ZARA : Live the experience
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Zara case
Flag brand of a Spanish apparel
manufacturer and retailer group--Inditex
The first shop of Zara was built in 1975.
Produce and sell the most fashioned
apparel, target core is female of 18-35
years.
Own loyal customers, regular buyers visit
17 times per year.
Rivals of Zara: Gap(USA), Mango(Eupope),
Benetton(Italy)
Zara was founded on an entirely different
business process.
Based in La Coruna, in Galacia, Spain, Zara owns
and operates 14 highly automated factories
where robots stamp, cut and dye fabrics 24 hours
a day, based on the CAD-driven output of their
Spanish design rooms. It’s turnaround time from
design to shop floor is 2 weeks.
ZARA Business Purpose (or Story)
Conquer the world of fashion
Using a low cost approach
Focus on the young –
that’s where fashion lives today
By being a supply chain rather
than a full producer
Zara Customer Segment
Low cost fashion for the
16 to 37 year olds
Low cost Fashion
Get it approximately right
Eliminate creative design
Respond to what customers want
Define a fast-response supply chain – create a « demand » chain
including design
Copy trendy fashion fast
Finalise design knowing material supply
constraint Create a store experience
Optimise the supply process for speed and Create a network/brand
cost
Manage follow-up (next batch) and
customer flows
Every store manager in each of the 2600+
worldwide Zara outlets has got a handheld device
that is used to tell the designers what is selling,
what isn’t, and what customers are looking for but
not finding.
That information, together with other input about
current popular trends, means that Zara can react
at very short notice to its customers’ needs.
Fashion Value Chain
Auxiliary
Enterprises
Selling Wholesale
Agents Jobbers
Spinning Knitting Apparel &
Agricultural plants Converters
and Accessory Retailers
and chemical
Spinners and
suppliers Weaving Manufacturer
Throwsters
Mills
Finishers Contractors
Vertically
integrated
Zara controls design, production and distribution
– Production system
• 50% production at headquarters, 20% imported from low-
cost countries (Asia), 30% in other region of Spain or Europe
• Spare production capacity: production is always lower than
forecasted sales
• Global sourcing cloth materials. Half of materials are
naturally colored, and then dyed and painted in a subsidiary
of Inditex. This cycle only spends about one week.
• Zara’s production system only covers the elements with
scale economy, such as dyeing, cutting, labeling, and
packing. The processes of labor-intensive are usually
operated by hundreds of sub-contractors.
– Logistics
• Receiving orders with a high frequency and small
volume, shop managers keep direct contact with
headquarters.
• Each delivery runs within 48 hours. Goods are
transported by land-carriage (less than 24 hrs) or by
air (more than 24 hrs).
• Two distribution centers are located in Spain. All
items are labeled and priced at distribution center,
and then delivered by third-party logistics firms.
Zara Customer Offer: characteristics
Fresh/Fast « Quality »: -/+ Cost
Fast copying Raw material: medium
Low monetary cost
Of leading styles Knit: poor
Look: grand!
Low time cost:
Fast delivery Customer satisfaction:
“the Zara experience”
in own stores fashion at low price!
Limited editions
« Flexibility »: -/+
Limited customer variety:
only what is on display –
and in limited choices
But every customer is participating
in the process:
helps determine the next batch
Processes at ZARA
Why is profitability at ZARA so high,
when margins are so low: value???
Excess stock and unmet
demand are avoided by
stopping production when Zara as a
market saturates “Lean
Enterprise”
Expected Actual
Demand Demand
Small batches
Waste elimination at ZARA:
examples
Advertising: eliminated for not necessary in a « pull »
model; too slow anyway and our offer is localised
Discount Sales: eliminated through quick response & the
strategy that we are always “below” demand
Design: largely out-sourced to the “market” and replaced by
active scanning – greatly facilitates a“process-based
organisation”
Product complexity: 3 types, sizes, and colours greatly
reduces the product complexity, allows us to operate with
reduced inventories and working capital – with little loss in
customer value
Core competences at ZARA
Scanning: fashion trends, market trends
Fast supply chain: 1 week final production
cycle, two day outbound logistics, fast
adaptation of leading trends
IT systems: library of models, CAD/CAM
…
Flexible production system: small and
flexible sewing shops in Galicia
Zara and “fast fashion
• ” Operations philosophy: Control what
happens to your product until the customer
buys it
Half of production in-house (complex products),
outsources simple products
– Maintains extra manufacturing and distribution
capacity
– Manufactures and distributes in small quantities
– Manages design, warehousing, distribution,
logistics in-house – tightly interacting
– Owns the retail chains
– Operates with negative working capital because
products sell within days of manufacture
Zara and “fast fashion”
• ” Reinforcing approaches
• Use of IT for intensive information exchange
• Reinforcing approaches
• Use of IT for intensive information exchange
• Computer aided design with computerized
cutting machines
• Bar-coding of materials throughout
production and distribution
– Close communication of hard numbers (sales, orders,
delivery schedules) and soft information on market
demand.
• Rhythm of operations
– Semi-weekly order and delivery cycle
– Delivery within 1 day (Europe) to 3 days (Japan)
– Products shipped ready to display
• Leveraging assets with additional capacity
• It keeps half of its production in house instead of
outsourcing as is common
• It intentionally leaves extra capacity in its warehouses
• It manufactures and produces in small batches rather than
try to achieve economies of scale
• It manages all design, warehousing,
distribution and logistics itself instead of
using third parties
• It holds its retail stores to a rigid timetable
for placing orders and receiving stock.
• It puts price tags on items before they are
shipped rather than at each store.
• It leaves large empty areas in the stores and
tolerates, even encourages stock-outs
ZARA : Information systems
• What is the role of IT at Zara ?
1. Support the organizational structure
• Uphold its strategic position
• Inventory management
2. Support the value chain and business processes
• Information exchange between individual stores and
headquarters
3. Support business logic by the structure of the database and
supply the information necessary to manage the enterprise
4. Support the organization's decision logic by automating
certain decisions and by presenting data to support other
decisions
• Real-time understanding of the market
ZARA: lessons learned
• Zara succeeded ininnovating by transforming
its business cycle (design, fabrication,
distribution, sales) to taqke less than two weeks.
• Zara makes maximum use of information
coming from its stores to produce according to
customer demands.
• Logistics are optimised to reduce costs and
delays while maintaining quality.
The 5 roles of information in the value
chain
• Support the production process (i.e. assembly)
• Support business processes (i.e. payment, billing)
• Coordination of processes (i.e. ordering and delivery)
– Permit the flow of information that informs and starts the
next activity in the value chain
• Evaluate performance of processes (i.e. time delay, customer
demand)
– Measure the extent to which objectives are achieved
• Instrument of added value (i.e. product design)
Examples from ZARA
How did ZARA learn about the needs of its
customers including what does and does not sell?
• Informal system
– Informal comments by customers
– Informal reports from branch directors
• Formal system
– Tracking of all the sales
– Statistical analysis of sales data
Example: ZARA
• The client selects an article on display in a store of his
choice, pays and leaves with the article.
• Zara does no advertising, it solely relies on the image
(and location) of its stores to attract customers. However,
the two semi-annual sales are advertised.
• Zara has a startegy of quick response-to-market. The
issue is to find out which models to produce according to
public demand while constantly innovating through the
use of a prototyping approach.
Ambitious International Expansion
Having more than five hundred stores worldwide, Zara’s short-term development is to focus
on consolidating its presence in Europe. It has entered in new markets such as Ireland,
Luxemburg, Finland, Czech Republic, Switzerland, Iceland and in three of Europe’s four
biggest markets- Germany, Italy and Great Britain- Zara has just started.
To date, USA has a small part in its plans, with a total of nine stores, a full-scale assault on
the United States would almost certainly require Zara to duplicate its manufacturing and
distribution nearby. At the moment, garment’s for Zara’s U.S stores are delivered from Spain
in under 35 hours, but this would likely prove too costly and impractical if rolled out across
the vast U.S. market.
Regarding the Asian market, Zara has set up stores in Singapore, Japan, Taiwan and Hong-
Kong, among others. Its strategy there encompasses buying and intelligence gathering on
fashions and contemporary thinking, particularly among younger shoppers. From Hong-
Kong, the group centralize the purchasing of fabrics and garments form the entire region.
In fact, Zara plans to make Asia a far more important strategic base, for both investment and
supply. But currently manufacturing 80% of their garments in Spain, only the strain from an
aggressive retail expansion will give Asia the leverage for capacity.
Thank you !