GROUP 9

Shobhi t Pathak
Dhruv Bansal
Shubham Sharma
PROCUREMENT &
OUTSOURCING STRATEGIES
HISTORY OF ZARA
In 1963, Amancio Ortega Gaona (founder Zara) started
sel l ing the cl othes from a smal l outl et i n hi s factory.

In 1975, under the fl agshi p of Indi tex Ortega opened fi rst Zara
store i n Spain.

Between 1976 and 1984, Zara' s presence was extended to
maj or Spani sh ci ti es. The fi rst store outsi de Spai n was opened
i n 1988 i n Portugal.

By 1989 Zara began i nternational expansion wi th store 82
openi ng i n Portugal, Pari s, New York, etc.

Zara stores offer a compelling blend of fashion, quality and price.
The In-house production capability enabled it to offer fresh design at stores twice
a week througout the year.
Two seasons Spring/Summer and Fall/ Winter
Work starts about a year in advance to define the themes and colors
Communication and workflow within the design centre are very fluid
In house manufacturing was reserved more for current (in season) production
For synthetics and more fashion fabrics, Zara relied mostly on external sourcing.
ABOUT THE CASE
Zara followed the model of vertical integration
The distribution center was centrally located among 14 manufacturing plants.
Zara experienced only 15-20% markdown sale of season volume.
Zara did not advertise but relied on word of mouth.
Set price equal to cost plus a target margin. It does not compete on price but
on fashion. In 2002 it switched to a system of local price marking in the stores.
Most of the stores are company owned. Some are through franchises and
alliances.
ABOUT THE CASE
It al so owned 20 other factori es for i nternal manufacturing
that apply Just In Ti me .

Sewing was subcontracted to a network of 400 smaller firms within Galacia and
northern Portugal.
Overall turnaround time for sewing ran a week or two.
Pressing , tagging and final inspection of completed garments occurred on their
return.
ABOUT THE CASE


COMPETITIVE ADVANTAGE
Can design and produce in 4 to 5 weeks
Fast production
Launch new trends designs and products
Product variation
Cheap and reasonable
Cost leadership
Practiced Just In Time
Low level inventory
Efficient distribution system
Turnover of product is high
Strengths
Cost leadership strategy
Different strategy
Efficient distribution
Information technology
Fast delivery of new products, design and trends
Weaknesses
Centralised distribution system
Opportunities
Global market penetration
Online market
Distribution centre in US
Threats
Local competitors
Global competitors
SWOT Analysis
SWOT
STRATEGIES
Objectives
MIS
Marketing
Design
Production
Production & distribution
Maintain quality

Cost leadership

High bargaining power to suppliers

Fast distribution system
Design
Coordinate with R & D and stores to get the new trends

Ability to produce new trends
MIS
Product distribution system

Improving inventory system

Order information flow stores ordering system

Marketing
R & D

Market penetration

Market , location of stores , consumer behavior analysis
CASE DISCUSSION QUESTIONS
Verti cal i ntegration hel ped to reduce the bul l whi p ef fect.

Buyi ng more from Chi na mi ght reduce the cost of goods sol d
i n future.

Al so, Indi tex owns Comditel that manages dyeing, patterning
and fi ni shing of grey fabric and supply i t to external and i n-
house manufacturers.

1. CURRENT STRATEGY
Zara does not compete on pri ces.

They compete onl y on fashi on for whi ch qui ck response
capability i s a must.

Zara can ori gi nate a new desi gn and have i t as fi ni shed goods
i n 4 to 5 weeks and j ust 2 weeks for restocking or modi fying
the exi sting products.

The same takes 6 months for i ts competitors.
COMPETITIVE ADVANTEGE
Bui l d a decentralized di stri bution & production i n each region
to hi ghly penetrate the market and to reduce the compl exity
of the process.


Val ue chai n shoul d be extended i n each regi on ef fectively.
2). CHALLENGES FACED BY ZARA
Current supply chai n model must be changed, can t be
conti nued for l ong.

In order to remain competi tive and control costs Zara mi ght
have to move manufacturing to Indi a, Chi na.

Thi s mi ght prevent Zara from refurbishing i ts product l i nes i n
qui ck succession.

Zara pi oneered the concept of customized retai ling and was
abl e to conceptualize the garment, develop, and del iver i t to
the stores wi thin two to three weeks
LOOKING AHEAD
As the Euro took hol d i n Europe there was a possi bility of
pri ci ng pressure so the current strategy has to changed.


CHANGES: -
Increasing the proporti on of outsourcing to 60%.
Pri nci pall y i ncrease outsourcing from Chi na to take l ow cost
benefits.
WI LL ZARA S CURRENT OUTSOURCI NG STRATEGY
CONTI NUE TO BE USEFUL AS I T EXPANDS? HOW
SHOULD THI S STRATEGY CHANGE?
Concerni ng Zara s i mpressi ve growth duri ng the past years, i t
woul d not make sense to encourage the new strategy.

Moreover, For the moment the profi ts wi l l go up but Zara s
customers set val ue on premi um Qual ity whi ch wi l l be
af fected by thi s new strategy.
Negative i mpact on Zara s i mage.
RISKS ASSOCIATED WITH THE NEW
STRATEGY?
THANK YOU
This business is all about reducing response time .
In fashion, stock is like food. It goes bad quick.
Jose Maria Castellano