INDITEX

Team Project Assignment

Realizado por:
GRUPO 2
YiMin Chen
Sergio Abad Jiménez
INDITEX Master en Management y Gestion del Cambio

Table of Contents

1. Company strategy and the SCM: ............................................................................................... 2

2. SCOR Model:.............................................................................................................................. 3
3. Supply Chain Management – Planning ..................................................................................... 3
4. SCM – Sourcing.......................................................................................................................... 5
5. SCM – Transport management ................................................................................................. 6
6. SCM – Customer service............................................................................................................ 7
7. SCM – Inventory and warehouse management ........................................................................ 8
8. SCM – technology usage ........................................................................................................... 9
9-Bibliography ............................................................................................................................. 11

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Supply Chain Management Universidad de Alcalá Curso 2014-2015

INDITEX Master en Management y Gestion del Cambio

1. Company strategy and the SCM:

 What is the roll of the SCM in the company overall strategy?

The secret of successful of Inditex is well used of its Supply Chain Management to achieve
overall Fast fashion strategy. Inditex based on the most recent fashion trends presented at
Fashion Week in both the spring and the autumn of every year. These trends are designed and
manufactured quickly and cheaply to allow the mainstream consumer to take advantage of
current clothing styles at a lower price.

Inditex was the first fashion retailer to compete based on time-to-market. Inditex´s unique
business model is what gives it a competitive advantage as the pioneer and frontrunner of fast
fashion. The company´s vertical integration, short supply chain, and minimal inventory allow it
to be responsive and avoid risk.

 What is the company value proposition to customers?

Inditex´s unique business model not only protect it from risk, it also creates a buying
environment that promotes more frequent sales. When it comes to Inditex, the length of time
it takes clothes to go from the design stage to the store floor is a mere 2 weeks, and avoid excess
inventory, only a relatively small number of each garment is shipped to store. This means that
new designs enter stores frequently, but won´t be available for long. This cycle creates a “buy
now” attitude within Inditex stores and encourages customers to return more frequently for
new items. The average Inditex customer visits the store 17 times per year, compared with only
three annual visits made to competitors.

 How is the Supply Chain Management helping this value proposition?

Fast fashion is a very high perishable item that the fast fashion market is very sensitive to
time. The right product must be at the right place and at the right time and at the right price.
Fast fashion needs weekly product renovation for that supply chain must be very tight and
flexible. Inditex has the world´s most responsive supply chain. About half the items Inditex sells
are made in its own factories. Inditex has a twice-a-week delivery schedule that not only restocks
old styles but brings in entirely new designs.

 How is the company managing the uncertainty in demand? (bullwhip effect)

The Inditex´s fast fashion model is based on its Supply Chain Management. The company has
a short lead time, which fabrics small quantity of products and direct sells in the store to get
feedback from customers. If the new product is popular in the market, they will increase the
production. With this kind of strategy, the company is able to manage the uncertainty in demand
and avoid the bullwhip effect.
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INDITEX Master en Management y Gestion del Cambio

2. SCOR Model:
 Analyze the SCM of the selected company using the SCOR model. Analyze how the
company is implementing/managing the 5 main activities of the SCOR model in two
levels: strategic and tactical level:

• Plan

• Source

• Make

• Deliver

• Return

SCOR defines five core management processes called process types that are relevant for all firms
in a supply chain (scope of the model).

On the strategic level long term decisions are made. These are related to location, production,
inventory, and transportation. Location decisions are concerned with the size, number, and
geographic location of the supply chain entities, such as plants, inventories, or distribution
centers. The production decisions are meant to determine which products to produce, where to
produce them, which suppliers to use, from which plants to supply distribution centers, and so
on. Inventory decisions are concerned with the way of managing inventories throughout the
supply chain. Transport decisions are made on the modes of transport to use. Decisions made
on the strategic level are of course interrelated. For example decisions on mode of transport are
influenced by decisions on geographical placement of plants and warehouses, and inventory
policies are influenced by choice of suppliers and production locations. Modeling and simulation
is frequently used for analyzing these interrelations, and the impact of making strategic level
changes in the supply chain.

On the tactical level medium term decisions are made, such as weekly demand forecasts,
distribution and transportation plan, production planning, and materials requirement planning.

3. Supply Chain Management – Planning

 Describe in detail how the company is planning the SCM starting with the demand
planning.

Inditex is geared around speed and responsiveness providing fresh baked products. The
company produces small quantity of products and directly puts into market. Store managers
communicate customer feedback on what shoppers like, what they don´t like and what they are
looking for. The data is instantly funneled back to Inditex´s designers who begin sketching on
the spot. Inditex always change its design and production to satisfy the request of customers.

 Describe how the planning activities are shared with customers and suppliers.

Inditex focus on market segmentation through specific store chains which seek to adapt to
market needs. The company relies on feedback of customers. Each market specialist has
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responsibility for dealing with specific stores. They will accumulate the market data and analyze
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later. Final decisions concerning what products to make, when, and in what volumes are

Supply Chain Management Universidad de Alcalá Curso 2014-2015

INDITEX Master en Management y Gestion del Cambio

normally made collectively by the relevant groups of designers, market specialists, and buyers
and after the decision is taken the buyers take charge of the total order fulfillment process:
planning procurement and production requirements, monitored warehouse inventories,
allocated production to various factories and third-party suppliers and kept track of shortage
and oversupplies.

 Describe the four three planning activities:

1) Planning the manufacturing

Design, sourcing and product or store teams sit in open plan offices working together on an
ongoing basis. This model is replicated across all concepts which operate independently. Over
600 people work in the product department, of which 300 are designers. The initial range is
planned centrally based on the previous season and what is appropriate for each location. Once
the initial range is in stores, continuous feedback loops determine the future stock allocation for
each store. As a result, each individual store could end up with different product offerings.

2) Planning the materials (MRP ) – supplier/purchasing planning

For each product the sourcing team collaborates with designers and product managers to decide
on the best production based on time, quality and price. Inditex has 13 manufacturing
subsidiaries but use a total of 1,237 global suppliers. Lead times vary from a few weeks for
proximity sourced fashion to a few months for Far East sourced basics.

3) Planning the distribution – to the customer

Inditex currently operates 8 distribution centers in Spain which distribute to all global stores via
third party haulers. The maximum lead time to store is 24 hours for Europe (by road) and 48
hours for the Americas and Asia (by plane). Stores receive 2-3 deliveries per week.

4) Give your own opinion about what the company is doing well and what should be
refined/improved in the planning area

I think the company is doing well in planning the manufacturing in Europe but they should adapt
American consumer taste and improve planning manufacturing there. American consumer view
of Zara differs from the European one who view Zara as fashionable house. If Zara needs to grow
in American market it needs to address specifically the American needs and perception of
fashion. Zara also need to improve the distribution planning in America. Zara supply chain in
Europe proved to be extremely efficient. However, Zara has not built a distribution strategy in
America which is a constraint to the selling ability in US.
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Supply Chain Management Universidad de Alcalá Curso 2014-2015

INDITEX Master en Management y Gestion del Cambio

4. SCM – Sourcing
 Describe the strategic sourcing approach of the selected company

Inditex is a company who implements a global sourcing strategy. Inditex has purchasing offices
in Europe and Asia and due to the growth of clothes globally, the company expanded their
sourcing to China. This process of purchasing one-half of the garments in “gray”, this because
Inditex can easily change their finished goods in the right color and create maximum flexibility
in the supply chain for Inditex. Furthermore Inditex deals with 200 external suppliers for their
raw materials. The process of dying, patterning and finishing of the semi-finished clothes is
managed by Comditel. This company also distributes the finished garments to in-house
manufactures of Inditex. The most riskiest fashion items for Inditex, were sourced and produced
in small batch size and close to the market, because Zara can react fast on customer demands
and the garments can reordered if they sell well.

 Describe the supplier selection/development/collaboration processes

Inditex sources fabric, other inputs, and finished products from external suppliers with the
help of purchasing offices in Barcelona and Hong Kong, as well as the sourcing personnel at
headquarters. While Europe had historically dominated Inditex’s sourcing patterns, the recent
establishment of three companies in Hong Kong for purposes of purchasing as well as trend-
spotting suggested that sourcing from the Far East, particularly China, might expand
substantially.

About one-half of the fabric purchased is to facilitate in-season updating with maximum
flexibility. Much of this volume is funneled through Comditel, a 100%-owned subsidiary of
Inditex, which dealt with more 200 external suppliers of fabric and other raw materials. Supplies
finished fabric to external as well as in-house manufacturers for 45%. The remainder of the
purchases of fabric comes from external suppliers group, located more in Europe (95%) and
marginally in Asia (4%) and Central America (1%).

 Give your own opinion about what the company is doing well and what should be
refined/improved in the sourcing area.

The global sourcing strategy of Inditex has created value for the entire supply chain. Flexibility
and fast response to customer demand in every country. Inditex fashion has created competitive
advantage to their competitors in their supply chain. The sourcing strategy is inimitable, because
Inditex has 200 external supplier, most of these suppliers are long-term suppliers of Inditex.
Thais minimized formal contractual commitments for the external suppliers.
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INDITEX Master en Management y Gestion del Cambio

5. SCM – Transport management

 Describe the transportation network used by the company

Inditex is a vertical company. They can obtain almost everything they need for their clothes
manufacturing by their own companies. They bought some companies and also created different
ones to fulfill all their needs. They have partners in their big complex in Arteixo. This clothes are
moved from the different companies to the distribution center by air-rails. Then, they pack and
select the clothes they will send to the different stores all over the world. They have allowed
their store manager to ask the main offices in Arteixo for clothes twice a week with very strict
schedules: if they do not have the order at a specific hour, the shop will not receive any clothes
until the new order period is opened.

They can serve any shop in less than 48 hours so their transportation network must be very
efficient: it is a very ambitious objective. They use different transportation modes depending
the country they will serve. For instance: in Spain, they can serve any shop in any place in less
than 24 hours. They made a low amount of clothes and they will have to distribute it between
different shops twice a week. With this limitations, the transportation mode they use for
distributing their clothes in Spain is trucks. It is not very expensive and the infrastructure like
motorways are paid by the government.

We can say the same in Europe. Every shop is served in 48 hours. Inditex can reach almost all
Europe by roads so they have selected this transportation mode. Obviously, they can´t be in
England using only trucks. For this country, they send their packages by air from different
airports like Santiago de Compostela or Zaragoza. They also use different cargo companies for
reach every place with an Inditex store. They sent clothes to the shops all over the world and
the return flights are also filled with clothes which have not been sold and also with raw
materials and half finished products from their abroad companies

 Describe the transportation management practices

Inditex has two main distribution centers in Spain: Arteixo and Zaragoza. The one in Zaragoza is
in a cluster called Plaza, where a lot of logistic companies are and a lot of companies have
established their distribution centers. It´s also close to an airport, which facilitates a lot to
transport by air the clothes to the different Inditex stores all over the world.

As we said before, Inditex shops ask for clothes twice a week. Inditex also made small batches
of every type of clothes so, they send trucks from Arteixo to Zaragoza and there, depending of
the final destination of the packages, Inditex consolidates multiple orders on each trailers. With
this practice, they can load full trucks, trying to minimize the free space and reducing costs.

This trucks are filled in reverse order of deliveries: the last box in the trailer will be the first one
out at the first delivery stop. This stop could be at a store or a little distribution center in the city
or country where the shop is. When this happens, and because every store does not need all the
package, a capillar transport is performed by small trucks.

When a package must go overseas, it is always shipped by plane and similar practices are done
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abroad to serve the different shops.

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INDITEX Master en Management y Gestion del Cambio

 How the company could improve the main KPIs: service and cost, from the
transportation side?

Zara is one of the best 25 companies in the world with best practices and managing Supply Chain
Management in the world. As specialists they have researched a lot at how to optimize this type
of practices. We must remember that they can reach almost every part of the world in just 48
hours. We think that almost every KPI in Europe is its optimum levels and it could not be better
unless Inditex spend a lot of money. In the rest of the world, Zara can improve some of their
KPIs. For instance, in China, they should built another warehouse from send their items in less
time. The same could be for America, including North America and South America. If they build
more warehouses and logistic centers, they will be able to reduce their transportation cost but
they will increase their warehousing costs. They will also offer a better service level.

6. SCM – Customer service

 Describe how the company manage the Customer Experience

Inditex is a company with a lot of brands. They offer different customer services for each brand
in order to make them easy the managing of this service. On their webpage, they ask the client
to fill a questionnaire about their doubt o complaining. Because of the brands they have, we
have researched about the customer service of their most famous brand: Zara

Zara offers their customer services in two ways: by phone and by social media. In their webpage,
they have a place where you can find the way to solve your doubts or complains. Zara has two
phone numbers depending of what your problem is. If you have problems in the shop or similar,
you can speak with the store manager in order to solve your questions and also you can phone
to their central offices in Arteixo. If you have a problem with the online store you should phone
to another phone number. From Spain, it’s a free call because the phone number starts with 900
but you might have to pay if you phone from another country.

The other way Zara have for customer service is online. They have two accounts in the two main
social networks like Facebook and Twitter. There, you can ask any question to the person who
is in charge of managing the social media and they will solve your problem. They usually answer
in English and a few times in Spanish, depending of the language you asked them.

They just offer this customer services to European countries and North America (USA and:
Canada). They also have a schedule when they can answer. It´s from Monday to Friday from
08:30 AM to 08:00 PM and on Saturday, from 10:00 AM to 04:00 PM.

They also did a customer survey in order to know the level of satisfaction, usage and accessibility,
and how familiar were the customers with the brand and how many times have they gone to
any Inditex store in the last six months.

 How the company measured and take into account the customer feedback?

Inditex and all of their brands manage the customer feedback in the same way. They identify a
problem and then, they try to solve it with action plans. They try not to repeat the same
problems so, if the problem is repeated in some weeks, they have to change the action plan until
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the problem is correctly solved.

Supply Chain Management Universidad de Alcalá Curso 2014-2015

INDITEX Master en Management y Gestion del Cambio

 Give your own opinion about what the company is doing well and what should be
Refined / improved in the customer service area.

As a global brand, Inditex has global and very different clients. In our opinion they should answer
more time every day or, at least, answer the same amount of time in every brand. They must
think that there is a different hour in each part of the world and, while in Spain is 10:00 PM and
their stores are closed, Chinese stores are still open (7 hours less) and their clients from different
countries couldn´t get a fast answer. They should also answer in different languages, not just
English and Spanish (even their revenue comes mainly through this language-spoken countries)
At least they should answer in English, Spanish, French and German and maybe Chinese, which
is one of the countries they will develop a lot in the next years.

7. SCM – Inventory and warehouse management

 What is the warehouse facility structure of the company?

As a Spanish company, the most part of Inditex warehouses are in Spain. They have warehouses
all over Spain. They have nine logistic centers in Spain. They have, at least, one distribution
center for each brand they made. The one in Arteixo is used exclusively by Zara, as the one in
Onzonilla (León), the one in Meco, and the one in Zaragoza. They have exclusive warehouses
depending of the final client they will sell the clothes. From Arteixo, they manage all the men
clothes and the one in Zaragoza is in charge of managing the distribution of women clothes.
They also have another logistic centre in Galicia. It is in Narón and it distributes Pull&Bear
clothes. In Catalonia, they have some logistic centers and warehouse facilities like the ones in
Tordera, which distribute three brands: Massimo Dutti, Uterqüe and Oysho. Another one is in
Palafolls, which is exclusive for Bershka and the one in Sallent, which is exclusive for Stradivarius.
In Alicante, they have recently created a new brand for the shoes they sell in all of their shops
and they also have another distribution there. For Zara Home, they have built and exclusive
warehouse in Cabanillas del Campo (Guadalajara).

If we are talking about international distribution centers, they have one in Brazil and some of
them in Argentina, Shanghai, United Kingdom, Russia, Poland, USA (Los Angeles and Boston) and
Japan. They will open new centers in South Korea and México. These distribution centers are
exclusively for online shopping

 What roll plays the inventory in the company strategy?

Zara business model says that they refill their stores with totally new collections every fifteen
days. If they want to do it perfectly, they should not manufacture a lot of items so they just
manufacture a few items of every piece of clothes. Also shop managers must place the order to
the central office in Arteixo. Depending on the country the shop is placed, shop managers must
place their orders in different days. They do not order large amounts of clothes so the inventory
costs decrease a lot. They also have frequently stock-outs in the shops because they do not want
to maintain a lot of clothes in the shops. Inditex just produce what they are really sure they will
sell, based on an exact demand forecasting.

 What are the main KPIs in the inventory/warehousing management activities?

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Inventory Turnover: It says how many times your company is able to empty their inventory.
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INDITEX Master en Management y Gestion del Cambio

Inventory Accuracy: This KPI compares how your real inventory is compared with your
theoretical inventory. The higher the percentage is, the better for your company.

Perfect Order Rate: This means how many order can you ship to your customers/shops without
any accident.

Back Order Rate: It measures how many order a company can´t fill at the time a customer asks
for it.

Lead time: It´s the time you need from your suppliers to obtain inventory. The longer lead time,
the less service you can offer

 Give your own opinion about what the company is doing well and what should be
refined/improved in the inventory management area.

Logistics is maybe one of the keys for the success of Inditex. The well-management practices
they do in this part of the company, are traduced on income growths and cost reduction but,
they have some parts we believe they must change.

As all of we know, Inditex has two types of clothes in their shops: basics and fashion. Basic
clothes (as non-stamped T-Shirts or different types of jeans) are usually made in third countries
where the labor costs are lower than in Spain. They asked this companies big batches of this
type of clothes and they are sent to the main office in Arteixo. As this type of clothes don´t
change if we change the country where Inditex sell them, sometimes this a piece of clothes is
sold “near” from where it has been made so it could be useful for Inditex not to ship the clothes
to Spain and then ship them again to different countries. Inditex could save some money if they
build a distribution center or a warehouse from where they can send this clothes to different
countries which are closer than Spain. We also think that if Inditex has not build this type of
infrastructure is because they want to check the clothes trying to serve the perfect clothes
without any failure for their shops.

A good idea we believe Inditex warehouses are mainly exclusive for just a brand so the
information flows do not mix with the ones from another brands. They have go further and we
also think it is a good idea to manage distribution from Zara in different warehouses depending
of the final customer. It´s also a good practice to have distribution centers only for online
shopping all over the world

8. SCM – technology usage

 Make a recap of the main technologies used by the company in the several areas of the
SCM and how this technology is used to achieve a competitive advantage.

Inditex use high technology in almost every part of their business. But they do not spend a lot of
their revenue investing in this type of technology. They just spend 0.5% of their revenues on IT
Systems and all of these systems are created by their own IT Department. They use a hybrid
model which combines IT intelligence and human intelligence.

Shop managers have a PDA where they ask the central office what the shop needs and they
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receive an answer about what clothes are they going to receive, and also where must they place
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them.

Supply Chain Management Universidad de Alcalá Curso 2014-2015

INDITEX Master en Management y Gestion del Cambio

In order to manage what do they send to each shop, to manage inventory and what pieces of
clothes do they sell, they use RFID technology. This technology is not developed at all and every
chip is very expensive. The chip is into the security tag they put on each piece of clothes. Using
this process, they are sure the client will not take the chip at home because this tags are removed
when the client pays. Another advantage of these type of chips is that the info they have can be
changed and consequently, the chip can be used again. They tag the clothes directly in the
logistic centre and they can control them. They know which colors and sizes are being sold more
and they have a better information flow. This also helps to the whole staff in their shops,
especially in the big ones.

When they used barcode technology, they had to scan all their clothes. With this technology,
they reduce the time and the people needed for that job and they can offer a better service and
they will also have a better inventory information. When they

Inditex has a plan for this technology. As we said before, this technology is not completely
developed and it is very expensive. They are implanting this technology in a few stores every
year. They believe that in 2016 they will have this technology in all their Zara shops.

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9-Bibliography

Andrea Carugati, R. L. (2008). Speed-to-Fashion: Managing Global Supply Chain in Zara.

Management of Innovation and Technology, 1494-1499.

Anna Corinna Cagliano, A. D. (2011). Using system dynamics in warehouse management: a

fast-fashion case study. Journal of Manufacturing Technology Management, 171-188.

Bjork, C. (16 de Septiembre de 2014). Zara Builds Its Business Around RFID. The Wall Street
Journal, pág. 4.

I.Kaparias, M. B. (2011). CONDUITS, Key Performance Indicators for Traffic Management and
Intelligent Transport Systems, Deliverable 3.5. Imperial College London.

Sandoval, B. (s.f.). Zara: IT for Fast Fashion. University of Houston-Victoria.

(s.f.). Zara and Inditex: using information technology for competitive advantage. San José State
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http://www.supplychainquarterly.com/topics/Logistics/20121001-clustering-for-competitive-
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http://www.retail-week.com/topics/air-freight-the-skys-the-limit/5008006.article

http://www.morganmckinley.com.hk/article/how-does-zara-get-new-designs-stores-two-
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