zara in china
DESCRIPTION
Group project for Global Sourcing and Supply Chain Management in China. We learned an immense amount about e-commerce and fast fashion to supply chain (turnaround rates, warehouse management, etc).TRANSCRIPT
ZARASupply Chain and Value-Creation
Emily Pan, Stephanie Pan, Casey Chen, Jing ya Chen
(PC)2
Purpose To analyze ZARA's success due to its supply
chain How it correlates with value-creation for the
company Look at the supply chain from a global
perspective and try to apply it to China
Agenda
ZARA: Company Profile ZARA: The Supply Chain
Vertically Integrated ZARA: Competitors
Landscape Challenges in China Future Suggestions for
ZARA
• ZARA is the flagship chain store of Inditex Group owned by Spanish tycoon Amancio Ortega
• HQ in Coruna, Spain, where the first ZARA store opened in 1975.
Company Profile
Inditex: 2009 Global Sales Breakdown
International Sale of $7 Billion US
ZARA in China
“Inditex has strong potential to continue growing in a profitable way over the coming years and, in this regard, our priority is to focus on expansion in Europe and Asia”
– 2009 Inditex Annual Report
ZARA in China
“In other words: Right Working Conditions (Compliance), Right Health and Safety, Right Quality, Right Delivery Time and, finally Right Price”
–2009 Inditex Annual Report
ZARA: Across the World
How is ZARA Involved in Asia?
12
ZARA's Milestone in China
ZARA's Milestone in China
First store opened in Shanghai Grand Opening Day = 800,000 RMB Objective: Move to secondary cities
Market Environment in China
The Industry Environment
Chinese Economy
• GNP per capita $5890• GDP growth of 10.7%• Industry/service economy
Social Structure• Country of two speeds:
Urban VS. Rural• ‘New’ middle class with
purchasing power• Cultural shift in urban
areas
The Natural Environment
• Free access to natural resources for
textile clothing
Technology• Easy access• Financial
benefits
Demographic Structure
• 1.7 billion people• 85.2% literacy rate• Skilled labor
available
Government & Politics
• Deregulation of most sectors• New textile
policy• Stable communist
country
• 15 days from designs to products VS. industry• Average of 6-9
months
• 12 inventory turnovers/year VS. industry average 3-4 times (0.8~1.2 times in China)
• 40,000 designs/year, 20,000 selected for production VS. 3,000~4,000 for its competitors apparel retailers
Statistics on ZARA's Supply Chain
• 30,000 Stock-Keeping Units (SKUs)/year
• Unsold items account for 10% of stock VS. industry average 17%~20%
• Commits 50%~60% of production in advance of the season VS. 80%~90% for other
“The vertical integration of our production system allows us to place a garment in any store around the world in a period between two to three weeks.”
The Key to ZARA's Success
• Vertically integrated supply chain where design, production, distribution, and retailing were integrated.
ZARA Empire. Logistic distribution center of the ZARA company
Three Channels:• Women’s Line• Men’s Line• Kid’s Line
ZARA: Vertically Integrated Supply Chain
ZARA: Production Sites
ZARA: Vertically Integrated Supply Chain
ZARA: Vertically Integrated Supply Chain
ZARA: Vertically Integrated Supply Chain
Cost & Speed
• Local sourcing of raw material – Cutting cost because they do not outsource any channel • Fast time-to-customer –
Cutting time, faster, effective, and efficient • Mass customization• Low process costs• Avoid conflicts emerge
from different channels
Why Vertical?
Information Technology (IT)
- Collecting vital information
• POS (Point of Sale Terminals)
• “H” structure – information from each store is independent and parallel to the headquarter in Spain
• PDA – order from the headquarter in Spain by the manager of each store
Why Vertical? (Continued)
Values Generated by Logistics
Revenue growth
Cost reduction
Fastertime to market/extending product life
Reducedproductdiscounting
Tailored productsto meet specificcustomer needs
Improvedproductavailability
Flexibility torespond to changesin consumer demand
Cost ofcapital/assets
Managementand admin
Cost of logistics
Cost of goods
Speed of gettingchange intothe market
Higher salesvolumes frombetter off-the-shelf availability
Higher salesfor meetingcustomer needs
Lower quantityof inventor to sellat reduced prices
Greatercertainty ofexecution
Increasedflexibility
Lowerbought-in costs
Reducedlabourcosts
Reducedtransportcosts
Reducedcost ofwrite-offs/errors
Reducedinventoryhold costs
Reducedsystemscosts
Reduced supply chain mgtcosts
Reduced transport processing costs
Lowerinventories
Off-balance sheetfinancing
Enhancedutilisation
Flexibility to matchoperational scale
Networkcoverage
Project managementof solution
Innovationof solution
Strategicstocklocations
Supplychainvisibility
Reducedlogisticslead times
e.g.Postponementservices
Managingsmallerlot sizes
Reducedlogisticslead times
Improveddeliveryreliability
e.g.In-storelogisticsservices Reduced
logisticslead times
Improveddelivery reliability
Reduced logisticslead times
Tighter controlof inventory
More competitiveglobal supplier base
Improved purchasingof low value items
Flexibility oflocation andlabour rates
Higher labourutilisation
Optimised assetutilisation
Optimisedunit cost
Fewererrors, losses and claims
Tighter controlof inventory
Flexibility oflocation andoverheads
Proven systemsat lower costs
Simplermanagementtasks
Leveragedoverheads
Strategicstocklocations
Reducedlogisticslead times
Special purposevehicles
Third partycapital providers
Shared useactivities
Increase Revenue
Faster time to the market/extending product life 4-5 weeks from conception to
distribution
Tailored products Produces 11,000 designs
annually Competitors only have 2,000 to
4,000 items
Improved product availability Stores Twice-weekly shipments
Reduced product discounting
Books 85% of the full ticket price for its merchandise, while the industry average is 60%
Flexibility to respond to change in consumer demands
Unsold items account for <10% of stock, as opposed to the industry average of 17-20%
Decrease Costs COGS
Outside the distribution center in La Coruña, ZARA has twenty-three highly automated factories.
Cost of logistics Since nearly 60 percent of ZARA's merchandise is
produced in-house, decreased transportation costs Management and administration
Plants use just-in-time systems developed in cooperation with logistics experts from Toyota Motor (TM)
Cost of capital/assets ZARA owns 40% of their production facilities in
Europe
Supply Chain
Suppliers are all close to their
factories so ZARA can order on a
need-basisZARA buys fabric in only 4 different colors;
designs and cuts its fabric
in-house
Clothes are ironed in advance and
packed on hangers, with
security and price tags affixed
Overnight trucks are used to deliver to European stores
and airfreight is used to ship to other countries
2010
ZARA's Competitor Landscape
Relative Number of Stores (2010)
ZARA
China 4 33 64 65
Worldwide 3,095 1,988 930 1,395
2007
ZARA: Challenges in China
“Of course, one size doesn't fit all. But there are ‘unifying themes’ and ‘variations’ on these themes…Some roll their eyes when I harp on about a Chinese ‘worldview’ that is fundamentally different from Westerners' basic motivations. But smirks be damned. In order to touch hearts, brands need to be brought into alignment with this worldview…
ZARA: Challenges in China
“A unifying "Confucian" conflict—between self-protection and status projection—that brands have a fundamental role in resolving.”
“Unlike practically any other country (Korea and Vietnam come closest), China is both boldly ambitious (ladders are meant to be climbed and meritocracy is a cherished value) and regimented, with hierarchical and procedural booby traps for anyone who hasn't mastered the system”
--Tom Doctoroff (JWT)
ZARA: Challenges in China
Tension between upward mobility and fear-based conformism shows up everywhere, in every business meetings, in every struggle with a mother-in-law, in every new generation release on the internet. Brands that help consumers simultaneously stand out and fit in have the greatest appeal
-Tom Doctoroff (CEO, Greater China of J. Thomson
Recommendation: E-Commerce
Improve
B2C
Internet Retailer® Top 500 Guide for Business-to-Consumer
Recommendation: E-Commerce
Improve B2C
Internet Retailer® Top 500 Guide for Business-to-Consumer
Suggestions for ZARA: E-Commerce
ZARA – Inditex 2008 Annual Report compared to Inditex 2009 Annual Report
26 million visits in 2008
33 million Inditex visitors are
going on ZARA's website
Recommendations: Branch out to China
New branch in China China’s business environment very
different from Europe’s Needs to adapt if it wants to continue
expanding Central distribution center in
Xiamen Already has foreign investors Located by ocean, great for shipping
Warehouse in many region to highly penetrate the market and to reduce the complexity of the process Faster, more effective and efficient in
distributing their products to the retailers
ZARA: Branch Out To China Outsource
Focus on creating connections Can still have flexibility and better
prices Achieve economy of scale Ex) HungJin Trading Co., Ltd
“Capital intensive” to “Labor intensive” Cost of labor in China still much
lower than Europe Chinese workers lack the skills to
properly operate and manage equipment
Sell Online Online sales have generated billions of dollars
in revenue Victoria Secret earned1.56 billion USD in 2010
Show no signs of stopping, only increasing L.L. Bean’s online sales increased by 29% in 2010
Could do the same for ZARA China has the world’s largest
online population
Green Supply Chain China develops quickly, but at expense of
environment ZARA should create a green supply chain
Create good reputation Be a leader for other companies in China
Thank You!
Q&A