Zara Apparel Manufacturing and Retail - Case Study

ZARA: Apparel Manufacturing and Retail

Zara is a chain of fashion stores owned by Inditex, Spain’s largest apparel manufacturer and retailer. Zara has grown rapidly with a strategy to be highly responsive to changing trends with affordable prices. While the design-to-sales cycle times in the apparel industry normally averaged more than six months, Zara has managed to achieve the cycle times of only four to six weeks, which allows Zara to introduce new designs every week and to change 75 percent of its merchandise display every three to four weeks.

Zara manufactures its apparel using a combination of flexible and quick sources in Europe (mostly Portugal and Spain) and low-cost sources in Asia. About 40 percent of the manufacturing capacity is owned by Inditex, with the rest outsourced.

In 2012, Inditex distributed to stores all over the world from eight distribution centers (DC) located in Spain. The group claimed an average delivery of 24 to 36 hours for European stores and up to a maximum of 48 hours for stores in America or Asia from the time the order was received in the DC to the time it was delivered to the stores, while shipments from the DCs to stores were made several times a week. This allowed store inventory to closely match customer demand.

Question 1: What advantage does Zara gain against the competition by having a very responsive supply chain?

Zara has gained advantages over its competitors by responding quickly and on time towards the fast-moving trends in the market through their responsive supply chain. It also allows Zara to match customers’ demand for fickle trends more accurately. Zara practices the strategy of limiting the design-to-sales cycle times within four to six weeks, which enables it to introduce new designs every week. Thus, the apparels in its stores are always fresh and from the latest collection, which will satisfy the customers’ preferences and demand. This in return means that Zara can sell its products at full prices and thus increase their sales and profit margins. It will also increase customer loyalty to the brand as Zara builds a reputation for being up-to-date on trends which increases demand in its products. Zara also uses the strategy of making in-house production after the start of the sales season. This responsiveness, together with the postponement of decision until the trend is known, allows Zara to reduce inventory cost and forecast error.

Question 2: Why has Inditex chosen to have both in-house manufacturing and outsourced manufacturing? Why has Inditex maintained manufacturing capacity in Europe even though manufacturing in Asia is much cheaper?

In the case study, it is mentioned that about 40 percent of the manufacturing capacity is owned by Inditex, with the rest outsourced. While Zara manufactures its apparel using a combination of flexible and quick sources in Europe (mostly Portugal and Spain) and low-cost sources in Asia. In-house manufacturing is used as it provides flexible and quick sources for Zara, which will help Zara to maintain its practice of design-to-sales cycle times of four to six weeks. The in-house manufacturing is important for production after the sales season has started as a way for Zara to quickly respond to the latest trends and demand. It can also serve as the head manufacturer that deals with returned or incomplete products made by the outsourced manufacturers and turn them into complete finished goods to be distributed in the market.