The secret behind ZARA’s and UNIQLO’s Supply Chain models
The secret behind ZARA’s and UNIQLO’s Supply Chain models
UNIQLO and ZARA are two of the most profitable clothing retailers in the world.
Both have huge global reach. ZARA, has 2,000 stores in 88 countries[i], while UNIQLO, since opening its first store in Tokyo in 1984, has transformed itself into an international brand with more than 1,500 stores in 18 different markets. [ii] [iii]
But why are these behemoths of the fashion retail industry flourishing when many of their rivals are floundering? Is it naked ambition, sheer bloody-mindedness to succeed, or just the fact that both are the clothing chains of the moment? Perhaps there’s some truth in all of these theories, but the real answer lies deep within their supply chains.
Just In Time Manufacturing model
Take UNIQLO for example. It realised very quickly if it was going to expand domestically and globally, it would need to forge a partnership with TORAY[iv], one of the large textile producers.
But working with TORAY presented a potential supply chain headache.
Primarily an industrial products manufacturer, TORAY’s factories operate all year round. But traditionally this is not how fashion retail supply chains work. Conversely, most retailers agree seasonal and not annual commitments.
UNIQLO solved the problem by tweaking its supply chain model to accommodate Japanese textile giant. It adopted Toyota’s Just-in-time inventory procurement (JIT).
Reducing Inventory
So how has using JIT Production been a game changer for UNIQLO and the fashion retail industry?
Firstly, JIT is a proven methodology which has provided UNIQLO with the necessary tools and framework to reduce inventory in its supply chain.
It does this by using state-of the-art technology to analyse weekly sales patterns at all its stores. Because the information received is exclusively customer-orientated, UNIQLO has the luxury of being able to supply clothing ranges just before they are likely to need them. This of course solves a problem lower down the supply chain. It means that UNIQLO spends less money on storing goods at its distribution warehouses as it rarely over orders.
In the unlikely event that an item of clothing does not wow its customers, it is returned and re-purposed.
Providing agility
Secondly, JIT has provided UNIQLO’s supply chain with an agility that sets it apart from most of its competitors.
For example, although UNIQLO uses leading-edge forecasting systems to predict trends, even the most high-tech tools are fallible. JIT, however, allows for forecasting errors. So if UNIQLO’s analysis is found wanting and v-neck jumpers do not fly off the clothes racks as previously thought, then, it can manufacture new clothing ranges almost instantly in its factories which operate all year round.
It also employs additional checks and balances to ensure that its inventory sells out. Its merchandisers and Marketing Department do this by introducing special sales periods where customers can receive between 20-30% off the regular price or clothing. [v]
ZARA and JIT
ZARA too has benefited hugely from using JIT production techniques.
ZARA achieves an extremely fast turnover by producing every product in small quantities. New designs are can arrive in store within 15-days, (Mind to Market) which means that ZARA can respond to its customer demand by producing more of its popular products and disregarding less popular items. Items can also be on shelf for a mere 5 weeks (Mind to Sell Through - 8 weeks) which means keen customers visit stores more regularly to ensure they are "on trend", 17 visits per annum compared with 3-4 visits per annum for the traditional competition.
Like UNIQLO, ZARA’s Just in Time inventory procurement is underpinned by a highly developed forecasting systems. Essentially, store managers collect sales data and current trends on a daily basis and send it back to head office where the information is analysed by its leading designers, who then update ZARA’s clothing ranges.
Local sourcing
To complement its JIT model, ZARA did not follow in the footsteps of many of its rivals, who have based their main manufacturing bases in the far-east. Instead it took the bold step of centralising its textile factories and main logistics centres in Europe. Today, just over fifty per cent of Zara’s clothing are produced in Spain, Turkey and North Africa, which means ZARA can send garments anywhere in the world within 48 hours.
ZARA’s also operates an extremely responsive logistics operation. For example, each of its 2,000 stores receives new items eight times a month. For this to happen, garments are picked, packed and ready to leave its distribution centre in Arteixo, Spain, approximately eight-hours after a store manager places an order.
The future
I define Innovation as taking ideas that are new to you and creating economic, social or environmental value. Both UNIQLO and ZARA took ideas new to the fashion supply chain from the automotive supply chain and therefore innovated, challenging old paradigms in there sector. Agility is not a single company concept, it has to extend from one end of the supply chain to the other so working with all stakeholders is critical ensure responsiveness and success.
Perhaps, the greatest compliment being paid to UNIQLO and ZARA is that some of their rivals are starting to follow their example. This is certainly an exciting time for clothing retailers and for supply chains too.
Footnotes
ZARA homepage
[i] http://www.inditex.com/brands/zara
UNIQLO website. FAST Fashion
[ii] http://www.fastretailing.com/eng/group/strategy/uniqlobusiness.html
[iii] The Star
http://www.thestar.com/business/2015/01/26/uniqlo-to-open-to-2-flagship-clothing-shops-in-toronto.html
[iv] TORAY website
http://www.toray.com/aboutus/outline.html
[v] UNIQLO website. FAST Fashion
http://www.fastretailing.com/eng/group/strategy/uniqlobusiness.html
Acknowledgement - I would like to thank James Gordon https://uk.linkedin.com/in/jamesgordon2 for his support in developing this Linkedin Pulse Article.
UNIQLO and ZARA are two of the most profitable clothing retailers in the world.
Both have huge global reach. ZARA, has 2,000 stores in 88 countries[i], while UNIQLO, since opening its first store in Tokyo in 1984, has transformed itself into an international brand with more than 1,500 stores in 18 different markets. [ii] [iii]
But why are these behemoths of the fashion retail industry flourishing when many of their rivals are floundering? Is it naked ambition, sheer bloody-mindedness to succeed, or just the fact that both are the clothing chains of the moment? Perhaps there’s some truth in all of these theories, but the real answer lies deep within their supply chains.
Just In Time Manufacturing model
Take UNIQLO for example. It realised very quickly if it was going to expand domestically and globally, it would need to forge a partnership with TORAY[iv], one of the large textile producers.
But working with TORAY presented a potential supply chain headache.
Primarily an industrial products manufacturer, TORAY’s factories operate all year round. But traditionally this is not how fashion retail supply chains work. Conversely, most retailers agree seasonal and not annual commitments.
UNIQLO solved the problem by tweaking its supply chain model to accommodate Japanese textile giant. It adopted Toyota’s Just-in-time inventory procurement (JIT).
Reducing Inventory
So how has using JIT Production been a game changer for UNIQLO and the fashion retail industry?
Firstly, JIT is a proven methodology which has provided UNIQLO with the necessary tools and framework to reduce inventory in its supply chain.
It does this by using state-of the-art technology to analyse weekly sales patterns at all its stores. Because the information received is exclusively customer-orientated, UNIQLO has the luxury of being able to supply clothing ranges just before they are likely to need them. This of course solves a problem lower down the supply chain. It means that UNIQLO spends less money on storing goods at its distribution warehouses as it rarely over orders.
In the unlikely event that an item of clothing does not wow its customers, it is returned and re-purposed.
Providing agility
Secondly, JIT has provided UNIQLO’s supply chain with an agility that sets it apart from most of its competitors.
For example, although UNIQLO uses leading-edge forecasting systems to predict trends, even the most high-tech tools are fallible. JIT, however, allows for forecasting errors. So if UNIQLO’s analysis is found wanting and v-neck jumpers do not fly off the clothes racks as previously thought, then, it can manufacture new clothing ranges almost instantly in its factories which operate all year round.
It also employs additional checks and balances to ensure that its inventory sells out. Its merchandisers and Marketing Department do this by introducing special sales periods where customers can receive between 20-30% off the regular price or clothing. [v]
ZARA and JIT
ZARA too has benefited hugely from using JIT production techniques.
ZARA achieves an extremely fast turnover by producing every product in small quantities. New designs are can arrive in store within 15-days, (Mind to Market) which means that ZARA can respond to its customer demand by producing more of its popular products and disregarding less popular items. Items can also be on shelf for a mere 5 weeks (Mind to Sell Through - 8 weeks) which means keen customers visit stores more regularly to ensure they are "on trend", 17 visits per annum compared with 3-4 visits per annum for the traditional competition.
Like UNIQLO, ZARA’s Just in Time inventory procurement is underpinned by a highly developed forecasting systems. Essentially, store managers collect sales data and current trends on a daily basis and send it back to head office where the information is analysed by its leading designers, who then update ZARA’s clothing ranges.
Local sourcing
To complement its JIT model, ZARA did not follow in the footsteps of many of its rivals, who have based their main manufacturing bases in the far-east. Instead it took the bold step of centralising its textile factories and main logistics centres in Europe. Today, just over fifty per cent of Zara’s clothing are produced in Spain, Turkey and North Africa, which means ZARA can send garments anywhere in the world within 48 hours.
ZARA’s also operates an extremely responsive logistics operation. For example, each of its 2,000 stores receives new items eight times a month. For this to happen, garments are picked, packed and ready to leave its distribution centre in Arteixo, Spain, approximately eight-hours after a store manager places an order.
The future
I define Innovation as taking ideas that are new to you and creating economic, social or environmental value. Both UNIQLO and ZARA took ideas new to the fashion supply chain from the automotive supply chain and therefore innovated, challenging old paradigms in there sector. Agility is not a single company concept, it has to extend from one end of the supply chain to the other so working with all stakeholders is critical ensure responsiveness and success.
Perhaps, the greatest compliment being paid to UNIQLO and ZARA is that some of their rivals are starting to follow their example. This is certainly an exciting time for clothing retailers and for supply chains too.
Footnotes
ZARA homepage
[i] http://www.inditex.com/brands/zara
UNIQLO website. FAST Fashion
[ii] http://www.fastretailing.com/eng/group/strategy/uniqlobusiness.html
[iii] The Star
http://www.thestar.com/business/2015/01/26/uniqlo-to-open-to-2-flagship-clothing-shops-in-toronto.html
[iv] TORAY website
http://www.toray.com/aboutus/outline.html
[v] UNIQLO website. FAST Fashion
http://www.fastretailing.com/eng/group/strategy/uniqlobusiness.html
Acknowledgement - I would like to thank James Gordon https://uk.linkedin.com/in/jamesgordon2 for his support in developing this Linkedin Pulse Article.
Discussion Points:
1. Which of these knowledge insights are challenging and inspiring to you?
2. Which learnings from the past discussed in this action insight have future implications?
3. What action could be taken from utilising this knowledge by you personally or by an organisation to create value?
