How a strong Supply Chain management can make you one of the best companies in the world
On September 7th 2016, a relatively unknown person became the richest man on the planet during two days before Bill Gates reclaimed his title. The man is called Amancio Ortega, and journalists were surprised to find out he is the founder of the retail store Zara.
What is striking in Zara’s success is that the brand keeps defying all the rules and conventions of fashion industry. They do not give many interviews and do not invest much money in advertising or public relations.
Zara & the Fast-fashion
Zara is heavily relying on a very efficient time-to-market, a real “Fast-fashion”. Fast-fashion is the process of getting new trends to the market as quickly and cheaply as possible. And while Zara is also an outlier in many other domains, it is really its strong Supply Chain management that enabled it to become one of the most profitable fashion brand in the world.
The steps of Zara’s Supply Chain management
First, one needs to understand that Zara has a very centralized and vertically integrated Supply Chain. It built “the Cube”, a huge building with a highly centralized manufacturing and distribution system. This will help understand the following steps:
- Procurement: Zara’s Procurement team doesn’t work on the number of finished clothes but on the quantity of raw materials needed to manufacture the clothes. This helps reduce waste, as you can re-use fabric but not resell a piece of clothing that didn’t meet the expectations.
- Supply: Suppliers are all close to Zara factories, so Zara can order on an everyday-need basis.
- Production: Everyday, store managers give customer feedback to the market specialists, who then pass the information along to production & design teams. This enables a quick and agile response to the market.
- Manufacturing: Zara presents a drastically different approach than its competitors. Instead of outsourcing its production in Asia or Eastern Europe, it decided to manufacture its products in Galicia. Also, Zara voluntarily keeps up to 85% of its plants idle, in order to optimize the response to demand changes all around the world.
- Distribution: Zara reaps the benefits of very efficient inventory management models that help them determine the exact quantity of items needed for every store. They ship very small batches twice a week. As a result, it creates a sense of scarcity, very few items are unsold, and if the experiment fails there is much time (thanks to their very responsive Supply Chain) to try other different styles. This eventually helps Zara find the right product almost every time.
Contributing writers from inside and outside Ivalua occasionally add items and information to this blog. We are a team who share an interest and curiosity about procurement and spend management.