This is the reason why Zara applies the lean
method when choosing suppliers of sourcing raw materials as well as cutting, sewing and
delivering for Basic apparel products are largely in distant low-cost markets as Asia. These
garments are then moved to dedicated distribution centre in Spain thanks to the lean supply
chain configuration. On the other hand, for rapid shipment to consuming markets, production
capacities are pre-booked in locations near demanding regions. Therefore, the more agile
Trendy fashion lines are manufactured geographically closer to Spain (i.e. Morocco, Portugal,
Turkey and Bulgaria). In this situation, Zara facilities in La Cornua site finish the cutting step
while Trendy suppliers do the sewing and then deliver these clothing items back to Zara for
ironing, quality assurance, packing and dispatch stages before entering the distribution
centre. Finally, there is no difference when Basic and Trendy are both shipped out to demand-
side in agile organizational format as these categories reach to global chain of in-stores and
online requirements by express transport.

Zara transfers from design to instore possibility in the favour of weeks caused by close
connection, significantly synchronised procedures with local and outsourced suppliers
(Christopher & Hau 2004). To match with various target markets worldwide, Zara has blended
its organizational strategies in supply chain configurations. Firstly, the ability of Zara’s gaining
responsiveness is explained that the organization could determine to operate persistently in
both aspects of which item gains the popularity in the competitive market and which is best
seller in stores, in the near real-time. The cross-functional teams geographically spread in
form of being co-located that boosts high speed communications with local stores’ managers
and take a proper observation about purchasing situations. There is a well proven
communication between the network of Zara’s stores and its commercial teams, who update
sales information comprising customer feedback on regular basis. Thanks to alignment with
organizational strategy, Spanish fast fashion retailer would collect accurate information of
item re-orders and have a deeper understanding about customers’ needs in order to design
an appropriate supply chain configuration within the very short lead time. Thanks to
Information and Communication Technology (ICT), the enterprise can constantly manage
interface of a range of functions and various manufacturing information (Parida, Oghazi &
Cedergen 2016). As a result, a cluster would respond as quickly as possible to a specific
consumer group. The amazing agile supply chain of Spanish fashion brand is also illustrated
in its possibility to rapidly transfer from sketch on paper to garment items in stores within 15
working days while its rivals cannot get anywhere close to that. It also creates a favourable
condition for customers’ awareness of Zara stores owning fresh items. Looking at Figure 2
and Figure 3, continuous information exchange is carried out across Zara value chain, from
customer to store manager, from store manager to pattern maker, from designer to
manufacturing employee, from shopper to subcontractor, from warehouse manager to
distributor. Zara’s operation, performance measure and organisational procedure are
designed to facilitate information transfer.

However, looking at the dark side, this will give rise to dynamic tension due to contrasting
profiles of different functions. The bias towards speed might put team members under
pressure because of high productivity and efficiency such as frequently rotating back to their
specialized areas to make newly and get additional trainings. While organizational workforce
previously relates on long-term employment, term now is becoming much more temporary
because of attending to leave extra capacity and make shift to shorter production schedule
and smaller quantities of products manufactured in lean supply chain design. On the other
hand, the short lead time to adapt high responsiveness may cause requirement of overtime
at night or weekend and more flexible level to fulfil volatile consuming demand. Furthermore,
Spanish-based company has possessed all supply chain channels, so it seems to be a task of
challenge for Zara when expanding to further location because it may give rise to extremely
expensive distribution such goods.

While traditional clothing brands are facing the risk of impressively perishable fashion
products, Zara has controlled and streamlined its retailer chain in order to significantly
minimise this risk.

Conclusion & Recommendation:

Zara is an outstanding example when demonstrating the huge alignment’s advantages of agile
and lean supply chain designs to reduce manufacturing, inventory and transportation costs
and to enhance quality control. The decision of Spanish fashion company draws mostly on
single segment of buying-driven behaviour. This means that it is relatively simpler for Zara in
setting up the appropriate supply chain network designs. Zara’s success case presents the
power of its operation. Combined with vertically integrated supply chain, centralized
distribution facilities and digital sharing information, Zara’s coordination of cross-functional
teams and quickly making joint-decision strategies allow bulk manufacturing under push
control, boosting efficient inventory management, higher profitability, lower price and value
created for shareholders in the long-term.
According to Kage et al. (2016), to gain resilience, the firm needs to take strategic
transformations embracing revise its vision, drawing on radically innovative method and a
long-term mindset, highlighting on setting up new partner relationships to fulfil sustainable
goals, redefining its valuation approaches to be responsible for underestimated costs and
benefits.

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