Case Zara - The 2 1 s t-c e n tu ry Supply Chain Spanish...

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Unformatted text preview: The 2 1 s t-c e n tu ry Supply Chain Spanish clothier Zara turns the rules of supply chain management on their head. The result? A superresponsive network and profit margins that are the envy of the industry. ire Fulfillment by K a sra F erd o w s, M ichael A. L ew is, an d Jose A.D. M achuca hen a GGrman wrholesaler suddenly can- celed Li big lingerie order in 1975, Amancio Or- W tet;;a thought his fledgling clothing company might go bankrupt. All his capittil was tied up in the order. There were no other buyers. In desperation, he opened a shop near his factory in La Coruna, in the far north- west corner of Spain, and sold the goods himself. He called the shop Zara. Today,over 650 Zara stores in some 50 countries attract well- heeled customers in luxury shopping districts around the world, and Senor Ortega is arguably the richest man in Spain. The clothing company he founded, called Inditex, has been growingever since he opened that first Zara shop. From 1991 to 200^, Inditex's sales - 70"-:. of which spring from Zara - grew more than 12-fold from €367 million to €4-6 billion, and net profits ballooned 14-fnld from €31 million to €447 million. In May 2001, a particularly tough period for initial public offer- ings, Tnditex sold 25% of its shares to the public for €2.3 billion. While many of its competitors have exhibited poor financial re- sults over the last three years, Zara's sales and net income have continued to grow at an annual rate of over 2O'HI. !04 IIAIWARD '»,•«*- The 21st-century Supply Chain The lesson Ortega learned from his early scare was this: To he successful, "you need to have five fingers touching the factory and five touching the cus- tomer." I ranslation: Control what hap- pens to your product until the customer buys it. hi adhering to this philosophy, Zara has developed a superresponsive supply chain. T'he company can design, produce, and deliver a new garment and put it on display in its stores worldwide in a mere 15 days. Such a pace is unheard- of in the fashion husiness, where de- signers typically spend months planning for the next season. Because Zara can offer a large variety of the latest designs quickly and in limited quantities, it col- lects 85% of the full ticket price on its re- tail clothing, while the industry average is 60% to 70%. As a result, it achieves a higher net margin on sales than its com- petitors; in 2001, for example, when In- ditex's net margin was io.5"ii, Benetton's wasonly7"'i', H&M's was 9.5%,'ind Gap's \N^s near zero. Zara defies most of the current con- ventional wisdom aLiout how supply chains should be run. In fact, some of Zara's practices may seem questionable, if not downright crazy, when taken in- dividually. Unlike so many of its peers in retail clothing that rush to outsource, Zara keeps almost half of its production in-house. Far from pushing its factories to maximize their output, the company intentionally leaves extra capacity. Rather than chase economies of scale, Zara...
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Case Zara - The 2 1 s t-c e n tu ry Supply Chain Spanish...

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