Zara – The Benefits of Agile Procurement / Supply Chain

How an agile Supply Chain drives a sustainable competitive advantage

On September 7th 2016, a relatively unknown person became the richest man on the planet during two days before Bill Gates reclaimed his title (recently overtaken by Jeff Bezos). 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 the rules and conventions of the fashion industry. They do not give many interviews and do not invest much money in advertising or public relations.

Zara & fast-fashion

Zara’s success is driven in no small measure on a very rapid time-to-market, truly “Fast-fashion”. Fast-fashion is the process of bringing 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 agile Supply Chain  that enabled it to become one of the most profitable fashion brands in the world and sustain rapid growth year after year.

Zara’s Supply Chain Approach

The key to Zara’s ability to establish an agile supply chain rests on the following unique approaches:

  • Procurement Methodology: 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.
  • Proximity of Supply: Suppliers are all close to Zara factories and collaborate tighly, so Zara can order on an everyday-need basis.
  • Production Feedback: Everyday, store managers give customer feedback to the market specialists, who then pass the information along to production & design teams. This rapid feedback loop enables a quick and agile response to the market.
  • Local 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. While lower cost production could be achieved in other regions, the faster time to market, reduced transportation costs and low exposure to changing tariffs and politics outweigh that one factor. Also, Zara voluntarily keeps up to 85% of its plants idle, in order to optimize the response to demand changes all around the world.
  • Demand Forecasting: 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.

If you would like to know more about how Ivalua is working with Global Retailers like Zara, please contact us

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