Supply Chain Analysis: Unveiling the Triumph of Inditex Group
The high-performing supply chain of Inditex has propelled the conglomerate to an unparalleled position in the fashion industry, leaving minimal room for competitors.
Inditex stands as the world's largest fashion conglomerate, with over 174,000 employees managing more than 7,400 physical stores across 202 global markets, including 49 online markets. The group's flagship brand is Zara, accompanied by Zara Home, Massimo Dutti, Bershka, Oysho, Pull & Bear, Stradivarius, Uterqüe, among other globally renowned brands..
The secrets underpinning Inditex Group's triumph are closely tied to their supply chain strategy. Below are pivotal elements that Inditex has integrated to attain success within their supply chain.
Overview of the Current Supply Chain
In its latest report on 'Supply Chain Management Strategy,' Inditex succinctly outlines the state of the group's supply chain in the year 2022.
As of 2022, Inditex's supply chain encompasses 1,729 direct suppliers headquartered in 50 countries, utilizing 8,271 factories for production. These workspaces collectively engage over three million individuals
Inditex controls a substantial portion of the production process, spanning from design to manufacturing and distribution. This comprehensive ownership empowers the conglomerate to meticulously oversee product quality, production timelines, and process optimization. They also exhibit the ability to swiftly adapt as trends evolve.
Rapid Design
To elucidate the agility and swiftness within Inditex's supply chain, let's use Zara as an example.
The journey of Zara's supply chain commences with its creative and design team. Based in Spain, the creative group, comprising designers, harnesses a wealth of information to conceptualize ideas. In contrast to a traditional fashion company's approach of having a design director overseeing tasks, Zara employs a vertically integrated design team, collaborating with other members within their creative ensemble.
While Zara introduces two seasonal collections - Fall/Winter and Spring/Summer - during the initial phase of each season, the company produces a limited quantity of products. Subsequently, through customer feedback, the design team iteratively refines and introduces new styles, swiftly and aligned with market preferences.
Flexible Manufacturing
Through its vertically integrated approach, a significant portion of the apparel is manufactured within the conglomerate's own factories. Only certain phases of production, such as garment assembly, are subcontracted to specialized firms. Inditex retains direct control over fabric sourcing, marking, cutting, and finishing stages of production. The conglomerate manages post-production activities directly linked to product manufacturing.
Returning to Zara's narrative, we uncover a highly adaptable production process, meticulously designed to swiftly respond to changing consumer demands throughout the season.
For instance, when Zara procures fabric types (many of which are undyed), they can respond to trending consumer preferences or requirements by dyeing fabrics in line with prevalent seasonal colors or specific garment designs.
In addition to its agile production process, Inditex excels in establishing numerous production facilities worldwide, greatly facilitating subsequent distribution processes.
According to the annual report for 2021, Inditex currently manufactures 53% of its products in Turkey, Spain, Morocco, Portugal and partially in Vietnam.
As per Industrial's report, in Vietnam, Inditex operates 130 factories with approximately 150,000 workers producing items for seven Inditex brands: Zara, Pull&Bear, Massimo Dutti, Bershka, Lefties, Oysho, and Zara Home.
These factories are situated across provinces such as Bac Giang, Hai Duong, Thanh Hoa, Da Nang, Ho Chi Minh City, Long An, Binh Duong, and Dong Nai. The Vietnam General Confederation of Labor (VGCL) and the Vietnam Textile and Garment Labor Union are also involved. This means that after production, the brands can deliver clothing to any destination worldwide within 48 hours.
Robust Distribution Network
Each brand within the conglomerate operates its own dedicated distribution hubs. For instance, Zara has its own distribution center in Spain, where all merchandise is centralized from production centers and suppliers before being routed to retail stores worldwide.
Moreover, goods are tailored to match the store's customer profile, minimizing the risk of overstock or stockouts. Consistent and frequent batches of goods are sent, with merchandise arriving at stores twice a week, carrying new items to continually refresh displayed collections.
This formidable distribution network enables the company to swiftly deliver products to its stores. For instance, Zara can deliver to European stores within 24 hours and to stores in the Americas and Asia in under 40 hours.
Efficient Retail Strategy
As previously mentioned, Inditex as a whole, and Zara in particular, collects customer feedback daily to enhance its designs. Consequently, the company views its stores as a means to gather insights into consumer preferences and market demands, which provides invaluable data for design teams to adjust and fine-tune future merchandise displays.
Stores also serve as vital marketing channels, representing the brand identity and narrative. Exterior designs and storefronts operate as advertisements for the latest cutting-edge fashion concepts. To ensure a consistent image and standardized store management, design, logistics, and staff training are executed by the Group, regardless of store ownership.
Franchising is limited to smaller or specific markets, with only 13% of the company's over 6,600 stores being franchises as of January 2015.
Streamlined Inventory Management
Excess or dead stock is virtually absent from the inventory of the group's brands. Throughout the entire supply chain, "lean" is the operative word, from raw materials to finished products on shelves.
Optimized inventory models are employed to help the company determine the quantity of goods to deliver to each of its retail stores through bi-weekly shipments. The delivered quantities are tightly controlled, ensuring that each store receives precisely what they need. This contributes to a brand image of exclusivity while avoiding the accumulation of uncommon inventory.
Rapid in-season turnover, facilitated by production facilities close to distribution centers in Spain, enables the group's brands to transport goods more frequently and in smaller lots. Thus, if a design promoting the latest trend doesn't perform well, the loss is minimal.
With smaller batch sizes, there's less excess inventory to discard. And since unsuccessful trials are swiftly concluded, there is ample room to try a different style and then another if needed.
In conclusion, the remarkable success of the Inditex Group in the fashion industry stems not only from developing popular fashion brands but also from a particularly agile and optimized supply chain.
This highlights that a well-designed and efficient supply chain can be a decisive factor behind the success and competitiveness of a corporation in the modern market.