Rapid Fire Fulfillment

Rapid Fire Fulfillment
When a German wholesaler suddenly canceled a big lingerie order in 1975, Amancio Ortega thought his fledgling clothing company might go bankrupt. All his capital was tied up in order. There were no other buyers. In desperation, he opened a shop near his factory in La Coruna, in the far northwest corner of Spain, and sold the goods himself. He called the shop Zara.
Zarahas developed a super responsive supply chain. The 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 business, where designers 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 collects85% of the full ticket price on its retail clothing, while the industry average is 60% to 70%. As a result, it achieves a higher net margin on sales than its competitors; in 2001, for example, when Inditex's net margin was 10.5%, Benetton's was only 7%, H&M's was 9.5%, and Gap's near zero.
Zara keeps almost half of its production in-house. Far from pushing its factories to maximize theiroutput, the company intentionally leaves extra capacity. Rather than chase economies of scale, Zara manufactures and distributes products in small batches. Instead of relying on outside partners, the company manages housing, distribution, and logistics functions itself.
During the last three years, we've tried to discover just how Zara designs and manages its rapid-fire supply chain. We conducted aseries of interviews with senior managers at Inditex and examined company documents and a wide range of other sources. We were particularly curious to see if Zara had discovered any groundbreaking innovations. We didn't find any. Instead, we found a self reinforcing system built on three principles:
• Close the communication loop. Zara's supply chain is organized to transfer both hard data andanecdotal information quickly and easily from shoppers to designers and production staff. It's also set up to track materials and products in real time every step of the way, including inventory on display in the stores. The goal is to close the information loop between the end users and the upstream operations of design, procurement, production, and distribution as quickly and directly as possible.
•Stick to a rhythm across the entire chain. At Zara, rapid timing and synchronicity are paramount. To this end, the company indulges in an approach that can best be characterized as "penny foolish, pound wise." It spends money on anything that helps to increase and enforce the speed and responsiveness of the chain as a whole.
• Leverage your capital assets to increase supply chain flexibility.Zara has made major capital investments in production and distribution facilities and uses annually, from which 10,000 are selected for production.
Some of them resemble the latest couture creations. But Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, at much lower prices. Since most garments come in five to six colors andfive to seven sizes, Zara's system has to deal with something in the realm of 300,000 new stock-keeping units (SKUs), on average, every year.
This "fast fashion" system depends on a constant exchange of information throughout every part of Zara's supply chain-from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyersto subcontractors, from warehouse managers to distributors, and so on. Most companies insert layers of bureaucracy that can bog down communication between departments.
Zara shows managers not only how to adjust to quixotic consumer demands but also how to resist management fads and ever-shifting industry practices.
Zara stores, customers can always find new products but they're in limited...