A Study in Apparel Manufacturing & Retail

ZARA is a Spanish clothing and accessories retailer and the flagship chain store of the Inditex group, the world's largest apparel retailer. It is headquartered in Arteixo, Galicia, an autonomous community in northwestern Spain. ZARA is known for developing new products and getting them on store shelves within 4-5 weeks, where the industry average stands at 24. 

ZARA first opened in 1975 in downtown La Coruña, Galicia and featured low-cost lookalikes of popular, higher-end clothing fashions. When the store proved to be a success, Amancio Ortega began opening more stores throughout Spain and began thinking about how he could get his products to store shelves quicker. He needed to reduce lead times (the time that elapses between placing an order and shipping it to a desired location) by improving his design, manufacturing and distribution processes. In the 80s, to that effect, he began revamping his supply chain to respond to new trends and fashions more quickly. The cornerstone of their improvements was the use of information technologies and the use of groups of designers instead of individuals.

ZARA began its international expansion in 1980 through Porto in Portugal. The chain expanded further in the 90s when it entered Mexico, Greece, Belgium and Sweden. Today, it has a presence in 88 countries.

Coming back to manufacturing and distribution, ZARA is a vertically integrated retailer, i.e. it controls most of the aspects of its supply chain including designing, manufacturing and distribution. ZARA set up its first factory in La Coruña in 1980, and by 1990, started employing JIT (just-in-time), a system that originated in Japan and was pioneered by Toyota. This allowed them to reduce their in-process inventory and improve their return on investment. It enabled self-containment throughout the different stages of the supply chain including materials, manufacture, product completion and distribution to stores around the world in just a few days.

1. ZARA can respond to changing trends faster than its competitors because of its robust cycle times while keep in-store inventory to a minimum. On an average, it produces 11000 distinct items annually compared to 2000-4000 items for its competitors. This encourages impulse buys from customers who may not find the same item in the store the next time they go there.
2. ZARA manufactures half of the products it sells, in Spain and about a quarter each in the rest of Europe, and Asian and African countries and the rest of the world. It makes its most fashionable items, those with uncertain demand, in about a dozen company owned factories in Galicia and northern Portugal where labour is somewhat cheaper than in most of Western Europe. For basic products that have relatively stable demand, like t-shirts, it outsources manufacturing to low-cost suppliers in Asia and Turkey. This is probably because they have identified regional trends and want to save time supplying the Asian markets so that they can keep their factories free in Europe and Africa to cater to fluctuating demand in those regions.
3. ZARA sources products with predictable demand from Asian suppliers most likely because they can produce simpler designs that will stay longer on store shelves but are incapable of changing their manufacturing mix on-the-fly. Executives at ZARA have reportedly invested in high-tech equipment and extra capacity in their European factories so that they can change product mixes faster and cater to stochastic demand better.
4. ZARA is estimated to change 75% of its in-store merchandise every 3-4 weeks. Such robust replenishment cycles allow ZARA to more closely match consumer needs and encourage repeat visits from them.
5. Since ZARA needs to shift a lot of products to thousands of stores around world regularly, it needs an efficient distribution system. The key to this lies in centralisation. All items that manufactured around the globe for ZARA, be it in Portugal, Morocco, China or Bangladesh, first go to one of 8 distribution centres (DCs) in Spain before being shipped to a store.
6. ZARA's responsive replenishment infrastructure is better suited for online sales and they have started expanding in that direction to supplement sales from retail. Net sales in 2013 had increased by 5% and net income by 1% YoY, following the introduction of their online shop. They now cater to 27 markets online.
7. Amancio Ortega still keeps a desk at the front of his main room in his office to interface with designers, buyers, marketers and planners. Store managers from around the world provide information of what is selling and what is not. Depending on the kind of information coming in, designers might decide to make quick changes to garments, buyers might decide to order more (but just enough so that it remains exclusive), and planners may decide to cull an item from a store that hasn't sold enough in a week. ZARA employs a lot of information technology in their business that allows them to be on top of their immediate competitors (like H&M) at all times.